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5.06 - Supplier Integration


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.

Supplier Integration


  • 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


  • 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


  • 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.

Further Reading