Just In Time Inventory

COMPETITIVE KNOWLEDGE NEWSLETTER 

Let's get to it:

The days of vertically integrated companies reaping the benefits of their size has all but come to an end. They proved to be too slow, too complicated and too isolated from what the outside world was up to.

Most historians agree that the development of cheap, centralized power and efficient but costly production machinery tipped the competitive advantage toward large companies that could achieve economies of scale. Today,
however, low-cost computing and communication have tipped the competitive advantage back toward partnerships of smaller companies, each of which performs as a key supplier in a value-added supply chain and coordinates its activities with the rest of the chain.

Value-added supply chains are not, however, necessarily technology driven. They may emerge as the result of computerized links between companies or they may exist before the technical links have been made. In all cases, they depend largely on the attitudes and practices of the participation managers. Computers simply make it easier to communicate, share information, and respond quickly to shifts in demand. They facilitate the value-added supply
chain but alone don't create them.

Just In Time Inventory for Winners

What makes a value-added supply chain is the understanding that each player in the supply chain has a stake in the others' success. Managers see the entire supply chain not just one part of it --- as one competitive unit. It is this awareness that allows manufacturer's managers to look for opportunities beyond their own corporate boundaries. They looked for ways the resources at one part of the supply chain could be used in another. And their efforts to be competitive went beyond cost cutting. Many companies focus on trimming cost to increase profits, and they consider opportunities only within the unit defined by ownership.

This ability to see beyond cooperate boundaries has another important advantage. It permits recognition of serious threats that lie elsewhere along the supply chain. Because successful companies know their own fate depends on that of its suppliers and customers, these companies monitor
competitive dynamics throughout the chain and try to fix weaknesses whenever they occur. When all the partners are strong, the entire value-added supply chain can stand up to the toughest of competitors, integrated or not.

In a value-added supply chain, each supplier focuses on doing just one step of the value-added supply chain. Therefore, each unit can tailor all aspects of the organization to this single task. This sense of focus translates into low overhead, lean staffs, and few middle managers. Decisions are made and executed quickly, so response time is short. Creative ideas are less likely to be suppressed, and more employees are exposed to the demands of the market. The fact that each company in the supply chain is free to be different from the other creates a diversity that can be the seedbed of innovation. And marketing orientation becomes neither an edict nor a difficult task. It follows naturally from the free flow of information throughout the supply chain to so many of the people who actually do the work.

What is the most important element of a successful value-added supply chain? In my opinion it is a company's ability to establish and effectively manage a group of key suppliers. Consequently, our lead article "Key Supplier Management" will share with you the answers to six questions
that determine whether a company will achieve dramatic results from a value-added supply chain.

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Enjoy,

Bill Gaw

P.S. We're proud to announce that we have been become a partner with Wiley Publishers and have added several of their manufacturing knowledge books to our website. You will also find a "by subject" book search tool at the end of each of our web pages for your use. Revisit our website and see
the latest changes. Good Manufacturing Practices

COMPETITIVE KNOWLEDGE NEWSLETTER
---- March 2002 ---

1. Key Supplier Management
2. Time to Joint Venture?
3. The Match Game
4. Whose Side You Are On?
5. Inspect what You Expect

Just In Time Inventory for Winners

Key Supplier Management

It is futile for manufacturers to try to reform their operations without the 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: ISO 9001 Manual Plus
   
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. Need help? Our tutorial, Kaizen Based Lean Manufacturing is an excellent training aid for helping operations stabilize requirement schedules, gain control over shop floor activities and eliminate end-of-the-month scrambling. To check it out, go to: Lean Production

Just In Time Inventory for Winners

2. Time to Joint Venture?

With the Internet making it as easy to sell across the globe as it is to sell across town, we find ourselves in a brave new world of joint ventures. At a rate unparalleled in the history of business, adversaries become allies as they blend strengths to create a new, fiercely competitive entity.

As our world shrinks and we face the possibilities of alliances we never imagined only a few short years ago, let's look at four key elements to consider before we agree to become a link in any supply chain.

1. Common Culture For joint ventures to work there needs be a common culture. Beyond being committed to making a profit, does your company and your potential partner's speak the same language? Do you define units the same way they do? If not, hammer out a lexicon before you hammer out the contract itself.
   
2. Commitments Your company understands commitment. Your word is your bond. When you say that you are in, then by golly you are IN. Can the same be said of your new partner?
   
3. Character Companies have character just like people do. Like people, companies demonstrate their character in how they handle difficult circumstances and how proud they become during the peak times. What character has your possible joint venture partner displayed to you? Does is reflect the character of your own company? These answers become vital if the public will know of your joint venture
   arrangement.
4. Competitive position If you joint venture with another company they will learn more about your company in weeks than they would otherwise discover in years. If you may someday compete with them this could put you at a competitive disadvantage. Before you become partners, even in the most limited fashion, think through what the future may hold from a competitive standpoint.

Joint ventures and supply chains can bring tremendous opportunities to our companies just when we need it most. Smart business says we must begin with the end in mind and consider all angles before moving ahead. Consider these four "C's" of joint venturing before you make your next move.

Just In Time Inventory for Winners

3. The Match Game

Well-placed employees can be your greatest assets. By the same token, keeping an employee in the wrong job not only frustrates them, but also costs you money in the long run. So how do you decide who fits where?

1. What are your business needs? Make a list. Categorize the list by the various things your company does; like sales, service, bookkeeping etc.
2. List the strengths and weaknesses of each of your employees.
3. Make a chart and assign the business needs you outlined above to the employee whose strengths best fit the job.
4. Step back. Does the work flow smoothly? Are there major gaps or are tasks jumping between employees? If there are obvious problems, reassign tasks using the employee strengths and weaknesses as a guide to making the best possible choice.
5. Meet with your employees and outline the changes in work assignments. Be positive about their talents and assure them that your desire is not only to help your business, but also to encourage their personal growth by allowing them to further develop their strengths.

Take the time to evaluate job assignments and you will have happier, more loyal employees as well as a much more efficient business.

Just In Time Inventory for Winners

4. Whose Side You Are On?

Do you often go into a negotiation looking forward to doing a good job for your client, only to leave feeling trapped into a deal that will take many hours and pay little profit? Don't you just hate that?

One reason many business people work too hard for too little benefit is that they forget whose side they are on in the middle of negotiations.

This kind of 'opponent sympathy' can hurt you in any negotiation, whether internal or external. While there is no need to become Attila the Hun when you negotiate, it is vital that you keep your goals firmly in mind.

Try these tips to keep your profit up.

1. Have your facts straight. Before you write a proposal or go to a negotiation gather facts about the other party. What are their expectations and financial limitations?
2. Do you homework. Before the meeting work the numbers of your proposal hard. Check them and check them again. Don't make mistakes that will cost you later. Include all of your hard costs. Add a standard percentage for overhead and then add your profit.
3. Know your bottom line. This is very important. Decide before you meet what is the worst case scenario that you will accept. Make this the absolute bottom number. When you decide what that bottom line is, leave enough profit that you can do the work and be pleased to have the job. If you sell your product or service too low you will only be spinning your wheels, not really going anywhere.

Be confident. Planning ahead gives you the confidence you need to stay firm when the negotiations get heavy.

Just In Time Inventory for Winners

5. Inspect what You Expect

In today's world we need to save time in every way possible. One way to save time is to do things right the first time. While you can make sure the YOU adhere to this standard, how can you ensure that others will? Here's how.

1. In every transaction that could become complicated, such as an auto repair, home maintenance, or buying goods and services for your business, clearly define what you are spending and what you expect in return. This is best done on paper.
2. Establish firm deadlines when tasks will be accomplished and let others know, gently but firmly, that you will hold them accountable for the deadline.
3. Follow up and SEE the work that was done. One example is equipment repair. If you let the repair person leave without inspecting what he or she has done, you'll waste HOURS getting them back to do it right. Five minutes spent on inspection can save hours on getting the work redone. That's a good trade off.
4. Don't go overboard. You can't expect the dry cleaner to sign a legally binding document swearing that your clothes will be ready by 4:13 pm., but you must expect your business partners to do what they have agreed to do. Use common sense in all dealings and apply the appropriate amount of accountability in each situation.

Time is money. You don't need to become an ogre. But developing a reputation as a tough, but fair, businessperson will save you countless hours. When suppliers realize that you have an eye for detail, they will stop cutting corners. When that happens, you'll save time and get better results
as well.