Implementing Supply Chain-based Economic Development

Oct. 20, 2015
Manufacturing Extension Partnerships need to have a supplier development structure that appeals to OEMs.

Note: The last three articles have been part of a four part series on a supply chain-based vision for U.S. manufacturing economic development. This is the fourth. It can be read as a stand-alone article but will be better understood with the previous three as background.

My professional experience has included significant interface with and support of the Manufacturing Extension Partnership (MEP). For those of you that don’t know, MEP is a part of the National Institute of Standards and Technology (NIST)—a U.S. Department of Commerce agency—and was created by Congress in 1988. The organization’s strategic objective is to create value for all manufacturers, with their targeted clientele small (less than 150 employee) and medium-sized (150 to 500 employee) enterprises (SMEs). A primary part of this is the increasing of SME manufacturing competitiveness. MEP does this by offering federal (and sometimes state) subsidized manufacturing efficiency consulting, which brings to SMEs a level of outside manufacturing improvement support they can’t normally afford.

Much of my interface and advocacy for MEP was as an employee of large corporations. Being that these corporations had many more employees than MEP’s congressionally-mandated clientele, you might ask why I would seek out involvement with the MEP. The answer is that even though due to size my employers were not eligible for subsidized MEP support, the system had the potential to positively impact their financials through support of our supply chains, since a significant percentage of our spend was with U.S.-based SMEs. In other words, if an efficient way could be figured out for getting MEP involved in supply chain improvement efforts, my involvement—as a manager and then executive of a large corporation—could be justified from a business perspective.

At the time of my initial involvement with MEP (circa 1996), SMEs were doing everything in their power to hold onto existing business in the face of China’s emergence as a manufacturing power. During this period people in my profession were making names for themselves by re-sourcing significant amounts of “spend” to low-wage countries. In fact, my work with MEP was often criticized internally by those who felt the easier path to price reductions was through resourcing offshore. Fortunately, among my other duties I also had responsibility for a divisional supplier development function whose focus was very much aligned with the MEP’s strategic objective. This gave me the latitude to continue my work with MEP even in this overseas sourcing environment. My hope was to leverage the joint resources of MEP and my supplier development group to increase the competitiveness of our company’s domestic suppliers such that offshoring wouldn’t be seen as the only way for OEMs to remain competitive.

Later in this article I will be making some suggestions regarding MEP operations that are meant to be constructive but may not be completely welcomed—at least, by some—within the MEP system. Through my efforts on the MEP’s behalf over the years, though, I feel I’ve earned the right to offer them. The following list documents some of my involvement and accomplishments with MEP over my career:

1996—Nominated and elected to the Wisconsin MEP Board of Directors.

1997—Filled position of Wisconsin MEP executive director on an interim basis for six months.

1998—Elected chairman of the Wisconsin MEP Board of Directors.

1999—Created and gained State of Wisconsin Department of Commerce funding for a Wisconsin Supplier Training Consortium that was coordinated and administered by the Wisconsin MEP through the state’s technical colleges.

2000—Named MEP System’s annual Champion–Stakeholder of the Year.

2002—Founded the Wisconsin Supplier Development Consortium, an organization comprised initially of three OEMs with large Wisconsin spends who were committed to improving Wisconsin-based supplier manufacturing competitiveness through the Wisconsin MEP.

2003—Led the Wisconsin Supplier Development Consortium’s development of a standard supplier development process—called Accelerate—which was adopted by all consortium members.

2004—The Wisconsin Supplier Development Consortium and Accelerate were lauded by IndustryWeek as a standard for supply chain collaboration.

2009-2111—Managed Department of Defense (DOD)-funded Supplier Development initiative engaging 195 suppliers to eight DOD Prime Contractors using Accelerate as the service delivery vehicle. MEP centers in 23 different states participated in this initiative.

2014-2015—Along with the State of Washington MEP (Impact Washington) was co-developer of a successful proposal that gained support from the Washington State Department of Commerce and the DOD’s Office of Economic Adjustment. The service delivery model used here is called NextGen Lean—an updated version of the Accelerate process.

In addition, over the years through my corporate positions, I facilitated channeling of hundreds of thousands of dollars of OEM funds to support MEP supplier development activity. Based on all of this at one time I was considered the most significant corporate advocate for MEP.

So where does the MEP stand in supplier development based on this work? The truth is MEP really isn’t much of a player today in OEM supply chain development. This is a sad situation, both for the U.S manufacturing and the MEP system itself. If you’ve read the preceding three articles in my series on economic development, you’ll understand the reasons why this represents a major gap in an organization whose mission is to help SMEs. Specifically, MEP’s lack of a strong supplier Development capability gets in the way of their efficiently supporting their congressional charter. Later in this article I’ll lay out how such a capability could improve the MEP system’s effectiveness.

First, though, let me digress a bit. I once had a friend tell me, “Paul, you’re no Superman but the MEP system has been a form of Kryptonite to your career.” I understood what he meant. In industry, impact and advancement just doesn’t happen. Champions need to sell and ensure program support through the use of accumulated “chits.” I think you know what I mean. Colleagues usually need an “I’ll scratch your back (now) if (sometime in the future) you’ll scratch mine” incentive to support other people’s initiatives. Needless to say in my advocacy of the MEP I made a lot of “withdrawals” from my personal chit account. Although I did pretty well in my career, I could potentially have used these chits on other projects that could have more positively affected my career. But I used them to support MEP because I am committed to U.S. manufacturing and felt in general that “spending” them in this way was the right thing to do. So why did my colleague consider the MEP as my personal version of Kryptonite?

In making, supporting and facilitating some of the accomplishments listed I had the expectation that the impacts of those actions would speak for themselves and lead to a more unified supply chain strategy throughout the MEP system. Boy, was I wrong and those chits I spent were expended in vain. The picture is not good. MEP supply chain engagements—with few exceptions—are fragmented and low impact. This is not just my opinion. Speaking from a business perspective, the percent of MEP revenue generated by supply chain engagement is very low and has been that way since 1996 when I first started getting involved with the system.

So what went wrong? Why were my efforts over the years so ineffective? To understand this you need to appreciate that the MEP system is a loose confederation of independent state organizations. What this means is that each individual MEP decides what is important for the manufacturers in their state and—for the most part—come up with their own “home brew” formula of products and service delivery. In many service delivery fields a significant number of centers believe that their service delivery models are system “best practices.” Of course, when everyone believes their approach is best, there is no such thing as a best practice.

What this means to an OEM wanting to engage MEP in supplier development is that they for the most part would need to contact MEP centers in each state where they targeted supplier development engagements and accept various “home brew” service delivery formulas and impacts, based on supplier location. I have a lot of contacts in industry and don’t know of any OEM who would want to deal with these types of issues. Sure, there are a few isolated instances of where individual MEP centers have acted to represent the MEP system outside their service delivery boundaries, but this is the exception, not the rule. Additionally, there are very few people in the MEP system with a background in supply chain, which means they are often at a loss regarding finding the “middle ground” needed to act as “honest brokers” between OEMs and their suppliers.

State MEPs zealously protect their “sovereignty” similar to the “state’s rights” mantra that was heard from southern states in the late 1850s, if you know what I mean. Basically, the national MEP system office is a funding source that can’t really tell individual MEP state offices “what to do” or “how to do it.” This really makes it difficult to standardize service across the system, which is what you’d need to make supplier development services attractive to OEMs.

I once had a heated discussion with the executive director of a large state MEP Office. He felt that his state—and all states—could easily administer their own OEM supplier development support program even without anyone in their organizations having experience in supply management! I asked him, “How will you know what potential your OEM clients will need?” He smiled at me and said, “I know how to listen to my customers. I’ll just have them tell me what they need my organization to do. I’ll send out a survey.”

The last several years I’ve run a pretty successful OEM-focused supply chain consultancy and I can tell you that I would not have gotten much (if any) business during this time if the first question I asked potential customers was, “What do you want me to do?” The key to consulting success is being able to go into a firm, quickly evaluate individual situations and then lay out for clients what will best help them improve their operations.

The point is that to take on the supplier development function MEP is expanding their scope of service into a new area they are unfamiliar with. My experience has been that instead of listening to subject matter experts in a targeted service space—in this case, supplier development—MEP center directors have a knee-jerk negative reaction to any form of what they consider “centralization,” to the detriment of system efficiency and effectiveness. Why, you may ask, should they consider more centralized administration of more consistent supplier development service delivery? What would be in it for their individual centers?

The MEP system is a form of consulting service for the “small guys.” When I was interviewed in the late 1990s to start-up a supplier development function for what then was considered one of the “Big Three” consulting firms, I learned that the bottom acceptable “billable hour rate” for my people needed to be 80%. In other words, for my executive performance to be judged “satisfactory” I had to drum up enough business for my people to be able to bill clients for four-out-of-every-five work days. And for me, as a vice president, to get into significant bonus area my group would have to have a billable hour rate exceeding 90%. For a variety of reasons I didn’t take the job but I have always remembered these billing threshholds.

The MEP system measures the billable hour rates of its individual centers. In fact, the last time I had access to the data (2010) MEP center billable hour rates were all over the map. While some centers were in the 60% rate (not bad), others fell below 20% (yes, a single day a week!) with the average center’s performance falling below 40%. Why was it that low? For two main reasons, at least in my mind. First, these SMEs have a natural aversion to bringing in outside help. They have very little money to spend on consultants and are skeptical that the money spent will yield real benefit. Second, because MEP employees are typically manufacturing—not marketing—specialists. Consequently, the end result is that MEP people had to spend a significant portion of their work week—over 50% on average—just trying to get SME projects to work on. In other words, the MEP system spends more of its time in marketing efforts than working on its stated goal of increasing the competitiveness of SMEs!

I understand SMEs don’t have a lot of loose change to hire consultants—subsidized or not—and “selling” to them is difficult. And I wouldn’t want the MEP system to match the 80% to 90% ranges of private consultancies because when they get that high I think the focus goes more towards revenue than improvement. But having this metric of productivity fall under 50% doesn’t seem right either. Low billable-hour rate percentages have become such a problem that some MEP centers have difficulty supporting their overheads and as a consequence have reduced their work staff to a bare minimum. As a consequence, they now act more as a “manufacturing improvement placement firm” for private consultancies rather than a repository of manufacturing expertise.

I believe that MEP centers need to maintain critical mass of manufacturing expertise to be effective and that can only be maintained if at least a portion of all service delivery is provided by center employees. But for this to happen, MEP centers have to get more contracts. This poses the question, “How could a more effective MEP OEM supplier development program help MEP centers get more contracts and address their billable hour rate shortfall?”

OEMs have a lot of clout with their supply chain. Old supply management “hands” like me know that if we made a strong recommendation to our suppliers, about 25% will automatically try it out, about 25% would either never do it or do the opposite just to spite their OEM customer (!), and the remaining 50% will at least look at the recommendation to see if it makes sense. Do you think this phenomenon would help the MEP increase the billable hour rate? Sure. But MEP would have to have a supplier development structure that was appealing to OEMs. The end result of this would be that hundreds—or even thousands—of SMEs would likely contract with MEP based on their getting the endorsement of a single OEM! So, rather than having to knock on the doors of those hundreds or thousands of SMEs, MEP would only have to knock on the door of a single OEM to get significant amounts of new business, which would fix the billable hour rate shortfall.

What would a MEP supplier development that would be appealing to OEMs look like?

A consistent supplier development process across the system. In other words, a “true” best practice. My previous article explained how development of a consistent Total Cost Formula which included a firm’s order fulfillment capability in the equation would help OEMs understand better which suppliers were more competitive. That same formula could be the basis of a standard MEP approach to supplier development since it was based on exactly what influences OEM sourcing decisions. OEMs would know what the same service delivery process was delivered by MEP in supplier development engagements, regardless of the state their suppliers were located in.

A single point of OEM contact for OEMs wanting to engage the systems. Regardless of the number of states an OEM had suppliers targeted for development in, the OEM would know that those suppliers could engage with their local MEP with a process that they were comfortable would deliver the desired impacts. With a common service delivery process you can also define consistent project impact report outs, which will help OEMs better understand the value of MEP services.

A supply management competency within the MEP systems. In other words, those “single points of contact” as well as the people coordinating/overseeing supplier development activity need to have an appreciation of supply management practice. When a supply management executive calls a contact in the MEP system, they want to talk to someone that they know understands the realities of their business, not get that “tell me what you need” response.

But this could go beyond supplier development. Once MEPs have a standard OEM-approved process for working with suppliers, they also have a process that can be used by manufacturers who want to enhance their standing with OEMs, either by protecting their current level of business or expanding it. Most SME production is sold to OEMs, not to the retail public. So the OEM approach really makes sense. OEM supplier development may or may not target suppliers but that doesn’t mean suppliers won’t have access to supplier development-type assistance.

As previously cited, once MEP is endorsed by specific OEMs, suppliers in those supply chains will want their own look into the MEP services. Once they see they are aligned with exactly what their customer wants, many will contract for improvement. And the manufacturing specialists can spend more time working on improving manufacturing competitiveness and less time on marketing. What’s not to like about this?

By writing this article there’s a chance that I may have “worn out my welcome” with the MEP system—particularly center directors embedded with that “states' rights” philosophy I previously mentioned—but believe me that wasn’t my intent. I still support the system and I still feel the opportunity a supply chain capability represents would be huge, but I know it will require some MEP to make some structural changes, or at least lead to significantly more collaboration between individual MEP centers. I care about the system and I guess I just couldn’t let this issue rest even though all of my previous efforts on the subject haven’t “moved the needle” much.

If readers of this column—OEMs and supplier alike—agree with what I’ve outlined, I’d ask you to connect with both your state MEP offices and the National MEP Office, as well as your Congressmen, and advocate for it. This is my last personal “hurrah” for trying to influence the MEP and make its supply chain efforts more effective.

I guess I’ve been under the influence of the MEP Kryptonite for so long it has sapped my energy a bit. From my perspective it will be unfortunate if the structural barriers to effective OEM supply chain support are not removed from the system and MEP elects to continue its supplier development efforts along the lines of a “business as usual” vein. Making the right changes would dramatically improve MEP’s productivity and in doing so help strengthen U.S. manufacturing.

My next column will be on the Hastert Rule in the U.S. House of Representatives.

About the Author

Paul Ericksen | Executive Level Consultant; IndustryWeek Supply Chain Advisor

Paul D. Ericksen has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers. At the second he was chief procurement officer. He then went on to head up a large multi-year supply chain flexibility initiative funded by the U.S. Department of Defense. He presently is an executive level consultant in both manufacturing and supply chain, counting Fortune 100 companies among his clientele. His articles on supply management issues have been published in Industrial Engineering, APICS, Purchasing Today, Target and other periodicals. 

Read Paul's articles

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