'Deliver those connectors on time—or else'
By Staff -- Purchasing, 4/10/2008 6:00:00 AM
Purchasing's smartest negotiators move from conflict to collaboration fast. Match your wits against these pros. Guess their strategy. Then, read what they really did atpurchasing.com/negotiations.
As a commodity manager for Rockwell Collins, an aerospace and defense company, Tim Touro confronted a serious delivery-performance issue with the connector supply base. On-time delivery had consistently averaged only 92% over the last year. Rockwell Collins’ customers have high expectations in regards to quality and delivery. In order to meet those expectations, Rockwell Collins’ suppliers have to abide by the same standards.
Problem: The connector supply base believed that 92% on-time delivery results were acceptable and they were not aware of issues with excess inventory and inefficient processes. Touro and his team estimated that these late shipments were costing Rockwell Collins in excess of $2M per year. The company’s cross-functional sourcing team set a goal of improving on-time delivery performance for connectors to 98.5%. The team initiated talks with the suppliers to improve on-tiume delivery.
Possible Solutions: Live with existing delivery metrics, change suppliers, perform root cause corrective action analysis or require compensation from suppliers not meeting delivery requirements.
Solution: Touro and his team identified key suppliers who were not delivering on time. They invited these suppliers to workshops to review performance results, identify root cause and develop corrective action plans. The team began monthly cadence reviews of the performance results to confirm that corrective action plans were executed.
To ensure commitment from suppliers, Touro and his team negotiated both performance and growth clauses into the new contracts. The performance clause stipulates 100% on-time delivery. For any orders not delivered on time, the suppliers would discount the value of the shipment. The growth clause provides an incentive to the suppliers to improve their performance and receive the benefit for doing so.
Certain suppliers also agreed to create an organizational structure designating Rockwell Collins as a key strategic account. They outsourced key processes that they identified as the root cause for the late deliveries, and shifted their focus from explaining late deliveries to forecasting future performance. This forecast shifts the suppliers’ approach from reactive to proactive and ensures the product is delivered on time.
The combination of these improvements resulted in suppliers exceeding the on-time delivery goal each month and, in one case, reaching 100% six out of eight months without any sacrifice in quality.
Are you a black belt negotiator? Tell us about one of your negotiation successes, and we'll print it so others can learn from your experience. Send it topteague@reedbusiness.com.
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This is the good practice, to reduce he cost as wel as maintaining the business...
Pavan kumar - 2009-26-1 22:34:00
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