Wanted: Suppliers who think like you

The best suppliers are the ones with business and technology goals that match yours. Strategic sourcing, score cards and trade fairs help you find them.

By Susan Avery -- Purchasing, 3/16/2006

It really couldn't be more simple. Communicating openly and often with strategic suppliers about business and technology goals is how purchasing professionals help keep their companies competitive.

Understanding and agreeing on each other's expectations for the relationship usually leads to mutual gains or "co-prosperity," a term Scott Singer, director of global general procurement at United Technologies Corp. (UTC) in Hartford, Conn., says he's hearing more of recently in his meetings with suppliers.

Purchasing can measure a successful supplier relationship by how long it takes to get innovative new products to market. For suppliers, the all-important metric is most often increased orders or longer-term agreements from buyers. But before that happens, purchasing professionals must be sure they are working with the right suppliers.

While purchasing is decentralized at UTC, the company's individual business units share many of the same corporate strategies, one of which is centered on sourcing. The company has embraced lean manufacturing through its ACE (Achieving Competitive Excellence) operating system, and, as part of each of the business units' sourcing strategy, the procurement operations strive for fewer, but richer relationships with suppliers.

"Obviously, the fewer suppliers we have, the easier it is to get alignment because we are in closer contact with them," says Jay Lapointe, vice president of procurement at UTC's Hamilton Sundstrand division that makes aerospace systems and industrial products in Windsor Locks, Conn.

"Being in alignment helps us to take waste out of the process," he says. "We can leverage each other's capabilities and not duplicate engineering or business capital resources." As at other UTC businesses, Hamilton Sundstrand is asking suppliers to take on more of the integration work for many of the systems and products it sells.

To begin, Lapointe and his team identify suppliers that are core to the company.

New suppliers are given clear expectations for supplier participation in its programs even before a RFP (request for proposal) hits their desks.

For incumbent suppliers, Lapointe and his team work to better understand their capabilities and, perhaps, subsidiary businesses. They also may form relationships with personnel at high levels in the organization. "Engaging a supplier at the right level of management opens doors to our ability to expand the relationship," he says.

Suppliers have a role as well. Lapointe says suppliers are responsible for "ensuring that we understand everything they see as applicable to our business or programs and to keep us engaged in their development activities. It all boils down to communication."

The procurement team is working with one supplier on a new platform for one of Hamilton Sundstrand's customers. The supplier has multiple capabilities—from foundry through complex machining and assembly. Because Hamilton Sundstrand has a good understanding now of what is core to its business as a systems integrator, the supply chain organization is involving the supplier in the design phase of the product. "As we better understand a supplier's goals, we are able to use all their capabilities, up through assembly where they are integrating product that we would typically purchase and integrate in our factory," Lapointe says. "We are getting as much value out of the relationship as we possibly can and they are getting as much revenue as they possibly can."

With another supplier, the procurement organization is holding a technology fair to bring together engineering personnel from both companies. The fair is an opportunity for the supplier to showcase its new products and technologies. It also provides Hamilton Sundstrand a way to more easily communicate its requirements to the supplier. "Technology fairs can be very helpful," says Lapointe. "They ensure we are aligned from a technology and development standpoint moving forward."

At aerospace firm Rockwell Collins, the material and supply operation uses a number of tools to ensure that its supplier's goals are aligned with its own goals. In fact, it is one of the reasons Purchasing awarded its Medal of Excellence for 2005 to Rockwell Collins' material and supply operation (Purchasing, Sept. 1, 2005, p. 26). The company's corporate goals flow down from its CEO to its director of operations through the material and supply operation to its supply base.

As such, material and supply looks at alignment with suppliers in two ways, says Kevin Meyers, senior director of enterprise sourcing. "We measure suppliers to ensure that they are meeting both our business process and technology goals." With 15 years of manufacturing experience at Rockwell Collins, Meyers joined the material and supply team in October.

The advantage to Rockwell Collins, whose avionics are being designed into such projects as the Boeing Dreamliner, is that it can bring supplier thinking into the organization sooner than the competition, says Meyers. "In order for us to serve our engineering customers, we have to be on top of what our supply chain provides or is going to provide so we can advise customers on the selection of technology."

Rockwell Collins monitors suppliers to see how well they are integrated with business processes deemed most important to its success. The material and supply operation implemented a tool that uses traffic light colors—red, green and yellow—to indicate whether suppliers are on target. The tool monitors specific criteria in each of these categories: minimize, maximize and maintain (supplier growth strategy); percentage of part numbers on long-term agreement; payment terms; use of the supplier portal; automation (percentage of orders going through SAP as schedule agreements); percentage of inventory on consignment and payment method (check vs. electronic funds transfer). Measurement is based upon a scale of one to three.

Rockwell Collins commodity teams use a supplier relationship management (SRM) process to ensure that suppliers' technology roadmaps are in sync with their own. The SRM process helps commodity teams foster communication between suppliers and the company's engineers. "The process lets us know where suppliers are headed from a technology standpoint and how we might be able to capitalize on that," says Phil Krotz, director of lean supply. "The key is communication. We do that through commodity teams and quarterly SRM meetings with top suppliers."

The SRM process consists of four stages that begin with commodity team and supplier training, progress through phases that build trust and understanding, and build to strategic alignment. "We find that supplier performance increases drastically when commodity teams excel at SRM, follow lean supply practices and have good business process alignment," says Krotz, recognizing recent efforts of the company's interconnect team.

The interconnect commodity team, which manages connectors, wire and cable, and cable assemblies, is communicating technology information from suppliers through an intranet site to the company's engineering department.

The team also actively participates in an interconnect community of practice that's organized by engineering. "It's our conduit for sharing information they gathered from suppliers on through to the engineering community," adds Krotz.

Material and supply also holds an annual supplier conference in the spring where the company's top suppliers gather to learn more about Rockwell Collins' goals for the upcoming year from Clay Jones, chairman, president and CEO; Kent Statler, senior vice president of operations; Roger Weiss, vice president of material and supply; and leaders and other members of its business divisions. Suppliers also attend workshops led by material and supply personnel. A recognition ceremony honors top-performing suppliers.