Managing Automation - February 2008 - (Page 33) facturers] pursued to reduce cost are largely irreversible,” says Jim Lawton, vice president and general manager of Dun & Bradstreet’s Supply Management Solutions division. “You can’t bring all of your spend back to the U.S., and you can’t stock up on inventor y. [Manufacturers] don’t have the resources to deal with the new risks created by overseas sourcing. They need help identifying the right suppliers and discovering as early as possible where the problems will be.” There are several strategies for reducing purchasing and sourcing risk. The safest approach is a combination of software tools and business processes aimed at continuously monitoring the supply base, along with an overall strategy to reduce risk. Better managing your supply base will pay dividends by giving you a little extra time to cope with problems or potential problems as they crop up. “If I have time, I can choose a second source, do an intervention, add some inventory, send a team over to do outbound quality management,” Lawton says. “But I can’t do that if I don’t know where the problems are.” ADVANCE WARNING SYSTEM Potential solutions to the problem of global sourcing management come from several different avenues. For example, D&B’s DNBi Supply Management is a hosted Web-based application that interacts with a manufacturer’s ERP system to track current suppliers while also helping to nar- row the universe of potential new suppliers. D&B has years of expertise in tracking companies’ financial performance; this offering aggregates that type of data along with information from other customers to provide early warning of problems. DNBi Supply Management sheds light on who exactly you’re dealing with — something that should be straightforward but often is not when it comes to global sourcing. It also shows who your suppliers’ suppliers are, which is increasingly important, according to Lawton. “Nowadays a lot of the value in your supply chain is not only in your four walls and tier 1 suppliers, but also tier 2, 3, 4 companies that you may not even be buying from.” Not knowing the identity of companies fur ther down the chain does not shield you from risk. “We have developed an understanding of the financial performance and quality and delivery performance of suppliers around the world,” Lawton says. “We have predictive analytics. We have found that suppliers will start to have delivery issues long before they have quality issues, so delivery issues are often a sign that something bigger is afoot.” On the other hand, tracking only your suppliers’ history of on-time delivery is risky in itself, says Betsy Burgess, director of marketing for Centric Software, which offers a strategic sourcing product for companies in the fast-moving consumer goods sector. Most manufacturers, Lessons Learned at High Tech’s HP s one of the first vertical industries to outsource component manufacturing to offshore suppliers, the high-tech sector has more experience with supplier risk management than most. Computer industry titan Hewlett-Packard has been at this for more than two decades, so it serves as a model for companies that are just beginning to mitigate sourcing risks. HP began its supplier management program at the dawn of the PC era. Back then, “there weren’t as many standards or qualifications, and you had a lot of different suppliers of components all over the world,” says Greg Shoemaker, director of central direct procurement for HP. “We started putting together an overt internal plan called the Procurement Management Process to address that.” Based on a homegrown Web-based application, this process covers five different phases of procurement, from identification of a need A Photo courtesy: Hewlett-Packard to evaluation, selection, contractreliability, price, geopolitical, enviing, and execution. The selection ronmental, social responsibility, process always entails site visits to currency fluctuation — seems to the potential supplier, down to expand daily. Environmental regulathe specific plants that would protions have placed a weighty burden duce the item in question. It’s a on high-tech manufacturers, as they question of scale. must prove the provenance and safe “With the volumes that we disposal of every hazardous compoproduce at, we have to make sure nent in their lengthy bill of materials. companies have the wherewithal Ask Shoemaker what keeps him Greg Shoemaker to sustain our needs,” Shoemaker up at night, though, and you’ll likely says. “We go look at test parameters, test hear about some of the more classic risks: reliresults, yields, quality planning reviews to ability, quality, and capacity. “Is there enough make sure the product meets our needs from capacity out there to meet our needs? the get-go. If the yields don’t support the Assuming there is, is it of the right quality and surge capacity, that is a problem.” reliability?” Shoemaker says. HP constantly reviews its supplier stanTo keep ahead of competitors in a relentdards and performance via scorecards, often lessly cutthroat industry, quality and price are revising them upward to keep in line with paramount. “We always have to be on our ever-increasing customer expectations. toes to be sure we are getting the best part at The list of supplier risks — quality, capacity, the best price,” Shoemaker says. 33 February 2008
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