Fisher & Paykel

It may be one of New Zealand’s biggest manufacturers, but in global terms appliance maker Fisher & Paykel is a niche player. That, and its close bonds with suppliers, has given the company precious advantages in the past. But to continue to compete effectively, it has opted to pursue a more formal and structured approach to SRM.

New Zealand appliance maker Fisher & Paykel is no stranger to long-term partnerships. Since its foundation in 1934, the company struck major licensing and distribution deals with other manufacturers, including a 30-year relationship with Japanese giant Matsushita from the 1960s.

On the supply side, it has been doing business with some of its current suppliers of steel, chemicals, plastics and other commodities for 25 years or more. And, says Matt McConnell, general manager, global procurement, it has always sought to work with them in a close, collaborative and mutually beneficial way.

He believes that this approach ensures that F&P punches above its weight in terms of the pricing, technology sharing, innovation and support it gets from its key suppliers, most of whom are based in Asia. Its relatively small size (NZ$1 billion in annual sales, 3,300 employees worldwide) compared to rival manufacturers of refrigerators, washing machines, dishwashers and cookers means that it has to find ways other than volume of business to make itself an attractive customer to suppliers.

Indeed, says McConnell, the fact that it is small and nimble means that some suppliers see F&P as a good testing ground for new products and concepts before they are fully commercialised. This can give the company valuable benefits in terms of first mover advantage. One example is direct drive motors for washing machines, where F&P worked closely with a large component supplier to develop and refine the technology, for which it enjoys patent protection. Not only does F&P use the motors in its own products, but it also sells them to other washing machine manufacturers.

A more structured approach

Despite having good relationships with its key suppliers, F&P had not embraced SRM as a specific discipline. Communication and interaction generally took place on an informal and ad hoc basis between people who, in some cases, had been dealing with one another for many years (and without any contractual agreement in place). The problem with this, explains McConnell, is that it was largely verbal and the delivery of benefits was “left to chance”.

This year, McConnell and his strategic procurement team, which comprises three global category managers based in New Zealand and Thailand, have begun to take a more structured approach to the way F&P’s most important supplier relationships are managed. Quarterly review meetings have been instigated for the biggest suppliers, with half yearly meetings for others. These last for several hours and cover a comprehensive agenda, ranging from pricing and performance to future strategy and innovation.

McConnell characterises these meetings as “spending quality time with our big spend and key strategic suppliers on a regular basis”. The aim is to understand each other’s plans and priorities to a greater extent, discuss joint improvement activities, and ensure that managers on both sides are accountable for driving these forward. “The feedback we get from suppliers is so rewarding – I can’t do enough of them to be honest,” he says.

Increasing efficiency

Supply chain efficiency is a particular area of focus currently. By understanding in more detail how the supplier of fasteners to its Thai and Mexican plants moved parts around, for example, F&P was able to reduce its costs by NZ$300,000. In other cases, dialogue has centred on how certain parts are used in F&P’s products, in an effort to reduce over-specification. Overall, McConnell reckons that upwards of NZ$0.5 million in unnecessary costs have been taken out in the past six months.

A more formal SRM approach is also helping with another key business driver: lead time reduction. F&P purchases a lot of bespoke materials and electronic components, says McConnell, and the lead times for some of these can be as much as 12 months. Getting greater visibility from suppliers and being able to feed this information back to the company’s engineering and product development teams is critical for effective project planning.

Deepening engagement

Ensuring that these functions engage with suppliers earlier in the development cycle, are open to ideas and manage these in an appropriate way is one of the challenges for SRM at F&P going forwards, says McConnell. Educating the company’s executives about the purpose and benefits of a more formal approach to supplier relationships is also needed – to date, SRM has been largely a procurement initiative.

Extending SRM practices beyond the dozen or so suppliers targeted initially will require more skilled staff able to run review meetings in regions such as Asia and North America, he adds. McConnell is also keen to reduce the reliance on spreadsheets and deploy dedicated IT tools to make information more visible, assign actions to people, and so on.

Behaviours must build trust

Achieving success in SRM requires a high level of trust. “We are asking our suppliers to really open up and share information, much of which is confidential,” he says. “There shouldn’t really be anything they won’t disclose or any questions we can’t ask. But they need to feel comfortable in doing that – there can’t be any barriers.”

In McConnell’s view, this can only happen if there is “an even and consistent manner of operation”. Individual behaviours must be such that they build trust, not destroy it. This includes not losing your temper when suppliers make mistakes or things go wrong, working to find solutions together, and only shopping around when absolutely necessary for quality or competitive reasons.

Suppliers often comment favourably on F&P’s behaviours and business practices, says McConnell. As the man leading the company’s SRM programme, he’s determined to ensure that these continue to give it an advantage in the market.