Supplier

The Changing Role of Supplier Development initiatives from the attraction of inward

investment to capacity building

John Varney

Simply getting Foreign Direct Investment is only one part of the benefit.

Supplier Development has been seen as both an attraction for inward investment, and an aid to embedding existing investment.

In the next few minutes I want to discuss some other dimensions of supplier development which offer benefits additional to those given by FDI and may in fact not be targeted specifically at FDI.

Four issues which should be considered from the FDI perspective:

Will the investment bring Technology transfer ?

As a result of the investment will there be Knowledge transfer?

Is there potential for Capacity improvements in the private and public sectors?

Are there policies in the recipient country supporting Linkages?

From the economic development perspective we might add:

Will supplier development improve capacity without FDI?

Can business improvement amongst indigenous firms be achieved?

Are there situations where knowledge transfer will facilitate greater added vale from indigenous businesses?

The answers to all of these questions will be found by examining the context of a proposed initiative.

A first step then is to examine the context.

Here I will try to demonstrate how this works by reference to two recent but very different supplier development initiatives. One in the Czech Republic the second in Serbia.

Czech

Well developed manufacturing sector. Good reputation in engineering

Serbia

Agriculture largest part of the economy.

Manufacturing not so well developed

From the FDI perspective

It is worth pointing out at this stage that technology and knowledge transfer from TNCs to suppliers seems only to take place where there is an existing relationship. The supplier development programme should help to foster and support relationships between TNCs and local firms.

“ when we build a new plant we try to become part of the community. Our business is long term. The use of local suppliers brings financial benefits to us, and establishes us as part of the community….as we grow we develop the capabilities of our suppliers….problems arise when we cannot find suitable local suppliers…to be considered they must have reached a standard for quality which allows them to compete with global suppliers”

Francois Himmelspach

Director Baxter BioScience

In addition to the trading benefits there are others. Most importantly the willingness of major companies to take over supplier development once the state intervention has started the development process.

Multi Nationals

First tier Second tier Third tier

Nature of relationship

Close family

Partner

Inter dependency

High trust

Relationship based


Cousin

Provider

Dependency

Medium trust

Specification based


No ties

Servant

dominated

No trust

Price based

Relationships in conventional supply chains

Incentives for the various stakeholders and increases capacity

For TNCs

Shorter supply chains

More flexible suppliers

Cost reduction

Potential for product development partnerships

For SMEs

Access to customers

Information about markets

Technology and knowledge transfer

Becoming international SMEs

Better lines of credit for expansion cont.,

Incentives for the various stakeholders and increases capacity

The Government

Higher competence in government agencies

Increased economic impact of inward investment

Job creation

Tax take

General

There should be increased capacity through the development

of indigenous business consultancy.

The use of Universities to support SME growth and development

through applied research.

Serbia is the worlds largest producer of raspberries

It exports the fruit and imports back expensive concentrates, syrups etc.,

Supplier development programmes can be used to rectify this situation and not be just a service to Inward Investors

How supplier development works (in brief)

Accept companies into the programme

Visit and carry out in company assessment using a model based on the EFQM Business Excellence and TNC supplier audits.

Self assessment carried out by the firms on same aspects of the business as are in the external assessment.

Jointly create a business improvement plan.

After six to eight months second assessment to find the most improved companies.

Most improved companies provided with individual international consultant support.

Introductions to potential customers, partners, and sources of technical and financial support.

Time scales

Dec. Jan Feb Mar Apl. May June July Aug. Sept.

Oct. Dec. Jan. Feb. Mar. Apl. May June July Aug.

First Business Reviews

Workshops Workshops

Self Improvement 2nd Business Reviews

Expert support

20 Companies selected

Specialized workshops

Specialized workshops

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

Strategic Planning

Marketing

Manufacturing processes

Export advice

Quality Management

Motivation

Customer Contacts

Inventory Management

Feasibility/Capital

Human resources

Finance and MIS

Market Research

Employment Law

Tax Planning

Grant aid

Study Visits

IS /IT

Auto industry expert

Technology exploitation

Companies’ view

Consultants’ view

Areas for improvement

Czech Approach

Programme administered by CzechInvest with EU management support.

Assessment done by KPMG Consultants.

Strong links with Investors.

High reliance on foreign consultants.

Links to local universities not fully exploited.

$46million from 17 of the companies involved.

Serbian Approach

Programme administered by SIEPA with MIGA (World Bank) management support.

Assessment SIEPA staff after full EFQM training.

Strong links with Investors.

Strong links to export agencies.

Development plan for Serbian consultants. Development of technical ability in SIEPA.

Links to local universities and Science Parks will be fully exploited.

ConsultantsConsultants

SuppliersSuppliers

UniversitiesUniversities GovernmentGovernment

AgencyAgency

Transnational Transnational CorporationsCorporations

The ActorsThe Actors

The RolesThe RolesSuppliers

Give resources to the programme. Have

commitment to self improvement.

TNCs

To support the programme. Give

advice and guidance Place orders with companies in the

programme

Universities

Faculties of Engineering, Business

& Economics

Provide expertise not normally available to

smaller SMEs

Consultants

Provide on going support to companies

and help identify expert assistance

required from Universities

GovernmenGovernment Agency t Agency

CoordinateCoordinates & s &

facilitatesfacilitates

The key challenges for modern Supplier

Development programmes are:

To create a legacy system that will continue to function without external support.

To develop a policy framework that ensures that FDI is encouraged and supported.

To increase capacity within the economy through a strong SME base, with supportive research work from Universities. SME population must be supported to work with the Universities, equally Universities must understand that their role is not optional.

To ensure that linkage building is a continual feature of economic activity

FDI is important but not always practicable. This should not be a reason to fail to use Supplier Development as a means of improving local capacity, competence, and capability. These are activities which will of themselves create greater competitive ability and lead to higher value adding activities within the economy. Assistance should be given to firms to create greater added value through processing of base products.

KEY MESSAGE

Thank you for listening. I will be pleased to take question now or later.

DETAILED INFORMATION ON THE PRACTICAL ASPECTS ARE AVAILABLE.

PLEASE CONTACT ME DIRECTLY DURING THE CONFEENCE OR

[email protected]

NBS

Etc.

Documents

Supplier