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Lean Manufacturing Articles

Supplier Relations


  One of the most important members of my concurrent design team is not my employee, but my vendor. My vendors know more about the materials they sell my than anyone else. With concurrent engineering and a partner relationship, my engineers talk directly to their engineers and their planners have access to my planning system. By developing a partner relationship with my vendor, I eliminate waste and misunderstanding, and improve profits for both of us. For example, it was my paper vendor who pointed out the benefits of going to a generic white paper and my toner vendor recom­mended recycled toner cartridges to reduce both cost and waste.

Process Design

Process design is as important as product design for
improving inventory management. To illustrate my point, I'll use lot size as an example.

Assuming no shortages or excess and no hedge or anticipation stock, our average inventory during a re-supply period is equal to half the resupply quantity plus safety stock. If we can reduce the resupply quantity, we can reduce the average inventory. The resupply quan­tity is the most economical lot size, or the economic order quantity (EOQ). Remember that the EOQ is the square root of twice the annual demand (A) times the setup cost (S) divided by the interest rate (i) times the unit cost (c). The square root and the "2" are constants, so we are left with four variables that we can manipu­late in order to reduce the lot size: A, S, I, and c.

Annual demand (A) is in the numerator. I can reduce lot size by reducing sales but, for some reason, I don't think my VP of sales will like this solution. Interest (i) is in the denominator. I can reduce lot size by paying my banker a higher interest rate, but my CFO probably won't go for that. Cost (c) is also in the denominator. Lot size can be reduced if I pay more for my paper, but my purchasing manager will probably turn that down. I am left with setup (S), which is in the numerator. I can reduce lot size by reducing setup. My manufacturing manager, or my purchasing manager for a purchaseditem, will support me on reducing the cost to set up a machine or place a purchase order. In summary, from a process design perspective, the best way to reduce in­ventory is to reduce setup costs.


I encourage efficiency, and my accounting system measures the cost of production in real time. This gives my folks in manufacturing the information they need to be more effi­cient. For example, I measure and report the number of pages printed every day. Since overhead is fixed, the unit cost can be reduced if I print a lot of pages. The problem is that this encourages production even if there is no demand. Similarly, my purchasing department is measured on fa­vorable purchase price variance. I have a large quantity of printed colored pages to be written off and destroyed be­cause my accounting system encouraged purchasing to buy large quantities and manufacturing to print large lot sizes. Accounting measurements that encourage unnecessary purchasing or production of unneeded materials are coun­terproductive and should be replaced.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 14

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