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Make Your Company More Valuable to Your OEM Customer

As internal productivity, downsizing, outsourcing and delayering initiatives have progressed, many large original equipment manufacturers (OEMs) have become increasingly dependent on purchased material and services. As companies become less vertically integrated, they must rely more on their suppliers for product development, quality, productivity and technology.

One objective today for OEMs is to establish "vertical integration" throughout their chain of suppliers - thus the creation and evolution of "supply chain optimization." This strategy seeks common goals, linked business processes, consistent improvement strategies and tactics and relationships based on cooperation between OEMs and their suppliers.

OEM supplier networks typically are very broad and often very deep, with many products passing through several "tiers" of suppliers before reaching the OEM. Because the dependency on suppliers has become so important, most OEMs now are working to reduce the number of alternative suppliers for any given product or commodity. Maytag, for example, has whittled its ranks of direct-material suppliers from 2,700 five years ago to 1,200 - and aims to be down to around 300 in two more years.

A reduced number of suppliers allows focusing of more resources on improvement development, supply chain efficiency and integration, and strengthening cooperation in relationships. Companies being chosen to continue as suppliers are those that can provide the most value to OEMs.Lower-tier suppliers obviously depend on the success of their own "chain" of suppliers to win OEMs' business. So, if you're a company in OEM supply chains, it is imperative that you know how to maximize your value to your major customers.

OEMs focus on improving quality, cost and cycle time to maximize competitiveness. Suppliers able to understand OEMs' improvement strategies and programs - and able to implement these initiatives quickly - not only will make themselves more valuable to OEMs, but also more competitive in all of their markets. Figure I depicts many of the programs OEMs typically are deploying in their supply chains to drive improvement and competitiveness. Suppliers should seek to mirror their own strategies after those of key OEM customers.

While it may appear that OEMs roll out a different program every month, these programs actually overlap, complement and support one another - as Figure 1 illustrates. This approach to supply chain optimization provides companies the opportunity to optimize performance and value to their end customers, not only by optimizing their own internal operations, but also by examining and improving the entire supply chain's performance.

Steps you can take to make your company more valuable to your OEM customers:

1. Identify Your Position in the Supply Chain

Diagram and understand the entire chain of manufacturing enterprises, including transportation, from raw materials to the OEMs end users. Save this, because it will become more important later as you begin thinking about how your company can help optimize your supply chain's value.

2. Identify the Improvement Strategy and Programs of the OEMs' in Your Supply Chain

Find out what OEMs in your supply chain are requesting and developing with top-tier suppliers. Determine what these programs are about; what they're based on; learn what they focus on; how they work; what is involved.Determine the approach they use to deploy and implement programs within the supply chain.

3. Develop Your Implementation Plan and Get Started

Establish your implementation priorities, using your knowledge of the OEMs' program priorities and your assessment of your company's improvement needs and potential. It should be your intent to implement a program that is going to yield improvement of your company's performance. Establish a detailed plan for full implementation (communications, training, projects, etc.).

4. Expand Your Improvement Objectives to Include Other Companies in the Chain

Using information gathered in Step 1, determine how your company could impact and improve the performance of your supplier(s) and/or customer(s) and also yield increased value to the OEM. Could you be making improvements that would improve your supply chain's quality, productivity and/or cycle time Incorporate these improvements into your overall plans and activities.

Summary

Nearly all OEMs have adopted a strategy that includes reducing their number of suppliers. Do not be one of the suppliers left out - do everything you can to increase your value to your customers. Understand what your OEMs are driving for; and, proactively and aggressively, implement improvement activities. View improvement programs your OEMs are deploying through their supply chains as opportunities to increase your own performance, for these programs involve the latest concepts proven to effectively enhance quality, productivity and service levels.

Copyright 2003 by WMEP.org

WMEP provides technical expertise and hands-on implementation assistance to small and midsize manufacturing firms on advanced manufacturing technologies and business practices includinglean manufacturing, ISO, value chain management, and strategic repositioning services for manufacturers and manufacturing facilities located in Wisconsin.

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