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Reconsider Your Rules on Materials and Suppliers

Supply Chain Management PhotoIn my previous post about checking your assumptions, I talked about the rules and requirements about your process.  The supply chain is no different.  After all, rules are made, boundary conditions established around how you deal with your suppliers.  Therefore, you should also look at your supply chain policies to find possibilities to increase output – examining your rules and assumptions regarding materials and suppliers.   By the way, we’re still finding extra capacity you already have. So your investment in this is zero.  If you’re internally constrained (something I should write about later), finding that excess capacity means more sales, more productivity, more profit.  Your ROI will be, let’s see… infinite.

The goal is to change the rules that are affecting your ability to make MORE.  In my last post, I wrote about challenging the assumptions.  The supply chain or supplier strategy is a great place to start.

What about the material specification itself?  Most material specifications are established by a default rule of thumb established to minimize risk of failure.  The result is a conservative specification that will cover a wide swath of situations.  I seldom see material specifications done to maximize throughput.

What’s available to challenge?  Everything.  Dimensions, tolerances, material specifications, storage requirements, quality checks, etc.  Another place to look is deeper into the supply chain.  What about your suppliers’ suppliers?  What you challenge will be determined by what gives you the most productivity.

When we worked with a boom manufacturer, we found that the output of a particular type of boom was constrained (at all suppliers) by a worldwide scarcity of a key component.  This scarcity was about three links earlier in the supply chain.  We looked for a substitution.  Working with the engineering and supply chain teams at the supplier and the customer, we found another material, which was significantly cheaper, allowing them to purchase three times the amount of the new material for the same price as the old material.  With all the materials in full supply, the boom manufacturer was able to boost output tenfold!

Not only are the technical specifications open to challenge.  Your supplier management rules are open to question, too. Just like the engineers create conservative rules to minimize technical risk, it is common practice to make policies to minimize commercial risk.

Some common things we look at are: batching policies, supplier qualification, supplier selection (sole source is my favorite), price breaks on quantities, delivery frequencies, and more.  Often supplier selection is based on mostly on price, without consideration to supply risk.

When we worked with one supplier, we questioned a long established rule of restricting their purchases from any one supplier to no more than half the supplier’s total output.  This limitation was restricting their output as they were lacking the supplies to produce more.  This easy fix untapped the potential to quickly and dramatically increase supplies, and in turn the factory’s output.

Finding extra capacity is not rocket science, but it does require an eye on the process and a willingness to challenge what you’ve done in the past – sometimes an uncomfortable activity.  I enjoy it, though.  Eli Goldratt, my friend and mentor, said famously, “Sacred cows make excellent steaks”.  I agree.

Read how we sacrificed those sacred cows in the materials and supply chain and in turn, achieved great results in lesson 5 in our eBook, Achieving Top Performance Under the Worst Conditions: 7 Lessons Learned from a Disaster. 

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