Toshiba program rewards suppliers for new ideas
By Susan Avery -- Purchasing, 5/20/1999
A new supply chain reengineering initiative that focuses on improving processes and cutting costs is expected to add 20% to the bottom line at Toshiba Toner Products Division (TPD), in Mitchell, S.D.As at many companies, buyers involved in developing the company's "Partners Plus +" program saw that it was time to move past the adversarial relationships that purchasing had with suppliers. Pressuring suppliers to cut prices "did not improve the system or promote healthy relationships," says Mona Ward, buyer. "We needed a long-range plan to reduce costs and improve the purchasing process."
Instead of using strong-arm tactics to get suppliers to reduce prices, the program focuses on improvements suppliers can make in such areas as design, process/manufacturing, inventory, volume, business practices, materials handling, transportation/logistics, tier-two secondary supply networks, etc. It targets 21 priority U.S.-based suppliers responsible for 80% of TBD's estimated $20 million in annual purchases. Big buys include packaging and raw materials. The suppliers are manufacturers either based in the U.S. or operating U.S. distribution centers. "The biggest bang will come from manufacturing centers in the U.S.," says Ward.
Ward and her boss, Dave Trones, director of manufacturing administration, introduced the Partners Plus + program to suppliers one year ago. She and another buyer, Janet Hinker, developed the program, borrowing ideas and best practices from other purchasing operations. For instance, the buyers evaluated Chrysler's score program, which Ward does not consider a "true" partnership, because it mandates results. "They're still swinging a big hammer," she says.
The buyers created a program that would fit the Toshiba supplier base. "We wanted a program that was tough, but not impossible," says Ward. The buyers also wanted to help suppliers meet cost reduction goals. For instance, the program has resulted in two competing transportation companies working together with TPD to help reduce freight charges and improve service.
Partners who meet targets can be rewarded with business guarantees, increased volumes, public recognition, an honors banquet, preference in new product development, and performance awards. Those who do not participate receive no guarantees of existing volumes, no increased volumes, non-preferential development status, and no trade/industry recognition.
For each supplier involved in the program, goals using fiscal year 1997 as a benchmark call for a 6% first-year reduction, 5% reductions in both the second and third years, a 4% fourth-year cost reduction, and a 3% reduction in the fifth year. Beyond the fifth year, suppliers are asked to generate 3%/year bottom line reductions. Reductions are accumulated from the base year and based on total dollar sales to TPD by the respective business partner.
The program uses several different measures: Direct bottom-line cost reductions are one-to-one against targeted percentages; non-quantifiable items are awarded points based on a matrix of items weighted for value; some level of credit is given for recommendations received, but not implemented, and recommendations implemented from a different originator.
For non-quantifiable items relating to quality, partners receive five points; safety/ergonomics, five points; delivery, four points; leadtime reductions, three points; systems improvements, three points; productivity improvements, two points; service improvements, two points.
The process consists of an on-site supplier survey in which TPD documents and reports current status. A Business Partners Assessment committee review determines feasibility of a recommendation, assigns in-house responsibility, and begins the investigation process. After periodic reviews, the committee reports progress to the supplier. Once implemented, the committee collects data on the effects of a suggestion. It then applies credit to the supplier. Two buyers monitor partners' performance biweekly, meeting with two partners per month. At present, there are 40 change recommendations in progress.
Here's an example of how a supplier can achieve its targets: XYZ Company has sales to TPD of $600,000 per year. Through its own efforts, XYZ reduces purchase price to TPD by $30,000 (5%). In addition, XYZ Company submits recommendations to TPD which fit within the matrix points: one recommendation for quality (five points), one for delivery (four points), one for systems improvement (three points), for a total of 12 points. Each approved and implemented matrix item receives full credit (every 10 points is equal to a 1% reduction). Twelve matrix points are equal to a cost reduction of 1.2%. For the year XYZ Company earns total credit of 6.2%.
Requirements of a 'win-win' program
* Dollar benefits are shared.
* Corporate objectives are known by partners.
* Margins/profits must not erode for either partner.
* Management must be committed to "win-win."
* Nothing is sacred--everything is analyzed.
* Process information is shared quickly.
* Technology is employed.
* Follow up and communication is frequent. SOURCE: TOSHIBA TPD
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
