The topic is explored below in a Q&A contributed by Will Bacon, ServicePLUS segment manager for Trelleborg Sealing Solutions.
Q: What is a current market trend that you see impacting original equipment manufacturers (OEMs) today?
A: Prior to the pandemic, supplier consolidation was a Key Performance Indicator (KPI) to aid in reducing overall costs associated with maintaining multiple vendors. And although supplier consolidation is still a KPI, OEMs have needed to add vendors to their portfolios for risk mitigation due to material shortages and logistics issues.
When OEMs decide to go through consolidation, Trelleborg can aid in multiple ways.
At our ServicePLUS and logistics centers, we provide assembly services for ready-to-use components that don’t require additional processing. This minimizes non-core value stream activities, reducing labor and processing costs.
We also offer application engineering support for sealing needs and industrial engineering expertise for services in the value chain, providing OEMs with proven solutions that aid in reduction of performance warranty claims and labor costs.
In addition, Trelleborg’s ServicePLUS initiatives provide customers with various options for Vendor Managed Inventory (VMI), including Trelleborg’s SealScan™ and patented IntelliStok® systems that reduce order input and automatically replenish stock. Also, integrator services, such as private labeling, custom packaging, and kitting, remove non-value add activity from the OEM’s value stream and aid in aftermarket protection.
Q: In which industries is the trend of vendor reduction seen?
A: OEMs in all industries face the additional costs associated with having multiple vendors in their portfolio. Large global equipment manufacturers, and large sub-tier suppliers to those manufacturers, are the primary drivers of the vendor reduction initiative. Vendors able to take over portions of these manufacturers’ value chains provide additional “soft cost” savings.
Global manufacturers see a number of additional benefits from global suppliers, like Trelleborg, that can provide engineering support, reducing the development time for global solutions. Such benefits include ensuring consistent quality, ultimately reducing warranty claims; offering global pricing, eliminating price variations from regional suppliers; and increasing the efficiency of supply chain logistics by manufacturing and/or stocking components close to the OEM’s factory.
Q: What are the opportunities for OEMs when it comes to vendor reduction?
A: Consolidation is a great growth strategy for OEMs. It helps them achieve greater operational efficiency and creates a competitive edge by meeting objectives related to reducing capital and operating costs and increasing performance and productivity.
Distinct benefits include greater buying power through improved pricing, quality, service, and support. Global OEMs that utilize global vendors see an increased ability to keep up with demand, while receiving the additional focus and dedication they deserve. A global vendor partner can often provide material, product, and application expertise, effectively adding engineering resources to the OEM’s team at no additional cost to the OEM.
Global vendor partners also typically have redundancy built in, thanks to their multiple locations for both manufacturing and service. This allows for flexibility to always ensure service to the OEM, even if a plant experiences down time or delays. For example, in the past two years, China experienced tariffs and then stopped shipping many products due to COVID. In these cases, Trelleborg worked to find alternate suppliers from other countries to produce parts to keep the supply chain flowing, providing peace of mind for OEMs.
In addition, global integrators can protect the OEM’s aftermarket by performing private labeling, custom packaging, and kitting services for MRO (maintenance, repair, operating supply) parts. By having one source, non-compete agreements can be put in place and e-commerce sites developed to service the OEM’s full aftermarket line. It also ensures aftermarket parts meet the same quality specifications as the production SKUs (stock keeping units.)
Q: What challenges do OEMs face when consolidating vendors, and how can a supplier help to alleviate these challenges?
A: When consolidating vendors, OEMs face multiple challenges, including risk, quality, and inventory. When a vendor can mitigate these challenges, the consolidation process becomes much easier.
Risk mitigation becomes an issue when parts are sole sourced. Adding a second source helps OEMs reduce risk. When working with large global vendors, second sourcing is often built in, and products and materials are produced in multiple locations. This gives the OEM peace of mind, knowing the product comes from the same manufacturer, made with the same materials and to the same specifications, regardless of where produced.
Using multiple vendors for similar SKUs requires OEMs to check for variances. A full-service provider can offer these quality steps for the OEM, thus reducing quality costs and ensuring non-conforming product does not go into production.
Supplier partners that can assume responsibility for managing parts from multiple vendors add value to OEMs, as it is often a challenge to find suppliers that provide a variety of C-Class parts. Trelleborg can procure parts from multiple internal and third-party sources, perform quality inspections, and assemble or kit those parts to meet the OEM’s needs.
Inventory often becomes complex when managing various SKUs from multiple suppliers. By integrating Trelleborg’s SealScan or patented IntelliStok systems, OEMs can virtually eliminate the need to analyze, plan, and manually place purchase orders. This significantly reduces costs within the planning, procurement, and warehousing departments. Inventory systems using SealScan or IntelliStok can often be located directly next to the assembly area, which aids in reduction of warehousing space as well.
Q: Please provide an example of a time when Trelleborg was able to help an OEM with vendor consolidation.
A: An OEM was procuring Trelleborg seals in the United States, sending them to Taiwan for subassembly, and then returning them to the United States for assembly into the final product. Trelleborg brought the entire assembly in house, streamlining the OEM’s process by supplying the complete unit. This helped the OEM by reducing vendors, overall inventory levels, and global logistics risk, as well as time and labor in the assembly process.
The solution also saved the OEM significant time and money by eliminating the shipment of product back and forth overseas, and thus, the need to navigate port processing and container issues. Ultimately, this led to reduced freight costs and greater control over the overall process.
Q: How can a parts manufacturer and service integrator help OEMs with the vendor reduction process?
A: When OEMs go through vendor reduction, they need the help of a manufacturer and service provider to deliver ready-to-use components that don’t require additional processes. This full-service solution comes with engineering assistance and stocking programs, and minimizes non-core value stream activities, reducing labor costs. Additionally, Trelleborg’s global presence can keep up with regional and global demands, while giving OEMs the focus and dedication they deserve. This is achieved by providing materials, product expertise, and services that best suit the OEM’s applications, while removing obstacles in the supply chain.
Lastly, OEMs know they will receive the same quality products and services every time.
Overall, vendor reduction helps OEMs gain market share and fill gaps in their product portfolios by becoming increasingly efficient and competitive.