February 2023 Volume 5

OPERATIONS & MANAGEMENT

diagnose, and depending on the corporate relationship, where you may be able to affect improvement. The last component is flexibility; can the supplier use the capacity they have proven available? What appears to be sufficient capacity can be quickly absorbed by poor manufacturing practice, a lack of robust production planning, shop floor inefficiency, unusual queue times, or sidelining of product that is dwelling too long in one work center or another. It could be equipment reliability or employee attendance. They may be practicing rudimentary or insufficient management of their supplier community! Readers of this article will range from smaller manufacturers to corporate giants – whether you can afford to employ supplier development engineering will depend on your size and staffing. But suppose a small company feels its manufacturing practices are portable and beneficial. In that case, even if you do not have a supplier development resource, you can muster the talent to help a supplier improve.That is, if the supplier is willing to learn how to use their capacity. Another approach – having a cadre of manufacturing consultants that can quickly be introduced to a struggling supplier once the issue has been diagnosed and is apparent. Now we have some context to discuss the segmentation of your supplier community. As mentioned, there is no standard template, but to communicate the concept of segmentation clearly, let me explain a model that has served me well across many supply chain management assignments in companies of all sizes. • Alliance Class – Alliance class sources represent a breakthrough opportunity to generate a competitive advantage and merit the development of a highly structured corporate relationship. Alliance Class sources represent targets for joint venture investment, research & development joint efforts, major technical productivity breakthrough, etc. The supplier's technological advantage is clear versus competitors. World class sourcing & supply chain management practices are employed. These companies are financially superior, with no development required. State-of-the-art equipment and well-defined process controls are evident. The supplier has proven highly competitive; displays world-class quality, safety, and environmental management. They have a history of participating in fact-based negotiations. • Growth Category – Growth category sources have a comparatively high position within the supply base. They have proven to be aggressive participants in technical productivity programs, and pricing is controlled by contract. Significant specialized, collaborative engineering is available. The supplier displays well-organized sourcing and supply chainmanagement practices. As with the alliance class, growth suppliers are financially sound with little development required. They likewise employ state-of-the-art equipment and have an easily communicated manufacturing system. Growth in the buying company's business with the supplier is likely during the next twelve months. • New Suppliers – Suppliers with less than one year of performance history are considered new, and the buying

company should practice constraints not to move too quickly with growth. Although there is optimism about the supplier, they are an unproven competitor. During the first year of business, the buying company must assess the supplier's willingness to have 'open book' responses to cost questions. The supplier maintains recognized third-party quality system registration. Financials are sound with essential equipment less than five years of age. • StableClass –This classification is reserved for growth category sources whose relative position within the commodity category they provide is declining. They have recently proven to be an inconsistent competitor. And maybe display resistance to open book responses to cost questions. Or they are experiencing questionable quality, safety, or environmental management issues. Once a supplier has been categorized as stable, they must move up and out of the new supplier segment within a year, or they will fall to transitional status. Stable class sources are restricted from growth in the next twelve months. • Transitional Suppliers – These suppliers display ongoing problematic tactical performance or low comparative position within their commodity supply base. They may be displaying an inability to recover from quality/delivery issues. Possibly, financial transparency is limited, or their financial status is questionable. Equipment investment may be limited, and process & quality control is declining. Once in the transitional category, these sources must exit the supply base within twelve months. • Unique Suppliers – These suppliers are customer-specified sources or single-source suppliers for critical materials or components. Growth is restricted unless unavoidable. The supply risk is generally managed with the on-site inventory at the buying company. Unique suppliers can move into the growth and alliance class ranks, but as they ascend, they must adhere to the buying company supplier requirements and display cost transparency. Supplier positioning must be continuously reviewed when a defined segmentation strategy is employed. It is suggested such work be performed no less often than quarterly. And the lowest rating defines the segment! For example, a growth supplier rated low in financial stability will drop to stable class with no chance of new business for one year. Our next installment will focus on diagnostic tools and supplier rating methodology as we continue to build on the tools and methods to create a strategic advantage for your company in supply chain management practice. Vic Venettozzi Vice President &General Manager Consolidated Industries, Inc. Email: Vvenettozzi@consolindustries.com Phone: 203-272-5371 x 273

FIA MAGAZINE | FEBRUARY 2023 45