Companies will never achieve their full growth and profit potential, let alone gain the benefits of their supply chain management system, as long as business leaders continue to talk about value-added supplier partnerships while continuing to treat their suppliers as adversaries.

Material handling and inventory storage are two of manufacturing’s high cost, non-value-added activities. The elimination of the stock room, as it is known today, should be a strategic objective of all manufacturers. Moving materials to their point-of-use is not a new concept, the auto industry has done it from its beginning and all industries have had success with point-of-use, low cost hardware. Supply chain development is the key, and it’s time to realize that there is much more to increasing supplier contribution to gross profits than simply placing purchase orders with the lowest price bidder. "Strategic Outsourcing" that focuses on getting the right materials, in the right quantity, to the right place, at the right time and at the lowest "total cost" must replace "beating-up" on suppliers for price reduction alone.

A manufacturer of electronic component test equipment, in response to its need to increase factory floor space to build a new multi-function tester, decided to convert stockroom space into a production area. It was agreed that none of the new tester parts would enter the remaining stockroom and that all common parts would be relocated to their using production areas as "point-of-use" inventory. The key to making this project a success was the development of a powerful supplier support network that provided timely and innovative "point-of-use" logistical support. High communications integrity, scheduling flexibility/responsiveness, superior quality, special materials transportation/storage racks and a positive "continuous improvement" mindset were some of the characteristics of the developed relationship. Three years after the start of the project, this manufacturer was a market leader and most of the credit goes to their supplier development team and the powerful supplier support network that it helped develop.

In today’s competitive business environment, many manufacturing companies are turning to value-added supplier partnerships to achieve the material availability performance that is a requisite to successful point-of-use logistics. When a company forms a partnership that performs one of the links in the supply chain, both stand to benefit from the other’s success. The power of supplier partnerships is undeniable. To a great extent, they have the best of both worlds: the coordination and scale associated with large companies and the flexibility, creativity and low overhead usually found in small companies. Suppliers have knowledge and insight but aren’t burdened with guidelines from a distant headquarters. They don’t have long forms to fill out and weekly reports to render and can act promptly, without having to consult a thick manual of standard operation procedures. In an increasing number of industries, value-added suppliers are proving to be fiercely competitive – delivering high quality, competitively priced materials to precise buyer schedule requirements.

An excellent way of establishing the partnership relationship is to treat each other as an extension of one’s business. The value-added supplier should look to his partner for services such as special procurement help on capital equipment and training needs and maybe some process engineering or quality engineering assistance. The buying partner, on the other hand, should look to the supplier partner for product development input, cost containment ideas and high quality parts/components/ assemblies delivered the right time, in the right quantity, and at the lowest possible "total cost.".

Most business leaders underestimate the depth and breadth of business skills that are required to initiate and nurture a supply chain management program. Usually, these leaders hold suppliers at arm’s length and struggle to keep any economic gains to themselves. In fact, organizations often try to weaken a supplier to ensure their own control of profits. This of course is ridiculous and is the first obstacle to be overcome if point-of-use logistics is to be successfully implemented – for without a strong supplier network there can be no point-of- use logistics.

Business people in pursuit of point-of-use logistics should be advocates of: 1) business integrity, 2) day-to-day supplier cooperation, 3) free exchange of information, 4) responsive decision-making and 5) supplier profit sharing. Supplier development and strategic outsourcing requires a "from the top down" commitment and investment to produce a "been there-done that" team of professionals that can make it happen.

About the Author: Bill Gaw is the founder of Business Basics, LLC and a "been there, done that" lean enterprise advocate. He is the developer of six e-training packages and seven e-training modules published to help individuals and companies reach their full growth and earning potentials.