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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
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THE NATIONAL ACADEMIES
National Academy of Sciences
National Academy of Engineering
Institute of Medicine
National Research Council
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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
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
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
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
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.
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
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
Tables and Figures
TABLES
5-1 |
Use of Manufacturing Technologies and Techniques, 1996 and 1994 |
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5-2 |
Use of Technologies and Techniques by Facility Employment Size, 1996 |
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A-1 |
General Characteristics |
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A-2 |
Capabilities of SMEs |
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A-3 |
Relations with Top Three Customers |
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A-4 |
Factors That Would Improve Probability of Supplier Success |
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A-5 |
General Characteristics of Subsamples |
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A-6 |
Capabilities of Large and Small SMEs |
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A-7 |
Capabilities of SMEs with Dispersed and Concentrated Customer Bases |
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A-8 |
Success Factors in Subsamples |
FIGURES
2-1 |
Increase in Subcontracting in the Defense Industry (Percentage of Total Product Cost) |
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2-2 |
Structure of a Typical Supply Chain |
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3-1 |
Supply Chain Management: Integrating and Managing Business Processes among Participants throughout the Supply Chain |
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9-1 |
Effects of Misalignment in the Supply Chain |
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9-2 |
Internet Trends |