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Fabricators

Reallocating Resources in Your Fabrication Shop

September 10, 2015 / , , , , , , , ,


If there is one operational pain point that every manufacturing executive faces, it’s resource allocation. From a strategic standpoint, it would be ideal for managers to make continuous changes within their operations, both in terms of equipment assets and human capital. However, budget and time constraints, an unstable market, and labor shortages are making it more difficult than ever for managers to gauge if and when resources should be reallocated.

In fact, according to research from McKinsley Quarterly, most companies rarely shift resources at all, even during times of financial crisis. Instead of making adjustments, many executives tend to “play it safe,” resist change, and, as a result, often limit their company’s growth potential.

If this sounds familiar, perhaps it is time to take a closer look at how you are distributing resources within your fabrication shop. Do you find yourself using the same strategies you have used for years, or are your tailoring your strategy to today’s market trends? For example, are you allocating more resources to your human capital to prepare (or respond) to the widening skills gap? What about technology? Are you considering new investments in software, automation, or other metal-cutting advancements to increase productivity or expand your market reach? Today’s leaders need to be sure they are making strategic choices that benefit both the company and employees, while avoiding the trap of making allocation decisions because “that’s the way they’ve always been done.”

Of course, the challenge is figuring out which investments will generate the best return. While there is always an element of risk to any strategic decision, the following are a few best practices today’s managers should consider when reallocating resources in their fabrication shops:

 

 

Fabricators

How Fabricators Can Benefit from Tooling Investments

July 10, 2015 / , , , , , , , ,


Most operations managers understand the importance of keeping productivity high and costs low. However, many managers fail to understand that in many cases, spending more in the short term is necessary to achieve the long-term goal of productivity.

This concept is especially true when it comes to metal-cutting tools. Because tools are consumables that need to be purchased and replaced often, it is tempting for managers to focus more on upfront cost. But as the following examples will explain, this strategy does not always offer the best return on investment.

Productivity Pays
At an event held earlier this year, Jacob Harpaz, CEO of Ingersoll Cutting Tools, explained why managers need to look beyond the price tag when investing in a new tool. According to Harpaz, featured here in Modern Machine Shop, a cutting tool can deliver improvement in three ways:

  1. Lower price
  2. Longer tool life
  3. Greater productivity

Although all three can be beneficial, Harpaz says choosing a tool with greater productivity will always offer the most lucrative return. Here’s why: For a representative machined part, Harpaz estimates that the cost of machinery represents 26 percent of the cost of machining a part; overhead represents 21 percent of the unit cost of machining; and  labor and raw material account for 28 and 22 percent, respectively. Meanwhile, the cost of cutting tools accounts for just 3 percent.

The implications of this are significant, according to Harpaz. Using the above estimates, dropping the price of the tool by 20 percent would only deliver a 0.6-percent unit cost reduction. The seemingly even greater change of increasing the life of the tool by a factor of 2 would still only save 1.5 percent. However, increasing productivity would increase the number of pieces the shop can produce in the same period of time, which means the labor cost, overhead cost, and machinery cost per piece would all decrease. Increasing productivity by 20 percent, thus, produces a savings of 15 percent overall, providing the greatest savings opportunity.

Benefits of Upgrading
With the above in mind, managers that want to get the best return out of their tooling need to remain open about investing in upgrades and new technologies In saw blades, advancements in tooth geometry and wear-resistant materials are providing significant improvements for many metal-cutting operations. This article from Canadian Industrial Machinery, for example, explains why the additional cost of a coating on a band saw or circular saw blade can be worth the investment, especially when cutting a challenging material or when higher performance is needed.

There is no question that high-performance blades will cost more. However, because they are able to cut faster and with more accuracy, they improve productivity and save money in the long run. O’Neal Steel, a Birmingham, Alabama-based fabricator featured in a white paper from the LENOX Institute of Technology, found that incurring a significant upfront expense to upgrade some of its blade was worth it. Before the upgrade, O’Neal was spending about $90 per blade, but the fabricator was only getting one day’s worth of cutting. “We had a fair margin, but we were constantly messing up material,” explains Jim Davis, corporate operations services manager. “Most people think it’s costing a lot of money in blades to switch. Well, that’s true, but when you’re cutting really tight tolerances, your blade’s going bad and the material lengths are off, you can add up money really fast and lose all your profits in just an hour or two if you have blade issues.”

For another job in its Knoxville, TN, location, O’Neal was only getting two days of cutting per blade, so they were going through three blades a week. Again, Davis upgraded from a blade costing $280 to one that was $40 more, and immediately his blade-life increased to seven days.. He estimates that in the long run O’Neal saved $600 a week, or an annual total of around $30,000. “That’s a radical change, about a 3:1 ratio on the life of a blade,” said Davis.

The Deciding Factors
Of course, not every upgrade will be worth the cost. The key is for managers to weigh the opportunity cost against the hard cost, considering the true benefits a new tool can offer and whether or not it will contribute positively to the bottom line. To do this effectively, managers need to work closely with their tooling partners to discuss the pros and cons of the different metal-cutting options, while also evaluating all of the factors that contribute to the cost of the cutting process. If the long-term benefit is there, managers need to be sure they aren’t being shortsighted by the price tag. As fabricators like O’Neal are finding, the upfront investment may offer higher productivity, as well as substantial bottom-line savings.

Fabricators

How Fabricators Can Benefit from Employee Engagement

June 10, 2015 / , , , , , ,


While the idea of empowering employees sounds a bit cliché, a growing number of managers are finding that operators who take ownership of their process or work area are truly invaluable. As discussed in a white paper from the LENOX Institute of Technology, employee “buy-in” can positively affect all aspects of an industrial metal-cutting operation, including quality, productivity, and in the end, the bottom line. Similarly, when employees don’t “buy-in” or feel disconnected from their job, those same business areas can be negatively affected.

Unfortunately, the latter seems to be more common. According to ongoing research from Gallup, about 70 percent of American employees are not engaged. Based on Gallup’s definition, this means that the majority of U.S. employees do not feel involved in, enthusiastic about, or committed to their work and workplace.

As a manager, the data may seem a bit disheartening. However, the good news is that U.S. companies have a prime opportunity for growth sitting right underneath their noses, or in the case of fabricators, standing right on their shop floor.

Bob Du Fresne, CEO of metal sheet fabricator Du Fresne Manufacturing, discovered this firsthand. About five years ago, Du Fresne was struggling to keep his fabrication business afloat, and the executive needed a new way to stay profitable. The executive, featured here in the Star Tribune, found that his employees were the answer.

Instead of his typical top-down management approach, Du Fresne decided to adopt a more employee-centered strategy that included shop-floor suggestions and innovation, lean manufacturing, and continuous improvement. The results are  impressive: Sales at the fabrication shop are growing, employment is up, old customers are returning, and workers are earning overtime.

“The employees focused their passion and talent and saved this company,” Du Fresne told the Star Tribune. “Employees have made thousands of suggestions, and we used 99 percent of them. That led to productivity and quality improvement.”

With results like that, it’s hard to argue against the impact employees can have on profitability. How, then, can you get your employees more engaged? While there are a variety of ways to accomplish this, the below strategies from EHS Today provide some solid best practices managers should follow:

As the Gallup research shows, many managers are missing the mark when it comes to employee engagement, and as a result, they could be hurting the overall performance of their company. In De Fresne’s case, taking the time to engage employees built a new level of trust among employees and management—a trust that he says “opened doors to a transformation journey for the company.” Perhaps employee engagement is the key to your shop’s transformation as well.

Fabricators

Lean Strategies for High Mix Fabrication Shops

May 10, 2015 / , , , , , , , , ,


Lean manufacturing is nothing new for industrial metal cutting companies. Principles based on continuous improvement, streamlining production, and machine efficiency have long changed the way metal fabricators operate. What has changed, however, is customer demand.

Today, fabricators simply must do more with less to stay afloat—cutting more in less time. For high-mix fabricators and sawing operations, the increased challenge is nothing less than daunting. With a few improvement techniques, however, increased productivity is tangible even for the most customized job and machine shops.

If you are a high-mix fabricator, below are a few strategies to help you operate as efficiently as your higher volume counterparts:

While it is a challenge for high-mix shops to achieve the efficiency of high volume metal-cutting operations, it is possible. Taking time to assess, and more importantly, implement changes to processes can help eliminate downtime, increase productivity, and maybe even boost volume.

As consumer demand increases, how will your high-mix fabrication shop deal with the pressure? Perhaps it’s time to look at your current production processes and see where you can make some changes. Even small improvements can have a big impact.

Fabricators

How Fabricators Can Prepare for Whatever 2015 Brings

April 10, 2015 / , , , , , , , , , , , ,


As we reported in our 2015 Industrial Metal Cutting Outlook, most manufacturers are expecting some growth in 2015, although no one expects it to be a banner year. “Modest improvement,” “slight gains,” and “steady” are just a few of the words being used to describe 2015 business prospects.

On Track
Based on recent data, those words seem fairly accurate. According to the latest report from Institute for Supply Management (ISM), activity in the manufacturing sector expanded in March for the 27th consecutive month, and the overall economy grew for the 70th consecutive month. However, it is worth noting that ISM’s readings for March were lower than February’s readings. Specifically, March PMI registered 51.5 percent, a decrease of 1.4 percentage points from February’s reading of 52.9 percent and, even more noteworthy, the fifth consecutive monthly decline. The New Orders Index registered 51.8 percent, a decrease of 0.7 percentage point from the reading of 52.5 percent in February. Even so, PMI and the New Orders Index readings were above the set thresholds of 43.1 and 52.1, respectively, which indicate overall growth.

Of the 18 manufacturing industries covered in ISM’s report, 10 reported growth in March, including fabricated metal products. As one respondent from the fabricated metal products segment told ISM, “Our business is still strong and on projection. Dollar strength is challenging for our international business.”

Planning for Growth
According to industry publication The Fabricator, most fabricators went into 2015 expecting steady growth, and many planned on investing in capacity-building equipment to prepare for increasing customer demand. “The fabricating industry is looking to add capacity to gear up for the unexpected,” the magazine said in its 2015 Metal Fabrication Forecast. “Custom fabricators are all too familiar with demand variability, and demand has become even more variable in recent years.”

Quoting findings from FMA’s 2015 Capital Spending Forecast, The Fabricator says most fabricators are planning to build capacity with more equipment. “Projected capital spending growth has slowed from the dramatic rebound seen postrecession—2015 projections are up only 3.5 percent over 2014—but the spending has shifted,” the magazine says. “Specifically, fabricators are expecting to spend much less on consumables and supplies (down almost 30 percent) and more on capacity-building machinery, especially in cutting and forming, where spending has jumped past prerecession levels.”

Ready for Anything
Regardless of whether or not you entered the year bullish or cautious, most industry leaders would agree that being proactive is the only way to approach today’s marketplace. While you may or may not be planning to add capacity this year, there are several other strategies you can use to prepare your operation for whatever 2015 brings.

In fact, a recent article from IndustryWeek suggests that there are five tests every manufacturer should run quarterly to gauge “factory readiness.” These include the following:

  1. Utilization versus capacity: Are utilization and capacity running even?
  2. Per-project profitability: Is per-project profitability acceptable?
  3. Client mix: Could the client mix be improved?
  4. Workload diversity: Will the current and expected workload allow for learning new skills and expanding the business?
  5. Sick time and personal time off: Are workers motivated to deliver exceptional work? If not, why not?
  6. As the IW articles notes, forecasting the future with any measure of precision is difficult under the best of conditions, and manufacturing tends to have less visibility than most industries. However, by regularly following and measuring your operation’s performance, fabricators can not only be better prepared for what might happen in the near future, but more importantly, be prepared to handle unexpected changes.

    Fabricators

    A Fresh Look at Safety in Your Fabrication Shop

    March 10, 2015 / , , , , , , , , , ,


    Every fabricator knows that safety is important. Unfortunately, many companies fail to understand that safety needs to be more than just a priority. Instead, it needs to be viewed as a value—something that carries a cost. Injured workers can’t be productive, which means safety directly affects your operations and your profitability. In fact, some fabrication experts argue that safety is a primary component of operational effectiveness.

    And, of course, if you value your employees at all, then treating their safety as a value should really be a no-brainer.

    But how do you position safety as a value? How do you ingrain it into the culture of your fabrication shop? Below are a few strategies that should help get you and your operation on the right track:

    • Set goals. Like any strategic endeavor, it starts by looking at your goals. For example, according to a recent article from Occupational Health & Safety, if your goal is to hit zero injuries, then you may need to re-evaluate.  “Zero injury goals are often more fodder for company posters and financial and vision statements than real, meaningful direction for an organization,” the author states.  Instead, the article suggests that the real goal should be safety excellence. “Zero injuries are a qualifier of our safety improvement efforts, not the primary goal if excellence is our journey’s purpose,” the author says.
    • Lead by example. Positioning safety as a value also starts with leadership, according to an article from EHS Today. Quoting research from Jim Spigener, a senior vice president at consulting firm BST Solutions, the article states that culture is the ultimate predictor of safety performance, and senior leaders make or break the culture of the company.  “To create a safety culture, leaders must behave differently,” the article states. To do that, Spigener believes that leaders need to “’get connected to their value for safety.’” Is safety only about meeting OSHA standards, or do you, as a leader, truly understand its value?
    • Make it visual. Another strategy for keeping safety at the forefront of everyone’s minds is to create visual reminders. This tactic has been especially effective for the LENOX team. About a year and a half ago, LENOX implemented the Safety Sticker program, which visually displays whether or not its operation has had any safety incidents. Here’s how it works:  Sticker dispensing stations and a safety calendar are located at every entrance to the facility, and every employee is required to put on a green sticker with the number of days “accident free” written on it. When a recordable accident occurs, everyone in the facility changes from a green sticker to a red sticker for a seven-day period. After seven days, everyone reverts back to the green sticker. According Matt Howell, senior manager, the program has been effective in several ways. “This system is a good rallying point for the facility and builds energy around safety,” Howell explains. “It has a strong behavioral impact as well. It puts safety on people’s minds when they put the sticker on at the beginning of the day and when they take it off at the end of the day. This ultimately promotes thought on safety and prompts people to think twice before engaging in an unsafe behavior/act.” While Howell admits it is hard to quantify the exact impact of the program, he says that it has played a huge role in recent safety gains: Thanks to the sticker program and a variety of other safety/behavior-based programs, LENOX has reduced the number of OSHA recordable accidents in its facility in 2014 by 73 percent.
    • Talk about it.  Perhaps the best way to reinforce the safety message is to talk about it—a lot.  Structural Steel of California, a leading industrial metal-cutting company featured in a series of case studies from the LENOX Institute of Technology (LIT), is intentional about communicating to employees that safety is a critical aspect of the metal products it fabricates, and that consistent message has evolved into an overall culture of safety within the company’s two North Carolina facilities. To facilitate this, managers hold a safety meeting every morning with the operators and a safety committee meeting every month.

    Fabricators

    Becoming a Value-Added Fabricator

    February 10, 2015 / , , , , ,


    By now, most managers have heard that winning business in today’s marketplace requires fabricators to become a “trusted supplier.” This is especially true as competition intensifies and metal-consuming OEMs streamline their supply chain.

    A recent report from Modern Metals, for example, states that more and more large manufacturing customers are starting “to winnow” their supplier list. “They want to deal with fewer and fewer suppliers, and work with them to help develop new products, improve and optimize products and improve delivery performance,” Christopher Plummer, managing director of consultancy Metal Strategies, tells Modern Metals. By working with only a select list of suppliers, Plummer states that customers want “closer, more cooperative relationships.”

    Of course, the question then becomes, how? How do fabricators build closer, more cooperative relationships with current or perspective customers?

    Perhaps the answer lies in some research coming out of the University of Tennessee. As reported by Forbes, university researchers studied some of the world’s most successful business relationships to learn the “secret sauce” for getting the most out of business relationships. The research project, which was funded by the United States Air Force, found that the answer starts with the intent of building a “a win-win relationship,” Forbes reports. The findings also revealed that the most successful organizations followed five rules when developing business relationships. According to Forbes, these five rules include:

    1. Outcome-Based vs. Transaction-Based Business Model
    2. Focus on the WHAT not the HOW
    3. Clearly Define and Measure the Desired Outcomes
    4. Pricing Model with Incentives that Optimize the Business
    5. Insight vs. Oversight Governance

    (To read more about these higher level strategies, you can check out the full Forbes coverage here.)

    On a smaller scale, this could simply mean adding on some additional capabilities to meet the specific needs of your customers. According to this white paper from the LENOX Institute of Technology, in addition to higher quality, tighter tolerances,  and zero errors, a growing number of customers are asking fabricators to provide value-added services.

    Waukesha Metal Products, a metal fabricator and metal former based in Sussex, WI, is a great example of what this could look like.  In a case study published by thefabricator.com, Jeffrey Clark, the company’s president and CEO, describes how Waukesha Metal Products evolved from a simple parts supplier into a provider of “best value solutions.”

    “We have provided them the solutions they need in metal forming, and that’s why we went from being just a tool and die shop to a stamping provider then to a metal former to a fabricator of assemblies for our larger OEMs that require those components,” Clark tells thefabricator.com. “We are now graduating into more and more complex assemblies as we go. We’re becoming much more integrated into the supply chain for the customer.”

    According to the article, the company accomplished this by some key investments in analysis software and automation, as well as some strategic acquisitions that enhanced their capabilities. You can read more about the company’s journey here.

    While there is no sure-fire formula for becoming a value-added supplier, these examples show that it can be done and, more importantly, that many companies are already doing it. By closely evaluating the needs of existing and potential customers—and then finding new, innovative ways to meet those needs—fabricators have a prime opportunity to add value to their customer relationships and their bottom line.

    Fabricators

    Choosing Metrics that Matter for Your Fabrication Shop

    January 10, 2015 / , , , , , , , , , , ,


    As most manufacturing experts will attest, measurement is the only way fabricators can truly optimize their operations. By choosing the right metrics, today’s managers are able to quantify their successes, identify areas for improvement, and anticipate possible failures.

    Unfortunately, knowing what to measure is the hardest part. When it comes to metrics, more is not always better. In fact, the goal should always be quality, not quantity. As this blog post from MESA International says, if you find your shop measuring things like parking space vacancy and food trucks, it’s probably time to re-evaluate.

    Choosing the right metrics for your shop needs to be a strategic decision, which means there isn’t a sure-fire formula. However, there are some basic guidelines that can help you gauge if you are at least headed in the right direction. Below are a few tips that may help:

    • Know the key categories. While metrics will vary depending on the size and type of manufacturing operation, there are few key categories that are a good starting point. According to a research project conducted by LNS Research and MESA International, there are four key operational metrics most manufacturers should consider. Based on results from a survey, the project found that Inventory, Efficiency, Quality and Responsiveness have biggest impact on average annual improvements in financial/business performance. The project also found that successful new product introductions (NPIs) and overall equipment effectiveness (OEE) were among the top individual metrics that contributed to positive financial/business performance. The detailed numbers behind all of these can be found in the eBook report, which can be downloaded here. A summary report of the project findings can be downloaded here.
    • Size doesn’t matter. Don’t think that metrics are only for high-volume, low-mix shops. Jett Cutting Service, Inc., a metal-cutting service center featured in a white paper from the LENOX Institute of Technology, knows this is certainly not the case. Orders are constantly changing at the Bedford Park, IL-based company, which runs 10 precision circular saws and 8 band saws and averages about 700,000 cuts a month. Because of this, Mike Baron, vice president, says he can’t rely on accurate forecasting to provide a buffer when bottlenecks occur. To combat this, Baron relies on daily measurement to not only monitor production, but to keep tabs on his operators and costs. Operators are required to track how many pieces they cut on their shifts, and if their totals are lower or higher than the goal set by Baron, it is addressed immediately.
    • Don’t fool yourself. The old adage that “numbers don’t lie” is typically true, but as this article from Forging magazine points out, people can manipulate them. Decision makers need to be sure they are not allowing themselves to be persuaded by selective use of data. “I often wonder if we have arrived at a moment in time when there is so much information available, and available so easily, and so cheaply, that we succumb to the temptation to select the most congenial facts, and ignore the rest that might make our immediate task more difficult,” the author asks. Optimization requires managers to closely choose and analyze their metrics, even if it means opening up a can of worms. Be selective, be fair, and when in doubt, re-check those numbers.
    • Benchmark. Knowing what your peers are doing is critical to staying competitive. One way to do this is to benchmark. According to management consultancy McGladery, the use of benchmarking is on the rise as companies look to offset the effects of the uncertain economy by reducing costs and improving effectiveness. “Benchmarking provides an objective analysis of existing business processes and insight into improving those practices, identifying gaps or inefficiencies,” the consultant firm says in a white paper. “It presents a measurement to make informed business decisions against, as well as develop strategies and create initiatives to provide a road map for growth, if not survival.” Interested to know how you measure up to your peers? Check out our exclusive study, Benchmark Survey of Industrial Metal Cutting Organizations, or the Financial Ratios and Operational Benchmarking Survey from Fabricators & Manufacturers Association, Intl.

    Fabricators

    Why Fabricators Should Consider Minimum Quantity Lubrication

    December 10, 2014 / , , , , , , , , , , , ,


    There is no question that coolants should be considered a critical part of your metal-cutting operations. They save you maintenance time, improve cut quality, and extend tooling life. However, not all lubricating options are created equally. As this blog post describes, managers have a wide range of fluid options available to them. And while coolant selection may seem like a small detail, it should be treated like any other operational purchase, with both strategy and cost in mind.

    One coolant choice that many fabricators overlook is Minimum Quantity Lubrication (MQL). This alternative option sprays a very small quantity of lubricant precisely on the cutting surface, eliminating any cutting fluid waste. In fact, many consider it a near-dry process, as less than 2 percent of the fluid adheres to the chips.

    MQL is great for smaller saws and for structural applications, both of which are popular in fabrication shops. This type of coolant application is most commonly used in precision circular saw operations, but it can also be used in band sawing as well.

    Below are just a few of the key benefits to using MQL over traditional flood coolants:

    • Lower long-term costs. Although MQL fluids typically cost substantially more per gallon, less than 1/10,000 of the amount of fluid is used. It also eliminates the need to invest in reclamation equipment such as sumps, recyclers, containers, pumps, or filtration devices.
    • Less waste. Another major benefit is that MQL is a much more sustainable option. As this article from Fabricating & Metalworking discusses, metal chips produced during MQL machining are much cleaner than conventional approaches. Near-dry chips are easier to recycle and more valuable as a recycled material. Conversely, “wet” processes like flood coolants produce “increased and on-going lifecycle costs in the form of energy consumption, chemical maintenance, water make-up, disposal of used cutting fluids, and then starting the cycle of waste/recovery all over again by replenishing consumed fluids,” the article states.
    • Less maintenance. The smaller amount of coolant means that less fluid sticks to the part.  This reduces the need to clean parts after cutting. Also, MQL fluids do not have to be diluted with water. Flood coolants, however, have to be mixed with water, and operators need to monitor the concentration as fluid is lost, water evaporates, etc.

    Managers need to be aware, however, that MQL application is a more sensitive process than flood cooling. Mist must be aimed precisely at the tool to be effective. Fluid selection, equipment, and material type also play key roles in proper MQL application. For a full description of what is needed to use MQL, including equipment and fluid types, download The MQL Handbook. This helpful resource also offers some “rules of thumb” and other important tips to consider before transitioning to MQL.

    As stated in the handbook, changing over to MQL is not as simple as just plugging in a lubrication system. It will require some research, upfront investment, and some training. However, it can offer significant advantages to your business, your employees, and the environment—three major reasons to at least consider using it in your fabricating and metal-cutting operations.

    Fabricators

    Supplier Management Strategies for Fabricators

    November 10, 2014 / , , , , , , ,


    In today’s competitive marketplace, it is tempting for fabricators to base their supplier relationships on price. Yes, quality may be important as well, but cost typically makes or breaks the deal.

    However, a growing number of manufacturing leaders are starting to place more value on their supply chain and seeing it as an enabler of business strategy. Aligning Supply Chains with Business Strategy, a report by Tompkins Supply Chain Consortium, makes a strong case for the importance integrating strategy with supply chain management. According to the report, 80 percent of participants felt it was important to connect your supply chain strategy with your business strategy.

    “We found that the better the level of alignment, the more likely it is that companies are achieving their objectives for cost reduction, customer service, and other metrics,” states Bruce Tompkins, executive director of the Consortium and author of the report. “The greatest take-away from this report is that the importance of an integrated strategy cannot be ignored.”

    There are many ways to strategically manage your supply chain. For example, this article from the Institute of Supply Management outlines a tool known as “supplier relationship management” (SRM). However, the first step in good supplier management is to clearly identify and define the relationships you currently have. “The Strategy Behind Choosing Strategic Suppliers,” an article published by IndustryWeek, divides supplier relationships into four categories:

    • Strategic suppliers are those suppliers that provide services or products that expose a purchaser to excessive cost or order fulfillment risk.
    • Key suppliers are those where alternatives exist, but resourcing would expose a purchaser (assume OEM) to above average cost or order fulfillment risk. Key suppliers are less “strategic” than strategic suppliers.
    • Approved suppliers are those where alternatives exist and resourcing exposes an OEM to average cost and order fulfillment risk. Approved suppliers are less strategic than key suppliers.
    • Basic suppliers are those where alternatives exist and resourcing exposes an OEM to only routine cost and order fulfillment risk. These suppliers are non-strategic.

    Paul Ericksen, author of the IW article, warns managers to make sure they categorize their suppliers carefully. While it might seem logical to throw suppliers of commodity products in the “basic” category, these types of suppliers can actually be strategic (“approved” or “key”) depending on how critical they are to your operation. “It is important to be highly disciplined such that suppliers are categorized solely based on the potential for negative financial impact that resourcing from them presents, not by the type of products they supply,” Ericksen says in the IW article.

    Once you have identified your strategic suppliers, the next step is to position those relationships so that they bring value to your company. A white paper from the LENOX Institute of Technology offers a few best practices:

    • Schedule on-site visits. Expect your prospective supplier to assume a “partner” role from day one by focusing more on service than on the sale of the product. To facilitate this relationship, start by asking for an on-site needs assessment. This gives you the opportunity to discuss your business goals in person, as well as providing the vendor with a full overview of your operation.
    • Do your homework on supplier claims. While many companies often promise unmatched service and technical support, the key is to look for companies that provide resource allocation metrics that support their claims. Do they have adequate field coverage? What is the tenure and continuity of their support team?
    • Include training in your purchase agreement. Most suppliers should be willing to provide some level of value-add training as part of the purchase agreement. This is especially important when it comes to your equipment and tooling providers. No one knows your production equipment better than the people who designed it, and they should be willing to share that expertise with you.
    • Expect thought leadership and self-service tools. Industry-leading partners should be able to support your business by providing informational and educational materials, as well as practical tools and services. You can and should rely on your supplier to be an industry thought leader that provides a steady stream of valuable industry trends data, operational strategies, and technical product information.

    In the end, today’s competitive marketplace requires manufacturers to focus more on value than on cost if the objective is long-term success. While cost-effective products provide short-term benefits, aligning the right suppliers with your business strategies—and then leveraging their services to achieve company goals—will likely offer a greater ROI than any product ever could.

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