Ask Art: How Important are Your Suppliers to Implementing Lean Production?

Excellent question. Let’s start by asking: What are your goals in shifting from a traditional batch approach to lean flow? If, like 90% of most companies, your main goal is merely cost reduction (i.e., headcount), then your suppliers won’t play an essential part unless you force them to lower their prices.

If, on the other hand, you are serious about becoming a lean enterprise, you will need to change most of your basic assumptions and practices. In that case, involving your suppliers in your transition to lean production will be critical to your success. 

Involving your suppliers in your transition to lean production will be critical to your success.

For example, you will need to adopt the basic premise of “sell one-make one” as part of seeing excess inventory as “the root of all evil,” i.e., the No. 1 waste. You will also have to convert from batch production and functional departments to flow production and a value stream organization, which will involve many internal changes. For example, you’ll need to move equipment to create one-piece flow cells, reduce setup times so you can decrease batch sizes, and adopt (or improve) total productive maintenance (TPM) to ensure your equipment runs when needed. But, of course, your most significant change will be to commit to responding rapidly to your customers by making every product daily. While you probably won’t have to produce at this pace since it is unlikely your customers will order this way, you will still need to be able to do it.

Each time you create a new manufacturing cell, you should consider the implications for the raw material suppliers to that cell.

Your suppliers are critical in your ability to make these changes, so you must involve them early on in your lean transformation. Each time you create a new manufacturing cell, you should consider the implications for the raw material suppliers to that cell.

Consider Quality and Lead Time

The first criterion, of course, is 100% delivered quality. When working in batch mode, you can live with some quality issues because you make so many excess products that you can sort out the defects and still supply the customer by pulling from your massive inventory. However, when you’ve adopted lean practices, such as one-piece flow production, you can no longer afford this slack since one defect won’t just shut down one machine — it will shut down everything. 

The other key variable is lead time. Traditional companies usually order three to four months’ worth of raw material at a time, which impacts the order size. And these long lead times and their resulting large orders produce excess inventory, which adds to the wasteful costs of moving and storing this unnecessary stuff. Worse, if your forecast was wrong, and you only needed three weeks’ worth instead of the three months’ worth sitting on the shelf, you are stuck with big write-offs.

That might be okay if all this batching and excess inventory resulted in excellent customer service. Unfortunately, it usually results in just the opposite. Customers are very tricky and always seem to order things you don’t have. The long lead times caused by batching create a panic when you try to respond to such an order. So you call your supplier, order three months of material, and say you “need it yesterday.” The supplier wants to help, but this quantity exceeds their short-term delivery capacity. As a result, you — and your customer — will have to wait. To try and offset this type of issue, you may source the same material from three or four suppliers. While this precaution is understandable, it adds more complexity to an already complex problem.

Have Suppliers Deliver Daily

Therefore, when you transition to lean production, you will need suppliers that can deliver daily (or as close to that as you can get), which will be a struggle as most of your suppliers produce in batches and have long lead times. When you require them to deliver daily as a condition to continue to supply you, they will most likely say they can’t do that. That is unacceptable, and you will have to keep after them. Convincing suppliers to meet your daily delivery requirements will take time, but I know from experience that you can get there.

At Wiremold, for example, we started with our cardboard box suppliers. Because they were all local, daily deliveries shouldn’t have been a problem. We worked with three of them, and they all said no. Cardboard boxes didn’t cost much money, but they took up a lot of space. In fact, we had a dedicated cardboard box warehouse. So we kept trying. 

Eventually, we got one supplier to start daily deliveries. And before too long, we had to send a kaizen team to this plant to lower their setup times so they could keep up. Next, we sent kaizen teams to show them how to put kanban cards on each bundle of boxes so they could deliver them to where we used them in our plant. In no time, this practice eliminated our cardboard warehouse and freed up the space for more productive use. 

Soon, the other two box suppliers began calling and asking, “Hey where are our orders?” We told them that because they wouldn’t consider daily deliveries, their competitor now has all the business. “Oh, we didn’t think you were serious, we can do daily deliveries now,” they replied. No thanks, too late.

This pattern continued as we moved on to other suppliers. Eventually, we went from 320 raw material suppliers to 43. Not only did this decrease suppliers and reduce our costs, but it also reduced complexity. Without the complexity, we got rid of both our purchasing department and our production planning departments. Instead, we assigned the two departments’ work to a single buyer/planner who reported directly to the value stream (product family) team leader, whose office space was on the shop floor near the team leader. 

Our biggest raw material was steel. When we started, we had about four months of steel on the shop floor. Our steel vendor was in Baltimore, about 300 miles from us, in Hartford, Connecticut. Though we were using about six to eight truckloads of steel per day, we got our steel inventory down to about two days and never ran out.

Now, not all suppliers are as close in proximity as the cardboard box guys or can easily fill up a truck like our steel vendor. Indeed, we had many local suppliers near us who couldn’t justify the shipping cost of daily deliveries. However, that was easy to solve as we reduced inventory through our kaizen efforts, freeing up operators and cash. As a result, we could buy a small box truck and ask one of these freed-up operators to drive a daily route to these suppliers, where we would pick up what we needed from them and leave a kanban card for what we wanted tomorrow.

Require Suppliers to Meet Your Needs

But what about suppliers that want you to buy a set quantity and deliver it in the packaging that suits their needs, not yours? For example, many required us to buy an entire pallet’s worth even though that might equal six months of our needs. Moreover, they wrapped the pallet in a way that caused extra unwrapping work for us, not to mention generating unnecessary costs to dispose of all the excess packing material. 

We needed quantities in just the amount we needed and in packaging that could go right to the production line. Simple plastic trays slotted into something like a bread cart, for example. These changes took some extra negotiating, and often we had to buy the trays and carts needed to do this. That was fine, as the cost savings gave us a quick payback. As a bonus, our willingness to work with our suppliers this way enhanced our partnership with them, resulting in significant cost reductions and tremendous help when we needed it for new product introductions.

As an example, we had a relationship with a Japanese company that supplied gas tanks to the Toyota Corolla, one of Toyota’s highest-volume cars. Making a gas tank requires many big punch presses, metal bending/welding, and electronics and sensors that go in the tank to tell you how much gas you have left. Their plant had a printer at the end of the assembly line that printed out the next four gas tanks that Toyota wanted. There were many different models, and while the company roughly knew how many cars Toyota produced each day, they had no idea of the mix until the computer printed the order. Once they made the tanks, they loaded them on a custom trailer in specific locations and drove them to the Toyota factory.

The Toyota plant was about 45 minutes away. When we visited that plant, we saw the gas tank plant’s trailer parked lineside and learned that a robot installs the tanks. We asked at what point Toyota knew what the next four tanks would be. They said not until the car is put on the assembly line — about two hours from where they installed the tanks. So, think about that before you say you can’t achieve flow production using daily supplier deliveries.

Align Your Needs with Your Suppliers‘

Of course, some suppliers can’t deliver daily, especially when they are far away. However, you still must try to get as close as you can. For example, say you order enough for a weekly truck containing many different parts but not a whole truckload of one particular part (something the batch guys like to insist on). In this case, you can set up a system where you order just what you used today every day, ensuring that everything you ordered by Wednesday at 4 p.m. will be on the Thursday truck. While this, of course, is not daily delivery, by ordering daily, you could drop your inventory to less than two weeks vs. three to four months’ worth. 

You might ask, “But what if you buy from China?” First, I would ask you to ensure you are calculating the all-in cost of supplies from China. This total-system cost includes transportation, handling, extra storage space, the financial cost of carrying the excess inventory, etc. So, calculate this and ask whether it still makes sense to buy from China. If so, do the same thing and order what you used every day and have it put on the weekly container. While you’ll still wind up with six to eight weeks of inventory due to the shipping time, this is at least better than storing six months’ worth.

… ideally, you should consider your suppliers as an extension of your one-piece flow lines.

So, the short answer to your question is: Suppliers are crucial to your shift to lean production, and you should involve them early on when you launch your lean journey. You can’t get to a one-piece flow if your suppliers can’t keep up with you. So, ideally, you should consider your suppliers as an extension of your one-piece flow lines. And don’t be afraid to help them with kaizen to be more aligned with you and become more competitive. 

Finally, of course, you will also have to enact changes with your customers, who will still order in batches that create lumpy demand for you and your suppliers. At Wiremold, we made similar demands with our electrical distributors. Initially, we delivered to all our major ones weekly on a set day and time, and they were ordering in batches, three to four months’ worth at a time. We asked them to tell us what they sold daily, and we would deliver that amount on next week’s truck. That change allowed them to cut about three months of our inventory, freeing up cash and space for them — another way for us to deliver value to our customers.