John Deere in converting a traditional purchasing organization into a
lean supply chain. With that background he was well suited to help
Delphi extend DMS to what it calls “outside manufacturing.” Delphi
avoids the term “supplier,” to emphasize that the quality of manufactur-
ing is important whether it takes place inside or outside the corporate
boundaries of Delphi.
“Inside manufacturing” currently encompasses about 30 percent of
the total cost at Delphi, while “outside manufacturing” makes up 50
percent. Delphi buys about $14 billion worth of goods annually. So
the opportunity was clear.
Besides DMS being a well-developed system with strong training
programs and internal lean expertise, Delphi had two other sources of
expertise for lean supply chain. One was a set of consultants formerly
with Toyota, and the second was direct support from Toyota, which
has become a major Delphi customer. In fact, Toyota sent one of their
TPS experts in purchasing to work full-time for two years within Delphi
and to teach the Toyota Way of supplier development.
In this case study, Delphi’s strategic sourcing system is illustrated as a
work in progress. The case reflects Delphi’s lean supply chain progress
after working with the process for almost three years, when Dave
Nelson’s team rated themselves in an embryonic stage compared to
Toyota. But Delphi felt it was headed in the right direction, and their
approach is comprehensive, hitting all aspects of a lean supply chain.
Nelson learned from Honda that a cornerstone of a lean supply chain
was a strong cost management system, the heart of which was a set
of models of key manufacturing processes. Putting various input costs
into the model leads to a predicted total cost for a component part.
The models are detailed, and very accurate in reflecting actual costs
to make a part. Nelson hired a former Toyota manager who had over
25 years experience in purchasing and with Toyota’s cost management
system. As Delphi’s director of cost management, he became the
internal expert, setting up and teaching a cost management system
modeled after Toyota’s. He was assigned a team of 30 full-time people
as “disciples” to learn and spread the cost management system, which
Delphi considers the cornerstone of its lean supply chain.
The Toyota veteran estimated that it would take five to six years to
meet a minimum level of acceptability as a lean supply chain, and
nearly three years into the program in 2004, he felt Delphi was
on track. According to this cost management expert, a minimum
requirement for success was to have the unwavering support of senior
executives, which Delphi demonstrated through the supportive efforts
of J. T. Battenberg III and Dave Nelson.
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