18 May 2000
World-class manufacturing companies involve their suppliers in key processes, according to a major new benchmarking exercise. Geraint John reports
Last week's dramatic deal between BMW and the Phoenix consortium may have given Rover a new lease of life, but questions remain about how the loss-making car producer plans to transform itself into a manufacturing success story.
In fleshing out their strategy, John Towers, the former Rover chief executive who headed the Phoenix bid, and his team could do worse than study the findings of a recent benchmarking exercise carried out by management consultancy AT Kearney. Its detailed research of 125 manufacturing firms worldwide set out to discover what separates the leaders from the rest of the pack in managing operations.
Traditional measures of performance, such as sales growth, net margin and return on equity, were all examined. But the study also included a broad range of "softer" criteria, from employee involvement and investment in training, to the way companies interact with their suppliers.
The findings add weight to the argument that, in a business environment being redefined by the Internet, higher customer expectations and the switch to mass customisation, innovative supply chain management is a critical success factor.
All of the top five companies in AT Kearney's ranking certified key suppliers, compared with an average of 68 per cent among all the firms surveyed. Of the top five, 67 per cent gave suppliers access to their planning systems, compared with an average of just 7 per cent, and 81 per cent used vendor-managed inventory (VMI), against 48 per cent.
The top five also scored highly on two-way performance evaluation with suppliers. They generated average savings of 27 per cent through joint process improvement, compared with an average of 6 per cent among the 125 firms. And 91 per cent of stock-keeping units delivered to them were complete modules, compared with an average of 21 per cent.
"The leaders are offering their suppliers a deal: become more involved in reducing our costs, provide modules rather than parts, do the assembly or deliver on a just-in-time basis and we'll share some of the benefits," said Earle Steinberg, a vice-president in AT Kearney's Dallas office.
Unveiling the findings of its global excellence in operations (Geo) awards programme, Steinberg told a conference of senior managers in Berlin last month that forward-looking manufacturers were always searching for ways to improve customer satisfaction, speed up time to market and make better products at a lower cost.
The best companies, he said, had a strong leadership, culture and focus, were adept at capturing and using knowledge and put a great emphasis on developing staff - not just their own, but those elsewhere in the supply chain.
The result, added Steinberg, was much greater levels of customer satisfaction and retention (99 per cent and 91 per cent respectively for the top five companies, compared with 81 per cent and 79 per cent on average).
"A customer's problem is no longer their problem, it's your problem," he said. "If you can help that customer to solve it in innovative ways, then that customer is going to remain yours."
This approach is evident at Geo European winner Siemens Computed Tomography (SCT), a manufacturer of catscans for hospitals. With its "high-speed logistics" scheme, the company has cut production time from 22 weeks to three and can deliver and install a customised machine in less than five days.
"All of our activities are now directed towards customer satisfaction. That is a major change for us," Franz Grasser, SCT's vice-president of logistics and manufacturing, told SM.
Frank Hasselberg, the company's director of material management, added: "Partnership, trust and collaboration in the supply chain is vital, because we alone cannot achieve customer satisfaction. We need our suppliers to show the same flexibility we do."
One of SCT's innovations is a web-linked camera that enables key suppliers to monitor stock levels at its assembly plant at Forchheim in Germany - a simple form of VMI.
At Geo European finalist TRW Aeronautical Systems, working closely with suppliers is a necessity. The company, based a few miles from Rover's Longbridge plant in Birmingham, decided to extend its quality assurance programme to all its suppliers. Internal experts are sent out to help troubleshoot and work on process improvement with suppliers' staff.
"Our suppliers are typically much smaller companies," said Dave Nutton, the company's general manager of operations. "The challenge for us is to help them become the sort of suppliers we want."