This is part 2 of a 4-part series about supplier collaboration called Driving Innovation with Supplier Collaboration. This blog series explores the potential associated with open innovation in new product development.
In 1989, Chrysler Corporation implemented the SCORE (Supplier Cost Reduction Effort) program, an initiative aimed at enabling closer collaboration with their suppliers to reduce costs. Over the next seven years, Chrysler and 25 of its biggest suppliers saved an estimated $25 billion. According to then-Vice President Thomas Stallkamp, involving suppliers early in the design process played a key role in their success. Unfortunately, the program was scrapped in 1998 after the acquisition by Daimler-Benz.
Much more recently, The LEGO Group made headlines this year for the results of their unique supplier collaboration efforts. Working with suppliers, LEGO changed the sourcing of its beloved toy bricks. Their “botanical” elements—such as bushes, leaves, and trees—are now made from plant-based plastics. This is part of LEGO’s overall goal of moving toward sustainable raw materials in all of its products by 2030.
These stories demonstrate the potential for business success when supplier collaboration is part of the organization’s process and culture. When OEMs bring suppliers into the fold, the suppliers can provide innovative ideas for improvement and support enterprise initiatives.
Why OEMs Should be More Open in Supplier Relationships
In the last blog, I introduced why some manufacturers hesitate to collaborate more closely with suppliers. They believe that to successfully benefit from supplier collaboration, they need to give away mission-critical business information. However, manufacturers can’t successfully innovate and optimize their products without some level of sharing – review my example on designing a new hydraulic pump in off-highway mobile machine design in that blog for more details.
When OEMs bring suppliers into the fold, the suppliers can provide innovative ideas for improvement and support enterprise initiatives.
Despite manufacturers’ caution, suppliers want to be more collaborative and open with manufacturers if manufacturers will extend a hand. According to a survey by 3M, half of the suppliers surveyed “have held back from making a strategic recommendation due to lack of incentive or openness.” Additionally, 25 percent of suppliers said that their partner organizations make them use technology or systems that negatively impact productivity and collaboration.
It all comes down to what kind of relationship a manufacturer is willing to have with their suppliers. Companies need to think more expansively about how to work with their suppliers. Having a close alignment between organizations’ engineering teams and suppliers lead to several benefits, such as:
- Knowledge exchange and coordination in real-time
- Reduced risk of inconsistencies
- Eliminated duplicative efforts
- Decreased chances of misunderstanding
The Impact of Industry 4.0 on Supplier Collaboration
Chuck Intrieri, a supply chain management expert, once said, “Collaboration is at the heart of successful supplier relationship management.” Although changing company culture around sharing information is the biggest step in supplier collaboration, both suppliers and manufacturers need access to the appropriate technology to easily collaborate.
Manufacturers can’t successfully innovate and optimize their products without some level of sharing.
The 3M suppliers survey found that 60 percent “of the organizations that suppliers work with are in the process of making major changes and upgrades to their systems and technology to become more digital and connected,” and 58 percent of these buyer organizations “already have fully modern systems in place.” Although progress is being made, manufacturing is still in the early stages of Industry 4.0 – a majority of manufacturers say that half their customers don’t have systems or processes in place to enable collaboration. New technologies and systems that stem from Industry 4.0 will continue to help the transformation in how manufacturers work with suppliers.
As Industry 4.0 continues to gain momentum, there is likely to be more reliance on suppliers and there will be much stronger motivation to work more collaboratively between OEMs and suppliers. But before true collaboration with suppliers can take place, there is one critical step to explore. My next blog will talk about this in detail: the procurement team.