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1 Bowling Green State University Management Faculty Publications Management 2002 Leverages Its Suppliers' Improvement Suggestions Janet L. Hartley Bowling Green State University, Bertie M. Greer Seungwood Park Follow this additional works at: Part of Operations Supply Chain Management Commons Reposiry Citation Hartley, Janet L.; Greer, Bertie M.; Park, Seungwood, " Leverages Its Suppliers' Improvement Suggestions" (2002). Management Faculty Publications This Article is brought you for free open access by Management at It has been accepted for inclusion in Management Faculty Publications by an authorized administrar of

2 Leverages Its Suppliers' Improvement Suggestions Author(s): Janet L. Hartley, Bertie M. Greer Seungwood Park Source:, Vol. 32, No. 4 (Jul. - Aug., 2002), pp Published by: INFORMS Stable URL: Accessed: 04/08/ :32 Your use of JSTOR archive indicates your acceptance of Terms & Conditions of Use, available at. JSTOR is a not-for-profit service that helps scholars, researchers, students discover, use, build upon a wide range of content in a trusted digital archive. We use information technology ols increase productivity facilitate new forms of scholarship. For more information about JSTOR, please contact support@jsr.org.. INFORMS is collaborating with JSTOR digitize, preserve extend access.

3 Leverages Its Suppliers' Improvement Suggestions Janet L. Hartley Bertie M. Greer Seungwook Park Department of Management, Bowling Green State University, Bowling Green, Ohio Department of Management Marketing, Norrn Kentucky University, Nunn Drive, Highl Heights, Kentucky Department of Management, California State University-Fullern, Fullern, California This paper was refereed. We examined 's ( cost reduction effort) -suggestion process from perspectives of its s. used save over $2 billion build collaborative relationships with its s. In our study, we observed four elements in its s' organizations that contributed 'S success: (1) a designating process champion, (2) engaging s in process, (3) motivating em ployees, (4) facilitating evaluation a implementation. Companies designing suggestion process should consider ways reduce delays during evaluation, minimize number of low value suggestions, involve entire supply chain. (Industries: transportation. Organizational studies: effectiveness,.) supply chains whose members can devise, Agile evaluate, implement real improvements are likely gain long-term competitive advantages. For this reason, many companies help ir s improve ir capabilities (Krause 1997, Krause et al. 1998, Watts Hahn 1993). They do so in several ways. Buyers provide feedback, offer training, share information, conduct improvement events at s' facilities (Dyer 1996, Krause 1997, Watts Hahn 1993). However, savvy supply man agers realize that ideas for improvements should flow downstream as well as upstream in supply chain. are Suppliers excellent sources of ideas leading higher quality, faster delivery, lower supply chain costs. In 1998, (now a division of Daimler ) its s removed over $2 billion in costs from ir supply chain (Walker 1998). These sav ings came from real improvements cost avoidance as part of ( cost reduction effort) rar than from price-reduction ultimatums. Sources of sav ings included reductions in packaging materials; use of alternative raw materials, such as plastics; sup use pliers' of lean manufacturing techniques. used solicit, track, analyze, eval uate, provide feedback on s' for making improvements. Improvement suggestions could address many aspects of supply chain. Sup pliers could suggest redesigning products, changing processes, modifying processes, reduc ing waste in packaging, improving logistics, designing administrative processes governing interactions. Conceptually, suggestion processes, such as, are similar employee-suggestion processes that are designed in crease employee involvement. Large companies, such as PPG, Nortel, Honeywell, Delphi, have formal -suggestion processes (Phillips 1999, Reilly 2000). However, supply-chain literature provides little on guidance how design effective -suggestion processes how de ploy se processes upstream in supply chain. The re,? 2002 INFORMS /02/3204/0020$05.00 Vol. 32, No. 4, July-August 2002, pp X electronic ISSN

4 published descriptions of -suggestion pro cesses focus on 's organization without ex ploring s' perspectives (Dyer 1996, Walker 1998). Overview In 1989, started save money, re duce waste, encourage its s improve (Dyer 1996). Although initially only for first-tier production-materials s, by 1998 in cluded all of 's direct s. The process was a formal mechanism for soliciting im provement from s, for analyzing evaluating, for generating engineer ing change orders if needed, for ensuring ap proved were implemented. In addition reducing costs, wanted move away from adversarial - relationships ward col laborative ones with its first-tier s. In its philosophy, emphasized sharing benefits build collaborative relationships with its s (Dyer 1996, Fitzgerald 1997). Each year set goals for its s. In 1998, goal was for all first-tier production-materials s reduce ir costs by five percent. measured as s' reduced costs from approved. Suppliers had lower prices equal saving from approved up five percent of price. its s shared cost above five percent of price. Chrys ler included in its overall rating scale. counted for 15 percent of overall rating. Quality, delivery, technology, cusmer service were remaining facrs, each counting for a percentage of overall rating. used specific goals measurement criteria for each facr. It calculated a 's overall rating by adding percentages for each of five facrs. encouraged s look for by (1) proposing product design changes, (2) reducing material-hling transportation costs, (3) explor ing internal opportunities, (4) redesigning work on facry floor, (5) lowering cost of purchases, (6) re designing business practices, (7) identifying or opportunities. Suppliers could submit propos als in any of se seven areas. Suppliers earned credit for approved that resulted in eir hard or soft. Hard were reduc tions current costs, such as reducing number of parts in a subassembly, reducing invenry by adopt ing cellular manufacturing, increasing number of parts per shipment by redesigning packaging. Soft In 1998, its s removed over $2 billion in costs from ir supply chain. avoided future costs rar than reducing cur rent costs. An example of soft was reducing cost of oling before production began. When approved a proposal, had immediately reduce price it charged Chrys ler. This motivated s implement approved quickly. To facilitate flow of information about within with its s, used an online tracking system based on Lotus notes. Usu ally, s' personnel accessed system via Internet submitted. In some cases, s at entered for sup pliers y managed. Although not a require ment, most s reviewed ir with a at before submitting m. Once were in system, a financial an alyst verified cost. The analyst immediately approved financially viable that did not change product or process. A engineer reviewed change production materials, product design, or 's production process. If necessary, 's engineering department would do testing issue change orders. After ap proved a proposal, a coordinar worked with appropriate implement changes. Research Approach As researchers, we conducted this study underst elements contributing 'S success. We Vol. 32, No. 4, July-August

5 Key Elements 's Approach First-Tier Suppliers' Approach Designating a process champion Engaging s in process Motivating Facilitating evaluation implementation Establish a strategy Develop suggestion process Manage suggestion process Exhibit a collaborative attitude Include in s' overall rating Share benefits with s Communicate importance Set specific company-wide goals Measure internal Recognize high performing Use information system for moniring Encourage open communication Focus on reducing processing time Monir Communicate with p management Develop internal cost-reduction processes Solicit ideas from second-tier s include contributions in ir overall rating Emphasize cusmer request gain credibility Set internal cost-reduction goals Measure internal Use continuous improvemenols improve internal operations Identify product design changes Follow up on progress by champion Table 1: Four elements were evident in its s' organizations. its s used slightly different approaches accomplish each element. gared data by interviewing personnel representatives from six first-tier s of produc tion materials. We interviewed personnel in They ld us how contact several p performers. We interviewed rep resentatives in 1999 regarding ir participation in 1998 process. They had been responsible for communication between ir companies with respect. The 1999 annual sales for se s ranged from $1 billion over $16 billion. Two of those we included in study produced metal products; four produced interior systems. We gared data using structured interviews, in terviewing two rep resentatives in person rest by phone. We asked following questions: (1) What is hisry of? (2) Can you describe process? (3) How is evaluated used Daimler? (4) What types of s participate in? (5) What facrs have contributed success of? Why? (6) What barriers have been encountered with? Why? (7) What are characteristics of most success ful participants? (8) What facrs contributed ir success? by We asked representatives following questions: (1) When was? your company first involved in (2) What processes are used within your company participate in? (3) What facrs facilitate? (4) What could be improved with? (5) What programs, if any, do you have with your s? Please describe se. We analyzed data using open-coding qualitative-research techniques described by Strauss Corbin (1998). We reviewed interview tran scripts for concepts grouped similar identify patterns draw conclusions. concepts Elements Contributing 'S Success We found four key elements in in its sup plier organizations that contributed success of : (1) designating a process champion, (2) en gaging s in process, (3) motivating em ployees, (4) facilitating evaluation implemen tation. Although elements are similar in in organizations, y used slightly different approaches some accomplish of m (Ta ble 1). 22 Vol. 32, No. 4, July-August 2002

6 Designating Within a Process Champion Cost-reduction activities compete with or organi zational tasks for resources. Unless an influential per son champions -suggestion process, or ganization is likely give precedence or activities, such as managing on-going operations or de veloping new products. Convincing design engineers test modified designs change specifications can be difficult (Hartley 2000). The champion of -suggestion process must gain support from p managers acquire resources for cost-reduction activities. We found that all six first-tier s had designated champions within ir orga nizations. Within, champion was manager of value-management continuous-improvement department in 's corporate procurement supply group. The Chrys ler champion was responsible for establishing strategy, developing process, measuring, reporting results, conducting training, providing rewards recognition. Ber nie Bedard, 's champion, contributed dramatic increase in from $150 million $2 billion from Bernie was highly spected Designating Suppliers' committed, enthusiastic, was re by s. a Process Champion Organizations In our interviews, representatives stressed importance in of designated champions within ir or ganizations. One commented that gain organiza tional support, a cost-reduction program needed a "charismatic inspirational-type leader." An or stated that his company's greatly improved when company made someone responsible for. Although champions' roles varied somewhat among s, all of m monired progress of ir submissions, tracked ir companies' progress ward goals, kept ir p man agers informed about this progress. One described his job as mirroring that of within. That is, he was responsible for educating in his company about process its importance, for making ir participation fun. 's Approaches for Engaging First-Tier Suppliers in Suppliers must expend resources create ideas, submit feasible, implement approved. was very successful in motivating s participate in. In 1998, over 90 per cent of first-tier s of production materials sub mitted. These, along with from s of nonproduction materials services, re sulted in over 13,000 submissions, an increase from 9,345 submissions in used a vari ety of methods engage s in pro cess. However, representatives agreed that 's collaborative attitude its inclusion of in rating s' were key facrs that motivated s participate. allowed s keep 50 percent of any attained that exceeded ir annual cost-reduction goals. During interviews, representatives focused on 's collaborative at titude rar than on 'S monetary benefits. In fact, only one of six representatives specifically mentioned monetary gains. However, five of six representatives stated that 's collaborative at titude motivated ir organizations participate in. One explained, " gets more (than or cusmers) because of ir attitude." Sev eral representatives commented that ir or cusmers required reductions in purchase-order prices without considering s' profit margins. Because truly reduced costs did not sim ply shift costs s, representatives claimed that obtained greater than ir com petirs did. used measurement accountability motivate s by including in s' overall ratings. Successful Vol. 32, No. 4, July-August

7 efforts develop s require s im prove retain or increase ir sales (Krause 1997, Hfield et al. 2000). used a similar ap proach. For a be retained by in long run, it needed an overall rating of 90 percent. If a did not participate in but had or wise perfect, it would get a rating of 85 percent. considered awarding new business s that had an overall rating of 95 percent or greater. First-Tier Suppliers' Approaches with Their Suppliers Although found that it was essential en gage ir direct s in, this was not case for first-tier s at time of our in terviews. Four of ac representatives knowledged that on y depended ir s for some opportunities. However, only two had established formal processes for obtaining sup plier suggestions, y modeled m after. They also integrated ir s' perfor mance in reducing costs in s' overall ratings. These two first-tier s reported that percent of ir s submitted, but only percent met ir cost-reduction goals. Furr research may reveal why goal attainment was low. Initial difficulties in learning how iden tify implement cost-reductions may be a normal part of life suggestion-process cycle; during its first few years, had similar results. However, first-tier s devoted fewer resources ir suggestion processes had less advanced systems than. Research on devel opment suggests that upstream s may lack technical capabilities resources needed make improvements (Hfield et al. 2000). We did not study organizations what elements second-tier s' used. Motivating 's Employees In addition engaging its s, had engage its own in process. 's s had be committed convince s of importance of participating, y had be open s' ideas. in finance, engineering, quality assurance, manufacturing had evaluate change ir products processes. A product-design engineer, for example, might be called upon evaluate proposed changes a part that he or she had initially designed have overcome natural resistance change. its s used internal goals measurement motivate ir employ ees. Each functional area had its own goals but Each year set goals for its s. was considered a initiative. By per suading functional areas that was an im portant companywide process supported by p man agement, insured that each function would allocate resources work on. In addition setting goals measuring perfor mance, visibly rewarded its s who performed well. For outsting, gave its spe cial luncheons use of new vehicles. It recognized m with large banners in workplace at annual celebrations attended by headquarters. The high-profile celebration in 1998 included members of Detroit Red Wings hockey team, which had won Stanley Cup that year. A study of employee-suggestion processes showed that ken rewards recognition are often components of successful processes (Ramelli Cooksey 1991). Although found that recog nizing its was effective, none of representatives mentioned recognition as an important motivar within ir organizations. Motivating Suppliers' Employees The champions had motivate participate in process. Chrys ler's as importance a cusmer lent credibility a 24 Vol. 32, No. 4, July-August 2002

8 sense of urgency activities. Within each sup plier's organization, individuals teams had identify improvement opportunities, develop, implement approved. All six of we s studied set specific goals measured against those goals in crease ' participation. One champion pro vided weekly progress reports plant managers p managers raise ir awareness of promote competition among manufacturing plants. Competition among 's plants increased participation in process. Facilitating Evaluation Implementation Within The online tracking system facilitated evalua tion. Or aumotive companies have also devel oped Web-based systems facilitate sugges tion processes (Murphy 1999). Such an information system reduces possibility that will get lost on someone's desk. 's champion s' champions all tracked progress of intervened when stalled. Cross-functional communication between Chrys ler's 's facili tated evaluation. Four of representatives credited open communication with em ployees with contributing 'S success. For ex ample, one commented, "Open communication is big difference (in )." Anor explained that meeting regularly with 's engineers en hanced ir mutual trust understing. This fa cilitated evaluation of. However, an or representative stated that, although communication with some s at was ex cellent, or s did not seem underst process. This representative believed that 's frequent changes in personnel sometimes made communication about difficult. Although approval rate for was 83 percent in 1998, s thought that ok o much time evaluate m, on average, 88 days. The spent most of this time in a queue waiting be processed. However, 88 days was 33 per cent lower than 1997 processing time. 'S success may have contributed long processing time. In 1998, received over 13,000. Those needing engineering review test ing ok percent longer than those that did not. This long processing time is a concern. Studies of employee-suggestion processes show that companies must quickly acknowledge, evaluate, provide feedback on suggestions insure that con tinue participate (DuPont 1999, Ramelli Cooksey 1991). Supplier-suggestion processes probably also re quire prompt responses. For instance, one representative commented that " submit ideas is costing us time energy, it won't work if proposal is sitting on someone's desk not being worked on." Thus, time lost waiting in a queue represents lost opportunities for. made reducing processing time a goal succeeded in reducing processing time by 43 percent in Supplier-Facilitated Evaluation Implementation Suppliers used structured programs identify evaluate ideas submit. Three of sup plier representatives said that ideas came primarily from efforts improve manufacturing operations. They described using Kaizen events, value analysis, value engineering meet goals. Kaizen events are structured improvement efforts that typi cally take one week or less. To develop pro posals, one identified least profitable products at a corporate level. A cross-functional team used Kaizen events identify ways reduce costs on those products. Two s ok a decentralized ap proach: Instead of establishing corporate cost reduction programs, y asked ir plants identify conduct ir own improvement activities. A cross-functional team reviewed plant-level before submitting m. Anor found opportunities in a combination of changes in product design im provements in manufacturing. At corporate level, cross-functional teams identified lower-cost designs Vol. 32, No. 4, July-August

9 using various techniques, such as product benchmark ing product teardowns. To ensure fresh ideas, teams relied on a design engineer or than origi nal design engineer. Supplier champions followed up on progress of ir ward approval with s. All six s used information system track ir. Proactive s could work with move stalled pro posals along. If a proposal appeared be stalled, champion would meet with person at who was evaluating proposal. The sup plier champion could n answer questions concern ing proposal. The representatives found such meetings be very helpful in gaining approval for ir in determining wher y needed submit furr meet goals. Implications for Managers An effective -suggestion process can remove waste from supply chain thus benefit both buy ers s. Based on our study of, we believe organizations should have four key elements successfully use a suggestion process: (1) a designating process cham pion, (2) engaging s in process, (3) moti vating, (4) facilitating evaluation A cost-reduction program needed a "charismatic inspirational type" leader. implementation. These elements are required in 's s' organizations. The, its s, s' s must invest in suggestion process ger reduce costs. However, reduce costs within supply chain, managers must also consider alternative of de ming price concessions from ir s. Pow erful s, such as Wal-Mart Ford, demed that ir s reduce prices or risk a loss of busi ness (Smith 1995, Negley 2001). After its acquisition by Daimler Benz, reverted this strategy for re ducing costs. In December 2000, new CEO of Daimler, Dieter Zetsche, demed a five per cent purchase-price reduction from its s begin ning in January 2001 with a furr 10 percent cut in 2002 (Green 2000). A powerful can force s comply with such dems quickly reduce its purchasing costs. By forcing its s make such price con cessions, buying organization shifts entire bur den of reducing costs its s. Suppliers are left find ways reduce real costs or independently suf fer margin losses. The does not have invest in processes, systems, personnel manage -suggestion process. Its administrative costs are refore lower than with a -suggestion process. However, deming price concessions is risky. Only a powerful is likely gain compliance. Relationships suffer when s believe that is profiting at ir expense (Smith 1995, Negley 2001). Lry (1998) writes that balancing power rar than leveraging power is a characteristic of suc cessful - alliances in aumotive in dustry. In addition, s may make price conces sions without effectively removing waste from supply chain without taking advantage of many opportunities reduce costs. Some ways of reducing costs, such as changing specifications, substituting ma terials, redesigning packaging, may affect product's quality or require 's approval. By simply requiring s make price concessions, s provide no mechanism help s navigate 's approval pro cess. A -suggestion process is a formal mech anism that ensures that 's staff members eval uate. Thus, after weighing costs benefits, many organizations will find a suggestion process be preferred alternative for reducing ir costs. Supplier-suggestion processes can be improved. Many suffer from delays in processing approving. Companies can reduce se delays in sev eral ways. To avoid being overwhelmed with low value suggestions, could set a threshold value for suggested opportunities. Alterna tively, it could limit participation its strategic sup pliers. Anor alternative would be evaluate only 26 Vol. 32, No. 4, July-August 2002

10 changes that affect product quality or, leaving s make or changes on ir own. To remove waste effectively, supply-chain members could institute a single chain-wide suggestion process, thus reducing duplication of effort. However, do this, members would have share detailed cost infor mation, which would require a high level of trust. In addition, some upstream s might need train ing in using continuous-improvement ols, such as Kaizen, value analysis, value engineering, product benchmarking. Because we focused on a single suggestion process a small number of s, we consider re sults of our study be explorary. In addition, six s we interviewed were good per formers based on 1998 measures. Because we did not include s that did not perform as well on, elements we describe may not explain all of differences in among sup pliers. However, our study shows that a successful -suggestion process can reduce supply-chain costs. Larger-scale studies are needed identify effec tive cost-reduction initiatives that can be applied across supply chain. References DuPont, D Eureka! Tools for encouraging employee sugges tions. HRMagazine 44(9) Dyer, J. H How created an American Keiretsu. Har vard Bus. Rev. 74(2) Fitzgerald, K. R Show s money. Purchasing 123(2) Green, J Can get blood from a? Bus. Week (3713) 56. Hfield, R., D. Krause, T. Scanneil, R. Monczka Avoid pitfalls in development. Sloan Management Rev. 41(2) Hartley, J Collaborative value analysis: Experiences from aumotive industry. /. Supply Chain Management 36(3) Krause, D. R Supplier development: Current practices outcomes. Internat. ]. Purchasing Materials Management 33(2) , R. Hfield, T. Scannell An empirical investigation of development: Reactive strategic processes. /. Oper. Management 17(1) Lry, J Supply chain management: The case for alliances. Harvard Bus. Rev. 76(6) Murphy, T GM's Harold Kutner: There's for free/ Ward's Au World 35(7) Negley, J Wal-Mart comes out swinging. 22(41) 16. nothing Home in this game Textiles Today Phillips, D Supplier Delphi aims cut costs, enhance vendors. Detroit Free Press, Aus, March 9. Ramelli, D. II, C. Cooksey How run a suggestion program. Incentive 165(10) Reilly, C How s make money for PPG. Purchasing line. Retrieved on Feb. 10 ( magazine / purchasing / ). Smith, D Ford faces 5. revolt. Ward's Au World 31(8) Strauss, A., J. Corbin Basics of Qualitative Research Techniques Procedures for Developing Grounded Theory, 2nd ed. Sage Pub lications, Thous Oaks, CA. Walker, D Supply chain collaboration saves $2.5 bil lion counting. Aumatic I.D. News (August) 60. Watts, C, C. Hahn Supplier development programs: An em pirical analysis. 29(2) Internat. J. Purchasing Materials Management on Vol. 32, No. 4, July-August