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	Supply Chain Tools Part 2 of 3
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	TIPS ON SHARING ONE'S SCHEDULE WITH ONE'S SUPPLIERS First of all, one needs to meet with one's suppliers so that they under­stand that the information that one will be sharing is highly confiden­tial. One doesn't want one's schedule to end up in the possession of a competitor! Having one's supplier sign a confidentiality agreement reinforces this goal. If one is on a material requirements planning (MRP) or an enter­prise resources planning (ERP) system that generates requirements to one's Purchasing Department, one can generate requirements to one's supplier fairly easily. • First, segregate the requirements by vendor. This will form the ba­sis of the information that will be transmitted to the supplier. • Determine how solid or fluid the quantities and items are within the company's time fences. For example, if quantities are frozen within the first four weeks but subject to 25 to 50 percent swings from weeks 4 to 8, document this information so it can be discussed it with the supplier. • Meet with the supplier to review how the information is structured. Keep in mind that MRP may be a foreign concept to some of the suppliers so in-depth training may be needed for them to under­stand how to use the information to help schedule their business. • The most effective schedule-sharing agreements include a guaran­tee from the customer that once an item is called for within the frozen time fence, the supplier will purchase it. Suppliers will not be nearly as reluctant to produce—and possibly customize—inven­tory for a customer that guarantees it will be purchased. • Review seasonal trends and abnormal events such as vacation shut­downs or special promotions with the supplier and obtain an agree­ment as to how these special events will be handled. • Finally, determine how often and in what form the schedule will be transmitted. Should it be sent daily, weekly, or monthly? Sent via mail, fax, electronic data interchange (EDI), or e-mail? Once these details are ironed out, one can begin sharing the sched­ule with the supplier. If the operation needs a periodic delivery (such as every Tuesday at 10:00 a.m.), bring the transportation provider into the loop. By setting up regularly scheduled deliveries, one can ensure that all of the hard work with the supplier does not go to waste because the product is left sitting on their dock. In addition, one can make the most efficient use of the receiving employees by helping smooth out the peaks and valleys of incoming deliveries CONSIGNMENT—JUST A FINANCIAL GIVEAWAY TO THE CUSTOMERS? Turning again to the APICS Dictionary', we define consignment as "the process of a supplier placing goods at a customer location without receiving payment until after the goods are used or sold" (author's emphasis). Why would a supplier want to give goods to the customer without receiving payment until after they are used? Isn't this the same as giving money directly to the customer without receiving any ben­efit? In short, what is in it for the supplier? To answer these questions, let us look at the cost of holding inven­tory. If a manufacturer is a distributor or a make-to-stock supplier, one is generally expected to keep safety stock in finished goods for the customers. Is this safety stock maintained without cost? Not according to Ross2, who, according to the table below, indicates that most com­panies have an annual inventory carrying cost of 20 to 36 percent. Cost of capital 10-15% Storage and warehouse space 2-5% Obsolescence and shrinkage 4—6% Insurance 1-5% Material handling 1-2% Taxes 2-3% Total annual inventory carrying costs 20-36% Larger companies tend to have a lower cost of capital because they can go directly to the debt and equity markets instead of relying on banks. As one looks at the carrying costs outlined above, the question presents itself: "Would I as a supplier still be responsible for all of these carrying costs if I consigned my product to my customers?" I would argue that one would not, particularly if one developed a comprehensive consign­ment agreement, which included customer responsibility for insurance, obsolescence, and shrinkage, that will be discussed in the next section. By operating under such an agreement, one could reduce one's annual inventory carrying costs by 40 to 50 percent: Cost of capital 10-15% Storage and warehouse space 0% Obsolescence and shrinkage 0% Insurance 0% Material handling 0% Taxes 2-3% Total annual inventory carrying costs 12-18% To Be Continued STAY CONNECTED To stay current on Lean Management Basics and Best Practices, subscribe to our weekly MBBP Bulletin... and we'll send you our PowerPoint presentation "How to Survive in an Entirely New Economy."  All at no cost of course.  First Name: Your E-Mail:  Your personal information will never  be disclosed to any third party. privacy policy Here's what one of our 13,000 plus subscribers wrote about the MBBP Newsletter: "Great manufacturing articles. Thanks for the insights. I often share portions of your articles with my staff and they too enjoy them and fine aspects where they can integrate points into their individual areas of responsibilities. 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