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Supplier management issues Supplier Development Outreach Program:

Video: The case for Toyota JIT

Just-in Time ManagementSupplier Partnerships

B7801 April 17, 1998

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Supplier Partnerships: Organizational Culture and Strategy Issues

Feeling of trust

Management attitude/outlook for the future

Strategic fit

Top management compatibility

Compatibility across levels and functions of buyer and supplier firms

Supplier's organizational structure &personnel

3

Supplier Partnerships: Technology Issues

Assessment of current manufacturing facilities/capabilities

Assessment of future manufacturing capabilities

Supplier's design capabilities

Supplier's speed in development

4

Supplier Partnerships:Other Factors

Safety record of the supplier

Business references

Supplier's customer base

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Supplier DevelopmentOutreach Program:The case for ToyotaThe case for Toyota

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Supply management statistics Purchased inputs as percentage of total manufacturing costs

(‘87)Japan 69%

U.S. 58%

External sourcing percentages at the big three (Dyer 1993)GM 30%

Ford 50%

Chrysler 70%

Percentage of major corporations pursuing outsourcing initiatives (A.T. Kearney survey)

1992 58%

1996 86%

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Practical mechanisms for achieving cooperation

Reputation for “honest dealing” (e.g. past behavior of the buyer/supplier)

Proximity/personnel relationships Preferred supplier programs

– numerical performance ratings (“score cards”)» delivery performance

» quality

» cost

– signals how suppliers will be viewed in upcoming negotiations

“Soft” penalties for poor performance (e.g. less business in subsequent rounds)

Equity ownership

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Changing role of purchasing Competitive bidding

– solicit large number of bids

– “winner takes all” contracts

Cooperative supplier management– learn suppliers costs

– monitor supplier performance

– signal prospect of future business

– disseminate best practices among supplier pool

– develop new supplier capabilities as needed

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Just-In-Time Production Systems

JIT

Underlying philosophy is elimination of waste and variability

through synchronized “pull”type production systems

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JIT Purchasing--Requirements

Reduced lot sizes

Frequent and reliable delivery schedules

Reduced and highly reliable lead times

Consistently high quality levels for purchased materials

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JIT Purchasing--Suppliers Fewer, nearby suppliers

Repeat business

Support suppliers’ competitiveness

Clusters of remote suppliers

Limit competitive bidding to new parts

Resist vertical integration

Encourage suppliers to implement JIT purchasing

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Just-In-Time

• Management philosophy• Pull system though the plant

WHAT IT IS

• Employee participation• Industrial engineering/basics• Continuing improvement• Total quality control• Small lot sizes

WHAT IT REQUIRES

• Attacks waste• Exposes problems and bottlenecks• Achieves streamlined production

WHAT IT DOES

• Stable environment

WHAT IT ASSUMES

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JIT: Part Philosophy - Part Technique

“Big JIT” (Lean Production)– Focus on elimination of all sources of waste and

variability through synchronized “pull” type operation systems.

“Little JIT”– Focuses more narrowly on scheduling goods

inventories and providing service resources where and when needed

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Waste Reduction (“Big JIT”)

Waste Reduction

Material & Inventory

Management

VendorRelations

Human Relations

Technology

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Pull System (“Little JIT”)

Sub

Sub

Fab

Fab

Fab

Fab

Customers Final Assy

Vendor

Vendor

Vendor

Vendor

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Waste--Operations

(1) Waste from overproduction

(2) Waste of waiting time

(3) Transportation waste

(4) Inventory waste

(5) Processing waste

(6) Waste of motion - setup reduction

(7) Waste from product defects

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Minimizing Waste: Group Technology

Departmental Specialization

Saw Saw

Lathe PressPress

Grinder

1

2

3

4

5

6

LatheLathe

Saw

Press

Heat Treat

Grinder

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Minimizing Waste: Group Technology

Group technology cells

Press

Lathe

Grinder

Grinder

A

1 2

BSaw

Heat Treat

LatheSaw Lathe

PressLathe

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Minimizing Waste: Quality at the Source

Self-inspection

Automated inspection

Line-stopping empowerment

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Inventory Hides Problems

Work in

process

queues

(banks)

Change

orders

Engineering design

redundancies

Vendor

delinquencies

Scrap

Design

backlogs

Machine

downtime

Decision

backlogsInspection

backlogs

Paperwork

backlog

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Minimizing Waste: JIT Production

Produce

what is needed

when it’s needed

NOTHING MORE!

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Minimizing Waste: Uniform Plant Loading

This does not mean building a single product.

We need to maintain a stable mix of products,

and firm monthly schedules

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Scheduling example

Four different forecast for four different products

A 400

B 300

C 200

D 100

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Lumpy Master Production Schedule

Week

Product 1 2 3 4

A 250 150

B 100 200

C 50 150

D 100

Totals 250 250 250 250

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Smooth Master Production Schedule

Week

Product 1 2 3 4

A 100 100 100 100

B 75 75 75 75

C 50 50 50 50

D 25 25 25 25

Totals 250 250 250 250

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Setup Time Reduction

Shift internal elements to external Learning and training Better tools Product standardization, product line

simplification Equipment automation Common sense solutions

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Setup reduction: an industrial example

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HOW-TO: Design Flow Process

Link operations

Balance workstation capacities

Relayout for flow

Emphasize preventive maintenance

Reduce lot sizes

Reduce setup/changeover time

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HOW-TO: Total Quality Control

Worker responsibility

Measure Statistical Quality Control

Enforce compliance

Fail-safe methods

Automatic inspection

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HOW-TO: Stabilize Schedule

Level schedule

Underutilize capacity

Establish freeze windows

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HOW-TO: Work with Vendors

Vital Few

Evaluation & certification

Proximity

Reduce lead times

Frequent deliveries

JIT Technology transfer

Inter-firm teams

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HOW-TO: Improve Product Design

Standard product configuration

Standardize and reduce number of parts

Process design with product design

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Applying JIT Concepts

Organize Problem-Solving Groups

Upgrade Housekeeping

Upgrade Quality

Clarify Process Flows

Revise Equipment and Process Technologies

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Applying JIT Concepts

Level the Facility Load

Eliminate Unnecessary Activities

Reorganize Physical Configuration

Introduce Demand-Pull Scheduling

Develop Supplier Networks

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Benefits of JIT Reduced inventories Reduced lead times Simplified production control Better quality Increased labor efficiency & effectiveness Increased space utilization Lower overall costs Better working conditions Improved flexibility Increased responsiveness

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Common obstacles to JIT implementation

Management complacency Short-term vision Inability to recognize waste Focus on surface rather than source Inventory perceived as convenient Unions Suppliers “Theory X” management