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Hi MBBP Subscribers, 

How important is a company's supply chain? 

Just ask your front line leaders what's their most pressing problem. More than likely they'll respond, "Part Shortages!" The last time I asked some production people what they needed to improve their performance the answer was, "Just get us the parts and we'll kick butt." 

The importance of an effective supply chain in a company's pursuit of best-in-class manufacturing can't be overemphasized. To that end, I'm not leaving the subject until you have a chance to read one more article on the importance of a strong managed supply chain.  

So if you agree that your supply chain is important, be sure to read this week's MMBP Bulletin article: "Supply Chain Management."    

Have a nice day, and stay connected.

  
Bill Gaw

Business Basics, LLC
6003 Dassia Way
Oceanside, CA 92056
bg@bbasicsllc.com 
760-945-5596


Supply Chain Management

It is futile for manufacturers to try to reform their operations without a strong managed supply chain. To create technology intensive products --- and what product isn't these days --- U.S. manufacturers spend on the average, 65 cents of each sales dollar purchasing production materials and outsourced activities/processes. At the same time, JIT assembly operations require perfect quality and timing at the receiving dock. Parts have to get better and cheaper.

Increasingly fragmented markets demand more flexible manufacturing, which means, in turn, key suppliers who can stand and deliver under enormous pressure, change over quickly to new product programs, or master new technologies to make --- even help design --- robust components. Indeed, corporate product design teams, whose lead times are shrinking fast, need all the help they can get --- especially the subtle suggestions for improving a product that only the people who manufacture its subassemblies and components can provide. 

Strategic Manufacturing

Supply chain management is thus no longer a task for old-style purchasing managers. Strategic manufacturing is becoming a partnership between the companies that preside over design, assembly, and marketing of finished products, and fewer, smarter suppliers --- often single-sourced suppliers. Getting this partnership going, and keeping it competitive, is no easy feat. It may be the single most important task of the people who run the manufacturing organization. How should they approach it? 

The first point, which is obvious but important, is that the cheapest component is, in the long run, not necessarily the least expensive. Once the cost of poor quality is factored in --- downtime on the line, rework, scrap, warrant work, legal fees, and so on --- the cheapest may well be the most costly. Managing the supply chain means aiming for the lowest "total cost, the lowest cost when all is said and done, not the lowest initial price per unit. Because poor quality is so expensive, buyers have to use more care in selecting suppliers than ever before; they must learn more about suppliers than they ever cared to know before. They need to engage in careful research and mutually Beneficial relations with key suppliers, not counterproductive tests of strength. 

Another, less obvious point purchasing managers have long advocated the award of two or more contracts for the supply of critical materials. Presumably, competition drives prices down and insures on-time deliveries, and, besides, does a company dare put a whole production line at the mercy of a supplier? This is anachronistic thinking. When capacity permits, manufacturers are better off with single-source key suppliers. A carefully selected and managed supplier offers the greatest guarantee of consistently high quality and on-time deliveries. Suppliers who feel part of the family permit manufacturers to subject them to rigorous inspection, certification, and education. 

Six Questions

There are six questions that will determine whether a company will achieve dramatic results from a supply chain management program.  

  1. Is the company sensibly organized to select and manage key suppliers?
    When selecting key suppliers, progressive companies delegate this responsibility to a multifunctional team lead by a purchasing specialist that has relevant technical, process and management experience.  
     

  2. Are key suppliers provided stabilized procurement schedules? Sending a supplier the "take action" print outs from an MRP or ERP system is a sure way of confusing and destroying key supplier relationships. Successful companies place a qualified planner in between the computer and supplier scheduling to assure that requirement schedules are realistic and stabilized.
     

  3. Does the design process team include key suppliers? One hears a great deal about designing for manufacturability. But where design engineers ignore the manufacturing and technological capabilities of key suppliers, problems with quality, configuration, and cost are the inevitable result. Key suppliers should participate in paper reviews, value engineering, and in prototype, failure and stress analysis. 
     

  4. Are key suppliers addressing quality standards upfront? Today manufacturers should expect key suppliers to develop quality plans and an effective quality management system. ISO 9001 certification is an expense that many key suppliers can least afford but that does not prohibit them from becoming ISO 9000:2000 compliant.
     

  5. Are suppliers earning a fair profit? Smart manufacturers are quick to seek and acknowledge key suppliers cost reduction improvements and to establish a satisfactory distribution of relevant profits.
     

  6. Are supplier relationships managed to ensure long-term growth in supplier skills? Virtually all best-in-class manufacturers have learned that supplier training and assistance pay handsome dividends. 

Supply chain management, in the end, is based on interdependency and respect. The supplier needs a responsible, steady customer for its products and services. Manufacturing companies recognize that they need key suppliers to help them provide their customers with the level of quality, speed and flexibility they require.  

Back-to-Basics

Most attempts at implementing and managing a supply chain achieve limited positive results? Why? Poor preparation a company should have absolute control over its internal operations before it plans and executes its supply chain management program. If you're struggling with supply chain management at your company, make sure that supply chain basics are identified, implemented, and mastered.

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