automotive, electronic communication, sub suppliers

In 2019, the Automotive Industry Action Group (AIAG) and Odette International will be releasing the fifth revision of the global Materials Management Operations Guideline/Logistics Evaluation (MMOG/LE). MMOG/LE is a comprehensive self-assessment required by many OEMs and leading Tier 1 suppliers. The automotive industry uses MMOG/LE in the supply chain to evaluate supplier delivery readiness for new business and ongoing production requirements.

Changes to MMOG/LE

Because the automotive industry is going through such dramatic transformation and disruption  today and into the future, it is not surprising that the new version will bring more attention to managing lower tier suppliers. The Supplier Interface chapter, which is one of six chapters in MMOG/LE, went through the most significant changes in the new version. This chapter focuses specifically on best practices that an organization should consider when managing sub suppliers. In the new version, this chapter will provide more emphasis on performance, risk assessment, contingency planning, communication, assessing and evaluating sub suppliers.  

One of the key best practices in the Supplier Interface chapter, which will be further strengthened, is the requirement for electronic data interchange (EDI) and/or Web-based communications with an organization’s supply base. In the new version, the proposed criteria states the best practice is to “strive to achieve electronic data exchange with 100% of its’ supply base.” This means it is no longer acceptable to utilize EDI and/or Web-based communications based on a critical commodity, high purchase value or part volume. Instead, it means an organization must make every effort to communicate electronically with all suppliers.

The Power of an EDI Program

EDI has been at the core of the automotive industry for many years. In fact, I started my career implementing EDI with Ford suppliers and then moved to Johnson Controls to do the same. I was able to see firsthand what this technology could do for the customer, and equally as important, what it could do for the sub suppliers. Sub suppliers might not understand the initial value, until customers stop calling to follow up on parts or the sub suppliers no longer have to manually receive or locate schedules. As the program matures, both the customers and sub suppliers are more able to avoid premium freight and enjoy faster visibility into demand. All of this leads to inventory reduction for both the customer and supplier. At this point, sub suppliers become some of the organization’s best cheerleaders for electronic communication with their customers.

Even today, many organizations look at the time and effort it takes to implement an EDI program with suppliers, yet they fail to see the true dollar savings that will come, and so many give up before they even start. Inventory savings is a guarantee. This should be the prize you focus on with a supplier EDI program. If your organization has too much or too little inventory, I suggest doing two things:

  • Take the MMOG/LE assessment
  • Implement an EDI program with your suppliers

In my experience, organizations have reduced inventory anywhere from 17 to 60 percent by simply following these two recommendations.

Implementation Challenges

So, why do organizations believe it is such a challenge? Organizations tend to feel it will be too difficult to bring all sub suppliers on board electronically, especially when they have many small suppliers who cannot afford the cost to implement traditional EDI or who simply refuse to do it. Additionally, many organizations believe it will take years to convince sub suppliers to do EDI and implement it as well.

An option many leading organizations chose that eliminates these challenges is to communicate electronically by leveraging a web-based EDI solution, such as QAD Supplier Portal. Take, for example, QAD customer YFAI India. In a recent case study, YFAI India stated they were able to achieve the following by implementing QAD Supplier Portal with their sub suppliers to:

  • Increase inventory turns from 40 to 70
  • Reduce inventory by 25 percent
  • Reduce missed deliveries by 90 percent
  • Drop premium freight costs from 1-2 shipments per month to only two in eight months

Since QAD Supplier Portal is simple to implement, organizations are able to quickly meet this best practice. Sub suppliers can easily view their schedules and send advance ship notices with no cost, no hardware and only a connection to the internet. Therefore, QAD Supplier Portal allows organizations to meet this best practice in a matter of weeks, not years as with traditional EDI. QAD Supplier Portal is also a great supplement to traditional EDI. Thus, it makes it very quick and easy for organizations to exchange data with 100 percent of its supply base.

What is your Organization Waiting for?

In an era where the industry is going through massive transformation with needs to invest in the future, why not help your organization free up cash by reducing inventory? In addition, your organization will receive the benefits of improving delivery performance, minimizing risk and improving supply chain visibility. There is no better time than now to consider QAD Supplier Portal.

Terry Onica
Terry Onica is QAD's automotive vertical director. She lives in the metropolitan Detroit, Michigan area, which is one of the best places in the world you would expect to find someone who is passionate for her industry! In her spare time, she enjoys getting her friends and family to run with her in 5K/10Ks across the USA.