Taking a company’s supply chain from average to world-class requires a lot of action—but before that action takes place, there needs to be a lot of planning. That’s the stage that Wabash National of Lafayette, Ind., is in right now.

The $1.2 billion manufacturer of semi trailers currently produces up to 70,000 trailers a year. But in the current environment of rising costs of raw materials Wabash decided its supply chain organization required a complete overhaul.

To build that supply chain organization, Steve Miller came on board a year ago as vice president of supply chain, reporting to CEO Bill Greubel. “Our company has a history of being more focused on the tactical—the day-to-day operations, and we will be developing a strategic supply chain organization that looks long term.”

Miller, who has more than 20 years of experience working for companies such as Cummins Engine in such positions as vice president of global supply chain, is assessing the organization’s strengths and gaps to identify what skill sets it will need to fulfill. To do so, he’s developed a five-year plan with the help of Jeff Wincel of LSC Consulting Group in Holland, Mich.

As part of that plan, Wabash is looking to work with suppliers that understand total cost. Wabash currently spends about $1 billion a year with 265 suppliers.

“We want to do value engineering to take costs out of the system,” explains Miller.

Miller and his team, which includes Ray Fattore, director of strategic procurement, are conducting competitive benchmarking on its current suppliers, and looking globally for new suppliers. “Right now we are looking to Asia to source what we call low-risk parts, not necessarily high-technology parts,” says Miller. In November, the company will host a conference for its key suppliers at which it will launch its formalized supplier quality development procedure.

With a solid supply base in place, Wabash will focus on establishing master supply agreements (MSAs). “MSAs are relatively new here at Wabash and a fairly new concept in the trailer industry,” says Miller. “These MSAs are about a long-term commitment and can range from one to five years.”

In working with its suppliers in the future, Wabash will be raising the bar on the quality of the parts and direct materials. Some items, such as tires and wheels, are regulated by the government, but the standards in the trailer side of the industry haven’t been set to automotive levels. “Our factories need to be leaner; we have a continuous improvement and a six sigma base mentality in our operations, and we need to align our supply base with a set of expectations that we will give them.”

With a set of suppliers contracted, Wabash will measure supplier performance based on three metrics: on-time delivery; quality, which will be measured on parts per million and its reject rate; and innovation—to challenge the supplier to think outside the box and attitude and responsiveness.

Even though establishing a strategic supply chain is still in the design phase, company professionals are optimistic about its success. “Between 70 and 75% of the cost of a finished trailer is in direct materials,” explains Miller. “So if we can take the cost down in supply chain performance, it will transfer right to the bottom line. Year over year, we’d like to drive total costs down 3% a year. I’m expecting to take $30 million a year out of the business.”

In addition, Wabash plans to improve its internal supply chain functions including purchasing, supplier quality, logistics, and materials management. “My job is to build a model where each of those functions is equally strong and equally effective,” says Miller. “You’re only as good as your weakest link in the supply chain.”