Global Standards for the Global Supply Base

Achieving the "perfect lean market" in the auto industry has meant adopting universal standards to help suppliers in emerging markets achieve best-in-class performance

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By Terry Onica

A thriving global automotive industry depends on a standard level of performance for materials flow, no matter where the supply base is located. As original equipment manufacturers (OEMs) embrace lean manufacturing principles and seek to balance production with demand, it is paramount that the right supplier is at the right plant at the right time for production to stay on schedule. For automotive suppliers, this means delivery performance must be perfect, as there is a steep price to pay for inventory that's in the wrong place at the wrong time.

Now, as automotive manufacturers extend their supply chains to tap a global supply base, they also are adopting global standards that help suppliers in emerging markets comply with OEM requirements and demonstrate best-in-class manufacturing capabilities.

The Perfect Lean Market

Economists have proposed that having access to the right information at the right time is a major part of a "perfect" market. The principles of lean manufacturing are being adopted by automotive manufacturers everywhere, and the benefits of practical applications can be seen as companies implement enterprise resource planning (ERP) technology to automate business processes across systems, improving operational efficiency and customer satisfaction.

But achieving the "perfect lean market" is about more than just speeding up production and "slimming down" by eliminating waste in the production process. In the perfect lean market, manufacturing data move through the supply chain unconstrained by geographic, technical or business obstacles; it doesn't depend on human intervention to get data from one business partner to another. Also, in this same context, access to data by multiple functional domains within the distributed enterprise should be available as needed rather than constrained by standalone systems that support a single functional domain or even single business process.

E-mail, fax machines and telephones are still the mainstays of many manufacturing supply chain communications; however, data do not actually get into the end user systems any faster than people can re-enter the data — hopefully, accurately. By improving supply chain communications, manufacturers can get ever closer to achieving the perfect lean market.

Common Guidelines for the Global Supply Base

The perfect lean market exhibits more than waste minimization. The right data at the right time and place might help a manufacturer act before a supply chain or component glitch puts flawed products out to the marketplace. And when problems do occur, it is vital that issues be resolved quickly because time is money. To sense and respond to problems quickly, the right data must be accurate, available and accessible.

What's more, the perfect lean market can provide insight from your office into plants all around the globe. The right information at the right time could let you trace and recall only goods containing parts from a specific assembly lot. By introducing timeliness and clarity into supply chain communications, the perfect lean market could serve as a venue for trading partners to collaborate and achieve collective competitive advantage.

For manufacturers, the right supply-and-demand information at the right time can mean the difference between lean and wasteful operations. For this collaboration to take place, some kind of industry commitment is needed. A common set of guidelines gives shape to what can often be a fragmented and globally diverse supplier landscape.

An Industry Approach

Over the years, automotive OEMs typically established their own best practices for the way materials should be managed — internally as well as by suppliers — to achieve that balance. In 2004 OEMs and suppliers came together under the North American and European industry standards associations, the Automotive Industry Action Group (AIAG) and Odette to collaborate on how to streamline supply. The result was the Materials Management Operations Guideline/Logistics Evaluation (MMOG/LE), a self-assessment charter for measuring materials management efficiency within a supplier manufacturing facility. MMOG/LE provides a set of best practices for suppliers to assess and improve materials management, with an emphasis on using automation for increasing efficiency and streamlining processes.

For automotive suppliers, the global MMOG/LE self-assessment helps to identify what process adjustments are needed for world-class capabilities. It shows where enterprise technology can help automate processes to avoid manual processing of customer and supplier data. One major OEM that uses MMOG/LE with its supply base observed that using manual processes rather than automated systems for materials resource planning, barcode scanning and electronic data interchange (EDI) and the like resulted in more errors.

Since 2004, suppliers have reported noticeable improvements when MMOG/LE is used each year as a continuous improvement self-assessment. These have included such performance improvements as a 50 percent reduction in raw materials and finished goods, an 85 percent reduction in premium freight, and an 80 percent reduction in obsolescence costs.

Bringing Standards to Emerging Markets

Today global OEMs and multinational tier-one suppliers, in addition to using MMOG/LE in mature markets, are now introducing it to emerging markets such as Central and Eastern Europe, Russia, China, India and Brazil to help educate suppliers on best practices for materials management in automotive. MMOG/LE is used in order to save time and costs while helping to ensure effective, efficient management of materials.

The suppliers in these emerging markets are looking to adopt standards such as MMOG/LE that will help them implement best practices and demonstrate to OEMs and tier-one suppliers that they have global manufacturing capabilities. And the OEMs and tier-one suppliers use MMOG/LE guidelines as a development tool to help suppliers in these emerging markets ensure they have best-in-class manufacturing and materials management capabilities.

In addition, for OEMs and tier-one suppliers now working in these emerging markets, the long distances from overseas customers add another dimension to the supply-related risk that materials management guidelines were designed to eliminate. Labor- and materials-related cost savings — not to mention business relationships — could be wiped out by the expense of expediting a late shipment or the delay to exchange the wrong components for the right ones.

The MMOG/LE global guidelines help address some of the variables that impact supply quality and that keep inventory from getting to the cargo hold and to the customer. By encouraging suppliers to adopt technology for certain types of communication such as EDI and barcode data, materials management standards encourage automation and uniformity that makes the communication aspect of supply chain interaction more reliable.

Increasing Data Accuracy

In fact, MMOG/LE is already helping to bring new suppliers up-to-speed with the requirements of their multinational customers and industry practices. Having completed the MMOG/LE self-assessment last June, a long distance supplier to North and South America based in China was able to prove its global capabilities and achieve a perfect score on its delivery rating of 100.

A recent joint survey by AIAG and Odette of automotive suppliers that have been using MMOG/LE from one year to more than three years found that one of the most significant performance improvements from using the self-assessment tool was increased data accuracy. The use of such systems brings uniformity to data capture and communication, as well as providing a means of tracking and tracing the accuracy of data and how it was calculated. Beyond this, the use of technology in the materials process helps to get the right information to customers and suppliers at the right time. Manual procedures will not lead to best-in-class materials management process or consistent operations, which are both required for world-class performance.

Implementing MMOG/LE typically takes about six months to a year for most suppliers. For one supplier it involved conducting an internal self-assessment that was followed by a customer assessment of all its materials handling operations. After this self-assessment was performed they realized that they needed more than materials resource planning to meet their global materials requirements. They also needed to replace e-mail, telephone conferences and video conferences with EDI to communicate with customers. Then they integrated their EDI and ERP capabilities in order to execute global MMOG/LE best practices for tasks such as material release, shipping schedule and advance ship notice.

The MMOG/LE is a proven tool for supplier development and provides a recognized industry standard for improving materials management and logistics processes. There are many organizations in the automotive community that are interested in driving industry standards and that can benefit from global initiatives such as MMOG/LE. And standards such as MMOG/LE can be used as a benchmarking and development tool not only for the automotive industry but for manufacturers in such other verticals as electronics and industrial.

About the Author: Terry Onica is director of automotive marketing at QAD. More information at