An often-overlooked way to improve processes is to take a walk through the plant and observe. In Lean this is referred to as going to the Gemba (point of work). Here is a “before” picture of what we found at one company:
The shelves aren’t labeled, there are things grouped together that are similar but not the same, and it looks a little bit like my garage. Workers are wasting time because they have to search for what they need instead of taking it off a clearly marked shelf.
Somewhere in here are latex gloves, which are a key supply item for this particular company. If they run out, they can’t make their product. When there is an uncertain supply of something so critical, workers begin to hide boxes of gloves to ensure that they’ll have them when they need them.
When we reorganized this supply room we implemented a Kanban system, which uses a visual indicator to show when the item needs to be replenished. You never run out when this system is used correctly.
After setting this up, we asked the workers to please bring back the boxes of the gloves that they had stashed away, and suddenly we had a truckload of latex gloves. Think of the money that was literally lying around the production floor in latex gloves, not to mention the space that was being taken up. Having supplies readily available on clearly marked shelves saved time and improved labor productivity. This particular process improvement took only two days to set up, including communicating with suppliers.
This was easy to fix, but the larger story is that a messy supply area is more than just a mess – it’s an indication of a lack of operations discipline. There’s probably more going on in this company than meets the eye.
© 2013 Rick Pay – All rights reserved.
When companies are developing requirements for their suppliers, they often define in great detail how the supplier will deliver the materials and products and how they will offer support. Companies often stipulate that suppliers carry a certain level of inventory to provide a high service level. For instance, many companies require the supplier to hold 30 days of stock on hand.
You Pay for What You Require
At first glance this might seem to make sense, but the reality is that when you specify how suppliers are to do their job, they will charge you for what you require them to do. Those costs will either be built in to the part price or added as a service charge or surcharge. When I was VP Operations for a manufacturer, one of our sister companies used consigned inventory and required 30 days stocking levels at the supplier. The supplier charged them a five percent surcharge for doing so.
Tell Suppliers What You Want, Not How to Provide It
In a true supplier partnership the customer defines outcomes, not methodology. For instance, if you want just in time delivery, say so. If you want to use Kanban, say so. If you want 99.8% perfect order execution, say so. Specify the outcome, not the method. This allows the supplier to use whatever means they need to meet your requirements. The process is theirs, not yours. They won’t add a surcharge, the service will be better and the total cost of materials will be lower.
©2013 – Rick Pay – All Rights Reserved
Recently a client asked how purchasing activities change in a Lean environment. In both manufacturing and distribution, Lean or Toyota Production System (TPS) implementation affects material flow from suppliers to production. The focus on waste reduction can translate to lower materials cost.
Here are three ways that purchasing methods and activities look different in a Lean light:
Speed Without Waste
First, materials flow to the lines tends to be more “Just-In-Time.” Smaller, more frequent batches drive Purchasing to use blanket purchase orders with frequent, usually daily, releases. To prevent stock-outs while keeping inventory (one of the seven wastes of TPS) low, many companies use auto-replenishment systems such as Kanban and Vendor Managed Inventory (VMI).
Second, materials cost reduction takes on greater importance. Working with suppliers to improve quality, involving suppliers in design for cost reduction, and changing the way suppliers package and ship will all require increased attention from buyers.
Don’t be Shy
Third, the level of communication with suppliers increases dramatically in Lean purchasing. In order to eliminate waste and cut costs, buyers need to refine their supplier selection processes. In addition, openly sharing forecasts, product development plans and market activity changes the nature and frequency of supplier communications. Lean purchasers can’t be shy with their suppliers.
Lean presents new challenges to every part of your operations, including purchasing. Ultimately, the payoff is worth the effort.
© 2012 – Rick Pay – All Rights Reserved
If a product has high variability and low importance you can manage it with inventory, but using Kanban or VMI to allow for a quick response to a spike in demand. For these items you could build subassemblies or stock them in adherence with the theory of postponement.
The Trouble with High Variability
The theory of postponement was developed at Hewlett Packard in Vancouver, Washington and simply means that you finish the customization of the product at the last possible moment. When HP was shipping printers to Europe each printer was the same, but required a user manual in a specific language and a power plug that met regional standards. HP would build printers for France and others for Germany, ship them off, and find that they always shipped the wrong number. The product was highly important for the company but highly variable.
HP learned to customize the product at the last moment by shipping printers without user manuals or power cords. The manuals and cords were added at a facility in Europe, so HP could cut inventory – and the costs associated with holding it – while increasing customer service levels. Engineers or designers can come up with solutions to make manufacturing flexible, enabling you to work around high variability.
© 2012 – Rick Pay – All Rights Reserved
Many companies tell me they don’t use Blanket Purchase Orders (BPOs) because they fear it creates a major commitment with the supplier. This doesn’t have to be the case.
A Blanket Purchase Order is usually set up to cover the purchase of one or more items from a supplier over a long period of time, usually one year. It specifies terms, conditions and price. BPOs often come into play when the supplier relationship is based on Kanban, Vendor Managed Inventory or other auto-replenishment systems where normal POs would be inadequate.
Why Are Buyers Reluctant?
The apparent stumbling block is that BPOs typically specify a total quantity for the entire purchasing period. Many buyers fear that the quantity is a firm commitment to purchase, and if business doesn’t go as planned, they will have to buy all of the remaining parts on the BPO. This is simply not true; as with most terms and conditions, it is negotiable.
Building a Relationship
BPOs are what I call relationship POs. One of the large benefits is that they forecast a quantity for the year so that the supplier can plan production or buying activities. This can significantly cut costs for the issuer of the BPO. In my experience, any commitment can be limited to the materials lead time for the supplier, usually 30 days or less.
Removing the Fear of Commitment
BPOs have many advantages including better pricing, lower transaction costs, fewer transactions to keep track of, and closer relationships between customer and supplier. Removing the pressure of an annual commitment makes it easier to reap these rewards.
© 2011 – Rick Pay – All Rights Reserved