The amount of risk within a given supply chain doesn't always depend on a company's size. That's especially true in the aerospace industry, where even the smallest supplier can have a huge impact on production schedules.
MPC Products Corp. is hardly an industry giant. A tier-two provider to such big aerospace names as United Technologies and Honeywell, it has annual sales of less than $200m. But MPC components, including electric motors, position sensors and other types of motion-control systems, are critical to the operation of many aircraft. So the company must carefully assess the vulnerability of its own supplier base.
That, at least, is the theory. But it wasn't until recently that MPC got a good handle on its universe of 1,000 suppliers, 200 of which are considered key vendors. Dale Gordon, vice president of quality, describes the old process as "a pound-the-prairie-dog approach." The company would address one supplier problem, only to have another pop up. There was no coherent strategy for making sure all suppliers were able to perform with reliability.
Complicating matters is a trend among end customers-big aircraft makers such as Boeing and Lockheed Martin-to shift responsibility for basic manufacturing further up the supply chain. A Honeywell or United Technologies goes from being a supplier of discrete parts to a systems integrator. Now it's delivering larger pieces of the plane, including an entire wing, landing-gear system or avionics cockpit suite, says Gordon. No longer can company executives, faced with a snag in manufacturing, simply go downstairs to the production line to make inquiries. Often the answer will lie in a different company altogether-even a different country.
A heavier workload for tier-one suppliers means more pressure on tier two and above. That's one reason why MPC has experienced a sharp rise in business, with revenues growing at 10 percent to 12 percent annually over the last 10 years. The complexity of the company's supply chain has increased as well, making it even more critical that MPC have intimate knowledge of its key suppliers.
Early on, MPC decided that it didn't want to build an expensive risk-assessment program in-house. So it looked to the world of outside systems. What it found was Open Ratings, a Waltham, Mass.-based unit of Dun & Bradstreet. The vendor combined software with a deep database of supplier information.
MPC was taking something of a chance with Open Ratings, given that the vendor's previous experience was mostly with tier-one suppliers. Due to the urgency of the situation, however, "we were willing to be a test case for them," says Gordon.
Need for Lead Time
Open Ratings promised to furnish MPC with what it had previously lacked: "lead time in terms of where supply chain disruptions were," according to vice president and general manager Jim Lawton. In other words, MPC wanted no surprises from its vendor base. If something was going awry, the company needed to know about it early enough to head off potential disaster. More than that, MPC wanted sufficient information about vendors so that it could assemble a reliable group of suppliers in the first place.
Financial stability is an obvious criterion for choosing a partner, but that measure alone can be deceiving. A struggling supplier might seem to be getting healthier, when all it's doing is paying off creditors faster with borrowed money, Lawton says. Other aspects of supplier performance, including historical performance data, must be factored into the mix.
In all, Open Ratings includes some 1,600 variables in its database, allowing companies to manage suppliers entirely on an exception basis. According to Lawton, that capability is especially valuable today, with so many companies outsourcing their raw materials and finished product to Asia and other distant locations. Longer supply lines create more opportunities for disruption, threatening to cancel out all of the cost savings that supposedly derive from an outsourcing strategy.
For its part, MPC needed to know precisely how much risk was built into its supply chain, broken down by supplier, product line, geography and buyer. "When people first do a portfolio view [of their suppliers], most of the time they are shocked by how much risk they have," says Lawton. MPC's experience wasn't that unsettling, says Gordon, but it did confirm some suspicions that the company was harboring about certain suppliers. "It helped us to make decisions faster and better," he adds.
The consequences of ignorance can be severe, Lawton says. A tier-two supplier like MPC, caught unawares by the failure of a key partner, might have to acquire a vendor in order to guarantee the continued availability of parts. (In the aerospace business, alternative sources of supply can be extremely limited, given the sophistication and specificity of the smallest part.) At the very least, a company might have to prop up the ailing supplier financially so that a carefully forged supply chain doesn't fall apart.
Predictive analytics can help to head off that kind of nightmare. Drawing on technology developed in the early 1990s at the Massachusetts Institute of Technology, the Open Ratings system utilizes pattern recognition to guess the time and place of a likely failure. Much of the information is presented in the form of a scorecard, allowing managers to identify problems at a glance.
When Red Flags Wave
Potential red flags within the supplier community include quality alerts for recalling product, liens or judgments against particular suppliers, or their acquisition by competitors. Open Ratings' database also tracks other companies' experience with those same suppliers, helping MPC to assess the likelihood of problems well before they occur. It can recapture the visibility that gets lost when certain responsibilities are shifted to an upstream partner.
MPC draws on several modules of Open Ratings' SBManager software suite, including supplier profiles in the form of individual dossiers, alerts based on the concept of management by exception, and a search feature that covers all of the companies in the database. Using the last feature, MPC can pull out all of the suppliers in a given industry, by ownership, revenue, risk level and more.
Those tools "have saved us a lot of manpower and risk headaches," says Gordon. In addition, they have eliminated the need to add staff for tracking supplier performance, despite steady growth in both sales and supply chain responsibilities over the last decade.
In the future, MPC expects to make greater use of key vendors, while further consolidating its vendor-management resources. Gordon says the company might implement home-grown supplier relationship management software to get an even better grip on its supplier base.
Lawton says Open Ratings offers additional features, including online supplier audits and benchmarking, that aren't being used by MPC at the moment. The vendor also sells a research and collaboration module, which can help larger companies to centralize their relations with suppliers and avoid redundant interactions.
Lawton believes companies can do an even better job of reducing supplier risk as the vendor builds additional indicators into the model. "I would expect MPC, as it gains experience, to broaden that [effort] to include other potential disruptions," he says.
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