The Impact of Supplier Coordination

As companies rely more on their suppliers to decrease overhead and asset levels, managing suppliers is now an important capability. To get a sense of the magnitude of the suppliers role, consider that, in the automobile industry, estimates suggest that Chrysler outsources over 80% of the parts it assembles into cars Ford, over 65%, and GM, over 55%. In the electronics industry, Cisco System partners provide final assembly for almost half of its switches and routers ([51]). Table 3.1 (from [51]) shows that suppliers and buyers have closely intertwined relationships with one another across a range of industries, from automobiles to banking and electronics to pharmaceuticals. 

In a related context, an Original Equipment Suppliers Association (OESA)/McKinsey study suggested that interface costs between a supplier and OEM can be estimated to be 5.2% of total cost. The study also estimated that 80% of the waste in the auto industry was due to poor supplier management and was linked to product specifications, part complexity, and ineffective coordination of capacity and demand. The supply 

Indus try/Ac tivity Buyer Resource Commitment Supplier Resource Allocation 

Auto Parts Concept (Ford) Design, manufacture (Johnson Controls) 

Pharmaceuticals Manufacturing Drug development (Merck, Pfizer) Scale up and manufacturing (Catalytlca) 

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