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Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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.

Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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,
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Copyright 2000 by the National Academy of Sciences. All rights reserved.

Printed in the United States of America.

Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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.

Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
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Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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

Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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

Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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

Page viii Cite
Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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

Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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.

Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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

Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
×

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

Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
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Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
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Suggested Citation:"Front Matter." National Research Council. 2000. Surviving Supply Chain Integration: Strategies for Small Manufacturers. Washington, DC: The National Academies Press. doi: 10.17226/6369.
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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

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The managed flow of goods and information from raw material to final sale also known as a "supply chain" affects everything--from the U.S. gross domestic product to where you can buy your jeans. The nature of a company's supply chain has a significant effect on its success or failure--as in the success of Dell Computer's make-to-order system and the failure of General Motor's vertical integration during the 1998 United Auto Workers strike.

Supply Chain Integration looks at this crucial component of business at a time when product design, manufacture, and delivery are changing radically and globally. This book explores the benefits of continuously improving the relationship between the firm, its suppliers, and its customers to ensure the highest added value.

This book identifies the state-of-the-art developments that contribute to the success of vertical tiers of suppliers and relates these developments to the capabilities that small and medium-sized manufacturers must have to be viable participants in this system. Strategies for attaining these capabilities through manufacturing extension centers and other technical assistance providers at the national, state, and local level are suggested.

This book identifies action steps for small and medium-sized manufacturers--the "seed corn" of business start-up and development--to improve supply chain management. The book examines supply chain models from consultant firms, universities, manufacturers, and associations. Topics include the roles of suppliers and other supply chain participants, the rise of outsourcing, the importance of information management, the natural tension between buyer and seller, sources of assistance to small and medium-sized firms, and a host of other issues.

Supply Chain Integration will be of interest to industry policymakers, economists, researchers, business leaders, and forward-thinking executives.

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