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CASE STUDY:
GE – Europe
On Tuesday, October 19, Maggie Ward, the packaging purch
CASE STUDY:
GE – Europe
On Tuesday, October 19, Maggie Ward, the packaging purchasing manager for GE’s European division in Utrecht, the Netherlands, wondered what she should say in the next day’s meeting with the plant manager of Branco, a custom packaging supplier. In the last three quarters, Branco’s quality performance rating had shown a steady decline. Maggie believed it was essential to get the plant manager’s cooperation to avoid future problems.
GE – Europe
GE, a diversified international manufacturing organization headquartered in the United States, offers a wide range of products to both industrial and consumer markets. Its Utrecht plant employs approximately 400 people. European sales were $150 million a year and the company had a long- standing track record of successful business performance.
Each division operated within a set of corporate guidelines and was responsible for its own financial performance.
QUALITY CONTROL
Contributing to the success of GE – Europe was a commitment to strict quality standards in purchasing. Coordination between each supplier and GE’s plant was crucial to avoid production slowdowns. Contact was maintained directly between plant personnel and sales representatives. When a problem in the manufacturing plant arose due to the supplier’s product, the appropriate sales representative was immediately notified by email via a standard form called “Nonconformance Action Report (NAR)” completed by the plant operator closest to the problem. The sales representative was required to return, by email a standard “Feedback Form” to acknowledge the problem and explain how it was to be solved.
Supplier deviations from standard, as reported on the Nonconformance Action Report, were also forwarded to each purchasing manager. The supply assistant compiled these forms, together with information collected on several other supplier performance criteria, such as accuracy of the quantity delivered, shipments on time, and accuracy of paperwork (see Exhibit 1). Each quarter, each purchasing manager used the information collected to compute a “Supplier Performance Rating.” Suppliers were all rated on the same scoring criteria.
SCMT1003 Case Study Exhibit 1.png
SCMT1003 Case Study Exhibit 1 Continued.png
The criteria and scoring system implemented by GE (Europe) had been developed by the world headquarters supply group in North America several years earlier and reflected the key aspects of supplier performance deemed to be important by GE management in the US. Suppliers received a copy of the scoring criteria so that they were fully aware of how they were evaluated. At the end of each quarter, they were advised of their rating. GE (Europe) maintained detailed documentation of supplier activity and variance from norms.
The rating criteria included three categories: quality, delivery, and continuous performance, with quality accounting for the largest portion—50% of the total rating. Within each category was a list of items. Each item was scored according to the supplier’s provision of that item, on a scale from 0 to 4. Scores were then weighted and totaled. A total performance rating for the quarter was derived by summing categories (see Exhibit 2 for Branco’s scoring sheet). The supplier’s maximum possible score was 4. An overall rating of 3 was considered the minimum acceptable performance rating.
SCMT1003 Case Study Exhibit 2.png
BRANCO
Maggie had been watching Branco’s performance ratings for the last three quarters with some concern. Although the problems incurred each quarter were rectified by Branco, the next quarter brought even more problems. As a result, Branco’s performance rating had dropped further each quarter. Finally, in the most recent quarter, Branco’s rating dropped below the minimum acceptable standard of 3 (see Exhibits 2 and 3). When Branco’s sales representative, Jill Damsma, received the rating, she had called Maggie immediately, and she was just as concerned. They agreed that a meeting was necessary right away, and that GE’s production manager, Eric Koendeeile, and Branco’s plant manager, Ruael Mooij, should also attend. They agreed to meet at GE on Friday, October 26, at 2 p.m.
SCMT1003 Case Study Exhibit 3.png
Branco, located near Amsterdam, was the supplier of packing cartons for GE’s custom products. These packing were odd sizes and required custom specifications. Custom packaging was required for special orders, promotion, and unique customer requirements. Many orders involved small lots and specifications changed frequently. As a result, it had been necessary for Branco to customize production operations to meet the unique requirements of GE. Branco had become the only supplier of all custom packing cartons to GE (Europe). Therefore, Maggie could not source a custom product from a different supplier easily or quickly. Branco delivered on a daily basis and its yearly sales to GE (Europe) amounted to about $500,000. Custom work required a substantial commitment from both parties. The relationship of trust between GE (Europe) and Branco had taken eight years to solidify.
Quality problems were costly for GE (Europe). A number of Branco’s orders had included defective cartons due to overlapping flaps. Nonconformance problems such as this were typically not identified until a production run had started, and equipment stalls occurred. Production used a fully automated line process, and a stall at one end resulted in a slowdown throughout. Because the defective cartons would not affect the end product to the customer, the plant continued the run-in order to meet customer deadlines. However, the last Branco shipment of defective packing cartons resulted in a 30% production loss for an entire day’s (two shifts) production. At full production, the plant ran 2,000 cartons per hour, with three operators at $28 per hour each.
THE MEETING WITH BRANCO
Over the last few years, Maggie felt things had changed drastically in the industry. At one time, as a purchaser, she might have demanded that the supplier make changes “or else.” This was no longer the case. Maggie reflected, “In such a tight market, you just don’t drop suppliers. Relationships are everything.”
In the meeting scheduled for the next day, Maggie felt it was essential that she impress upon Jill and Ruael her desire to continue a strong relationship. Yet she would somehow have to convince Ruael that something had to change at his end to improve the production results, without confronting him. Maggie wondered how she should develop her strategy to get the desired results from Branco.
Enter your responses to the following questions directly into the provided text box. Please be sure to number each of your responses.
Case Questions:
From Maggie’s perspective, what should be on the agenda for this meeting? What is the correct message Maggie should communicate to Banco’s representatives – Jill and Ruael, in order to obtain the necessary improvement results in the supplier’s performance?
Evaluating the Banco Performance Rating in Exhibit 2, where is Banco performing well? What are the critical areas of performance improvements for the supplier?
As you evaluate Exhibit 3 illustrating the supplier performance for the previous 5 quarters, how would you describe the quarterly performance? Why are the trends illustrated in this graph important to aid the discussion of the meeting attendees?
What is the recent financial loss (in dollars) resulting from labor inefficiencies that GE manufacturing operation experienced during its last shipment?
If you were part of the Team from Banco, Jill and Ruael, what suggestions do you think they should focus on to satisfy Maggie and Eric from GE – Europe? Where can Banco have the biggest impact to improve the results for GE – Europe?
On the other hand, if you were on Team GE – Europe, Maggie and Eric, what the successful outcome from meeting would you hope to achieve?
Do you feel this type of operational meeting and scorecard process is helpful to the business relationship? Why or why not?
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