Value-Chain Report -- Focus On Supplier Management

Dec. 21, 2004
Savings follow investment in staff for Deere & Co.

Considering the increase in the ratio of purchased materials costs to total manufacturing costs today -- it can be as high as 70% or 80% of the total -- "huge opportunities" await companies that create highly professional supply-management teams, asserts Dave Nelson, vice president for worldwide supply management at Deere & Co., Moline, Ill. "If I were the owner of a company," he told an audience at the Assn. for Manufacturing Excellence annual conference in Boston recently, "I would switch my most capable people from manufacturing to supply management." One of the tough questions that manufacturing executives ought to ask themselves, the one-time Honda executive suggested, is: "How many manufacturing engineers does your company have working with the supply base?" Since joining Deere, Nelson increased the company's cadre of supplier-development engineers from just four to 92. They assist suppliers in reducing manufacturing cycle times and implementing other lean initiatives. In one case, a Deere team enabled a supplier of flywheels to reduce its production costs by 50%. In response to a question, Nelson explained that Deere's total cost to maintain its staff of 92 supplier-development engineers came to just under $7 million last year. But the "hard" savings generated from their efforts totaled $22 million. Companies that build highly capable supply management teams have the opportunity to reduce their cost of goods and services by 20% to 30%, he estimated. "It's a wonderful thing just waiting to happen."

Surveys: Lack Of Integration, Collaboration Thwart ExchangesByDoug Bartholomew Despite the proliferation of online B2B trading exchanges, the Internet has yet to penetrate most traditional supply chains, according to a recent survey. What's holding back widespread adoption of B2B e-commerce, reports another survey, is a lack of back-room, internal systems -- as well as connections with trading partners -- to support it. The first survey, conducted by Cap Gemini Ernst & Young, the University of Tennessee, and Exel, a logistics firm, was aimed at users and providers of logistics services. Remarkably, out of 163 respondents, less than half said they had a Web site. Nearly three-fourths said they either were using or were considering using a third-party logistics firm. Perhaps more alarming, less than one in six felt their third-party logistics providers were assisting fully to Web-enable their supply chains. "The lack of technology integration in supply chains is choking the flow of information, from the manufacturing floor to the retail shelf, and that hurts efficiency and cost-effectiveness," says Gary Allen, senior manager of Cap Gemini Ernst & Young's supply-chain team. In the second survey, conducted by Edifecs, a B2B e-commerce software firm, nearly 400 e-commerce managers were polled at a cross-section of companies. More than half reported that they currently conduct B2B operations with less than a fourth of their trading partners, and nearly half handle under 5,000 electronic transactions per month. "For B2B communities to prosper -- to really attain the kinds of benefits everyone is talking about -- they must comprise hundreds or thousands of participants actively collaborating with each other," observes Sunny Singh, CEO of Edifecs, Bellevue, Wash. "Because the enablement challenge is so stiff, there's a considerable hill to climb before reality catches up with projections of B2B growth."

Doug Bartholomew is an IW senior editor; John Sheridan is a former IW senior editor.

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