TE Connectivity: Supplier Strategies for Mitigating Risks and Fostering Collaboration

Collaborative Supply Chain Collaboration and Supply Chain Management

Sylwia Lambert: Today what I’m gonna go through is a little short bio of myself, TE Connectivity, who we are, and what we manufacture, and then kind of getting into the meat of the presentation, really looking at how we manage inflationary pressures, which if you were at the keynote, now I’m thinking, oh man, what have I gotten myself into for the next three or four years? Innovating for competitive advantage, and then strengthening supplier-customer relationships. So a little bit more about myself. So I started my career out in IBM, and then went to Toyota, and now I’m at TE. So most of my experience is within cost engineering, and right now I lead a COE, so Center of Excellence at TE. So we are a small but mighty group of cost engineers that are focused on two main initiatives.

Using aPriori to Bring Solutions to Our Supply Chain Partners to Reduce Cost

And the first one is cost modeling, which aPriori helps us with. And then the second one is process improvement, and how do we leverage our internal manufacturing teams to bring solutions to our supply base where they might be lacking. And really, at the end of the day, is how do we get that cost reduction through the cost modeling, innovation, and teamwork collectively? A little bit about TE. So we are not a really hugely known brand. We’re a big company. We’re about $16 billion, and split into three segments. So I sit within the corporate division, but the majority of our business is broken up into about 10 different business units across three segments. So you can see here automotive or transportation is the biggest chunk of our business, and we manufacture about 236 billion products a year, which is incredible. And our revenue is split pretty evenly across all regions. So to say that we’re a global company is like an understatement. I think it’s wildly crazy, but we are like a tier three. So we have a lot of pressures from customers and suppliers on both ends.

Inflation, Data Sharing, and The Supply Chain Network

So now we’ll get into a little bit of the more of the meat of the presentation. So managing inflationary pressure. So you heard Peter Zeihan say, right, there’s been a lot of volatility in the market. And I’ll go through examples in energy and labor costs and material rates, but it seems like it’s not going to be stopping anytime soon, right? So how can we decide when our suppliers are increasing costs on us, like how is it fair? How do we know if those metrics are fair that what they’re asking for us to do? So what I’ll do is go through one example in terms of energy.

We had a supplier where their cost increase, or their energy increases went up by 340%. And they were asking for about 9% to 10% cost increase for a specific product that they were manufacturing for us. So in this case, we used the methodology of trying to figure out how much energy actually is going into the product at the end of the day. Is 9% fair at a 300% energy cost increase? So how can you do this? So what we did is compared the machine overhead rate, which contributes the most energy out of a product cost when you’re looking at it from the bottom up, and adjusted the energy from the original to the new inflated cost. And you can see that the machine rate actually went up by 14%. Okay, great. So 14%, but how much of that machine rate actually impacts the product? And after doing this analysis, we realized it was 4%.

So we could go back to our supplier and say, you’re asking for 9%, but based on the metrics you’re telling us and your energy increases, it should only be impacting us by 4%. So we’re not completely mitigating all of the 9%, but we can start to have that mindful conversation with the supplier saying, okay, now we’re only, you know, why are you charging, where’s that other 5% coming from? What’s going on here? And this can be done through the aPriori tool very easily. There is a module within the cost estimate where you can create the current model with the current energy and then update a second scenario with the updated energy. So it’s very easy to compare and contrast how that is actually affecting your bottom piece price of a product.

The next one I wanted to go through, and this is not in aPriori, so we need to tell the product guys [laughter] about this, but another one is just market data, right? So this is probably not surprising to many of you, but we had another supplier that was forecasting increasing costs 7% to 10%, and they’ve done that for like three consecutive years overall, and my understanding is their reasoning was because their manufacturing processes, et cetera, everything, like other cost contributors that were increasing the overall bottom line. In this case, the product is, the majority of it is like 60% in procurement of raw material. So there’s copper and another material that are 65% of the overall product cost. So in this case, we looked at the overall trend of copper and this other material that we’re using, and you can see that there’s a 15% reduction in trend for raw material.

So even though they’re asking for a price increase on these other elements, they could probably even out with the 15% that they’re getting back from the raw material cost. So this is really information sharing and decision making: so where’s the money going, what’s it doing? I’m not saying that the process costs aren’t going up, but should they be able to cover it with the gains that they’re getting from the market adjustment and the raw material?

The last one is labor and machine rate. So we all know there are different labor rates and machine rates for every region, wherever you’re manufacturing. We were currently looking at evaluating our supply chain partners for new product business, and I’m pushing the cost transparency, which is not necessarily always very easy with our suppliers, but we had used aPriori to look at the cost breakdown we received from our supplier versus what should cost that we were getting from aPriori. And you could see that supplier was quoting $9 in Mexico for a 110 ton machine, where in the US it’s $18, and in Mexico best rate is $4 for labor.

Same thing for the man-machine hourly ratio is $28 they were quoting, and you can see the best practice is $11 in Mexico and $24 in the US. So you have very clear talking points with your supplier to say, okay, you’re clearly two times higher than the US rate in this case, what’s going on? What numbers are you using in your calculation? And we can, without any manufacturing improvements, without anything, we can hopefully negotiate some of that cost out.

Global Supply Chain Innovation for Sustainability

The next thing I want to talk to you about is innovation for competitive advantage. So that’s a mouthful, but what we’re trying to do here is look at process optimization and the link to scope through your sustainability.

I have a lot of different opinions now about sustainability after Peter Zeihan’s talk this morning, so my head kind of exploded. But the thing that we know is sustainability is a super hot topic, but how do we link the two together? I mentioned earlier we’re using cost modeling and then using process optimization at TE to help our suppliers get better. So how do we do it and also get gains for Scope 3 or sustainability? A lot of smaller suppliers, when we mention this to them, they don’t even know what Scope 3 is, or they don’t have metrics for it yet. And so this is a really nice way to tie the two, like the cost productivity and then also emissions and reductions at the same time.

So traditional processes, you get the money for the customer and then the supplier gets capacity. But when you do that, you’re actually also improving some recyclability, some CO2 emissions. So how do we make sure that in that natural process that you guys are probably already doing, that you’re also gaining and tracking your sustainability? So the example I like to give is injection molding. So process optimization in this case is regrind, scrap reduction, using different materials, alternatives, and then efficiency improvement and then the man-machine ratio. So these are all ways that we’re naturally improving the supplier’s processes, but also connecting the sustainability and Scope 3.

So if we’re regrinding more, we’re not making more resin, we’re not putting more greenhouse gases into the environment, so that it naturally goes together. The way that aPriori helps my team do this is we’re starting to do this automation process that’s called resin stream mapping. And we have targets for global reduction of our Scope 3 metrics. And so in an ideal world, you want the resin that goes into your process to equal the product in kgs out, right? And that’s a beautiful, sustainable process. But we all know we have purging, scrap parts, process issues, all this other stuff that contributes to the total waste. So let’s go through an example. So if you have 100K goes in, there’s the purging and cleaning of scrap parts, and then you have 2K of regrind that goes in from the runner, and then some that’s unused.

So you have a total about 18% waste. But if I just go to the supplier and ask them, oh, hey, why aren’t you using regrind? Oh, it’s not on your drawing, you can only use 10% or something. Then we can go back to engineering and increase that. And you did nothing to the supplier or anything, and you’re already reducing your Scope 3, you’re buying less resin because you’re regrinding it. There’s some purging and cleaning that’ll always naturally happen, but each one of these can be reduced while also reducing your Scope 3 metrics. So with the process optimization, you can do less waste and less overall material in the world and less buying, because we can’t necessarily eliminate all resin, but we can get closer to equal.

Successful Supply Chain Collaboration Leads to Customer Satisfaction

And then the last thing I wanted to talk about is the supplier-customer relationship. So this is very much common sense, I think, and I think everyone in this room has seen a form of this type of chart. So first things first is the communication. So we want cost transparency and manufacturing transparency. We won’t be able to increase sustainability and reduce our Scope 3 metrics if we don’t have some information from our suppliers. And then the second one is trust but motivate. So how do we motivate our suppliers? I have a team of four people. They will never get to every single supplier and every single machine to reduce the cycle time on a injection molding machine and help the supplier do it. So how do we do that?

So one way is long-term agreements with your suppliers if you’re not doing it. Another one is quality cost delivery portion of it, where you say, hey, I’ll show you how to do this on one part with my specialist, my supplier development team, and then if you guys do it on the rest of the parts you’re running with us, we’ll share the benefit with you. So whether it’s like a 50-50 split, 20-80, whatever, by year, however you want to decide it. You can’t do it with every single supplier. It’s not realistic, but for your strategic long-term suppliers, why can’t you share the benefit there, right? And then you get everybody wins in that space. And then I think those two things will grow your partnership.

So you’ll have more strategic initiatives that you’re working on together, process optimizations are running more smoothly, more autonomously, and then new material trials and business growth, right? So I think your customers are more willing to come with you with VAVE ideas in this case. And like I said, this is kind of common sense, but sometimes it’s good to remind people. One thing I want to go back and mention is on, I forgot to say, is the part of this that aPriori is really helpful with for my team is that with the data that comes in the download when you do a scenario for a group of parts, you can get all of these metrics. So when you’re saying, when I’m doing this with my team, we can actually use aPriori database to see how many kgs assumption we have in each of the materials so that you kind of help bridge that gap of manufacturing transparency with your supplier. Because sometimes suppliers don’t want to tell you their exact scrap rate. They don’t want to tell you how much purging, cleaning they do. But you can also uncover maybe unnecessary downtime in the manufacturing facility. So it kind of gets you to a starting point with the supplier, similar to like the quoting process where you bring it to the table and say, tell me where I’m wrong. So it’s a really cool tool instead of having to go to the supplier part by part, trying to get this information out of them.

And then lastly, just kind of key takeaways is utilize data from available tools. So whether it’s aPriori, the market, to challenge your inflationary pressures. Take advantage of sustainability efforts to improve cost, operations, and greenhouse gas metrics. I think those are two key links that are just so natural and I think people are overlooking it. And then strong supplier customer relationships. And I’ll be very transparent. We’re really working on this one because we have a lot of things going on, as all of you do, and it’s not easy, right? Everyone can do something to close that gap a little bit. But yeah, and that’s it. Thank you.