A Lean Supply Chain is a critical component of any company’s success.
The following methodology can go a long way to speed the development, and performance, of your 1st and 2nd tier suppliers.
Most companies have learned to cope with less than world-class supplier performance. This is generally done by carrying additional inventory throughout the supply chain. The following list identifies a few of the more common issues.
We are carrying too much raw material (purchased parts) because our suppliers:
- Are not responsive enough (lead times are too long.)
- Have excessive minimum order quantity (lot size) requirements.
- Are not reliable (delivery date performance.)
- Their product quality is sporadic.
- In-bound freight costs are too high.
- Their pricing (due to their internal cost structure) is excessive.
- Acquisition costs (getting a quote, order placement, receiving, warehousing, picking, expediting, tracking, paying, etc.) are too high.
- They are passive, instead of proactive, in new product development and process innovation.
- They are difficult to work with, e.g. limited hours of availability for key resources. We work 3 shifts. They work one. We’re operating on the weekend. They’re not open.
- Their packaging is cumbersome. De-trashing is a problem.
We even suspect that SOME of the supplier issues may be caused by us (their customer)!
(“We have met the enemy, and he is us!” Pogo)
- The vendor was forced to by-pass preferable production processes due to unnecessarily tight “specs” on non-critical parameters (“Over Specification.”)
- We’ve been unwilling to allow approval of the supplier’s quality processes (“Vendor Certification”) and therefore must continue to pay for incoming inspection.
- Our internal procurement measurement and reward system (PPV: Purchase Price Variance) encourages excessive purchase of “just-in-case” inventory (lot sizes), making point-of-use stocking impossible.
- Our manufacturing system (MRP/ERP) “forces” cumbersome order placing and payment practices.
- Our internal interpretation of ISO (or equivalent) makes process/procedure changes painful and costly.
- Edicts from “corporate” prohibit each local operating unit (plants / distribution centers, etc.) from capitalizing on regional advantages (mandated sources prohibit leveraging of nearby suppliers, regional distribution channels/carriers, etc.)
- Outdated accounting “safeguards” add unnecessary paperwork, data accumulation, and product handling, etc.
Fixing this list of issues is difficult, but not impossible. We have outlined, below, a proven methodology to do just that. Note: Some of the steps may be omitted where not applicable, and the sequence of events must be adjusted for each individual company’s situation and priorities.
- Identify any inhibiting internal policies and/or procedures, and fix them. As outsiders, we have a unique advantage in addressing and resolving these often politically charged issues.
- Re-assess any purchase items that might be made in-house. There are often items that, when fully costed, can and should be moved from “buy” to “make”. The hidden costs of procurement is seldom adequately accounted for.
- Reduce the vendor base, if this has not already been done. In this “first cut” reduction, all obvious poor performers are eliminated. Procurement is tasked to locate / develop capable replacement suppliers. (Note: additional temporary sourcing resources may be required during this initiative.) A comprehensive supplier evaluation checklist is available at ”Lean Supplier Evaluation: A Checklist”
- Identify key suppliers. All suppliers are NOT created equal. Do an ABC of your remaining suppliers. We’ll want to allocate more resources to develop and nurture the “critical few.”
Hold one or more “Vendor Day” events:
- Provide suppliers with an update of corporate progress and projections, e.g. What the company has done. What the plans and projections are for the future.
- Expose suppliers to lean concepts, philosophy, and techniques (including a participative demonstration.)
- Share internal successes. Hold a plant tour or use “before / after” photos where applicable.
- Clearly identify what will be required of them in the future: Short lead times, Responsive lot sizing, On-time all the time, Perfect quality, Point-of-Use delivery, Participation in product development, etc.
- Hold “break out sessions” with key suppliers. Share historical performance metrics. Identify desired goal curve (improvement progress over time). Request buy-in. Offer limited support.
- Monitor progress vs. the established goal curves. Post and distribute. Follow-up. Request “Cause & Corrective Action” reports where goals are not being met.
- Work with the suppliers to resolve performance issues. Arrange and conduct high-level meetings. Review historical performance vs. goal curves on critical parameters. Resolve any interface / customer caused issues. Offer a methodology to achieve the goal curves, if such is not already in place. Assign internal and supplier resources to action items as required.
Additional details regarding methods to work with suppliers to resolve their internal problems is discussed in our post “Smoothing Customer Demand.”
We have found that this process: Identifying specific tangible performance metrics, Measuring historical compliance, Establishing commitment for improvement (goal curves), and continually Monitoring performance, provides quantum gains in an extremely short amount of time.
A myriad of additional Lean Manufacturing tools and techniques are identified here.
For more information regarding your specific issues, e-mail or call us. There is no charge for telephone consultation.
Jack B. Harrison
The Hands-On Group