Executive Briefings

How Delphi Automotive Got Real With Its Suppliers

"New business reality." That's an apt way to describe the position of any company that has just emerged from four years of reorganization under Chapter 11 of U.S. bankruptcy law. And it's precisely the challenge that Delphi Automotive faced back in 2009, when it sought to reinvent itself and shore up relations with an army of suppliers.

How Delphi Automotive Got Real With Its Suppliers

Delphi, a Tier 1 manufacturer of a wide variety of automotive parts, was spun off by General Motors in 1999. Burdened by the legacy of a high wage and benefits package, it entered Chapter 11 in 2005. After selling off a number of plants and other assets, it was acquired by a group of private investors and emerged from court protection from its creditors four years later. In 2011, GM sold its remaining stake in the company, making Delphi fully independent of its former parent.

Delphi created a supplier quality and development program after the 1999 spinoff, but there was plenty of work to be done during and after the Chapter 11 interlude. In that period, "we transformed the entire supply-chain organization to get in line with the realities of the new Delphi," says Sidney Johnson, senior vice president of global supply management.

A big part of the company's efforts was implementation of an Enterprise Operating System (EOS), which controlled how the entire business was run. But ensuring supplier quality was equally important.

Delphi was painfully aware that it had damaged a number of its supplier relationships during the Chapter 11 period, Johnson says. Its first step in repairing them was identifying the vendors on whom it wanted to focus. Roughly 600 of its 3,200 suppliers around the world account for between 80 and 90 percent of corporate spend, so they became the initial target for transformation.

Each supplier was to be judged on the basis of four main criteria: technology, quality, cost and overall value. "We wanted to be relevant to them," says Johnson, "but we also wanted them to be relevant to us."

In fact, Delphi set out to treat each supplier site as a unique location, for purposes of quality assessment. As a result, that 600 number ballooned to 6,000 individual evaluations. All were folded into a new Supplier Performance and Development Process (SPDP), which consists of 60 discrete processes that affect the quality of product. And Delphi would be satisfied by nothing less than a goal of zero defects.

Often the task would require the company to teach the fundamentals of quality, says Jeff Richards, director of global supplier quality and capability. The same set of metrics would apply to the on-boarding of new suppliers or programs, the goal being "a flawless launch."

To come up with those standards, Delphi drew on a number of sources. They included those of the Automotive Industry Action Group (AIAG), formed by stakeholders throughout the industry to streamline and harmonize business practices. The precepts of advanced product quality planning (APQP), created under the aegis of AIAG by GM, Ford Motor Co. and Chrysler, were especially valuable. They intersected with rigorous Six Sigma guidelines for continuous improvement in the rate of defects throughout the manufacturing process.

As if that weren't exhaustive enough, Delphi ranks each of its major suppliers against the quality-management system prescribed under the ISO/TS 16949 specification. Aimed at eliminating waste, defects and variation in product, it was developed expressly for the automotive industry.

All of this ties back to the heart of any effective modern-day supply chain: risk management. Richards says Delphi performs hundreds of on-site audits, concentrating on those that pose the greatest risk to the supply chain as a whole. Each supplier gets a rating based on its volume, application, complexity and history with Delphi. The manufacturer's assessment tool covers more than 100 points within a supplier's operation. Delphi can drill down to any particular area of concern when necessary.

Monthly scorecards detail any instance of non-conformance during that time. But Delphi's goal isn't to beat up on a supplier for the tiniest infraction. It's concerned with those problems that affect downstream customers, as well as the manufacturer's ability to gain new business.

The program has yielded measurable results. So far this calendar year, Delphi's suppliers have performed at the rate of three defective parts per million (DPM) - better than the Six-Sigma standard. Eighty-seven percent of suppliers have shipped without generating a single defect, versus 82 percent in 2012. And while that figure is far from perfect, consider that Delphi receives 6 billion parts per month - a massive amount of product to be monitored for error.

The ultimate goal, of course, is 100 percent defect-free. Whether that target is achievable is perhaps less important than its value as a driver for continuous improvement. Richards says Delphi takes a "no-tolerance" approach with each of its suppliers, an attitude that has resulted in "unbelievable gains."

It can also lead to the company surprising itself. "Fifteen years ago, if you had gone into any location and said can you get to three DPM realistically, many would have said no," says Richards.

Delphi's primary means of communicating with suppliers is through a portal that it owns and manages. Every issue must be documented through that tool, which links to 400 supplier quality engineers at plants around the world. The application dubbed Problem Solver relays Delphi's concerns to suppliers, while also serving as a platform for rating their performance. (Interestingly, the portal is tied to Covisint, the exchange that was originally developed by the Big Three U.S. automakers, but is now an independent entity.)

Yet another piece of the puzzle is Delphi's Supplier Quality University, formed a year ago. Both face-to-face and e-learning courses instruct students in the fundamentals of the SPDP initiative. At the outset, Delphi is schooling its own people, but expects to include suppliers once all of its regions are covered under the program.

Delphi's supplier-management regime isn't all about the stick. Each year the company honors its "best and brightest" suppliers with trophies at a Pinnacle Awards ceremony. Included among the candidates are vendors of direct and indirect materials, as well as logistics personnel.

There's a lot to be said for dreaming. But when it comes to keeping alive a major player in the unpredictable automotive business, dealing with reality is a far better option.

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Keywords: supply chain, supply chain management, sourcing solutions, automotive supply chain, inventory management, logistics management, supplier management, supply chain planning, supply chain risk management

Delphi, a Tier 1 manufacturer of a wide variety of automotive parts, was spun off by General Motors in 1999. Burdened by the legacy of a high wage and benefits package, it entered Chapter 11 in 2005. After selling off a number of plants and other assets, it was acquired by a group of private investors and emerged from court protection from its creditors four years later. In 2011, GM sold its remaining stake in the company, making Delphi fully independent of its former parent.

Delphi created a supplier quality and development program after the 1999 spinoff, but there was plenty of work to be done during and after the Chapter 11 interlude. In that period, "we transformed the entire supply-chain organization to get in line with the realities of the new Delphi," says Sidney Johnson, senior vice president of global supply management.

A big part of the company's efforts was implementation of an Enterprise Operating System (EOS), which controlled how the entire business was run. But ensuring supplier quality was equally important.

Delphi was painfully aware that it had damaged a number of its supplier relationships during the Chapter 11 period, Johnson says. Its first step in repairing them was identifying the vendors on whom it wanted to focus. Roughly 600 of its 3,200 suppliers around the world account for between 80 and 90 percent of corporate spend, so they became the initial target for transformation.

Each supplier was to be judged on the basis of four main criteria: technology, quality, cost and overall value. "We wanted to be relevant to them," says Johnson, "but we also wanted them to be relevant to us."

In fact, Delphi set out to treat each supplier site as a unique location, for purposes of quality assessment. As a result, that 600 number ballooned to 6,000 individual evaluations. All were folded into a new Supplier Performance and Development Process (SPDP), which consists of 60 discrete processes that affect the quality of product. And Delphi would be satisfied by nothing less than a goal of zero defects.

Often the task would require the company to teach the fundamentals of quality, says Jeff Richards, director of global supplier quality and capability. The same set of metrics would apply to the on-boarding of new suppliers or programs, the goal being "a flawless launch."

To come up with those standards, Delphi drew on a number of sources. They included those of the Automotive Industry Action Group (AIAG), formed by stakeholders throughout the industry to streamline and harmonize business practices. The precepts of advanced product quality planning (APQP), created under the aegis of AIAG by GM, Ford Motor Co. and Chrysler, were especially valuable. They intersected with rigorous Six Sigma guidelines for continuous improvement in the rate of defects throughout the manufacturing process.

As if that weren't exhaustive enough, Delphi ranks each of its major suppliers against the quality-management system prescribed under the ISO/TS 16949 specification. Aimed at eliminating waste, defects and variation in product, it was developed expressly for the automotive industry.

All of this ties back to the heart of any effective modern-day supply chain: risk management. Richards says Delphi performs hundreds of on-site audits, concentrating on those that pose the greatest risk to the supply chain as a whole. Each supplier gets a rating based on its volume, application, complexity and history with Delphi. The manufacturer's assessment tool covers more than 100 points within a supplier's operation. Delphi can drill down to any particular area of concern when necessary.

Monthly scorecards detail any instance of non-conformance during that time. But Delphi's goal isn't to beat up on a supplier for the tiniest infraction. It's concerned with those problems that affect downstream customers, as well as the manufacturer's ability to gain new business.

The program has yielded measurable results. So far this calendar year, Delphi's suppliers have performed at the rate of three defective parts per million (DPM) - better than the Six-Sigma standard. Eighty-seven percent of suppliers have shipped without generating a single defect, versus 82 percent in 2012. And while that figure is far from perfect, consider that Delphi receives 6 billion parts per month - a massive amount of product to be monitored for error.

The ultimate goal, of course, is 100 percent defect-free. Whether that target is achievable is perhaps less important than its value as a driver for continuous improvement. Richards says Delphi takes a "no-tolerance" approach with each of its suppliers, an attitude that has resulted in "unbelievable gains."

It can also lead to the company surprising itself. "Fifteen years ago, if you had gone into any location and said can you get to three DPM realistically, many would have said no," says Richards.

Delphi's primary means of communicating with suppliers is through a portal that it owns and manages. Every issue must be documented through that tool, which links to 400 supplier quality engineers at plants around the world. The application dubbed Problem Solver relays Delphi's concerns to suppliers, while also serving as a platform for rating their performance. (Interestingly, the portal is tied to Covisint, the exchange that was originally developed by the Big Three U.S. automakers, but is now an independent entity.)

Yet another piece of the puzzle is Delphi's Supplier Quality University, formed a year ago. Both face-to-face and e-learning courses instruct students in the fundamentals of the SPDP initiative. At the outset, Delphi is schooling its own people, but expects to include suppliers once all of its regions are covered under the program.

Delphi's supplier-management regime isn't all about the stick. Each year the company honors its "best and brightest" suppliers with trophies at a Pinnacle Awards ceremony. Included among the candidates are vendors of direct and indirect materials, as well as logistics personnel.

There's a lot to be said for dreaming. But when it comes to keeping alive a major player in the unpredictable automotive business, dealing with reality is a far better option.

Comment on This Article


Keywords: supply chain, supply chain management, sourcing solutions, automotive supply chain, inventory management, logistics management, supplier management, supply chain planning, supply chain risk management

How Delphi Automotive Got Real With Its Suppliers