Running On Empty

It always seems to happen when you're in the most vulnerable spot. The worst possible situation, the worst possible place, The worst possible time. The sickening feeling goes through you; you know what is about to happen. You are out...the outcome is inevitable. You're stuck, in a jam. The situation is embarrassing. Your thoughts race. " How could I ever let this happen.? What will I tell others?" Your thoughts immediately begin to focus on recovery. How will you get out of this predicament?

Out of gas? No such thing--you wish you were. You outsourced your parts overseas, you're out of a critical component, and you can't make delivery to a key customer. So, what do you do? You make something you don't need...to keep the shop busy. Unusual? By no means...it happens all the time...and it's sad, because in this day and age, with all of the tools that we have, MRP, JIT, TQM, CIM, it shouldn't happen. As a matter of fact, in most companies, it's a way of life. Think about it.

Most production schedules in the U.S. today are driven by material availability. What you have in stores or on the receiving dock determines what you produce today. You can regard this as scheduling by default, or.... running on empty.

Water in Our Tanks?

It's not too hard to figure out what's wrong. If you step back for a moment and look at the way that we have organized ourselves over the years: component plants located states and countries away from assembly, corporate purchasing located away from the key hub of activity, spaghetti factory flows to confuse what materials are needed and when,..... poor communications, physical walls, functional walls, etc. have all strangulated our efforts to run smoothly. Plus, the results of the way that we work(or don't) with our suppliers drives the rest of the service chain and stifles our ability to deliver quickly and cheaply.

Consider that our tendency in the past has been to get many suppliers to quote items on a unit price basis. We order in volume taking unit discounts, then pound our supplier for expedited deliveries. Purchasing's focus has been only on the cost of materials rather than the total operational costs of a company and the effect that product quality and timely delivery have on production costs. The most common practices are supplier "jumping" and price negotiation, which result in a cost escalation beyond any saving that occurred at the purchasing level.

High Octane for the Future

It's no secret that competition is tough and will get stiffer in the next decade, as a global resegmentation of markets emerges. The winners and leaders in the 21st Century will be world-class competitors, organized to respond to a dynamic market with precision and unprecedented speed in delivery and new product introduction. Those companies will have refocused and redesigned their businesses--both physically and logically--to meet the demands of the market.

This will require a smooth flow of materials and information, and velocity within the service chain: that chain of events that occur from the time that a customer inquires about an order, through complete satisfaction of the order: distribution, assembly, manufacture, and supply. All of the physical events must be enacted swiftly, accurately, and effectively. The faster parts, information, and decisions flow through the service chain, the faster the response to demand.

Radical Change

To accomplish this, we will need to make some dramatic changes in the way that we work with our suppliers. First, we will need to develop closer, long-term agreements to motivate suppliers to make the changes critical to achieving our goals. We should think in terms of working out a mutually beneficial operating arrangement:

• Provide incentives to motivate the supplier to induce velocity within his own facility

• Buy capacity instead of a few parts at a time: negotiate long-term agreements with high volume incentive

• Provide forecasts to your new partner with a window with which to operate:
- long-term forecasts to arrange raw materials
- shorter term forecasts to produce longer lead time items
- line schedules to meet your real demand
 

• Involve your partner in the design process, he most likely can tell you how to produce a better part

How Radical is Radical?

Physical proximity is extremely important in inducing velocity. Distance makes it hard to respond quickly or to have regular face-to-face contact to form a good solid long-term relationship. We need to physically close the distance, locating supply close to component manufacture and assembly. A supply facility should operate as an extension of your own facility; as, a remote cell producing and delivering upon real demand.

Quality must be part of the focus to detect an error as early as possible in the manufacturing process: certification is a goal The result should be less rework, less scrap, and less schedule disruption.

To support physical activities, the agile supply chain structure also requires emphasis on velocity throughout, eliminating and simplifying natural points of delay. The supply information chain must be streamlined and electronically linked, so that the flow is direct--without interruptions and delays--again eliminating queues and excess paper. The supply cycle time must be reduced to the time it actually takes to efficiently process information, supporting the fast movement of physical parts, and not inhibiting them.

Good Mileage For Your Efforts

In turn, you should require the changes that allow you to induce velocity and lower cost in your facility, and operate as planned, and not by shortage:

• Improved cost targets
• On-time JIT deliveries to the point of use
• Exact delivery quantities
• Supplier certification for consistency in high quality
• Packaging in negotiated quantities
• Long-term Contracts
• Minimal paper(electronic releases, instead)
• Reduced lot-sizes

The vision of future supplier relationships with the agile supply chain is one of a strategic alliance that promotes a mutual objective: satisfying the supply chain as quickly as possible. Working hand-in-hand, these partners will be world-class competitors, organized to respond to a dynamic market with precision and unprecedented speed in delivery and new product introduction. Each company will be developed uniquely to suit its particular needs, but one characteristic will fit them all--they won't be running on empty

BIOGRAPHY

Richard G. Ligus is President of Rockford Consulting Group, Ltd., located in Rockford, IL., with over 30 years experience in manufacturing, procurement, transportation and distribution. He specializes in developing and implementing supply chain strategies. Rich is an author and a speaker, and has developed seminars with the American Management Association. He is certified by both the Institute of Management Consultants and the The National Bureau of Certified Consultants.

Rich has a bachelor of science degree in mechanical engineering from the New Jersey Institute of Technology, and a master of business administration degree from Rutgers University. He is a member of CASA/SME, and has been listed in Jane's Who's Who in Aviation and Aerospace. He has been a speaker at IMTS, USCTI, APFA, NEPMA, MCAA, Hand Tools Institute, CASA/SME, and others. He has appeared several times on WREX-TV, Mid-Morning Magazine.

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