5 Steps for Mapping Sub-Tier Suppliers

5 Steps for Mapping Sub-Tier Suppliers to Capture Cost Savings

More than 70 percent of manufacturers polled in a recent IndustryStar survey highlighted that cost was the single greatest challenge holding them back from mapping their sub-tier supply base. Specifically, it was the labor intense nature of mapping suppliers that leaders concentrated on as the primary hinderance.

Coincidentally, 66 percent of these same supply chain professionals indicated that the cost reduction potential promised by sub-tier supply base visibility was the greatest area of interest for pursuing mapping their sub-tier suppliers.

As W. Edwards Deming put it, “The ultimate purpose of collecting data is to provide a basis for action.” 52 percent of respondents indicated time, and 30 percent cited what data to track, as additional headwinds to sub-tier mapping success.

Based on our survey results, it’s clear we as supply chain professionals need to find ways to reduce the cost of sub-tier data acquisition and reduce the time it takes to do the work, and we need to better define “what to track” in order to realize the end-to-end continuous improvement results possible through sub-tier mapping.

Define What Success Looks Like

Before you act, you need to determine what success looks like to increase your chances to achieve the results you desire. There are many fair arguments for mapping your supply base some of which include:

  • Cost Reduction
  • Lead Time Compression
  • Risk Reduction
  • Increased Visibility
  • Industry Certification Compliance (e.g., IATF, RosH, ITAR)
  • Quality Improvement
  • Increased Sustainability
  • Customer Requirements

Regardless of your reasons for mapping suppliers, be specific with your goals from the start to improve the likelihood of meeting or exceeded your targets. If you wish to accomplish more than just cost reduction, then you’ll need to outline those metrics as well to best balance competing tradeoffs.

As an example, achieving customer satisfaction while adopting a “risk management” perspective through sub-tier supplier mapping is often emphasized in certifications such as the automotive industry’s IATF 16949. One common compliance pitfall is losing perspective by not assessing risk and missing the link to secure customer satisfaction. This can happen as we develop the different elements within our Quality Management Systems (QMS) while trying to comply with certification clauses.

As Carlos Real, General Manager of Engineering and Ergonomics firm Sandalwood, suggests,“The best way to avoid a certification misalignment pitfall is to put all elements within the QMS through two tests: 1) Determine element priority based on the risk represented to the organization and the customer, and 2) Understand the link to customer expectations for that QMS element as it should be the guideline driving our actions.”

Below are five steps to aid your efforts in mapping your sub-tier supply base while reducing costs, time, and risk.

5 Steps for Mapping Sub-Tier Suppliers to Capture Cost Savings

1.  Analyze Your Tier I Spend

Obtain and segment your supplier data, number of suppliers, number of parts, annual spend by part, and commodity. Next, determine your tier depth by mapping to a depth that’ll nurture your business goals. Then, determine your supply base size. A multiple of 0.25 to 5 can be applied to each supplier tier by commodity. As a general rule, numbers can be assigned to commodity baskets to generate amore accurate estimate. For example, if you procure a Tier I coated casting part, then your supply based will include five total suppliers (Tier I Coated Casting+ Tier II Finished Casting + Tier III Machining + Tier IV Raw Casting + Tier V Raw Aluminum Ingot).

Next, define your ideal data inputs – the essential commercial launch data required to produce success. Every industry is different, so select inputs that’ll facilitate the greatest impact. Finally, to help you prioritize, allow people from varying functions across your organization to weigh in using a simple scoring chart based on ROI.  

2.  Select Team

Now that you’ve analyzed your spend, conduct a make-vs-buy analysis to benchmark, quote, and potentially select a third-party supplier to accelerate your initiative. Today, we have many options for mapping our sub-tier supply bases:internal resources, consulting firms, business process outsourcing firms, software firms, or a hybrid approach. Regardless of the method you select, there are several things you’ll need before you launch your project:

  • Finalized Estimates of Sub-TierSupply Base
    • Number of tiers, suppliers, and parts
  • Project Cost & Timeline
    • One time sub-tier supplier mapping project cost and timing
  • Cost for Ongoing Management
    • Per record cost is ideal
  • Data Acquisition Process
    • Detailed plan for processing, cleaning, and organizing data
  • Software to Store & Manage Data
    • Ongoing sub tier supplier data maintenance plan
  • Executive Sponsor
    • Who’ll support initiative and send initial communication to suppliers
  • Internal Project Champion
    • An experienced business expert to lead the initiative
  • Project Charter
    • Outlined game plan for success
3.  Deploy Project to Tier I Supply Base

Once you finalize your project charter and select your team, deploy your project to your Tier I supply base. As with all complex supply chain initiatives, experience, templates, tools, and up-front preparation make all the difference, so seek expertise in these areas to ensure you reach your desired results. Below are a few deployment best practices to ensure your project launches without a hitch:

  • ExecutiveCommunication
    • Crafting a formal letter and having your executive sponsor send it via email to your Tier I supplier CEOs works best
  • Weekly Project Meetings
    • Sending out a reoccurring touchpoint meeting will be necessary to ensure the team remains on track
  • Project KPIs
    • You accomplish what you track, below are some good metrics to start with for sub-tier supplier mapping projects:
      • Percent of Project Target Complete (by both # of Suppliers & # of Parts)
      • Percent of Project Actual Complete (by both # of Suppliers & # of Parts)
      • Average Time to Review &Input Record (Time for Suppliers + Parts)
  • Project Open Tasks
    • Issues will arise, have a home for them; name and claim them so they don’t derail project momentum
  • Executive Check-Ins
    • This meeting, usually monthly, will keep your executive sponsor informed of project status and enable you to use them to strategically “nudge” select suppliers
4.  Process & Present Data

Data will be coming in large amounts at a rapid pace, so having a data process will be crucial. Professionals are often surprised at the many data format types – e.g., paper, PDFs, emails – as they review their sub-tier supplier records.A robust data process should include seven core steps: reviewing, processing, storing, organizing, condensing, auditing, and delivering.

“The most efficient and effective way to do it is by working within a collaborative community, where effort and cost are shared. Collaborative communities that use a central source of verified supplier data provide a perfect environment in which to map out supply chains – making it simple for independent companies to ‘cascade invitations.’ The supplier then determines what information to make visible to whom,” says Sime Curkovic, Valluzzo & Lee Honors College Faculty Fellow, and Professor of Supply Chain Management at Western Michigan University.

Having data is a key accomplishment, but team members need to access it with ease to drive continuous improvement results. Think data management on day one. A world-class management solution should enable future data capture. If not, your data will “age” and you’ll incur expenses having your team members or external consultants periodically update it.

5.  Manage Data

Plan to spend 90 days mapping your sub-tier supply base because better data will yield better results. Once your sub-tier supply base is mapped you’ll need to manage the data moving forward to generate short-term and long-term cost reduction results. Let your data guide you; rank cost reduction and other optimization opportunities by cost impact, difficultly, and timing to prioritize projects that’ll generate the lowest risk and highest impact results.

Results to Expect

Your ROI from mapping your sub-tier suppliers can far exceed proven continuous improvement, e.g. spend analysis and lean extended enterprise, results. Many manufacturers of complex products spend 50 to 80 percent of their cost of goods from Tier I suppliers. To date, a major portion of continuous improvement focus has been on Tier Is whom have in turn often outsourced much of the value add, anywhere from five to 70 percent.

Thus, focusing on your Tier II+ suppliers presents substantial optimization opportunities, approximately five to 70 percent of your COGS. Below are some typical results you can expect beyond just cost savings:

  • Up to 20 percent Reduction for Direct Materials Spend
  • Up to 15 percent Cost Reduction for Indirect Logistics Spend
  • Up to 30 percent Reduction for Lead Times
  • Up to 20 percent Reduction in Supply Risk

Conclusion

Most businesses have no information on second-tier suppliers or beyond. Mitigating supplier risk and being able to respond quickly when disaster strikes is dependent upon having visibility of the supply base across all tiers.

One prerequisite is to create a coordinated global supplier database before moving on to build an accurate supply chain map detailing every supplier at every level. “All too often, companies rely on first-tier suppliers managing the lower tiers, with the result that buyers have no idea who those lower-tier suppliers are and what measure of compliance they hold, this is not sustainable,” says Curkovic.

Leading companies are starting to harness their extended enterprise of sub-tier suppliers to unlock greater, previously invisible cost savings. Thus, mapping your sub-tier suppliers has transitioned from being a nice-to-have to a must-have for those organizations that wish to maintain a cost edge over their competition.

Act on the words of Benjamin Franklin,“well done is better than well said.” Take action today by mapping your sub-tier suppliers to reduce supply costs, timing, and risk for tomorrow.

-William