Meeting increased logistical demands Developing as a small- and medium-sized system supplier

Abstract: Many subcontractors choose to implement a strategy of “system supply” in order to meetincreasing global competition. They are then confronted with increased demands to take agreater overall responsibility in this role. It is important to investigate the implications of theseresponsibilities before investing in developing the organization, especially for a small- ormedium-sized subcontractor with limited resources. The customer’s view of different demandsdoes not necessarily correspond to how the supplier sees and chooses to interpret and meetthose demands. A supplier with several customers has to create reasonably uniform routines tomeet different demands, in order to cut costs. The customers chosen to serve as well asattitudes and priorities may influence the way different customer demands are met. Thepurpose of this study is to describe what the widened role of system supply might mean to asmall- or medium-sized subcontractor in terms of demands, capabilities and resources.After going through previous theory about different supplier roles and their characteristics asmall exploratory survey comparing demands between a component supplier and a systemsupplier was carried out. “System supplier” is, in this thesis, defined as a supplier with anoverall responsibility for the functionality of a product or a system of assembled components,produced in several process steps, and the resulting liability for purchase of material andservices. The focus is on small- or medium-sized suppliers that provide production services andare developing towards system supplying capabilities. The survey, based on existing customeragreements and demands on a relatively small supplier that is developing towards a systemsupplying role, gives insight to how customers and suppliers look at these demands. The resultsclearly point out some improvement areas. These are divided into a few “system demands”(such as systematic purchase and logistics work, product development and projectmanagement, and increased responsibilities) and more “generic demands” (for example qualityand delivery-precision).A small- or medium-sized subcontractor must acquire some logistics capabilities in order tocope with the system supplying role. In a multiple case study, a comparison of three companiesof different sizes with varying degrees of system supplying services is presented. With theresource-based view as a linchpin the interviews point out the importance of the management’sstrategic alignment to supply chain management and logistics, with special focus on centralsourcing and sourcing from low-cost regions. Other capabilities such as IT and communicationsystems, cost reduction capability, volume flexibility and breadth of product lines are alsoidentified. The interviews also served the purpose of identifying important resources groupedinto three different categories: organizational, competence-base, and tools. The differencesbetween the companies and in what way these different resources influence the formation ofdifferent logistics capabilities to support system supply are discussed.The conclusions drawn from comparing the three companies point out five system capabilities.One is the importance of a clear and distinct organization where the management understandsits role and responsibilities, managing its part of a larger system and its inherent processes.Supply chain management is another important system capability, where logistics skills andenhanced understanding and use of IT and other tools are identified as areas to improve for thesmaller companies. The importance of managing internal and external relations with extrafocus on customer relations is stressed. This also generally requires more overall managementof communications, making the best possible use of existing information and communicationstechnology. Finally, a basic and order-qualifying capability of managing the “genericdemands” is emphasized.