Supplier management strategies for enhancing manufacturing competence

Abstract

Brakes India is a Market leader in the Brake industry in India and is known for quality products. In the changing scenario of economic liberalisation many new customers (with global vehicle manufacturer tie-up) are demanding quick response, high quality and low cost new products. The management felt the need for a detailed diagnostic study in purchase and supply management area. This is one of the potential areas in Brakes India's business in which there is significant scope for cost reduction. Currently our purchase of Rs. 166 crores per annum forms about 55% of goods sold ( Rs. 325 crores per annum), fti this area the management has already initiated some steps to improve the purchasing performance. There is a significant cost reduction potential to the order of 10-15% initially and a subsequent cost reductions to the level of 3-5% through ongoing annual improvements. This project is an initiative towards achieving the above said goals. In this project, we have considered bar machined items other than plungers (total spend of Rs. 7.4crores) for our detailed study. In this category, the top 200 components which form90 % of the total spend (Rs 6.6 crores) is being considered. A framework has been evolved by studying the component in detail. The framework can be extended for the other commodities with suitable modifications. Methodology: A detailed component technical database, which includes parameters like part no.,description, material specification, heat treatment and finish, component drawing ,etc., was collected. A detailed commercial database to include quantity procured, total value, supplier information on Quality, Cost, delivery (QCD) performance, raw material specifications, transaction code and user unit code was also collected. Components were grouped into similar part combinations based on parameters like manufacturing process and raw material type and size. From the above information, potential suppliers were selected and their plants were visited to assess supplier capabilities. Total Cost of Ownership (TCO) was computed for few representative components from prominent major groups. This information was helpful in identifying areas for improvement, brain storming cum value engineering exercise. Cross-functional brain storming session was conducted to generate de-spec and other cost reduction ideas. Detailed cost benefit analysis was computed for identified ideas and the supplier selection criterion was arrived at The suppliers base on the grouped items and capabilities were short-listed. A document on the company profile and supplier development initiatives was prepared along with Invitation For Quotation (IFQ) document. The supplier workshop for the identified suppliers will be conducted and the IFQ document will be handed over for competitive bidding. After receipt of IFQ, the same will be scrutinised. The final list of suppliers will be finalised after negotiations. Findings: This exercise has revealed that the present supplier base of 68 for these 200components of this component category can be reduced to 10. The potential savings identified based on the value engineering exercise and brain storming is to the tune of Rs. 68.98 lakhs, the details of which are as follows. De-spec of bar materials : Rs. 27.00 lakhs Bar M/c to cold forming : Rs. 6.50 lakhs Optimising M/c allowance : Rs. 9.18 lakhs Bar M/c to hot forging : Rs. 9.80 lakhs De-spec brass components : Rs. 16.50 lakhs The other intangible benefits that can be realised from this exercise include reduction in purchase ordering, monitoring and follow up cost, cost reduction due to change over to bought out components from subcontracting, reduction in proliferation of supplier base by consolidating requirements of all units of BI, long term relationship with suppliers. The other benefits include reduction of TCO for components, quality and delivery improvements, reduced co-ordination costs, inventory reduction and focused attention on suppliers. Recommendations and future action: The future course of action recommended for this category of components include extending this framework to remaining 10% of this group and allotting them to the respective group, applying this framework to other groups of components to realise about 10% savings in total purchase spend of Rs. 166 crores. Moreover consolidating the total supplier base to the level of 200 and centralising the purchasing activity and leaving the procurement to respective user units are the other activities to be carried out in the future.