In many industries, competitive advantage is rapidly shifting to the management of suppliers, which can account for as much as 60 to 80 percent of manufacturing costs. Suppliers also exert a strong influence on throughput time and work-in-process inventory, and play an often critical role in new product development. Companies that integrate their supplier base effectively with their internal engineering, manufacturing, and purchasing operations benefit from reduced costs, shorter lead times, lower development risks, and compressed development cycles.

Many businesses have recognized the strategic importance of optimizing their supply management processes. Companies as diverse as Toyota, Honda, Ford, Harley-Davidson, Detroit Diesel, Black & Decker, Yamazaki Mazak, Motorola, Bose, and Xerox are developing effective new ways for their internal functions to work together with suppliers in optimizing product design, development, manufacture, and distribution. Such improvements have enabled some to slash their development times by as much as 40 percent, increase inventory turns from six to over 50 a year, and reduce the cost of purchased materials by between 15 and 35 percent.

At the other end of the spectrum, companies that have failed to recognize the strategic importance of their supply...