Managing Supplier Response/Leadtime
Ken Dominiak, C.P.M.
Ken Dominiak, C.P.M., Principal, Procurement Specialists, Inc., Chicago, Il 60657, 773-327-3132.
82nd Annual International Conference Proceedings - 1997
Are you tired of underwriting the inventory costs and lost business inherent in bloated supplier lead-times?
How important is performance speed to your external customers?
What % of supplier lead-times are value-added and legitimate?
If your sales department is like most, it is being hammered by customers demanding ever faster and flexible response times. Customers assume your company got yesterday's message on costs and quality and now are questioning why it takes so long to make and deliver your products. Perpetuating the myth that, if you are out of stock, your company needs weeks to perform doesn't cut it anymore.
Who gets there first wins. Those that consistently out perform competition in time to market can charge a premium price for their value-added efforts.
Just look all around us at some of today's "velocity benchmarks":
- 1 hour muffler change
- 30 minute pizza
- 10 minute oil change
- 3 minute drive-through burger
Ask yourself, if a mom & pop pizza business can make and get to you a freshly made product in about a half hour, why does a distributor across town need 1-2 days to get off their duff and deliver stocked, catalog items? What's wrong with this picture?
Why does a metal machining or a plastic molding supplier need days and even weeks to give us repetitively molded parts? Take it to a higher level. Is your company's average supplier lead-time about the same as it was 10, 20 & 30 years ago? What happened to continuous improvement?
Clearly Purchasing needs to strategically focus suppliers on what your customers are demanding. Whether your firm has bought into JIT or not, what drives sales/output must drive purchased/inputs.
In response is your purchasing department taking the easy way out? Are they relying on vendor stocking and consignment? Or is most of the burden on Materials Management to carry excessive inventory? These tactics appear to solve the JIT challenge but in most cases prove to be only Band-Aids. When customers change directions without warning, the pipeline gets to eat the inventory, loses impact marginal profits and relationships become tarnished. Similarly, these short-sighted tactics do nothing to improve sales of un-forecasted demand.
The Road To Zero Safety Stock. What contributes most to purchased materials inventory levels? Is it the finished goods forecast? volume price breaks?, industry standard lot sizes?, or the un-certainty of demand over the replenishment cycle? The longer the supplier lead-time, greater the risk of stock outages and thus the logic to raise safety stocks and average supply on hand.
Hypothetically, what if purchasing could initiate a lead-time compression plan reducing average lead-time by 50%? Calculate the financial savings far in excess of a purchasing strategy of fighting over invoice prices or negotiating volume discounts. And to further wet one's appetite for procurement refocus, if lead-times could be cut in half, the odds are good that they could be halved a second time! Ask sales what that impact might be!
Lead-Time Myths Uncovered. As proposed, lead-times are merely initial offers to perform within a stated window of time deemed "realistically competitive" and satisfactory based on historical, industry-wide precedence. Bottom-line that means, "When I'm good and ready."
Since the vast majority of suppliers in mature, decades old, industries have long ago decided not to compete too aggressively on performance time, buyers throw up their arms and accept, as gospel, the apparent creditability of delivery projections. Nothing could be further from reality.
The term "illegitimacy of supplier lead-times" has been coined to communicate the "smoke & mirrors" propagated by many dinosaurial suppliers to camouflage their outdated business process.
A number of thorough studies have uniformly substantiated the following facts about average manufacturing company lead-times:
- 5% of total lead-time is actually spent creating the product
- 95% of lead-time is waste
- 50% of total lead-time is consumed outside of production and delivery functions
It is not uncommon for the supplier's sales, engineering, MRP and other functions to each take longer than it does to actually make the product! This bureaucratic, Neanderthal processing waste is a cancer stifling our nation's global competitiveness.
Many suppliers don't even realize the inefficiency embedded within their four walls. Your valid concerns, probing comments and pointing towards specific remedies might be the catalyst for their survival on your supply team.
Reengineering Purchasing. Traditional purchasing has done a good job focusing on price, quality and on-time delivery. The downside of this approach that it emulates at best the material input strategy of competition. The end result being a "buying parity" and no competitive advantage for effort extended. Matching how competition buys doesn't contribute to our entity being the lowest cost producer, increasing market share or adding one extra dollar to profits.
Think about this for a moment. Our nation's over 370,000 manufacturing companies spend 54 cents out of every sales dollar for purchased goods and services. This is twice the value added to products by internal production. Three guesses where the real mother lode of opportunity lies! It's not just in the prices paid to suppliers, but buried in the total cost of acquisition and use of purchase inputs.
Illegitimate lead-times conceal a huge unnecessary cost burden and opportunity for competitive advantage. Purchasing demanding or issuing an edict that lead-times be cut in half will probably be met by lip service or worse responses.
What is necessary to drive average lead-time down 60% to 90% is a 3-5 year multi-functional team plan? Here's an action plan outline that just might get your organization off the ground and flying at a workable rate of progress:
Supplier Lead-Time Reduction Plan
- Change mindset - self
- Sell concept to multi-functional leaders
- Establish management level consensus
- Team "vision" to senior management
- Forge organizational commitment
- Priority defined
- Team members assigned
- Authority delegated
- Company-wide communication
- Elevate team knowledge
- Team creates and works-the-plan
- Senior management plan signoff
- Tasks & times monitored
- Select initial supplier partner(s)
- Series of supplier "Partnership Planning Conferences"
- Assign cross-company lead-time improvement teams
- Develop shared goals and shared rewards - a superior way of doing business
- Marketing adopts strategy with major customers
Dealing With Supplier Lead-Time Excuses.
Lengthy Set-Up Times. Before suppliers start crying about how long it takes them to break down and reset up the tooling to make your part, I'd ask them the following pragmatic questions. First, how much have they reduced their average set up time over the past 10 years? Second, what are the details of and projected benefits of their current set up reduction plan? No plans equates to no success and means business as usual.
There are dozens of examples of domestic manufacturing companies breaking the traditional mold of lengthy set up times. Here's just two typical examples:
Domestic Set-Up Time Successes
Fellowes Mfg., Itasca, IL.
|(250-500 Ton Plastic Molding Presses)
Wiremold Co., W. Hartford, Conn.
(100 Ton Metal Punch Press)
* later reduce to 1.0 minute
Show these to your molding and stamping suppliers; the excuses of the past don't hold water anymore. As a rule of thumb, the hours of set up times of a bygone era should now be replaced with minutes and seconds being the ultimate goal they are working on.
The following is a condensed checklist covering the basics on reducing machine set up times:
How To Reduce Set-Up Times
- Record sequence and lapse times of required steps
- Isolate redundancies and wasted motions
- Perhaps video tape entire process
- Think of the "pit crew" at the Indianapolis 500!
- Standardize hardware to standardize hand tools
- Install quick-change clamping devices
- Review all manual operations to pneumatic and electric start aids
- Eliminate, combine, simplify and shrink each and every step
- Keep at it; review again - continuous improvement
- Catch your breath at 90% improvements, then get back at it!
Earlier I stated that typically suppliers consume about half the process time in the front end of the business process, before ever starting to manufacture your order. While a project team is working on reducing machine and production line set up, I'd aim a second improvement team towards the front end commonly called administration and sales.
Flow chart and test how long it takes your orders to reach the production line and are being produced. How much time does the sales rep take before the central office gets them and processes them to the factory that makes it? How much time in order entry, credit, engineering, billing, MRP, etc.? All should be reduced, eliminated or done after-the-fact.
Selfishly and time efficiently I'd want my replenishment commands to go directly to production planning/scheduling and moments away from starting my jobs. Suppliers, you can do the paperwork later. I don't care about who gets sales commission credit and I don't need a credit check after 20 years as your customer. And while I'm at it. Purchasing get out of the way. Negotiate and load in the long-term supply contract and step aside. From now on our production schedule will appear on contracted supply partner computer screens so that our supply team can synchronize to the beat of our drum. No delays or time lost and no second guessing what we want tomorrow, next week, etc. Suppliers em-powered and educated to our game plan and all they have to worry about is keeping pace with our actual, not forecasted, production schedule oractual usage of supply items.
The implication of a multi-function, supply team time compression strategy are hopefully starting to register. Sound too attractive to pass up?
This is not a quick-fix and comes with no guarantees. A growing number of success stories confirm the journey is a worthy one. Follow the enclosed action plan and time just may be on your side!
ABOUT THE AUTHOR: KEN DOMINIAK, C.P.M.
Ken is a business speaker, college instructor, seminar leader and consultant in the fields of purchasing, negotiating, materials management, supply logistics and sales management. His diversified, hands-on experience in purchasing includes positions with USX Corporation, Beatrice Foods, Northwestern University and the City of Chicago. Over his career he's had the unique opportunity to observe how over 150 purchasing departments function. He has instructed college accredited purchasing and sales management courses at Northwestern University and seminars at DePaul University, Oakton and Harper Community Colleges plus numerous corporate clients and local chapters of NAPM.
Ken is a featured columnist in the Chicago Purchasor Magazine, published by the Purchasing Management Association of Chicago. He is also working on a textbook on reengineering the role of purchasing in modern business. Ken received his B.A. and M.B.A. degrees from DePaul University and is certified C.P.M. by the National Association of Purchasing Management. In 1997 he makes his fourth presentation at NAPM's annual International Conference.