5.06 - Supplier Integration

Overview

Supplier integration is a key element in achieving competitive performance, because a high proportion of a businesses income from sales is likely to be spent with suppliers of materials and services. Supplier integration provides opportunities for:-

• Material Cost Savings
• Reduced inventory levels
• Higher quality service from approved suppliers
• Reduced expenditure on inspection, administration and paper-work (no-value added activities)

Good supplies practice is dependent upon the formation of a supplies module with visible ownership which is responsible for co-ordinating the activities shown and delivering quality products Just-in-Time to the manufacturing process.

Stores

• Minimise Incoming Materials holding - must be monitored
• Minimise stocks (say 1% of sales - ship to shop-floor strategy)
• Only strategic items held
• Packaging - suitable for use by production (e.g. ABC materials)
• ABC categorisation for control simplicity

Goods Inwards

• Receive parts on a Just-In-Time basis.
• Frequent deliveries of a few hours production
• Use of Kanban to signal for more supplies
• Majority of items pass directly into factory
• ABC categorisation for control

Vendor Quality

• Minimum inspection (e.g. by ABC category, FMEA RPN etc)
• Vendor conformance reports
• Provide feedback on total performance
• Vendors responsible for providing corrective actions
• Require evidence of continuous improvement

Purchasing

• Integration with supplier for placing of commercial contracts (e.g. negotiation of contracts on call-off basis)
• Reduce number of suppliers
• Discuss future requirements on master production schedule with suppliers
• Introduce blanket orders based on levelled schedules for integrated runners, repeaters and strangers.
• Target the reducing of cost of all bought-out materials, services and contracts by NVA reduction
• Ensure quality and delivery standards are clear and visible

Procurement

• Movement of material from supplier to manufacturing module, based on contracts negotiated by purchasing (i.e. responsible for the process of calling-off if a call-off contract has been negotiated by purchasing for example)
• Responsibility of manufacturing product unit
• Material movement based upon Kanban, levelled schedule or period flow control

Supplier Development

• Understands strengths and deficiencies of suppliers
• Establish common rules as a basis for discussion related to planning, control, attitude, handling, tooling, plant, quality and response
• Employ well trained, skilled supplier development engineers - external manufacturing systems engineers

It is important to establish performance measures (see guide 5.21) for the supplies modules to encourage continuous improvement and to provide week-to-week control, including a focus on individual buyer performance.