Leaning Your Supply Chain in a Down Economy

January 1, 2011

Now is the perfect time to eliminate the waste in you supply Chain

Every time we turn on the news or pick up a paper, another bank has closed, or another company has been taken over or gone out of business, or another friend or associate has lost their job. So why would you want to take on another major task like “leaning your supply chain” in this economy, and with limited resources? Why not wait till things get better; until you have the time and the people to do it right? The answer is, now is the perfect time to begin to start to build a Lean supply chain.

Lean means eliminating waste, and most of our supply chains have plenty of waste in them. Waste in the form of low performance suppliers who are just getting by on quality, on-time delivery, and competitive pricing. Waste in the form of suppliers who are not responsive to our customers changing needs and expectations. And, waste in the form of clerical tasks that take up buyers’ time and energy, that would be better used developing their suppliers.

What do we mean by a “Lean supply chain”?

It all depends on who you are asking.

Your accounting manager might say that Lean means reducing costs. I one time had a finance executive tell me that I needed to “go after the low hanging fruit”. The so called “low hanging fruit” however, often includes some of your best suppliers; suppliers who are willing to work with you to meet your customers’ needs regardless of how unreasonable they might be. They are not the low cost suppliers because they are in business for the long run, and their prices often reflect the “added value” they provide.

Your purchasing manager might say that Lean means reducing the number of suppliers in your vendor base. Our goal is not merely to reduce the number of suppliers you work with but to develop suppliers that you can work with to achieve your mutual goals. The only good reason for reducing the number of vendors is to eliminate the non-value added suppliers.

Your production manager will tell you it doesn’t matter how many suppliers you have as long as they deliver their product on time, in the required amount, and that it is usable the first time.

So who is right?

They all are. We all want suppliers who provide excellent quality, on-time delivery, at a competitive price and who, at the same time, are open, flexible and easy to work with. Nothing is more aggravating and wastes more of a buyer’s time than a “high maintenance supplier”. If we put our effort into getting the right suppliers they will be the ones who “lean the supply chain” for us.

Seven steps to getting started:

  1. First, run a Pareto analysis of your entire vendor base. Sort it in descending annual dollar volume. Pick the first 20 to 25 suppliers (representing 80% of the dollar volume).
  2. Ask the people around your company (everyone who deals with suppliers, from receiving and accounts payable clerks to the top management staff) what they think of these suppliers. You can provide them with a questionnaire with simple criteria for rating their performance.
  3. Develop a score card to measure these suppliers based on these criteria. Traditional supplier performance metrics don’t always tell the whole story. They won’t tell you how many times an item was delivered in a crushed container the way the receiving clerk will.
  4. Communicate the results to your suppliers. They can’t correct the problems if they don’t know there is a problem. Ask for their help in improving their performance.
  5. Let these suppliers know what your expectations are and what they can expect from you in terms of future business. A supplier conference is a good way to develop supplier relationships. Don’t forget to invite the executives from both companies.
  6. Find ways to streamline the buying process to free up buyers’ time for more value added activities. For example if you are dealing with a supplier who meets all of the criteria of a Lean Supplier, why are you still bidding out every new requirement? If you have a formal purchasing agreement with a Lean supplier, then let the materials/production employees release an order.
  7. As time permits, help facilitate lean continuous improvement / waste reduction programs with your suppliers. Finally, and most important, is to develop an atmosphere of trust and mutual interest with all of your suppliers. Lean is a mutual journey and it takes everyone in the supply chain working together to get Lean.

Getting started is as simple as that. But developing a “lean supply chain” is a long-term, continuous journey toward excellence. Leaning your supply chain is somewhat analogous to a weight loss program. Losing the excess fat is just the beginning. You have to tone and strengthen the underlying muscle to achieve real results.

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