Case Studies: Developing Collaborative Supplier Partnerships
Early on Dell Computers recognized the benefits of collaborative supply chain relationships and adopted the practice while developing its “Dell Direct Model” in 1995. This innovative model of efficiency included something the computer industry had never experienced: a high velocity, low cost distribution system with direct customer relationships and build–to–order manufacturing. By instituting collaborative supplier relationships, Dell Computers was able to achieve significant cost savings and maintain a competitive advantage over competitors for several years.
To accomplish this, Dell first pared down its supplier companies from 204 to 47. Then, in order to operate on a just–in–time (JIT) inventory basis, these suppliers warehoused their components only 15 minutes from the Dell factory. This JIT inventory system decreased inventory costs and led to a 6% profit advantage in components which was passed along to consumers, while reducing inventory from 30 to 13 days- well ahead of the industry average at the time of 75 to 100 days. Other advantages of Dell’s JIT system included easier customization of computers to customers’ exact specifications, lessened likelihood of obsolete raw materials, ability to adjust production levels to meet demand, and a finished product ready for shipment just 36 hours after an order was placed.
After a computer was assembled, it was sent to one of Dell’s many contracted shippers. In yet another move to decrease inventory, lower costs, and increase efficiency, Dell had these shippers house the monitors for their computer systems. By email, Dell would notify the appropriate shipper that a system was ready and at the same time the shipper would schedule the monitor for concurrent delivery to the customer. This resulted in a savings of $30 in freight costs per monitor, resulting in another way that Dell could pass on savings to consumers.
Integrated supplier and distributor networks were instrumental in the success of Dell Computers. By using a JIT inventory system, Dell’s inventory turnover time was reduced by 57% and production space expanded due to the decreased storage area needed for inventory. Without these relationships, Dell would not have been able to support a 50+% growth rate for 3 consecutive years that lead to $12 billion in annual sales by 1997.
As a small leather-goods manufacturer, Eric Scott Limited believes in improving supply chain operations through collaboration with suppliers and customers. By switching from a home-grown IT system to Made2Manage Systems’ VIP enterprise portal solution in 1999, Eric Scott Limited has been able to enhance communications with its partners both up- and down stream. Implementation of the system required overcoming suppliers’ issues before the advantages could be reaped.
One major concern of Eric Scott Limited was the protection of their customers’ data and information. To ensure customer privacy, the two companies worked out a sort of “hybrid hosting” where the collaboration servers are hosted by Made2Manage and the customer data is kept behind Scott’s firewall. This managed gateway approach allows for a relatively high degree of collaboration between the two businesses.
An advantage of the Made2Manage system was the ability it offered Scott to communicate through electric data interchange (EDI) with customers and suppliers. Orders come in by EDI where the Made2Manage system schedules them for manufacture and shipment and then sends notification to the customer. Also, this real time data is available on the portal where customers can access the site at any time to check on the status of their orders and pay their invoices on line.
Another benefit of the VIP software is that the system portal provides a collaborative forum for the suppliers. This allows suppliers to check on inventory status with the company and have pre-set reorder points for shipments. The portal also permits customers to exchange virtual design documents and store them, thereby reducing prototypes and the entire timeline from the product’s conception to its delivery.
Collaborative relationships managed through Made2Manage Systems’ software and technology allowed a small company like Eric Scott Limited to add big value in dealings with both suppliers and customers. As Scott expanded into new markets, VIP enterprise portal solutions offered them opportunities to provide additional services around product distribution. From managed gateways and forums for reordering and design development to EDI capabilities that schedule manufacture and shipment of orders, send customer notifications, provide 24 – hour online order checking and invoice payment options, Eric Scott Limited’s adoption of partnership collaboration techniques and use of technology have ensured benefits for all involved.
In 1997, Volkswagen (VW) implemented the modular consortium concept of supply chain management at its new assembly complex in their Brazilian plant. In order to for this concept to be successful, VW first had to drastically reduce its number of suppliers from 400 to only 8. Then, these 8 suppliers were invited to locate their bases of operations at the VW Brazil plant where they were provided with their own offices and staffs. In addition, VW asked them to each invest an additional $50 million in their respective modules. For agreeing to this investment and sharing of risk, the partners were guaranteed long-term contracts from 5 to 15 years.
At the facility, seven modules are sequentially integrated with each partner occupying a section of the plant and taking full responsibility for the quality control and mounting of complete assemblies. VW approves the final vehicle and the partners only receive payment on this completely finished product, and not on the individual parts as is the normal industry custom. By basically outsourcing the assembly operation, VW not only reduces its assembly labor costs, but is able to focus on logistics, engineering, quality assurance, and customer service.
This type of partnership has presented unique challenges for VW and the supplier partners to overcome. A plan of daily meetings, constant communication of all the partners, and the integration of 52 information systems providing immediate data access is used to coordinate their many activities. In order to prevent conflicts between the different staffs, wages and benefits are the same and all employees wear identical uniforms featuring a VW logo and their firm’s logo. Finally, a master craftsperson that takes personal responsibility for the vehicles performs final tests and conduct a pre-delivery functional audit to ensure quality standards and maintain conformity within the production process.
Although implementing the modular consortium has produced many challenges, the benefits are noteworthy. By introducing the modular concept, VW’s overall costs are down 15 – 25% and flexibility has increased due to the small number of suppliers. Also, individual customization of orders is made quicker through increased communication and easier decision making. Most importantly, gain sharing rewards of reductions in product defects and order fulfillment times, and improvements in on-time delivery and product performance have been seen throughout the plant. The success of this venture was made possible through planning, communication, and hard work to ensure quality standards – now VW and its supplier partners are reaping rewards through increased revenues.