ENGAGE YOUR SUPPLIERS Seattle WA

Past columns have focused on waste reduction and performance improvement using lean tools within our own four walls. This month we will explore another side of the supply chain in which we operate. Specifically, we want to explore opportunities to reduce inventory, lead-time and cost associated with the replenishment of raw material, component parts, supplies and MRO items by our suppliers.

We will, of course, address this topic from a lean perspective by first reviewing some fundamental lean objectives and then looking at ways to engage our suppliers in helping to meet those goals.

BACK TO BASICS—THE MEANING OF LEAN

A look at a typical value stream map reveals the fundamental thrust of any lean effort. The "bottom line," figuratively and literally, is lead time. Actually, it is lead time and inventory, because inventory often drives lead time. So when we invest in the application of lean tools, our expectation is that we will get measurable reductions in lead time and inventory levels at one or more nodes in the value stream. The good news is that we will also see ancillary improvements in productivity, quality and customer service, but our focal point is flowing work through the value stream in the least amount of time possible. Other benefits are derived from the elimination of labor imbalances, better constraint management and the reduction of all forms of waste as we seek faster throughput.

Given the right kind of leadership, continuous improvement is institutionalized. Superior performance resulting from the systematic application of lean tools catapults the company into an elite set of competitors within its industry. However, significant gains become ever more difficult to achieve as the "low hanging fruit" is picked. And eventually we find that removal of additional waste in our internal value streams requires that our customers and suppliers work with us in more effective ways.

Getting customers to participate in leaning out the extended value stream is a topic for another day, but we will explore here some ideas for bringing our suppliers into the improvement process.

HOW TO WORK WITH SUPPLIERS

Most companies buy a wide range of commodities from many suppliers. Hence to find the highest leverage opportunities, we have to begin with an analysis of our annual "spend," our largest inventories, and our quality and delivery issues. Can we negotiate lower prices by reducing the number of suppliers of high dollar commodities? Where could we reduce inventory by negotiating smaller lots and more frequent deliveries? Which supplier quality problems drive the greatest amount of waste in our system? And which of our suppliers chronically deliver late, and how does their failure affect our productivity and customer service?

Narrow the Supplier Base. As we assess the current supplier situation, we will likely find that our opportunities and problems can be better addressed if we work with fewer, better-qualified suppliers. For some commodities, giving all or most of the business to one or two particularly good suppliers may allow us to negotiate better prices. In other cases, we will need to help the supplier develop the capabilities to adequately support our lean system. This may require that we provide training, mentoring and technical support. Such support is only feasible when offered to a narrower base of suppliers.

In effect, we will abandon the traditional purchasing approach that requires multiple bids and multiple sources for most commodities. Instead, we will seek to develop a much smaller cadre of supplier partners. We will then work closely with them to meet a set of mutually agreed-upon business goals.

Qualify and Develop Suppliers. This process begins with a clear specification of the capabilities needed to support our lean operations. Said another way, how can we ask suppliers to meet our expectations if we haven't made them clear? These expectations may include one or more of the following:

• The ability to respond to demand pull signals
• The ability to produce in relatively small lots
• Creative packaging, handling and transportation solutions to accommodate smaller lots and more frequent deliveries
• Supplier-managed inventories
• Consignment inventories
• Dock-to-line quality (no receiving inspection)
• Creative billing and payment solutions

And there may be other requirements that are unique to a product program.

Once we have documented our expectations, we can begin to survey the supplier base to identify those who come closest to meeting our needs. This effort will be organized around the work done previously to identify major opportunities for waste reduction. To hone-in on candidates for long-term partnerships we will analyze past performance (price, quality, delivery, service) and conduct site surveys to assess each supplier's capabilities. Included in this process should be a lot of face-to-face discussion about our lean program and what we want to accomplish (see list above.)

Some suppliers will demonstrate extraordinary energy and enthusiasm for working with us, others may not. In the end we will select a group of suppliers who can be certified as lean-capable participants in our value streams. Certification may be immediate, or it may come only after some joint developmental efforts between our companies.

Sending our lean experts into the supply chain to help suppliers acquire certifiable lean capabilities will be among our best investments. Often the transfer of lean know-how to the supplier can be accomplished in conjunction with Kaizen events or projects that design and implement lean solutions that meet our needs.

And finally, for the suppliers we choose to work with, we will want to set up on-going measurements of performance (sometimes called a "suppler rating system"). This ensures adherence to agreed-upon standards and provides the basis for continuous improvement.

CONCLUSIONS

Key to the process of positioning a world-class supplier base is catching a vision of a value stream in the ideal future state. With this vision in mind, we will eventually drive waste elimination not only in the middle of the value stream (our internal business), but on the customer and supplier ends as well.

Reducing lead time and inventory between our shop and our suppliers must be integral to our continuous improvement effort. Thousands of successful relationships forged over the past 25 years attest to the mutual economic benefits of a truly lean supply chain.

Editor's Note: David Dixon, president of Technical Change Associates, is a registered professional engineer with more than 35 years' experience in lean manufacturing, Six Sigma and other improvement initiatives. For more information, visit www.technicalchange.com, or call 801-621-8980.