FOR MORE CLASSES VISIT tutorialoutletdotcom Paul Brent, director, lean purchasing operations at Delphi Corporation, was preparing for his meeting the following week with Dave Nelson, vice president, global supply management. Dave had recently appointed Paul to head the new supplier development initiative in the Delphi global supply management (DGSM) organization.

1. Paul Brent, director, lean purchasing operations
FOR MORE CLASSES VISIT
tutorialoutletdotcom
Paul Brent, director, lean purchasing operations at Delphi Corporation,
was preparing for his meeting the following
week with Dave Nelson, vice president, global supply management.
Dave had recently appointed Paul to head the
new supplier development initiative in the Delphi global supply
management (DGSM) organization. It was
388
currently Tuesday, August 18, and Paul was meeting with Dave and the
other senior members of DGSM the
following Monday at 9 a.m. to review key decisions concerning
implementation of lean supplier development. DELPHI
CORPORATION
Delphi was a world leader in mobile electronics and transportation
components and systems technology with
revenues of approximately $28 billion. The company manufactured
vehicle electronics, transportation components,
integrated vehicle subsystems and modules in its six divisions: Delphi
Electronics & Safety, Delphi Energy &
Chassis, Delphi Thermal & Interior, Delphi Steering, Delphi
Product and Service Solutions, and Delphi Packard
Electric. Approximately 185,000 people worked for Delphi in 38
countries around the world.
The roots of Delphi Corporation go back to the early days of the North
American automotive industry. Formed
from the parts making operations of General Motors Corporation (GM)
in 1991, Delphi was incorporated in 1998
and became independent in 1999 following its initial public stock

2. offering (NYSE: DPH). THE DELPHI MANUFACTURING SYSTEM
J. T. Battenberg III, former chairman and CEO of Delphi, launched the
Delphi Manufacturing System (DMS) in
1996. This initiative was modeled after the principles of the Toyota
Production System and represented the
cornerstone of the company’s drive to become a lean enterprise. DMS
focused on six interdependent elements aimed
at eliminating waste: employee environment and involvement,
workplace organization, quality, operational
availability, material movement, and flow manufacturing. During the
decade that followed the introduction of DMS,
Delphi received 23 Shingo Awards for Manufacturing Excellence.
DMS was, however, focused exclusively on Delphi plants and
manufacturing facilities. The company’s
approach to supplier cost reductions involved the traditional industry
practice of negotiating annual price reductions
for purchased goods and services. Although this approach provided a
steady source of cost savings that were
important to the company’s overall financial well-being, it only
delivered low single-digit cost reduction
performance.
In 2002, facing continuing significant cost pressures from its customers,
Battenberg examined opportunities to
step up Delphi’s cost-reduction efforts. Recognizing that approximately
60 percent of Delphi’s costs were
represented by the purchase of parts and materials, Battenberg decided
to make a change. His plan was to extend
DMS principles to the supply base.
Thus, Battenberg went outside the organization and hired Dave Nelson
as the new vice president of global
supply management. Dave was a seasoned purchasing executive, the
former head of purchasing at TRW, Honda of
America, and most recently John Deere. Battenberg felt that by going
outside the company for this important post he
would signal the dramatic change that Delphi needed to make in its

3. supplier relationships. DELPHI SUPPLY MANAGEMENT
STRATEGY
Delphi’s purchasing organization numbered approximately 1,800
procurement staff and another 500 in supplier
quality. It used approximately 30 commodity teams, across four
categories—chemical, electrical, metallic, and
technological—that spent roughly 80 percent of the dollars on direct
materials. The organization was a centralizedhybrid structure, matrixed
by divisions and regions. Divisional purchasing directors, regional
purchasing directors,
and commodity directors reported to Dave Nelson and to the divisional
and regional presidents. The commodity
team leaders were divisional buyers, and typically included cross-
functional representation, depending on the need,
from areas such as quality, manufacturing, and product engineering.
Staff was largely located in the business units,
with 50 people at the head office.
The Delphi goals for supply were to take a total cost focus, adopt
strategic sourcing, extend lean principles to
suppliers, and establish deep supplier relationships. To accomplish these
goals, Dave Nelson wanted to shift from a
price to a cost focus and launch lean into the supply base. He proposed
creating teams to focus on three key areas:
strategic sourcing (including global sourcing) for direct and indirect
purchases, cost management, and lean supply
development. He commented on the challenge: With a total spend of
approximately $14 billion in direct purchases and $3 billion in indirect
purchases, our
global supply management team should play a major role in achieving
the objective of significantly
reducing costs within Delphi manufacturing and our supply base. We
need to help our suppliers better
understand the significant cost pressures facing Delphi because of
customer demands for annual price
reductions. So we need to work much more closely with our suppliers to

4. get and keep costs out—not
merely push them onto someone else.
I identified nine key elements of the Delphi’s lean supply transformation
(see Exhibit 1). All nine
elements need to be integrated to provide the maximum benefits.
389
EXHIBIT 1 Delphi Lean Supply Management Strategies: Nine Elements
Working in an Integrated Way EXHIBIT 2 Delphi Strategic Sourcing
Framework
389 STRATEGIC SOURCING
When Dave Nelson arrived at Delphi, the company had a global supply
base of nearly 7,000 suppliers. Believing
that working with substantially fewer suppliers would make Delphi more
agile and reduce costs, Dave Nelson was
vehement in his vision to right-size the supply base (see Exhibit 2 for the
Delphi strategic sourcing framework):
Our vision is that components with high value and complexity are core
and ultimately will be sourced to a
group of strategic suppliers with whom we will have close and deep
relationships. Lower-value materials
that still have high complexity will be sourced to near-core suppliers.
Niche suppliers would be those with unique products or with patents that
restrict Delphi’s ability to compete. Commodities with low value and
less complexity will be sourced using a more conventional approach.
COST MANAGEMENT
Effective cost management required the ability to develop and manage
cost standards that determined what a part or
390
service should cost, based on real details. Dave Nelson described how
cost management worked at Delphi:
By truly knowing what a part or service should cost, the design and
sourcing dynamics change from an
auction mentality, based on aggressive competitive bidding, to a joint
waste-elimination focus. This leads to
better designs, better processes, and the highest level of true

5. competitiveness. It also requires mutual trust,
utmost integrity, and confidentiality because all elements of cost are
being studied—the books are open and
the discussions are detailed.
Merely asking for cost reductions does not help suppliers become more
competitive. Supply
management needs cost management tools and models that allow for
informed purchasing decisions. Cost
management is needed for effective supplier development in order to
understand what, where, and when to
make improvements and process changes. LEAN SUPPLIER
DEVELOPMENT
During his 30-year career at the company, Paul Brent had worked in
various assignments in engineering, production
operations, quality, and as a plant manager. For the previous five years,
Paul had been the director of lean operations
for two of Delphi’s largest divisions, reporting to the head of
manufacturing operations and to his divisional
president. In this position he had been responsible for implementing
DMS initiatives at each division’s plants.
Paul was attracted by the opportunity to “start with a clean slate” when
approached by Dave Nelson to take on
the newly created role. Dave’s objective was to establish a supplier
development group that would complement the
other key initiatives in DGSM—strategic sourcing and cost
management. Dave Nelson described his vision for
supplier development:
Supplier development requires the expertise of engineers dedicated to
enabling suppliers to achieve the best
levels of lean manufacturing in their plant operations. I want to put
together a group of Delphi supplier
development engineers who will work directly with suppliers, in their
plants, on initiatives designed to
eliminate waste in areas such as process improvements, operational
productivity and efficiencies, product

6. quality, and delivery.
My experience has been that the magnitude of cost savings opportunities
can be dramatic with
suppliers who are involved—when they experience the exact same
double-digit improvements as Delphi’s
manufacturing operations achieve through DMS. Reduction in people
costs range from 20 to nearly 50
percent, increases in productivity range from 30 to 60 percent, and first-
time quality can improve in a range
of 10 to 45 percent. The payback can be significant. The investment in
resources to implement supplier
development generally yields a 3-to-1 return on investment. THE LEAN
SUPPLIER DEVELOPMENT PLAN
In preparing for his meeting with Dave Nelson and other senior
members of the DGSM organization, Paul wanted to
identify key issues related to lean supplier development implementation
in four general areas: structure and
organization, processes, credibility with suppliers, and resources and
budget. His objective was to gain consensus
from the DGSM leadership team in these areas in order to form the basis
for his implementation strategy. As a
starting point, however, Paul wanted to consider the alternatives
available and make initial recommendations to the
group.
Organizational issues were related to differences among the five Delphi
divisions and to the global nature of the
company’s supply base. While Paul was in favor of a common supplier
development process, he recognized that his
organization would have to accommodate differences across divisions
with respect to technology, processes, product
life cycle, and customer base. Divisional and regional presidents would
need to understand the implications of lean
supplier development for their organization and suppliers. While the
majority of Delphi’s suppliers were based in North America, its
percentage of purchases from outside

7. North American was increasing, particularly from Asia. This trend had
been a result of Delphi’s global expansion,
the addition of new suppliers from low-cost regions, and global
expansion of existing Delphi suppliers.
Consequently, the structure of the new supplier development
organization would have to take into account the global
reach of Delphi’s operations. How quickly should he expand supplier
development to international suppliers?
Should he create supplier development offices in key regions around the
world?
In addition, there was also the matter of where Paul would get his
supplier development engineers. Delphi had
developed a significant depth of lean manufacturing knowledge through
DMS implementation at its plants. Paul also
had a strong network in the company that he could tap. However, Paul
wanted to set some guidelines concerning
what percentage of his group would be recruited internally and what
target percentage would come from outside the
company.
A second and related issue was the need to establish a lean supplier
development process. Paul wanted to
391
identify the steps that would be used to implement lean supplier
development, starting with supplier selection and
ending with implementation of a plan agreed to with the supplier.
However, Paul had a number of questions
concerning how this process would work. For example, how would
suppliers be selected to participate? Would they
be nominated by someone in DGSM, by someone outside the DGSM
group, such as a plant, or could suppliers
volunteer to participate? Criteria needed to be established regarding
when a supplier represented a good opportunity
for development. In addition, what steps would be followed concerning
meetings, assessment, and implementation
—who would be involved from Delphi and the supplier and when?

8. Paul was especially concerned with how suppliers would receive
Delphi’s supplier development initiative. He
commented on the history:
After years of being pounded on with the heavy-handed approach, they
may not muster the faith, will, or
commitment to shift to this new lean paradigm—even when it means
larger profits, higher quality, and
enhanced competitiveness for them. They may not trust Delphi because
of bad experiences in the past with
customers who promise trust but fail to deliver on commitments and
responsibilities. We must change this
viewpoint held by some suppliers.
How would benefits be shared between Delphi and its suppliers? Dave
Nelson had indicated to Paul in their first
meeting, “Conceptually, Delphi’s value proposition is to share gains on
a 50/50 basis with suppliers, but each
situation should evaluated individually.” Paul wanted to establish
specific ground rules concerning how savings
would be shared.
A final issue was related to the budget and resources. Dave Nelson had
already indicated to Paul that he
expected the supplier development group would grow to 50 engineers.
Paul estimated that each person would cost
approximately $100,000 per year in salary and benefits, plus related
expenses such as travel. How fast Paul grew the
number of supplier development engineers would be influenced by a
number of factors, such as supplier acceptance
and payback from the initiative.
Paul also recognized that a primary measure of the performance of his
new group would be cost reductions.
Consequently, he would not only have to set targets on headcount, but
also savings. However, identifying savings
was not always a simple task. For example, how long would cost
reductions be counted? Would it accumulate over
the life of the contract, the life of the component, or for the current fiscal

9. year only? Would cost avoidance and cost
reductions both be measured, or would only year-over-year piece price
reductions be measured?
As Paul sat down at his desk to prepare for his meeting the following
Monday, he began to appreciate the
complexity of the challenge that lay ahead. While lean supplier
development represented a significant opportunity
for Delphi, implementation would need to be carefully planned and
executed to avoid potential problems with the
company’s divisions and their key suppliers. From the
company( Walmart), how can some of the strategies Delphi has taken
relate? Provide examples of how your organization is similar to Delphi
in their approach and how
they are different.
************************************************

10. year only? Would cost avoidance and cost
reductions both be measured, or would only year-over-year piece price
reductions be measured?
As Paul sat down at his desk to prepare for his meeting the following
Monday, he began to appreciate the
complexity of the challenge that lay ahead. While lean supplier
development represented a significant opportunity
for Delphi, implementation would need to be carefully planned and
executed to avoid potential problems with the
company’s divisions and their key suppliers. From the
company( Walmart), how can some of the strategies Delphi has taken
relate? Provide examples of how your organization is similar to Delphi
in their approach and how
they are different.
************************************************