Back to Volume 4 | Summer 2019

Understanding Supplier Production Systems

Executive Summary

Supplier production and on-time delivery of material is a vital element of any major capital project’s success. Project management teams are often ignorant of supplier operations management practices and thereby suffer loss of major opportunities to improve project performance.

In this paper, we provide insight for project management teams into approaches in operations management and profitability that are common to suppliers, we address the underlying behavior of supplier capacity and we explore the tradeoffs suppliers make between capacity, lead time and profitability. We provide the reader with a more comprehensive understanding of how suppliers design and manage their production systems, including the use of ERP software. Key drivers of supplier performance are capacity utilization and management of tradeoffs between utilization, lead time and multiple customers’ priorities. Of particular interest is how suppliers improve profitability and cash flow through optimizing capacity. A supplier’s management of capacity is a prime determinant of the supplier’s ability to successfully supply materials to a project.

The paper closes with supplier management options that project management teams can employ to achieve better project cost and on-time delivery results.

Keywords: Capacity; Cashflow; Supply Chain Management; Project Management; Project Control

Author: Edward S. Pound Director of Production System Optimization, Strategic Project Solutions, Inc.,

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