There has been a trend for original equipment manufacturers (OEMs) to work closely with a small number of suppliers, sharing information to make the process more efficient and cut costs on both sides. But many suppliers are concerned about what this partnering actually means. Isn’t it just a way to squeeze margins and cut their profits and?

IBM’s report is significant because it says that isn’t true. In fact, it supports what progressive purchasing departments have been telling suppliers - that they can, and may be expected to, influence product development. The real question that suppliers must ask themselves is what they can offer.

Vehicle manufacturers have been moving in this direction for several years, according to Graham Broome, chief executive of the Society of Motor Manufacturers’ and Traders’ Industry Forum. Nissan’s supplier development programme, Cogent, which started in 1995, has been a particular success, he said.

The Internet, which allows such items as technical drawings and production schedules to be shared more easily, would oil these relationships in the future, Broome told SM.

But while suppliers are asked what they can bring to a relationship, OEMs and prime contractors must make clear what they expect of suppliers. “There is a feeling that buyers focus on price rather than the broader issues,” said Russell Chesterman, programme manager for Supply Chain Relationships in Aerospace (Scria), a purchasing initiative by the Society of British Aerospace Companies and the Department of Trade and Industry.

Scria is promoting the use of integrated project teams (IPTs), which consist of staff with the complete range of skills - including design, purchasing and engineering.

“Suppliers have not always been seen as innovative. This is one of the hurdles to be overcome,” said Chesterman.

Brian Oakley, business improvement manager for general machining and externals (GM&E) at Rolls-Royce Aero Engines, told SM: “With IPTs, we are changing the philosophy of sub-contracting.” Previously, suppliers had little design capability because they made to order, he added.

But the GM&E department is cutting its supplier base from 100 to around 60 within three years. This will make its relationships with the remaining suppliers especially important, said Oakley, as they would face increasing demands.

The company has set up its own IPTs and “key suppliers are now setting up their own IPTs”, said Oakley. The engine maker’s IPTs liaised with their counterparts in the supplier network and this encouraged them to participate in the design process.

Production benefits

Getting suppliers involved in design was essential for introducing new products and cutting production times at Bombardier Aerospace in Belfast, explained Stephen Cowan, the company’s procurement manager.

The launch of the CRJ-700 passenger jet in 1997 was a watershed for purchasing, said Cowan, a fabrication engineering manager who was brought into the purchasing department to improve its internal and external relations. “We didn’t have the technical know-how and we needed a more high-tech supplier base.”

That year, the company realised that its manufacturing facilities were operating at full capacity and that their suppliers would have to take on tasks that were previously done in-house. But the Belfast firm faced problems with a slimmer supplier base, which had dropped from 110 in the early 1990s down to about 10 - not all of which had the necessary design skills.

Cowan took three more engineers into the purchasing team to raise its technical understanding. He also encouraged suppliers to invest in their own businesses at the same time, by giving them five-year contracts that contained cost-reduction schedules for Bombardier. This gave suppliers added financial security while they worked on cost-cutting and new technologies.

It now takes nine months for the finished design of a new fuselage to leave the drawing board and roll off the production line. It used to take a year and a half, he said.

Cowan acknowledges that the automotive industry is probably further ahead in its use of partnerships than the aerospace sector, but IPTs have cemented his company’s relationships. There is still work to be done, but the basis is there for closer partnerships through such teams.