Author: Simon Huang / Independent Management Consultant Nov. 21, 2018

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Don’t talk your suppliers into lean path before you have set a good example to lead. That’s my advice to the sourcing companies.

More and more sourcing companies are tending to apply lean into their supply base. However, not many have made obvious success in the past years. In the meanwhile, more trading companies of smaller size are starting imitating the big shots’ footprints and putting in resources as well ……which as I see it more or less copying a bad formula--- normally hiring an expert from external, initiating projects at vendors’ sites, confronting a lot of resistance and tricks, obtaining little benefit……reflecting on what has been done wrong……normally end up with no clue.

I would not say it will not work at all but the result will definitely not be a satisfactory one if the critical elements are not recognized and then set properly.

Three Major Pitfalls

Here to name three major and common pitfalls. Without recognizing them the companies usually seek a much simpler way--- to hire external consultants and send them to the vendors’, expecting these guys to initiate and lead improvement projects! The result will be very limited even after great efforts are made.

• Not understanding manufacturing:

Sourcing companies have tried hard persuading their suppliers to go lean and tried to monitor the program but don’t they come to realize that their insufficient understanding of manufacturing has stopped them from going deeper and further?

• Credit and faith, real partnership

1. Some trading companies do bad practice in day to day business with vendors, which cost their credit and faith---the most expensive things.
2. The on-going day to day costing analysis and negotiation between the seller and buyer has put an inborn fire wall in between and prevent any joint efforts from going deep on shop-floor.

• Fix your own problems first

Sourcing companies often do not get their own process right before demanding the vendors to change and adapt to their need. Their troubles range from bad SIOP process, off track forecast, out of control DC inventory, to long and repeat PO confirmation period etc……

To further elaborate the three pitfalls below

Understanding Manufacturing

Not many people from sourcing leadership have good knowledge of manufacturing, but they are all directing supply base through periodic vendor performance evaluation. Sometimes they have difficulty understanding why capacity cannot be built or reduced quickly, and why capacity planning must be done early……severe uneven loading will hurt the vendors and eventually the buyers too.

In many cases, sourcing leadership seek to optimize one particular indicator , ie., cost instead of understanding them all--- Quality, Delivery, Cost--- as an organic holistic thing. They tend to calculate labor saving, for instance, meanwhile neglecting productivity raise or the fact that quality and delivery contributing to operational cost as well. Traditional accounting principle teaches them to put inventory/WIP/ buffer stock under asset item instead of being one of seven wastes.

Partnership is truly critical

Is there any sourcing companies that have obtained such a partnership with suppliers that they are able to share real cost breakdown mutually? I don’t think so.

In the business world of sellers and buyers, they both keep information to themselves. Being a vendor, imagine your client knows you inside out? Isn’t it horrible even to think of? So which vendor would be as open as sharing all data required by value stream mapping? Be bold enough to share cycle time and real quality rework or number of scrap? If a vendor runs kaizen event with client’s lean coach, they disclose everything that they would have kept away from clients under costing context. Therefore, sending your lean expert to kaizen events at vendors’ site is like sending a spy? It simply would not work.

Owning strategic partners in your supply base is the pre-requisite to carry out any long term systematic improvement programs, however it is not saying that you can send in a spy. With partnership in place, you are able to influence the vendors into true north. You can send an expert, but not to do the direct work…… just talk to them, challenge them, assess and direct them.

Fix your own problems first

Sourcing companies usually have problems getting it right on demand planning---the so called SIOP process. They find it hard to get a good guess from the sales frontier…… incorrect inventory data in DCs, demand fluctuations over 60%, long lead time to cross the Pacific and get to customers’ hand…… The point is--- sourcing companies should fix their own problems and clearing out the chaos in order to give order demands in a reliable manner.

Otherwise, on the one hand it is not persuasive to demand vendors change for better while leaving themselves as trouble maker, on the other hand, overbooking and little booking kills the factory because they have got same number of workers on the pay-roll in low months, and bearing extra overtime cost in peak months if they managed it in the end.

Therefore, sourcing companies should start with fixing their own troubles and it will automatically help vendors out of difficulties. It is better to start from there.

Advices

What a sourcing company can do to pursue excellent operational result from their vendors?

1. First of all, don’t forget to keep improving your own process before sending people out and demand better cooperation. Start with yourself.
2. Next, have proper understanding of developing a strategic partner because only long term partners will believe in your dream and buy in to the saying that the change were for mutual goodness. It is extremely critical to have trust in place for such program.
3. And the change program should not be taken as a project with a closing timeline.
4. Develop proper understanding of the metrics which make up the true north. Efficiency is just one thing , cost saving being another…… Instead of pursuing a particular indicator, take QDC and KAIZEN culture as an integral wholeness.
5. Set up a composite Balance Score Card to measure vendors’ overall performance and do keep raising the bar year after year. Leave the improvement benefit for your vendors, and you will gain your part.
6. Tie vendor performance to their business growth and benefit.
7. Develop your leadership and management taking the chance of doing all kinds of internal improvement projects. Train and coach them on how to see value streams as well as the formula to excellence.
8. Stop trying to do kaizen at your vendors’ site, send a coach to them- a coach who is good at advising leaders on how and what to do.

The end