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Minnesota Technology Magazine - Fall/Winter 2006

Common Bonds

How can you boost your company's bottom line and add new harmony to your business process? Start by cultivating exceptional supplier relationships.

BY PHIL BOLSTA
Phil Bolsta is a Blaine-based freelance writer.

Neal Benson, Lean Enterprise for Leroy Somer North American

It's a solid relationship. Kato Engineering, a Mankato-based alternator manufacturer, accounts for a significant amount of Winnebago Manufacturing's business these days. But Kato treats the Blue Earth-based Winnebago as a trusted partner, not a dependent vendor to be picked clean and cast aside for a lowercost provider.

Developing mutually beneficial relationships with vendors was a deliberate choice for Kato. "Back around 2000, we made a conscious business strategy decision to focus on our core competencies and reach out to form partnerships with our supplier base," says Neal Benson, director of Lean Enterprise for Leroy Somer North American, Kato's parent company. "Winnebago Manufacturing is one of many suppliers that have helped us become more horizontally integrated."

Kato's focus on strengthening its vendor relationships has paid off handsomely. Not only has the 350-employee company grown dramatically over the last few years, its on-time delivery rate to customers since 2004 is 98 percent, an almost unheard-of percentage for a manufacturer of customized heavy machinery.

The two companies talk daily about planning and scheduling issues, and Winnebago even included Kato in internal discussions about a possible expansion. "Because of our key role as a customer, we were working with them in the planning phase on how to expand in a way that best supported us in terms of process efficiency and product quality," Benson explains.

All things considered, viewing suppliers as collaborators is just plain common sense. "We look for the same things in suppliers that our customers expect from us—a quality product at a fair price, shipped on time," Benson says. "Obviously, just throwing orders over the wall to suppliers won't provide that kind of performance. You need to be very connected, particularly with a vendor like Winnebago Manufacturing because the parts it builds for us are designed to order."

ONE FOR ALL, ALL FOR ONE

Creating collaborative relationships is the centerpiece of best-selling author James Champy's latest book, X-Engineering the Corporation. "The book is about how to connect with suppliers and customers in fundamentally different ways," says Champy, whose groundbreaking book, Reengineering the Corporation, sold more than 2.5 million copies. "What I argue is that companies have to harmonize business processes—you have to harmonize how you buy with how people sell, and how you sell with how people buy."

Tom Bartoe couldn't agree more. "Integration with suppliers is part of our fabric—it's woven into who we are and what we do," says Bartoe, executive vice president of operations for Duluth-based Cirrus Design, the world's second largest manufacturer of single-engine, piston-powered aircraft.

Like Kato Engineering, Cirrus' efforts to optimize supplier relationships began with a strategic initiative. Launched in 2001, Cirrus' four-tiered plan has slashed costs, upgraded efficiencies, and hiked profits for itself and its suppliers. Here's what the Cirrus plan looks like:

Tom Bartoe, Cirrus Design

1) Supplier selection

In five years, Cirrus whittled its supplier base down from 470 to fewer than 125 vendors. Bartoe's team looked for low-cost providers that were willing to develop long-term relationships. This less-is-better philosophy has taken root throughout corporate America. "There's a general phenomenon of wanting to do business with fewer and fewer vendors," Champy says. "If you have to keep training vendors to do business with you, there's a cost associated with that."

Bartoe concurs. "We don't have to advertise or market as much, or do request for proposals," he says. "We can spend our time engaged in continuous-improvement projects and making the supply chain as lean as we can in partnership with our suppliers. We have absolute confidence that the suppliers we now have will have their supplies in our building when it's supposed to be and at very high quality."

Suppliers also benefit by getting a bigger piece of the action and a more secure line of business. They also have the opportunity to reduce their own costs. "The vendor can become more profitable if it can understand exactly how its product or service adds value to the customer," Champy says. "Sometimes vendors spend a lot of money in marketing, selling, distribution, and warehousing that they might not have to spend."

Bartoe supplies a telling example: "We ship propellers from Ohio to our facility in Duluth without any container," he explains. "There's no cardboard, there's no nothing. It's those kinds of projects that save everybody money. The supplier doesn't have to handle or package them, all they have to do is put them on a fixture cart, hook the carts together, and roll them on a semi-truck. We roll them off on this end, inspect them, and roll them right to the production line."

Jack Reiners, senior business counselor for the Small Business Development Center at the University of Wisconsin-Madison, suggests that companies should research the vendor instead of the product. "You want to establish a long-term relationship because dealing with the people is more important than dealing with the product," he says. "If you base your decision solely on a product-to-price basis, pretty soon you no longer have a relationship."

Your long-term profits also take a hit. "Unless you're operating with your vendors in a true open partnership way, you're leaving money on the table," Champy says. "The vendor just sees you as wanting to beat them down in price. And playing a pure price game is not enough today. If the relationship becomes adversarial, the vendor will not put any energy into helping you add value to your business."

Reiners recommends quizzing other customers of the vendor you're considering. Did they receive quality products? Did they provide a high level of service? Were shipments delivered on a timely basis? "For almost any business, those kinds of things are more important than a very small price differential," he says.

2) Supplier development

Twice every year, Cirrus conducts a supplier symposium attended by roughly 80 percent of its supplier base. "Our objective is to encourage relationship building, initiative creation, and the mutual exchange of feedback on supply-chain related issues," Bartoe says.

Astandardized manual covering supply-chain interaction is provided to each vendor to clarify expectations. "We're in a regulated industry, so we want to make it clear what the Federal Aviation Administration's requirements are and how that overlays into quality," Bartoe says.

Supplier development is always top of mind at Cirrus. "Not only do we work on the commercial aspects of the relationship, we actually work on developmental projects that benefit both companies," Bartoe explains. "In essence, we figure out better ways to work together."

Ideally, a vendor becomes a virtual employee. "You have to take down the walls of your company," Champy says. "You have to make how your company operates more porous and more accessible to your suppliers by increasing the transparency of how you operate. A lot of people are afraid of that—they believe they have company secrets they have to protect. The truth is, there's very little that you need to hide from suppliers."

Transparency allows your suppliers to begin thinking about how to create additional benefits. "If you're willing to show your vendors how you're using their products, even how you unpack what they ship to you, they can change how they operate to benefit you," Champy says.

3) Continuous improvement

Cirrus suppliers expect to be relentlessly challenged to elevate their game. The ultimate objective? A model lean enterprise supply chain. "Continuous-improvement projects are where you get the greatest benefit," Bartoe says. "We approach it from a total-cost-of-ownership point of view for both us and the supplier. It's all about eliminating waste."

That mandate includes everything from reducing conveyance costs to just-in-time delivery to integrating suppliers—literally— into its infrastructure. Indeed, onsite representatives from four different suppliers are permanently stationed at Cirrus' vendor mall to reduce the amount of feedback time for quality-related issues, particularly those regarding such elements as engines and other high-dollar, high transport- cost items. "We now have 3,000 airplanes in the field, and it's helpful to have onsite reps available to help us address field issues as well as questions that come up in the manufacturing line," Bartoe says.

One recent project culminated with Cirrus sending barcoding software to all of its suppliers to circumvent potential incompatibility issues. "We engage in a fair number of lean design projects in concert with suppliers," Bartoe notes. "Some of our suppliers are not big companies, so they appreciate our involvement to work with them to figure out how to do some of these things with mutual cost benefit."

Good things happen when a company and its vendors work together to redesign business processes. "Companies benefit when they view their vendors as resources, as fonts of knowledge relative to the industry," Reiners says. "Vendors can add value by offering suggestions for improved use of the product, improved ordering processes, and the like."

4) Relationship management

Managing the vendor relationship is an ongoing process. All of Cirrus' key suppliers visit the company's facility at least once a month for sit-down discussions about problem areas; R&D possibilities; and how to do what they do better, faster, and cheaper. Cirrus also visits supplier sites to offer workshops on lean manufacturing and supply-chain techniques. Occasionally, Cirrus also conducts statistical workshops to train vendors in Six Sigma processes.

If Bartoe had to boil relationship management down to two words, they would be "constant communication." "We do frequent conference calls to keep in touch with our vendors' processes," he says. "There are a couple vendors that are out of the country that we call at least once or twice a week, and sometimes daily, depending on what's going on."

Another important piece is appreciation and rewards. Cirrus names a Supplier of the Quarter and a Supplier of the Year, and heavily publicizes the winners in its corporate literature. Plaques—including photos of the winners' products—are displayed in Cirrus' lobby. A quarterly publication called Supplier Squibbles offers more recognition to deserving vendors. Suppliers can also advertise at a number of Cirrus-sponsored annual events. But perhaps the greatest benefit to Cirrus' vendors are the networking opportunities at the company's twice-yearly supplier symposiums. Those informal chats have led to numerous and profitable subrelationships among the company's supplier base. "Most of our suppliers will tell you that their relationship with Cirrus has helped them conduct business more efficiently and grow their business dramatically," Bartoe says.

Ultimately, when adversaries become allies, everybody wins. The "X" in X-Engineering the Corporation stands for crossing boundaries," Champy says. "'X' also marks the spot where valuable solutions emerge for all participants and shared goals lead to mutual prosperity."

Note: To find out how MTI's Business Services can help with your lean- and vendor management- related issues, click here.

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