In contrast to supplier development, which primarily strives to create new suppliers or increase the use of existing smaller suppliers, supplier fitness program focuses on existing large suppliers. The object is to improve the supplier’s cost position.
This encompasses numerous measures that have a direct or indirect impact on costs and that are developed and implemented through a structured program:
- Preparation and selection phase: Supplier fitness programs are a complicated matter and cannot be undertaken for all suppliers. Thus, one must select
appropriate suppliers to include in the program. This in turn requires the creation of sector-specific questionnaires, as well as the internal and external analysis of product/process benchmark data. At the same time, visits to the supplier have to be planned. The aim of this preliminary work is to gain an understanding of the entire cost structure and product portfolio of the supplier.- Opportunity scan phase: Evaluation of the supplier initially means analyzing its processes, with a particular focus on purchasing and production. After identifying the cost-cutting levers, concrete activities that can boost the supplier’s fitness are devised, reviewed and recorded. Each of these levers must be based on positively identified cost improvement potential.
- Implementation phase: The measures are implemented in close collaboration between the supplier and the customer, initially in a pilot area. The pilot project is then successively extended throughout the supplier’s operation.
- Reporting phase: Implementation results and the consistency of implementation are kept under constant review.
As many companies are not able to maintain the broad base of in-house expertise required for this activity, consultants are frequently called in at this stage to work on supplier fitness in joint client/consultant teams.
Case example: Injection-control system at a producer of consumer electronics
A producer of high-quality consumer electronics found itself caught in the margin trap. On the one side, the market expected constantly falling prices paired with ever better performance. On the other hand, suppliers were increasing their prices due to rising raw material costs. This situation became particularly pressing with regard to housing components made of injection-molded plastic.
The supplier of the housings justified its prices based not only on raw material costs, but also on extremely tight production tolerances. The latter entailed an unusually high volume of rejects, which had to be sorted out by hand by the supplier. In the course of a supplier fitness program, particular attention was paid to this aspect. It soon became clear that the control setting for the injection nozzle, which was primarily based on empirical values, was causing the high level of rejects.
The supplier was advised to install a special instrumentation and control system which would automatically adjust the nozzle on the strength of feedback from heat sensors in the cavity of the injection mold. Thanks to this moderate investment, the rate of rejects fell to almost zero, while the consumer electronics producer paid twelve percent less for parts. In addition, the producer of injection moldings could now exploit the instrumentation and control system for all its customers, to the benefit of its own competitiveness and bottom line.
