Making Your Supply Chain Work for You
During a recent tour of a manufacturing company in New England, I stopped by a very complicated looking sub assembly that was sourced from a company many thousands of miles from the United States. The tour host explained that the piece came in fully assembled, but, in order to install it in their equipment, they had to disassemble the sub assembly. This seemed like an obvious waste of time and labor, to me. The tour host went on to explain that the product came in assembled to save on packaging and shipping costs.
I believe that it is the responsibility of the Sourcing function to bring in parts, supplies, and materials, in a way that makes it easy and efficient for Manufacturing to use. The example above made it more difficult for Manufacturing to use and added to the cost of manufacturing the equipment. Part of the problem is the Sourcing function is measured on PPV, Purchase Price Variance.
Sourcing is tasked and their performance is measured, on bringing in parts, supplies and materials at a price that is lower than that of the previous year.
One way to accomplish this task is to buy in larger volumes to get the volume break. This too causes problems for Manufacturing, as the material must be unloaded, stored, counted, and runs the risk of being damaged and or becoming obsolete.
The Lean way is to develop a Kanban system with the suppliers and to get into a replenishment mode with the suppliers. There is also VMI, Vendor Managed Inventory, where the supplier stores materials in the customer’s plant and the customer pays for the material when it is removed from the storage area and used in the product.
There is also the “bread man” approach where the supplier visits a plant on a periodic basis, such as once a week, and replenishes the items that have been consumed during the period.
Another example that I witnessed in a consumer product plant in Clinton, MO, was the lead operator, the highest paid person on the line, was reaching into a Gaylord of screws and weighing out a certain amount of screws for each of the ten assembly lines. Again, Sourcing was achieving their PPV, but at the expense of Manufacturing, and actually increased the cost of the product. With a little suggestion on my part, the supplier of the screws was asked to supply screws in packets of 1,000 screws, not in bulk, and, at no extra cost to the company.
One final example, I recently visited a company in Maine, where the plant layout allowed for straight line flow for the manufacturing process. However, there was one step in the manufacturing process that was at a right angle to the straight line flow. The tour host explained that the metal bar stock came in 20 foot lengths, too wide to go through the receiving door. The material had to enter the building at a right angle to the door. The bar stock was stored on racks that were at a right angle to the production line. The bar stock was eventually cut into smaller pieces in accordance with the lengths required on the drawings. I made a suggestion to the Production Manager, to analyze the various cut lengths of the bar stock and determine a more optimal length to order from the supplier. It turned out that there was always a two foot length of stock leftover, which was scrapped. By making the supplier supply the bar stock in a move usable length for the company, the plant would be able to reduce the length of the raw bar stock and eliminate the scrap. In this way, the Supplier would provide more value to the company.
The Lean way to measure the performance of the Sourcing function is “Inventory Turns”. This number is calculated by dividing dollar value of the inventory into the total Sales for the year. The accepted number for good performance is 14 turns. However, I once managed a plant that achieved 52 inventory turns. What ever happened to the BHAG? (Big Hairy Audacious Goal)
The bottom line of all of the above, is to ask the suppliers to deliver their product in quantities, forms, shapes and sizes that are beneficial to Manufacturing, all, at no extra cost to the company. You can be assured that you would not be the first company to ask more of your suppliers. For the most part, the suppliers can and will comply with your request.
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