After quality, delivery of quality parts from your suppliers to support your customer's delivery expectations is important. You must have quality parts or services to support your factory's production if you are to meet your customer's delivery expectations. In most industries, customers expect products to arrive when they need them, not when you want to provide them. Short lead times are essential to meeting your just-in-time production requirements. Working capital turns and lower inventory levels are essential, and are demanded in today's business environment.
Kanban is the delivery method of choice in my company. This term has been much overused and greatly misunderstood but has been proven to lower inventory levels, while providing more consistent delivery of products. KANBAN = Demand x (Lead Time + Safety Stock) Number of containers
•Demand = total demand for the part during a given lead-time, for example, one week.
•Lead time = total lead time for the part from release date to supplier until the part is received, and in the proper storage area for a production need (in the case of purchased parts for resale, the total time from release until the product is on your shelf available to meet your next customer order)
•Safety Stock = number of days of inventory you wish to carry to buffer the inconsistencies of supplier lead time, transportation lead time, receiving and storage lead time (in my company, the safety stock levels are one week, or five days)
•Number of containers = number of parts in a container, or the lot
size of parts your wish to deliver to your production line.
Once an organization understands the power of kanban and how predictable it is in meeting your production requirements, drastic improvements can occur. Even in the age of ERP and MRP II systems, more and more companies are choosing to "turn off" MRP in favor of kanban delivery methods.
The buyer's role is to teach and coach the supplier into a kanban delivery process, not only to help you lower your inventory levels while ensuring more consistent deliveries of parts, but also to help the supplier understand how kanban can help them manage their production levels. Suppliers with long lead times must either reduce their lead times or carry a calculated amount of finished or semifinished parts on their shelves to meet customer lead time expectations. In many cases, suppliers will learn how to improve their processes to avoid increasing overall inventory levels.
Total cost is the only true measurement for purchased parts. Today's buyer must consider all aspects of cost, including
•delivery costs (transportation)
•inventory costs (increased levels for suppliers with long lead times)
•cost of poor quality (low productivity, increased inventory to buffer poor quality performance, warranty costs, customer unhappiness/lost future sales)
•lost time for buyer and plant personnel resolving quality, delivery, or cost issues from poorly performing suppliers.
It is the purchasing department's responsibility to drive quality, delivery, and cost improvements to their current supply base. It is also their role to reduce their supply base to the minimum number necessary to support their operation. Only through the reduction in the total number of suppliers we buy from can we focus our efforts more effectively on helping our suppliers develop and learn how to implement continuous improvements in quality, delivery, and cost.
Quality improvements are achieved through continuous focus on the supplier's processes. Many suppliers have achieved or are seeking ISO or QS-9000 certification to meet their customers' demands. These programs can be helpful in achieving quality improvements but do not ensure total quality. The supplier must understand its internal process capabilities and those of its suppliers before it can achieve control over the quality of his finished products.
Delivery improvements can be measured by on-time delivery to a stated schedule, i.e., MRP output, or it can be measured by the on-time delivery to your actual production needs. Typically, MRP schedules do not change more frequently than monthly or weekly at best. With kan-ban, schedules can change daily to meet the daily customer order demand, hence improved deliveries with lower inventory levels. Additionally, kanban is a "pull system," while an MRP schedule "pushes" inventory into your factory based on a forecast. Training a traditional supplier in how to utilize kanban to meet both your needs as well as help run the supplier's factory is not easy, but well worth the efforts.
Total cost improvement is an expectation, just like continuous improvement in quality is an expectation. Once buyer and supplier negotiate a price, the supplier is expected to continuously review its processes, material costs, and quality costs and to make ongoing improvements to its cost to you, its customer. Throughout the supplier development process, the buyer and the supplier will seek and find methods for reducing costs, without sacrificing quality. In my company, we expect our suppliers, our partners, to bring us continuous improvement savings of 5 percent in total costs per year. This is not asking too much. We help our suppliers reduce their total costs, we single-source our total business needs to those suppliers who can meet our needs, and we share our business changes with our suppliers. In essence, the supplier becomes an extension of our business. We treat his as a partner, not as an adversary.
If you develop your suppliers as you would want your customers to develop your company to meet its total business needs, you will truly develop a supplier partnership that will enable you to improve your quality, delivery, and cost to your customer. It is not just the Golden Rule; it is good business sense.
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