How to Unlock Cost Savings by Mapping Sub-Tier Suppliers

How to Unlock Cost Savings by Mapping Sub-Tier Suppliers

Customer Certification Requirements are Changing the Landscape

Why This Matters

  • Gaining Tier II+ supplier visibility to reduce waste in the supply chain is arguably the greatest unexplored cost optimization frontier for supply chain professionals today, offering an exponential ROI.
  • Similar to the reduced lead time, inbound logistics costs, and inventory results that’ve been realized by including your Tier Is as part of your lean extended enterprise, multiple ROIs are possible by involving your Tier IIs, IIIs, and IVs, due to the substantial value add concentrated at many sub tiers.
  • Ongoing supply chain disruption risk reduction can prevent costly downtime. New product launches offer further potential with the idea of “launching new products the right way, every time” to avoid issues later on.
  • Knowing your Tier II+ suppliers is now a requirement in several industries; however, OEMs and accounting auditors have been overlooking compliance due to the practicality and time it takes for suppliers to become compliant. This practice has rapidly shifted with recent advancements in sub-tier supplier mapping software capabilities.

Where to Generate the Most Cost Savings

  • The information, best practices, and relationships you and your team have at your disposal could make a significant short-term cost savings impact at Tier IIIs. Recommend areas Tier III suppliers can improve, alternative lower-cost suppliers, and how to implement cost savings.
  • The buy that your organization controls as a Tier I will likely dwarf Tier IIs and IIIs, so pooling together common raw material, component, and services can generate savings. Once sources are determined, assume a lead or adviser negotiation role to help Tiers realize cost savings.
  • Mapping your supply base network at the part level will be eye opening in many cases and will point out inefficiencies. Specifically, less truckload and backhaul opportunities for part processing lend themselves to quick cost reductions.
  • Many Tier II and III manufacturers have grown through company acquisitions or business transfers. As such, a thorough review of your supplier’s suppliers should highlight suboptimal purchases and allow you to recommend adjustments to consolidate value-add-reducing secondary processing costs.

Visibility Challenges

  1. Supply Disruption (Risk)
  2. Time Delays
  3. Cost (people intense effort to map supply base)
  4. CEO Buy-in to Support Project
  5. What Information to Track
  6. Home for the Data
  7. Customer / Certification / Audit Compliance Requirement
  8. Accuracy / Format of Data (electronic/PDF/paper)
  9. Supplier Willingness to Share Their Suppliers
  10. Ongoing Management of Data

Options to Map Your Supply Base

  • Internal Resources
  • Consulting Firms
  • Software Firms
  • Business Process Outsourcing (BPO) firms
  • Hybrid Approach

What to Track

  • Part Number
  • Part Description
  • Supplier Name
  • Supplier Plant Address
  • Manufacturing Process
  • Quantity Per Build
  • Capacity
  • Material
  • Certifications
  • Piece Price
  • Inbound Logistics Costs
  • Lead Time
  • Planned Maximum Inventory Units
  • Shipment Size
  • Standard Pack

Conclusion

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IndustryStar

IndustryStar

Supply Chain for Tomorrow’s Technology. Ann Arbor, MI.