- 09
- AUG
- 2010
Simplifying the supply chain or outsourcing SRM?
Author: Jonathan Webb - Categories: Supplier Relationship Management
Ford has announced moves to simplify its supply network. The automobile manufacturer is increasing commonality across components and reducing complexity within its supply chain. However, companies must be careful that by adopting similar measures, they do not absolve their SRM responsibilities.
The new ONE Ford strategy is delivering the Detroit-based company significant savings in its supply chain. It aims to use the same parts across all geographic regions and produce 72% of its vehicles from 15 core platforms by 2012.
Ford now includes suppliers in the early stage of product development, which lowers manufacturing costs. The company was ranked third in a recent Planning Perspective's Annual Automobile Supplier Survey, the highest ever score by a non-Japanese company. And these improved relations produce real savings: Johnson Controls, a part manufacturer, recently contributed to the design of seat components, which reduced the cost of development by 40%.
However, supply chain simplification must be accompanied by a word of caution. When discussing this issue with a former procurement analyst in the automotive industry, I was met by the following remark:
"Supply chain simplification is about delegating a lot of technical, cost and supply chain management responsibilities to your tier one suppliers. It empowers them to negotiate and manage the tiers below on your behalf."
By devolving responsibility for managing relationships to tier one suppliers, companies run the risk of outsourcing SRM. Ford's recent success is in managing its network through collaborating more closely with its suppliers. Were they to refer minor providers to key suppliers, then opportunities for integration and alignment are lost.
Possessing a wide variety of suppliers improves competition and reduces dependency - which may avoid the sort of halts in production that Nissan experienced recently when its only supplier of engine control units delayed delivery. Yet the management of a numerous suppliers is costly. By reducing their numbers, and therefore the complexity of SRM, administrative procurement costs are reduced.
Once the management of these relationships, however, is relocated to another supplier, the opportunity to improve the maturity of the procurement function is depleted. The PIU is currently conducting research into talent management, and one of the key points of enquiry is in relation to the involvement of companies in their suppliers' human capital policies. Engaging in these areas of SRM can produce a considerable advantage. In reducing complexity, companies must be careful not to reduce savings opportunities.
