April 24, 2006

Hi [[firstname]],

How important is a company's supply chain?

Just ask your front line leaders what's there 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 lean manufacturing can't be 
overemphasized. To that end, I am not going to leave 
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 MBBP Bulletin's second 
article on supply chain management.

Have a nice day, and stay connected.

Bill Gaw
Business Basics, LLC
Bg@bbasicsllc.com
760-945-5596

P.S. Your 40% discount on the Kaizen Based Supply 
Chain Management e-Tutorial is still available at:

http://bbasicsllc.com/scm.spl.htm

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MANUFACTURING BASICS & BEST PRACTICES BULLETIN

Now serving over 11,721 subscribers

Competitive Knowledge for Manufacturing People 

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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.

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.

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. 
(To learn more about ISO go to: 

http://bbasicsllc.com/iso9000.htm

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 world-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. 

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 internal operations are under control. 

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NEED HELP? 

Our tutorial, Kaizen Based Supply Chain Management is 
an excellent training option. And, it's still available 
until the end of the month at a 40% MBBP subscriber's 
discount. 

Don't pass up this once a year opportunity, you'll not 
see it again until next year. So check it out at:

http://bbasicsllc.com/scm.spl.htm

=====================================

You are welcomed to print and share this bulletin with 
your manufacturing teams, peers and upper management... 
better yet, have them signup for their own copy at:

http://bbasicsllc.com

=====================================

Business Basics, LLC
6003 Dassia Way, Oceanside, CA 92056
West Coast: 760-945-5596

Manufacturing Knowledge you'll not find in the books 
at Amazon.com... neither in the APICS library 
nor in the Harvard Business School Press

Lean Manufacturing - Balanced Scorecard 
ISO 9000:2000 - Strategic Planning - Supply Chain 
Management - MRP Vs Lean Exercises - Kaizen Blitz 
Lean Six Sigma - Value Stream Mapping

All at one Website: http://bbasicsllc.com 

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Manufacturing Knowledge you’ll not find at offsite 
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Lean Manufacturing - Balanced Scorecard 
ISO 9000:2000 - Strategic Planning - Supply Chain 
Management - MRP Vs Lean Exercises - Kaizen Blitz 
Lean Six Sigma - Value Stream Mapping

All at one Website: Good Manufacturing Practices

 Manufacturing Cost Reduction for Winners

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