Aritcle Published in "VOICE" - Expert's Corner - PMAC Newsletter - September 2011

PMAC Expert's Corner - September 2011

Supplier Development – Today’s Differentiating Competitive Advantage
Dan Georgescu MSc, PEng, MBA

Published in the World Trade Blog on November 16, 2012 - Posted In: Manufacturing & Supply Chain
Originaly published in the Global Supply Chain Blog on September 19, 2011   

The accelerated change in many industries has created the need for supplier development, for better supply chain strategy, design, and management. In the automotive manufacturing industry, the competitive pressures and the ever-present quest for lower costs causes an intricate network of temporary alliances and ephemeral relations that leads to lack of a common product, manufacturing and SC design strategy between the suppliers and the OEMs which dilutes the OEMs technological competitive advantages and erodes their product development tacit knowledge. The automotive OEMs need a new competitive advantage.

According to Planning Perspectives (PPI) - a leading business-to-business advisory and consulting firm and the world’s leading authority on buyer-supplier relations that performs an annual in-depth analysis of North American automotive OEMs and their Tier 1 suppliers - scoring high in the North American OEM-Supplier Working Relations Study has a very real impact on the OEMs' future fortunes. For many years, the study has shown that automakers with the best rankings, receive the greatest benefit from their suppliers in a variety of areas, including lower costs, higher quality and supplier innovation.

Toyota ranked first while Ford ranked second last in the PPI 2005 survey . Between 2002 and 2005 Toyota gained 32 percent in the opinion of suppliers while Ford lost six percent. Ford and the other US automakers were perceived as being singularly focused on cost reduction, having little regard for supplier survival and not caring about supplier intellectual property. All these impressions led to adversarial relations with suppliers, and led the suppliers to shift resources to the Japanese car makers and increase product quality for the Japanese manufacturers while only maintain product quality for the US manufacturers. Many suppliers indicated they would like to drop the US companies as customers if they could.

These results of the supplier survey correlated with share value, with Ford experiencing declines, while Toyota increased.

In 2005 Ford transformed its supply chain strategy and decided to focus on supplier development. Ford implemented the Aligned Business Framework (ABF) with the objective of rendering long-term strategic partnerships with suppliers. Some of the ABF measures included paying upfront for engineering and development costs, extending the relationship with the supplier for the life of a vehicle, improving commonality of parts, an emphasis on collaboration in achieving competitive costs, technological leadership, and reaching social responsibility and environmental targets.
Another initiative is called Matched Pairs. This is a program in which the design engineers are paired with procurement people as the face to deal with suppliers on specific projects. This works as they have to present a united front to the supplier. If left alone each would have conflicting objectives—to spend and save respectively.
As a result of this supply chain management strategic shift, in 2010 Ford ranked first among the North American OEMs and third overall. The improvement in the supplier relations rankings was perfectly correlated with the bottom-line results. The most significant supply chain strategic shift was the intense focus on Supplier Development. As a result, Ford was the only North American automotive OEM that did not required government financial assistance during the 2008 – 2010 credit crisis and economic recession.



Supplier Development is the new competence that allows organizations to focus on the creation of effective and efficient supply chains and to benefit strategically from this new and sustainable competitive advantage.

The Supplier Development Seminar offered by PMAC as part of the professional development series is an excellent source of information about the subject.