Surviving Supply Chain Integration

Strategies for Small Manufacturers

Committee on Supply Chain Integration

Board on Manufacturing and Engineering Design

Commission on Engineering and Technical Systems

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers Surviving Supply Chain Integration Strategies for Small Manufacturers Committee on Supply Chain Integration Board on Manufacturing and Engineering Design Commission on Engineering and Technical Systems National Research Council NATIONAL ACADEMY PRESS Washington, D.C.

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers National Academy Press 2101 Constitution Avenue, N.W. Washington, DC 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competencies and with regard for appropriate balance. This study by the Board on Manufacturing and Engineering Design was conducted under MURC Grant No. 111-94-0007-00 from the Robert C. Byrd Institute and the National Institute of Standards and Technology. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the Robert C. Byrd Institute and National Institute of Standards and Technology. Library of Congress Cataloging-in-Publication Data Surviving supply chain integration : challenges for small manufacturers / Committee on Supply Chain Integration, Board on Manufacturing and Engineering Design, Commission on Engineering and Technical Systems, National Research Council. p. cm. Includes bibliographical references and index. ISBN 0-309-06878-9 (casebound) 1. Business logistics. 2. Small business—Management. I. National Research Council (U.S.). Committee on Supply Chain Integration. II. Title. HD38.5 .S897 2000 670'.68—dc21 00-008199 Surviving Supply Chain Integration: Strategies for Small Manufacturers is available from the National Academy Press, 2101 Constitution Ave., N.W, Lockbox 285, Washington,DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet <http://www.nap.edu>. Copyright 2000 by the National Academy of Sciences. All rights reserved. Printed in the United States of America.

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers THE NATIONAL ACADEMIES National Academy of Sciences National Academy of Engineering Institute of Medicine National Research Council The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. William A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council.

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers This page in the original is blank.

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers COMMITTEE ON SUPPLY CHAIN INTEGRATION JAMES LARDNER (chair), Deere & Company (retired), Davenport, Iowa STEVEN J. BOMBA, Johnson Controls, Inc., Glendale, Wisconsin JOHN A. CLENDENIN, Harvard Business School, Cambridge, Massachusetts GERALD E. JENKS, The Boeing Company, Chesterfield, Missouri JACK J. KLIM, JR., D&E Industries, Huntington, West Virginia EDWARD KWIATKOWSKI, Supply America Corporation, Chagrin Falls, Ohio HAU LEE, Stanford University, Palo Alto, California CHARLES W. LILLIE, Science Applications International Corporation, McLean, Virginia MARY C. MURPHY-HOYE, Intel Corporation, Chandler, Arizona JAMES R. MYERS, Kilpatrick Stockton LLP, Washington, D.C. JAMES B. RICE, JR., Massachusetts Institute of Technology, Cambridge OLIVER WILLIAMSON, University of California, Berkeley THOMAS YOUNG, Lockheed Martin Corporation (retired), Potomac, Maryland Staff of the Board on Manufacturing and Engineering Design ROBERT RUSNAK, Senior Program Officer (until October 1998) JOHN F. RASMUSSEN, Senior Program Officer (since November 1998) THOMAS E. MUNNS, Associate Director AIDA C. NEEL, Senior Project Assistant TERI THOROWGOOD, Research Associate Liaison with the Board on Manufacturing and Engineering Design FRIEDRICH B. PRINZ, Stanford University, Palo Alto, California Liaison Representatives BRAD BOTWIN, U.S. Department of Commerce, Washington, D.C. KEVIN CARR, National Institute of Standards and Technology, Gaithersburg, Maryland PHIL NANZETTA, Strategic Focus, Rockville, Maryland MARIA STOPHER, National Institute of Standards and Technology, Gaithersburg, Maryland STEVEN WAX, Defense Advanced Research Projects Agency, Arlington, Virginia CHARLOTTE WEBER, Robert C. Byrd Institute, Huntington, West Virginia

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers BOARD ON MANUFACTURING AND ENGINEERING DESIGN F. STAN SETTLES (chair), University of Southern California, Los Angeles ERNEST R. BLOOD, Caterpillar, Inc., Mossville, Illinois JOHN BOLLINGER, University of Wisconsin, Madison JOHN CHIPMAN, University of Minnesota, Minneapolis DOROTHY COMASSAR, GE Aircraft Engines, Cincinnati, Ohio ROBERT A. DAVIS, The Boeing Company, Seattle, Washington GARY L. DENMAN, GRC International, Inc., Vienna, Virginia ROBERT EAGAN, Sandia National Laboratories, Albuquerque, New Mexico MARGARET A. EASTWOOD, Motorola, Inc., Schaumburg, Illinois EDITH M. FLANIGEN, UOP Corporation (retired), White Plains, New York JOHN W. GILLESPIE, JR., University of Delaware, Newark JAMIE C. HSU, General Motors Corporation, Warren, Michigan RICHARD L. KEGG, Milacron, Inc. (retired), Cincinnati, Ohio JAMES MATTICE, Universal Technology Corporation, Dayton, Ohio CAROLYN W. MEYERS, National Science Foundation, Arlington, Virginia FRIEDRICH B. PRINZ, Stanford University, Palo Alto, California DALIBOR F. VRSALOVIC, Intel Corporation, San Jose, California JOSEPH WIRTH, RayChem Corporation (retired), Los Altos, California JOEL SAMUEL YUDKEN, AFL-CIO, Washington, D.C. RICHARD CHAIT, Director

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers Acknowledgments The Committee on Supply Chain Integration would like to thank the following individuals for their presentations: P. Jeffrey Trimmer, DaimlerChrysler; Frederic E. Rakness, Lockheed Martin; Susan Moehring, Institute of Advanced Manufacturing Sciences, Inc.; Dale Crownover, Texas Nameplate Company, Inc.; David Salazar, General Technology Corporation; Troy Takach, The Parvus Corporation; Robert Squier, Curtis Screw Company; and Charlotte Weber, the Robert C. Byrd Institute. The committee would also like to thank the representatives of the small and medium-sized enterprises who participated in the survey and the field agents of the Manufacturing Extension Partnership and the Robert C. Byrd Institute who administered it. This report has been reviewed by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the NRC's Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the authors and the NRC in making the published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The contents of the review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to the thank the following individuals for their participation in the review of this report: Bruce Blagg, Transformingit; Morris A. Cohen, University of Pennsylvania; Robert W. Hall, Indiana University; Robert B. Handfield, North Carolina State University; Bernard LaLond, Ohio State University; Terrance

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers Pohlen, University of North Florida; Joel Samuel Yudken, AFL-CIO, and Mohamad Zarrugh, James Madison University. While the individuals listed above have provided many constructive comments and suggestions, responsibility for the final content of the report rests solely with the authoring committee and the NRC. Finally, the committee gratefully acknowledges the support of the staff of the Board on Manufacturing and Engineering Design, including Robert Rusnak, study director (until March 1998); Thomas E. Munns, study director (until October 1998); John F. Rasmussen, study director (since November 1998); Teri Thorowgood, research associate; and Aida C. Neel, senior project assistant. The report was edited by Carol R. Arenberg, Commission on Engineering and Technical Systems

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers Preface In the early 1980s, it became apparent to many that manufacturing industries in the United States were losing their ability to compete in world markets. The erosion of domestic market share was particularly alarming in industries that had been the exclusive province of U.S. companies, including automobiles, machine tools, and electronics. Concerns about this situation led several government agencies and departments, among them the U.S. Department of Defense and the National Science Foundation, to ask the National Research Council to examine the problem and recommend solutions. Between 1986 and 1994, the Manufacturing Studies Board of the National Research Council undertook several studies in which they identified fundamental deficiencies in the way U.S. manufacturers addressed the issues of cost, quality, and time to market. One aspect of the problem that did not command sufficient attention at the time was the long-held belief on the part of U.S. manufacturers that the integration of manufacturing operations, both vertical and horizontal, always provides a competitive advantage. As manufacturers responded to these market challenges and learned more about their foreign competitors, it became increasingly apparent that too much integration could be a disadvantage. Therefore, many U.S. manufacturers began to focus investments and attention on honing their "core competencies" while procuring the rest of the goods and services required to produce their end products from others. This change in strategy increased their dependency on their suppliers and expanded the challenge of managing a diverse agglomeration of direct suppliers and suppliers to suppliers.

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers The range of products and services provided by these suppliers has become very large, making management of supply chains increasingly complex. This causes a variety of problems, not only for original equipment manufacturers (OEMs) and prime government contractors (the end-product producers), but also for other participants in these supply systems. With increasing market pressure to shorten product development cycles, reduce costs, and improve quality, suppliers too are facing more demanding managerial and operational requirements. Meeting these requirements can be especially challenging for small and medium-sized manufacturing enterprises (SMEs). Faced with these fundamental changes in the role of SMEs in manufacturing supply chains, the National Institute of Standards and Technology (NIST) and the Robert C. Byrd Institute (RCBI) requested that the National Research Council (NRC) identify the new, more demanding requirements for supply chain participation and recommend ways that SMEs could be assisted in addressing them. NIST oversees the Manufacturing Extension Partnership, a nationwide program that advises and assists manufacturing businesses with 500 employees or less on issues that affect their competitiveness in the changing manufacturing environment. RCBI is a national program whose mission is to create a quality supplier base for the U.S. Department of Defense and its prime contractors through "teaching factories," computer integration, and workforce development. Both organizations recognize that competent, competitive suppliers operating in efficient, modern supply chains are essential to the competitiveness of U.S. end-product manufacturers in world markets. In response to their request, the NRC established the Committee on Supply Chain Integration under the direction of the Board on Manufacturing and Engineering Design. To enhance the committee's understanding of SMEs, a survey was conducted of randomly selected SMEs from the NIST Manufacturing Extension Partnership database. In addition, a number of small, successful manufacturing suppliers were invited to meet with the committee for a firsthand exchange of ideas about the challenges and problems of participating in the integrated supply chains of large OEMs. The committee found that, although there is great diversity in U.S. manufacturing, successful SMEs possess a number of common capabilities. Nevertheless, the committee emphasizes that each SME must carefully assess its own circumstances in the rapidly changing business environment, identify gaps between supply chain requirements and its own capabilities, and find ways to fill the gaps. The committee's recommendations are based on the assumption that the focus on core competencies and outsourcing trends will continue for the foreseeable future and that

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers U.S. industry will follow the integrated supply chain model in its drive to remain competitive in the increasingly global economy. This report is not intended to be a definitive text on supply chain integration. Rather, it attempts to identify the converging effects of supply chain integration and changing technologies on SMEs and to recommend to SMEs and the manufacturing extension centers and technical resource providers that support them specific approaches for dealing with these issues. Some of the recommendations may seem very basic, but they are included because many SMEs have yet to take the basic steps essential for their survival. Comments on this report can be sent by electronic mail to bmaed@nas.edu or by fax to BMAED (202) 334-3718. James Lardner, chair Committee on Supply Chain Integration

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers This page in the original is blank.

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers Contents EXECUTIVE SUMMARY   1 PART I OUTSOURCING AND SUPPLY CHAIN INTEGRATION: REMAKING AMERICAN INDUSTRY     1   INTRODUCTION   13     Study Objectives and Approach   14 2   MANUFACTURING SUPPLY CHAINS   16     Outsourcing   16     Supply Chains   22 3   SUPPLY CHAIN INTEGRATION   24     Supply Chain Management   24     Concept of Integration   27     Costs of Integration   31     Benefits of Integration   33 4   INTEGRATION PROCESS   34     Supplier Selection and Development   34     Integration by Function   36     Integration by Process   36     Critical Success Factors   37     Metrics   38

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers PART II SMALL AND MEDIUM-SIZED MANUFACTURING ENTERPRISES IN INTEGRATED SUPPLY CHAINS     5   CAPABILITIES OF SMALL AND MEDIUM-SIZED MANUFACTURING ENTERPRISES   45     Committee Survey   45     Georgia Tech Economic Development Institute Surveys   49 6   QUALITY, COST, SERVICE, AND DELIVERY   50     Quality   50     Cost and Value   52     Cost Reduction   54     Added Value   55     Delivery   56     Service   57 7   BUILDING PARTNERSHIPS   59     Contracts   60 8   MANAGEMENT SKILLS AND HUMAN FACTORS   64     Leadership, Vision, and Strategic Direction   64     Supply Chain Integration   66     Management Skills   67     Risk and Innovation   68     Human Factors and Skills   69     Support   70     Learning and Redirection   70 9   TECHNOLOGY   72     Electronic Communications, Information Technology, and e-Business   72     Product Design Technologies   82     Process and Manufacturing Technologies   85     Sources of Technologies   86     Financial Issues   87 10   GLOBALIZATION AND PROXIMITY   89     Globalization   89     Proximity   90     Electronic Alternatives   91

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers 11   REQUIREMENTS AND CHARACTERISTICS OF SUCCESSFUL SMALL AND MEDIUM-SIZED MANUFACTURERS   92     Evolving Requirements   92     Characteristics of Successful Small and Medium-Sized Manufacturing Enterprises   94 12   ASSISTANCE FOR SMALL AND MEDIUM-SIZED MANUFACTURING ENTERPRISES   99     Manufacturing Extension Centers and Technical Resource Providers   99     Small Business Set-Asides   103     Other Resources   104     Assessments of Competitiveness   105 13   CONCLUSIONS   108 REFERENCES   110 APPENDIXES     A   SURVEY: CHARACTERISTICS OF SMALL MANUFACTURERS   115 B   CAPABILITY MAPPING   124 C   BIOGRAPHICAL SKETCHES OF COMMITTEE MEMBERS   126 GLOSSARY   131 BIBLIOGRAPHY   135 INDEX   141

OCR for page R1
Surviving Supply Chain Integration: Strategies for Small Manufacturers Tables and Figures TABLES 5-1   Use of Manufacturing Technologies and Techniques, 1996 and 1994   48 5-2   Use of Technologies and Techniques by Facility Employment Size, 1996   49 A-1   General Characteristics   120 A-2   Capabilities of SMEs   120 A-3   Relations with Top Three Customers   121 A-4   Factors That Would Improve Probability of Supplier Success   121 A-5   General Characteristics of Subsamples   121 A-6   Capabilities of Large and Small SMEs   122 A-7   Capabilities of SMEs with Dispersed and Concentrated Customer Bases   122 A-8   Success Factors in Subsamples   123 FIGURES 2-1   Increase in Subcontracting in the Defense Industry (Percentage of Total Product Cost)   17 2-2   Structure of a Typical Supply Chain   23 3-1   Supply Chain Management: Integrating and Managing Business Processes among Participants throughout the Supply Chain   25 9-1   Effects of Misalignment in the Supply Chain   77 9-2   Internet Trends   80