Cessna: Supply Chain Management Using

Cessna: Supply Chain Management

Using Six sigma tools and Baldrige quality standards and regular status feedback using MPD, GRIP, etc., has greatly improved supplier performance levels for Cessna and has contributed to better integration of the supplier chain management process. Today, Cessna stands out as an industry leader and a positive story of integrated supply chain management, which has translated to improved customer satisfaction and overall profitability of the enterprise.

Optimizing performance in all fronts is of utmost concern for businesses today operating under intense competition. The Airline industry in particular, is witnessing a bad phase with many big airlines going bankrupt. Cost cutting and performance tuning measures are indispensable for aviation industry for surviving and ridding through the rough times. The case of Cessna, a leading aircraft company, is a good example of how rationalizing supply chain management can result in considerable performance improvements and hence the profitability of the company. Starting in 1998, Cessna focused on improving its supply chain management system by introducing new standards and benchmarks and in some areas, a complete overhaul of its operational methods and procedures. These changes came in the form of 21 practices and tools for fine-tuning their logistics system. The results were encouraging as since 1998 the company has achieved a 86% improvement in terms of quality, 83% overall increase in business with a 52% reduction in inventory, and a 28% improvement in on time delivery and overall performance. [James P. Morgan] Let us briefly explore how these new tools have helped Cessna achieve a positive turnaround.

At the heart of the supplier management system at Cessna is STARS, a supplier quality rating system that is used to rate suppliers based on their quality, cost, delivery, service and other factors. This data is then shared with the CEO of its suppliers and along with the Baldrige rating constitutes an effective base for implementing Cessna's supplier base rationalizing efforts. A new sorting process is then used wherein suppliers are rated on a scale of 1 to 3. Suppliers are categorized as "Growth suppliers," "Provisional Suppliers" and lastly "Phased - out Suppliers" according to their past performance and possibilities of future business with the company. Periodic briefing and training is provided for selected staff members and suppliers at Cessna's 'Transformation center', where the growth plans, the implementation process and their success rates are graphically demonstrated. As is well-known, the transition process is a very delicate and difficult one as it involves changes in the process, which the employees are so far accustomed to. To make this change management a smooth process, Cessna uses 'Transition resource kits', documents that clearly explain the process and remove any conflicting ideas about the new changes.

To facilitate its transition process and to speed up its procurement decisions, Cessna uses the electronic auctioning tool called SourceNet. By allowing only the 'Growth Suppliers' to bid on its online auctioning, the company aims to phase out its businesses from the "phased out" suppliers to "Growth Suppliers" in an efficient and timely manner. Using this electronic tool, the company provides its product requirements and specifications online and encourages a bidding process from its 'growth suppliers' making it a more competitive and qualitative process. Thanks to this new online bidding system, procurement decisions that took months earlier can now be arrived at within an hour. For its procurement process, the company uses an electronic tool called Ariba, which not only replaces the paper work but also eliminates the chances of misuse of purchase cards and other frauds. This automated ordering process reduced the use of purchasing cards from around $18 million in 2001 to less than $2 million in 2003. [Susan Avery] These savings in spendings on indirect materials and services is just one area of the supply chain where automation and optimization have proved effective.

The center point of Cessna's new initiatives aimed at rationalizing the Supplier chain management system, is the MPD process. The Maturity Path Development Process (MPD) is a process where Cessna officials sit together with their Suppliers on a regular basis and review the expectations and the quality and performance status met by them. Plans are drawn to highlight areas that need improvement and suppliers are expected to fulfill these requirements. In short, every month the suppliers are given a status briefing that explains how they fair with respect to the Baldrige benchmarks and the goals they have to meet in the short and long run. Within one year, it is expected that suppliers reach the 'growth supplier status' or be phased out. As Mr. Katzorke, vice president of supply management at Cessna Aircraft in Wichita, says, the MPD process essentially says to the supplier,

Here, Mr. Supplier, this is where you stand in terms of quality, cost, delivery, service, inventory, etc., and here's where you stand on all the Baldrige benchmarks. Based on that we want to make a very specific plan that you're willing to commit to for this year." [James P. Morgan] by means of these tools, Cessna has achieved a transparent, effective and strategic communication channel with its suppliers, which is very critical for supply chain optimization.