1. Supplier Base Rationalization
Kimball Bullington, Ph.D.
Thank you.
Purchasing in the year 2000: Only 1.5 years away.

2. Supply Base Consolidation
What is supply base consolidation?
Why consolidate?
How can I be successful?

3. What is supply base consolidation?
Consolidation: A reduction in the number of suppliers.

4. Why Consolidate? Cost Reduction
Cost of Procurement
Price Decreases through Consolidated Purchases and Increased Negotiating Power

5. Why Consolidate? Supplier Development
Cost reductions
Lead time reductions
Quality improvements
53.2 % of the cost of sales is in materials. If you are going to save big money, you have to attack it. Dobler, Donald M. and Burt, David N., Purchasing and Supply Management, 1996, McGraw-Hill.
“The early [productivity] hits come from sheer leveraging and supplier consolidation,” says Barber. “But as you mature through, you have to evolve into driving true productivity in the process by implementing projects within the supply base.” AlliedSignal, Minahan[1997]

6. Why Consolidate? Supplier Development
Supplier design support
Time to market
Inventory reductions
53.2 % of the cost of sales is in materials. If you are going to save big money, you have to attack it. Dobler, Donald M. and Burt, David N., Purchasing and Supply Management, 1996, McGraw-Hill.
“The early [productivity] hits come from sheer leveraging and supplier consolidation,” says Barber. “But as you mature through, you have to evolve into driving true productivity in the process by implementing projects within the supply base.” AlliedSignal, Minahan[1997]

7. How Can I Be Successful? First Steps
Evaluation of Current Supply Base
Determine the Type of Supply Base Needed
Plan the Project

8. How Can I Be Successful? Evaluation of Current Supply Base
Number of Suppliers
Breakdown by Commodity
Skills / Process Evaluation
Performance Evaluation

9. The Ideal Supply Base

10. The Ideal Supply Base Powerful improvement engine Fast Flexible
Innovative
Good communicators

11. Supply Base Fitness
NUMMI: 3 Product Lines - 84 to 140 direct suppliers
Increasing domestic content
Long-term relationships

12. Supply Base Surgery Al AlliedSignal: 10,000 to 2,000 liedSignal
Supports 6 Program
Separate productivity improvement initiative
liedSignal

13. Supply Base Renewal - Tiering
BASF - 10,000 suppliers to 14
Lowered internal costs
Leveraged position with suppliers
Bypassed IT problems
VMI
Walters, Paul, “BASF Takes Initiative in Supplier Coordination,” BIC Newspaper, September, 1997.

14. Supplier Characterization Matrix
High
Critical 2:
Special Situations
Low spend - high risk
Critical 1:
Long-term
Relationship
High spend - high risk
Risk
Non-Critical 2:
Transactional
Low spend - low risk
Non-Critical 1:
Contractual
High spend - low risk
Low
High
Annual Spend

15. Supplier Characterization Matrix
High
Critical 2:
Special Situations
Critical 1:
Long-term
Relationship
Risk
Non-Critical 2:
Transactional
Non-Critical 1:
Contractual
Consolidate
Low
High
Annual Spend

16. Supplier Characterization Matrix
High
Critical 2:
Special Situations
Critical 1:
Long-term
Relationship
Consolidate
Risk
Non-Critical 2:
Transactional
Non-Critical 1:
Contractual
Consolidate
Low
High
Annual Spend

17. Supplier Characterization Matrix
High
Critical 2:
Special Situations
Critical 1:
Long-term
Relationship
Consolidate
Risk reduce &
Consolidate
Risk
Non-Critical 2:
Transactional
Non-Critical 1:
Contractual
Consolidate
Low
High
Annual Spend

18. Barriers to Consolidation
Fear of loss of competition
Doubtful savings
Dilbert
Lack of commitment to the selection process

19. How Can I Be Successful? Keys to a Successful Plan
Plan with your customers in mind (QFD)
Transaction costs
Leverage
Supplier development
Design support

20. How Can I Be Successful? Keys to a Successful Plan
Sell consolidation
Top management
Customers
Participants
Suppliers

21. How Can I Be Successful? Keys to a Successful Plan
Develop a supplier evaluation / selection process & implement it
defendable (key customer input)
flexible

22. Structured Supplier Evaluation

23. How Can I Be Successful? Keys to a Successful Plan
Implement meaningful measures
Focus your efforts (commodities)
Staff for development
Publish successes

24. How Can I Be Successfully Consolidated? Keys to a Successful Plan
Tier 1: Integrate
Tier 2: Make services, savings quantifiable

25. Supply Base Consolidation: Summary
Consolidation can yield savings in:
transaction costs
leverage
inventory reduction
supplier development
It is a key enabling strategy to other supply improvements.

26. Supply Base Consolidation: Summary
Keys to success:
planning with customers in mind
selling the plan
selection / evaluation
focusing improvement
staffing for success
measurement
publishing results

27. Supplier Base Rationalization
Kimball Bullington, Ph.D.
Thank you.
Purchasing in the year 2000: Only 1.5 years away.