The first session at the Eye For Procurement event in Chicago yesterday offered a great case study of the benefits of investing in global supplier development programs. Brent Edmisten, Director of Strategic Sourcing & Manufacturing Strategy for Cessna Aircraft, led the discussion. Cessna is part of the Textron portfolio of companies. Brent began by giving a brief history of Cessna, being sure to toss in the fact that the A&D provider has manufactured the largest fleet of corporate jets in the world (4,500). So if you're thinking Cessna is just about flying lawn mowers -- my reaction every time I squeeze into one of their older piston aircraft -- you're in for a surprise.
Brent began his talk by discussing how Cessna's share price has increased from $30 to the $80 dollar range in a three year period based on management focus on such areas as return on invested capital and net operating profit. In fact, Cessna's ROIC improved from just over 13% in January of 2005 to over 33% by the end of last year, during part of the time period in which the manufacturer reduced its 3600 suppliers by 75%. Given these vast financial operating metric improvements in a short period of time, it's clear that much of Cessna's overall corporate strategy has been focused on better managing the bottom line. And they've done this by focusing on reducing procurement and supply related costs through innovative supplier development programs and strategic sourcing (from a partnering versus a hammer-driven approach). But Cessna's global approach to Spend Management is what is most insightful.
Cessna's approach to supplier relations can best be summed up in the following phrase: "we must be a good customer to have good suppliers". Brent told the audience of around 100 practitioners and consultants that they base their approach to managing their supply base on the practices of Honda and Toyota -- who are well known for developing suppliers -- rather than simply beating them up ala GM and dumping their corpses when they’re no longer of value.
What's most interesting about Cessna's case is about how they practice their supplier development philosophy on a global basis. To highlight this global approach, Brent cited the case of a Polish supplier to Cessna, PZL Swidnik, who was only reaching a 52% on time delivery level prior to Cessna's intervention and development program. He discussed how PZL had in place a typical "cold-war" management structure that functioned on a command and control basis, with little interaction between company leadership and rank and file managers. Cessna quickly realized that they would have to work around these managerial and cultural issues to achieve their desired operating metric improvements.
To improve PZL's performance, Cessna sent in a supplier development team to focus on cultural change and knowledge transfer. The approach also included lean training to help PZL become more efficient internally. As a result of the intervention, PZL is now exceeding 99% on time delivery and their quality level is "extremely good". In addition, Cessna has not seen any price increases from PZL, despite currency fluctuations and raw material price increases which would have otherwise driven up costs. Talk about putting an ROI on something that also reduces overall supply risk! Perhaps Airbus could learn a thing or two about supplier development from its smaller industry cousin.