OPS 395 Week 5 Supplier Relationships and Risk Example

One Controller Maker, Two Motor Plants and a Volatile Metal: Managing Supplier Relationships and Supply Risk

[Student Name]

University of Phoenix

OPS/395: Purchasing and Procurement

Week 5 Assignment

[Instructor Name]

[Date]

Fox Valley Washer Works, its suppliers, risks and figures are composites written for a model paper.

Over four weeks, the Fond du Lac washer and dryer builder in this course analyzed its spending, set category strategies, selected stainless steel suppliers and negotiated a supply contract. Two questions remain: how closely should it work with each supplier, and what could interrupt supply? This paper answers both.

Segmenting Suppliers

Fox Valley's top 40 suppliers, about 80 percent of spending, fall into four tiers based on the Week 2 portfolio, spending and difficulty of replacement.

Strategic partners (3): the main motor supplier, the touchscreen controller maker and the drive electronics supplier. Monthly meetings, shared forecasts and roadmaps, joint improvement projects, executive sponsors on both sides.

Preferred suppliers (8): including the primary steel mill, the bearing supplier and the casting foundry. Quarterly scorecard reviews, annual business reviews, 12-month forecasts.

Approved suppliers (14): competitive components such as fasteners, sheet metal parts and packaging. Scorecards, periodic rebidding.

Transactional suppliers (15 and the long tail): catalog purchasing, minimal contact.

Effort follows importance. A purchasing team of nine cannot hold monthly meetings with 40 suppliers, and it should not need to.

Developing the Motor Partner

Krause et al. (2007) studied supplier development and found that buyer commitment and the social capital built through communication, shared values and relationship investment were associated with improvements in supplier performance. Fox Valley's development plan with its motor supplier sets two goals over two years: a motor 4 percent more energy efficient for the next washer generation and on-time delivery above 98 percent from the current 94. Actions include a joint engineering team meeting monthly, Fox Valley sharing two years of field failure data and a supplier-led kaizen event on the motor packing and shipping process that causes most late deliveries. Fox Valley commits to five-year volume guidance and early involvement of the supplier's engineers in design.

Identifying Supply Risks

Zsidisin (2003) defined supply risk, from interviews with purchasing professionals, as the potential for failures linked to inbound supply, from individual suppliers or the supply market, that leave a buying firm unable to meet customer demand or that threaten customer safety. Fox Valley's team identified eight risks, looking one tier deeper for critical parts:

Single source for touchscreen controllers.

Semiconductor shortages affecting the controller maker's chips.

Stainless steel price volatility from nickel markets.

Motor supply concentration in two suppliers' plants.

Financial distress at small suppliers, such as the wire harness maker.

Quality escape at a casting supplier, causing field failures.

Freight disruption, such as a carrier failure or port delay for imported bearings.

Severe weather or fire at a key supplier's plant.

Fox Valley's controller supplier was secure; the chips inside its controllers were not.

Assessing the Risks

Every risk then received two scores between 1 and 5: likelihood first, damage second. The highest scores: controller single source, likelihood 3 and impact 5; semiconductor shortage, likelihood 3 and impact 5; steel price volatility, likelihood 4 and impact 3; small supplier financial distress, likelihood 3 and impact 3. Tang (2006) reviewed supply chain risk management research and described strategies such as postponement, strategic stock, flexible supply bases and sourcing flexibility that make supply chains more resilient as well as efficient. Several apply here.

Responses

Controller single source: qualify a second controller manufacturer within 18 months using the specification engineering released in Week 2; hold 12 weeks of safety stock; own the tooling.

Semiconductor shortage: map the controller's key chips, agree with the supplier on a last-time buy of two years of the most constrained microcontroller and approve an alternate chip in the next controller revision.

Steel price volatility: index pricing passes changes through predictably; marketing will review dealer price lists twice a year instead of once.

Motor concentration: keep the second motor supplier qualified at 20 percent of volume.

Small supplier distress: monitor credit reports quarterly for the 15 smallest critical suppliers and keep a short list of alternates.

Casting quality: add first-article inspection on new patterns and quarterly audits.

Freight: dual carriers for key lanes.

Plant disasters: business continuity questionnaires from strategic and preferred suppliers, reviewed annually.

Sharing Risk Information With Suppliers

Risk management works better when suppliers take part. Fox Valley will ask its three strategic partners to share their own sub-supplier maps for critical parts and to warn of allocation or capacity problems as soon as they see them, in return for Fox Valley sharing its 12-month forecast and early notice of design changes. The controller supplier has agreed to flag any chip it is buying on allocation. This exchange of early warnings costs little and could buy weeks of reaction time.

Sustainability and Ethics

Fox Valley's hotel and hospital customers increasingly ask about environmental and labor practices in the supply chain. A supplier code of conduct will be added to all strategic and preferred contracts, with self-assessments and audits for overseas suppliers of bearings and electronics.

A Disruption Rehearsal

Plans are tested before they are needed. In a two-hour tabletop exercise, the category managers, the plant scheduler and the sales director walked through a scenario in which the controller supplier's plant lost power for three weeks after a storm. The exercise showed that the 12-week safety stock would cover the outage, but also that nobody had been assigned to tell dealers about possible delays, and that engineering had not yet tested controllers from the second source on the newest washer model. Both gaps went into the risk register with owners and dates.

Measures and Reviews

Measures include on-time delivery and quality by tier, savings and cost avoided, the number of single-source parts for critical components, the share of strategic suppliers with continuity plans and supplier satisfaction from an annual survey. A quarterly risk review rescores the register and checks progress on responses.

Conclusion

Fox Valley's supplier management matches effort to importance: close partnership with three strategic suppliers, structured reviews with preferred suppliers and efficient buying from the rest. A development plan with the motor partner targets efficiency and delivery. A risk register built one tier deep shows that the controllers and the chips inside them pose the greatest danger, and responses combine prevention with contingency. Together with the sourcing strategy, selection and contracts from earlier weeks, these steps complete a procurement function that manages cost, quality and risk across the supply chain.

References

Krause, D. R., Handfield, R. B., & Tyler, B. B. (2007). The relationships between supplier development, commitment, social capital accumulation and performance improvement. Journal of Operations Management, 25(2), 528-545. https://doi.org/10.1016/j.jom.2006.05.007

Tang, C. S. (2006). Perspectives in supply chain risk management. International Journal of Production Economics, 103(2), 451-488. https://doi.org/10.1016/j.ijpe.2005.12.006

Zsidisin, G. A. (2003). A grounded definition of supply risk. Journal of Purchasing and Supply Management, 9(5-6), 217-224. https://doi.org/10.1016/j.pursup.2003.07.002