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Operating Business Successfully In The 21st Century: Supplier Development Of Northrop Grumman

2654 words - 11 pages

With the world growing smaller by the day, or as Thomas Friedman says "getting flatter", many U. S. companies are trying to regain their competitive advantage. Many companies are finding that it is quite difficult to acquire new business. However, some companies have recently discovered a new way to cut costs. This "new" way to cut costs is to work closely with suppliers, otherwise known in the business world as supplier development.Northrop Grumman Corporation (a.k.a. Northrop) is one of the largest defense contractors in the world headquartered in Los Angeles, California. The organization operates in seven different business sectors:* Electronic systems (radar, navigation, and ...view middle of the document...

Lastly, the trend in the business world is fewer suppliers and longer-term contracts. This trend magnifies the importance of choosing a qualified supplier. Companies now look at suppliers as business partners instead of the ugly, red-headed step child. Having a large number of suppliers may lead to inconsistency in the quality of inputs, concessions that may later hurt the buyer, and cumbersome paperwork (Ukalkar 2000). See Figure 1 below. Some of these factors lead to an increase in cycle time and logistics costs.As a result of the potential increase in cycle time and logistics costs, some companies have now focused on supplier development and strategic sourcing as a way to reduce costs. Supplier development greatly reduces such cumbersome activities as paperwork and sales visits and increases more important activities, such as negotiations. See Figure 2 below.Strategic sourcing is a form of supplier development and is defined as managing, developing, and integrating with supplier capabilities to achieve competitive advantage (Monczka, Trent, and Handfield 2002).Many companies believe that supplier quality and supplier development involve the same activities. Nothing could be further from the truth. Supplier quality is a company's effort that is required to contain supplier problems (Wincel 2004). Effort may include working toward permanent corrective action. Supplier quality implies that the supplier is sending poor quality and is, by definition, reactive in nature. Supplier development is a company's long-term efforts in supplier support (Wincel 2004). Efforts are focused on defect prevention rather than defect detection. Supplier development programs create manufacturing and quality systems that eliminate the potential for failure. The time that is spent supporting and developing a supplier is based on where the supplier's product is located on the performance matrix, which is shown in Figure 3. (The time invested in supplier development is the Y-axis, and the quality of the supplier's product is the X-axis.)Northrop wants suppliers to be in the "Associate" or "Preferred" product quadrants due to two reasons. First, Northrop does not want to deal with the backlash that could result if the public discovered that two fighter pilots died because the company did not do its homework when choosing suppliers. Secondly, the company does not wish to answer to the Federal government for the same reason mentioned previously. Obviously, Northrop is going to invest its resources into a supplier development program instead of a supplier quality program.Strategic sourcing is a form of supplier development. There are five activities involved in strategic sourcing, which are bulleted below (Monczka, et. al. 2000).* Supplier identification - finding potential suppliers to meet existing or anticipated purchase needs,* Supplier evaluation and selection - determining if suppliers are capable of meeting needs,* Supplier management - ongoing management of the...

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