Just when we thought we were accustomed to the pace at which new technology is thrown at us, along comes a new opportunity for improvement through automation. As information technology and computerized maintenance management systems (CMMS) continue to advance and become better integrated, the emerging trend will be a branching out along the entire supply chain. The greatest enabling technology supporting this trend is Internet-based e-commerce, allowing companies to share data with suppliers and customers more easily.
There is always healthy skepticism as to how long it will take to reap the benefits of such an opportunityand rightly so. It takes time for attitudes and human behavior to catch up with our technical advances. No matter how sophisticated the underlying technology infrastructure, if companies along the supply chain have an untrusting, adversarial relationship, there is little chance of exploiting opportunities for automation successfully. Here are some tips to help build a better partnership with your suppliers and get the most out of the ability of your CMMS to help manage the supply chain.
Definition
Supply chain management refers to the cradle-to-grave planning and control of a product. Optimal productivity along the supply chain requires solid relationships among suppliers and customers, efficient and effective processes, sufficient supporting technologies and a value-for-money focus as defined by the end-user.
Supply chain management often is seen as merely an exercise in inventory reduction. This view is too simplistic and may explain why some large corporations have reduced their inventory successfully, but at the expense of relatively smaller suppliers. For example, it does nothing to force a small local supplier, hungry for business, to carry a customer's inventory problems, which just masks the customer's refusal or inability to plan material requirements more effectively.
Another common misconception about supply chain management is that the main objective is price reduction. Large companies may celebrate the saving of millions of dollars by using an e-marketplace. However, some have learned the hard way that the Web makes it difficult to judge product quality, service, corporate culture and common vision. Suppliers must be selected on the basis of total cost, not just unit price.
Components
Supply chain management can be thought of as the flow of physical goods and services moving in the opposite direction of the flow of data or information. The idea is depicted in Figure 1. Here are some steps you can take to improve vendor relationships.
1. Reduce the number of suppliersUsing Pareto's Law, determine the 20 percent of products that account for 80 percent of spare parts inventory, in terms of volume and dollar value. Use the ABC and XYZ analysis on the CMMS for this determination.
Then, use your selection criteria to reduce the number of suppliers. The more obvious criteria are price, quality and service, based on the analysis of supplier history your CMMS captured, including frequency and severity of:
Over/under shipments.
Late shipments.
Backorders.
Substitutions.
Quality problems.
Extended lead time.
Pricing anomalies.
Other critical criteria are track record in maintaining supplier partnerships, and alignment of strategic objectives, vision, values and culture.
Also examine suppliers of services. When the work is not your core competency, it's more cost effective to outsource it.
2. Create a contract and service level agreementEstablish with each short-listed supplier a long-term renewable contract that incorporates a service level agreement (SLA) to outline your expectations for product volume, services to be purchased, quality and service expectations. The agreement should be two-way, that is, it should reflect the supplier's expectations also. The document also should cover incentives and penalties, and a process describing how problems are to be resolved.
3. Consider contractual variationsMany CMMS packages accommodate multiple supply schemes. The simplest variation is the blanket order featuring large orders, with a short-term release schedule. Another contract variation is year-over-year price reductions in exchange for a longer-term contract.
One popular variation is consignment-based supply. From the receipt of goods to the issuing of parts. Thus, from the plant's point of view, inventory has zero value and zero cost until an item is used. A further variation is supplier-based inventory in which the vendor stocks the materials the plant will need later.
4. Determine collaborative activities for mutual gainThere may be an opportunity to build on the vendor relationship with further sharing of the following:
Strategy.
Performance measures and targets.
Online real-time access to data (expediting orders and payment).
Scheduling (planned shutdowns).
Facilities (moving inventory off-site to shared space the supplier manages).
Product research and development (testing new products at reduced price).
Product design simplification (standard, interchangeable parts).
Joint cost reduction projects such as "lean" and Six Sigma.
Resources for education and problem-solving.
Capital financing.
5. Make full use of Web-based technologyThe world of e-everything provides the opportunity for suppliers and customers to share considerable benefits. Promising opportunities for e-procurement include exchanging catalogue items, design documents, purchase orders, receiving documents, invoices and payments electronically. Companies enjoy between 10 percent to 30 percent cost reductions for purchasing tooling and spare parts electronically due to reduced lead time, fewer errors, less paperwork, decreased labor, greater adherence to standards, auto or semi-auto tracking/expediting, consolidation across multiple plants, and so on. However, as described earlier, for other opportunities such as e-marketplace (e-trading, e-auction, e-quotation) you must balance greater availability of buyers, sellers and competitive pricing with potential quality and service reductions.
6. Communicate regularlyIt's a practice that builds and improves relationships. The greater the level of communication between you and your suppliers, the easier it will be to build a trusting, mutually beneficial partnership. There are many ways to obtain feedback on how things are progressing, including satisfaction surveys, analysis of Web-based help desk queries, management reports about supplier performance history, service level agreement status meetings, third-party assessments and other communication tools. Use these tools to discover and understand what needs improvement so corrections can be made for mutual gain.
7. Consider a supplier recognition programTo establish supplier status (gold, silver, etc.), some companies have used their CMMS to track supplier performance and enhanced the results with more qualitative methods such as surveys. This provides friendly competition among suppliers, which in turn drives improved performance.
David Berger is a principal with Western Management Consultants in Toronto, Canada. He is a certified Management Consultant and a registered Professional Engineer. He is Founding President of the Plant Engineering & Maintenance Association of Canada, past President of the Toronto Chapter of the Canadian Society for Industrial Engineering, and a past Vice President of the Institute of Industrial Engineers. He can be reached via email at [email protected].