Cessna uses Baldrige process to identify best suppliers
By Brian Milligan -- Purchasing, 4/6/2000 2:00:00 AM
Cessna is using the Malcolm Baldrige National Quality Award to light a fire under its suppliers and to separate world-class suppliers from the pack.
By using the data-driven supplier-selection process, the aircraft maker hopes to get suppliers to competitively control costs and help Cessna turn a healthier profit. Those who score high in the process will be rewarded with more work. Those who score low will be phased out of Cessna's supply base.
Mike Katzorke, vice president of supply chain for the Kansas-based Cessna Aircraft Co., says Cessna turned to the Baldrige system because it offers a proven, nationally recognized standard. The supplier evaluation tool will now play a heavy role in the company's selection of suppliers.
Katzorke says suppliers should not perceive all of this as increased pressure, but rather an opportunity. And in the end, he believes it will help Cessna get an accurate picture of who is performing and who is not.
"This is not a squeeze, but a win-win proposition," he says. "It's a selection process as opposed to a gut-feeling kind of thing that has so often been the case.
"Through this, we are making decisions based on data, through very factual, proven criteria," he continues.
Cessna is now two years into what it sees as a five-year process of fully adopting the Baldrige model. The initiative's criteria are based on the Malcolm Baldrige National Quality Award, which has been credited as a catalyst for transforming American business.
"It takes a holistic approach to improving a company," Katzorke says. "Rather than being a flavor-of-the-month, like total quality management or lean manufacturing or supply chain management, the Baldrige integrates all of those."
Data analysis
Katzorke says the Baldrige process caught Cessna's eye because it relies heavily on data. The data is provided by suppliers and then reviewed by a third-party group and given a score that determines the supplier's performance and ranking.
The first six sections of the initiative ask the supplier to assess their approach and deployment of production. The final segment asks them to detail their results.
"The results say that if I have a good approach, and deploy it well in the business, I ought to get improvement with the numbers," Katzorke says.
Katzorke says such a supplier-performance rating system is sorely needed in the aircraft industry. He says the industry has for too long taken a military-like approach to choosing suppliers.
"The aircraft industry is behind some of the other industries like the electronics industry or the automotive industry in its approach to improvement," Katzorke says. "Most things here are handled in bits and pieces, rather than taking a holistic approach.
"We are behind because over the years the aircraft industry has spun out of the military business, which was a cost-based business," he continues. "Over time that changed, but a lot of the ways we have of doing business through the military kind of stuck."
Saving money
Cessna occupies a very strong position in its market, with 57% market share. Still, the company hopes the initiative will save suppliers-and Cessna-money. These savings, Cessna hopes, will help the company cope with customers that have become increasingly demanding.
"The major thing happening is the customer for the aircraft industry is having buying experiences in other industries that are much further along than we are, and those experiences in terms of satisfaction with buying experience, reliability, after-the-fact, all those things raise the expectations of value they get from a dollar spent," Katzorke says. "They continue to drive for more and more value for the dollar, and in the aviation industry, we want to be ahead of that."
Some of Cessna's main suppliers say they are not surprised or intimidated by the initiative. Pratt&Whitney Canada, a maker of aircraft engines, says initiatives are nothing new to the OEM industry. Pratt&Whitney considers Cessna its most important customer. It is willing to give the Baldrige initiative a go.
Gilles Ouimet, president and chief executive officer for Pratt&Whitney Canada, says he has not yet seen the criteria for the Baldrige initiative. But he expects to soon. And he says his company is confident that it will do well.
"We've been active on all fronts related to improving speed, quality and reducing cost," he says.
But even if he isn't intimidated, Ouimet still politely says the initiative can be seen as an attempt by an OEM to put the squeeze on suppliers. The industry is constantly rationalizing or reducing its supplier base. It uses initiatives to get suppliers to produce more for lower prices and weed out the dead wood.
"Absolutely this is a squeeze," he says. " Let's face it. Cessna's objective is to get the lowest cost so it can have the best airplanes in the marketplace. The so-called squeeze is not new, but this [initiative] is just a way to structure it more formally."
High hopes
Katzorke says he believes the company will be able to see a healthy percent return of investment from the program. Following the Baldrige Award pattern, every company that invested a dollar for improvement through the plan saw a 147% return on the investment. "The reason to do this is it works," Katzorke says. "It puts dollars in your pocket.
"From a service standpoint, we need precision," he continues. "We need good parts on time, every time. The award criteria is a very effective and efficient way to gain an understanding."
Katzorke explains that through the program, Cessna will require that suppliers prove they are worthy of providing supplies for Cessna's new projects. All suppliers will be expected to submit a 50-page Malcolm Baldrige National Quality Award assessment application to a third party approved by Cessna. The applications must be submitted in time to be scored by the third party by March 31, 2001.
"Then, we will ask them to refresh the scoring process annually, and if they want to remain a growth supplier, they will improve annually," Katzorke says.
The initiative assesses suppliers in terms of their quality, reliability, cost and delivery. Categories in the application include leadership, strategy planning, customer market focus, information and analysis, human resource focus, process management, organizational performance and results
Final analysis of the scores is conducted by the company's commodity teams, two-thirds of which are engineers. The teams examine the data, putting the supplier in one of three categories: Growth, provisional or phase out.
The scores
Suppliers that show a score improvement of 25% will be formally recognized during a ceremony each year. Suppliers that achieve "growth" by reaching a score of 450 will be given preferential treatment when Cessna designs new aircraft.
Suppliers that are given the "provisional" ranking will be given guidance on how to show improvement and get on track to reach "growth" status.
Katzorke says there is hope for those who aren't there yet. They really need only display one important trait, he says.
"It's primarily attitude driven," he says. "If the supplier has the right attitude, we can get him to growth supplier status."
For example, Katzorke notes that Kansas-based Stellex Precision Machining Inc, which performs machining for Cessna, performed well above expectations in 1999. Today, Stellex is used as the poster child for the Baldrige initiative project.
"They gave expert support to Cessna, and they put forth a total cooperative effort to learn the tools, learn the procedures, learn the business," Katzorke says. "They experienced an enormous savings in product cost and product flow in specific projects, and they leveraged it to other areas of the business."
Suppliers who achieve only "phase out" status will literally be phased out of the picture.
"Those are the suppliers that we determined that, based on analytical process of the data and on-site visits, we don't believe we will be able to make growth suppliers out of them in the long term," Katzorke says.
Confidence
Ouimet of Pratt&Whitney Canada says it shouldn't be all that hard for his company to achieve the "growth" status. Ouimet points out that Pratt&Whitney has captured many new projects at Cessna. It is responsible for building engines for Cessna's Bravo, Encore and Excel airplanes. Most recently, Pratt&Whitney built the PW306C engines for the Cessna Sovereign.
"We are a growth supplier," Ouimet says. "We see ourselves as a growth supplier for Cessna."
And in this competitive industry, Ouimet likewise sees reasons why Cessna would want to identify and phase out sub-par suppliers. It is the same practice, he says, that Pratt&Whitney has been undertaking.
"The main criteria for phasing someone out is that they stopped performing," Ouimet says. "This [initiative] will put the appropriate controls in place and get things normalized."
Now Playing: 