Global pressures create a natural tension in local supply chains. The current competitive environment drives Original Equipment Manufacturers (OEMs) to put pressure on their local suppliers for lower costs and faster delivery with the same or better quality. 60-80% of their Cost of Goods Sold is in their supply chain. This causes OEMs to seek low cost sourcing overseas and spend additional money on supplier development. In turn, suppliers are pushed to the limit, for some even bankruptcy. Suppliers are forced to cut prices and make decreasing margins while their costs are rising. This tension erodes our domestic supply base. It hurts the local economy, denying the spending on local suppliers and OEMs’ flexibility from a strong domestic supply chain.
Previous supplier management solutions have not been successful in resolving this existing tension and lack of trust on the part of suppliers. Suppliers are skeptical and often not willing to share information when their biggest customer walks into their factory. But now, the WMEP Supplier Development model has proven to resolve this problem and strengthen local supply chains.
The key to this model is WMEP as an objective, honest broker that breaks the tension between OEMs and suppliers, creating collaborative relationships that provide OEMs with short lead times and flexibility in delivery, while offering suppliers the opportunity to make improvements in efficiency and productivity. Confidentiality codes protect suppliers, only releasing the data that the supplier wants the OEM to see. In addition, WMEP offers their own improvement expertise and service delivery model to help suppliers gain significant results. A common, time-based metric and support from both suppliers and OEMs also make this model more effective.
Each party makes a commitment: OEMs dedicate support up front, suppliers undertake the improvement work and WMEP supports suppliers with expertise and additional resources. WMEP acts as the catalyst to bring the OEMs and suppliers together. Ultimately, WMEP is an advocate for the suppliers marshalling available support to help them improve.
From this successful model, several specific initiatives have been designed to improve the state’s supply chain and strengthen Wisconsin’s economy by keeping good-paying jobs in the state and helping manufacturing firms stay competitive. By improving any part of the supply chain, the entire chain is improved, and the position of the state’s manufacturers is strengthened.
There are two major supplier development initiatives currently underway. The Wisconsin Manufacturers’ Development Consortium (WMDC) was the first program established; it began seven years ago. Participating OEMs (Ariens Company, CNH Global N.V., Harley-Davidson, Deere & Co., Kohler Company, Oshkosh Truck and Trane) select suppliers to receive assistance with improvement methods at a reduced rate. WMEP helps the OEMs identify key suppliers and links the suppliers with resources, including business and technical assistance from WMEP.
Another successful effort is the OEM-Supplier Development Consortium. WMEP and three Wisconsin OEMs, Harley-Davidson, Deere & Co. and Oshkosh Truck, formed the consortium, which allows the OEMs to share best practices to enhance long-term collaborative relationships with suppliers. The OEMs invest initial resources along with the suppliers to help them with improvement. The goal is to reduce Manufacturing Critical-path Time (MCT) which is the amount of calendar time from receipt of a customer order to receipt of the first product by the customer. The effort uses MCT as the key metric for suppliers because achieving a shorter MCT is only possible with a robust, Lean process. It is a more realistic measure of leanness and less controversial than traditional metrics. Key strategies used include the use of Lean Manufacturing, which reduces waste and streamlines manufacturing, and other growth and innovation strategies. The suppliers and OEMs can leverage the expertise of WMEP to maximize their results. The consortium is the first of its kind and is quickly emerging as a national model. A total of 16 suppliers participated this past year, with many more expected to participate this coming year.
Suppliers who have been involved in these initiatives see the benefits. When Oshkosh Truck nominated its supplier Jor-Mac Inc., a Grafton metal fabrication firm, to participate in the OEM-Supplier Development Consortium, “We thought, ‘Hey, this is a win-win,’” said Paul Luber, Jor-Mac CEO. “The customer cares enough about us to want to improve us. I think that’s a real feather in a supplier’s cap.”
So far, more than 160 small and midsize manufacturers have participated in these overall efforts, and their results include:
- Improvement in lead times by 50%
- Reduction in MCT by an average of 57%
- Increase in inventory turns to 10 or more
- Significant cost savings
For suppliers, the opportunity to implement Lean and other improvement projects is significant. They gain long-term support and on-going improvement. The initiatives give them access to outside expertise at a reduced cost, affording them the chance to increase productivity and efficiency.
Besides reduced costs, the benefits of the supplier development for OEMs include a faster domestic supply chain, more effective strategic supplier support and the creation of consistent results across their supply chain, which can now offer greater flexibility in delivery. The short lead times and flexibility they need are often only available from domestic suppliers. They also realize a cost advantage over maintaining in-house supplier development resources. “We want to retain the ability to have domestic sourcing options,” said Paul Ericksen, Enterprise Supplier Development Process Lead for Deere & Co. “For our suppliers and for our business too, it makes good business sense.”
WMEP’s supplier development efforts are continually expanding, with WMEP seeking additional funding to help defray costs to suppliers. Each year more companies become involved, both OEMs and suppliers, and solid results continue to be reported. The initiatives are a natural extension of WMEP’s overall mission of helping small and midsize manufacturers improve productivity and compete more effectively in the global marketplace. WMEP supplier development has proven so effective that it is seen as an example for the rest of the country. In addition to applications across different states, it is also being examined as a possible model for the defense industry.
The success of the WMEP Supplier Development Model lies in their results oriented approach and the establishment of a collaborative relationship between the OEM and the supplier. “It’s no longer enough for the OEM to say to the supplier, ‘Do this,’ and hope the supplier can figure out how,” said Ericksen. “Supplier development is an outgrowth of the realization that we need to assist our suppliers so they can become better so they can make us better.”
“It’s working together to have a stronger supply base for OEMs and for us to better meet their needs,” said Luber. “Stronger supply chains make Wisconsin OEMs and suppliers more competitive globally, in turn boosting our manufacturing sector and our state economy. The key is working together. That’s what makes these initiatives so effective.”