published 08/01/2023 By Michael W. Gozzo Purchasing 677 Views 0 Comments

Part Two of a Three-Part Series

LEAN FLOW COLLABORATION:

This article is the second (2nd) article of three (3). The titles are:

WHAT IS LEAN FLOW COLLABORATION & WHY IT IS NEEDED?:

Lean Flow Collaboration is needed to address the following questions:

  • Are there long cycle times & inconsistent deliveries?
  • Are quality problems occurring?
  • Is your inventory less than 4 turns or do you have more than sixty (60) days of supply?
  • Is your customer service poor or you don't know since they haven't complained?
  • Are there frequent process problems?
  • Are your operating costs high due to "extra effort" to satisfy the issues?

    THESE CONDITIONS INDICATE THAT THERE NEEDS TO BE A CHANGE IN PRACTICES/RELATIONSHIP

The traditional practice in business is to employ the use of forecasting demand by the customer's marketing organization and then subsequently establishing a sales effort to initiate demand from their respective market.

Once the demand begins to occur from their customers, depending on the type of market environment (MAKE-TO-STOCK, ASSEMBLE TO ORDER, or MAKE TO ORDER) the enterprise would utilize its inventory and build accordingly. As the inventory is depleted, it would place replenishment demand on its respective suppliers. This practice in planning terms is called the PUSH methodology – pushing orders into the supply chain! This method can over time create a misleading demand pattern in the mind of the supplier (unusual demand bursts or lower- demands).

Customers collaborating with suppliers in LEAN mentality establishes a "pull-in" approach at replenishing inventory – as it is needed. This means the customer/supplier relationship is open to sharing projected demand and respective lead-time/capacity visibility – with intent to reduce lead time to customer.

APPROACH/PROCESS TO ESTABLISHING LEAN COLLAORATION:

To ensure the creation of a relationship for mutual benefit, the parties need to develop and execute an approach that involves the respective entities. The following five (5) steps establish the working relationship:

  1. Mutually develop/establish guidelines, expectations from the joint arrangement
  2. Freely exchange strategies/plans regarding how they intend to achieve these goals.
    1. Establish a joint business plan to use as a guide/roadmap.
  3. Customer shares with supplier their sales forecast where their needs from the supplier are defined.
    1. This displays an openness with the intent of eliminating the suppliers' second guessing the customers ordering practice.
      1. Avoiding a "BULLWHIP EFFECT" in the suppliers' interpretations and the respective downstream effect in the supply chain
  4. Identify exceptions to the forecast that could happen – to avoid issues:
    1. Some examples of such are:
      1. Pricing allowance adjustments for market impacts – utilizing agreed upon source – like CPI/Price of a critical material.
    2. Special market situations created by associated competitors.
  5. Resolve forecast variations – jointly investigate/resolve:
    1. When forecasted demand quantities don't meet the targeted numbers – why?
    2. Establish corrective actions for repeated variations.

We need to consider utilizing a technique to limit the flow/timing/impact on inventory. That methodology is called – KANBAN – here is a brief definition of how it works in a collaborative relationship:

  • A replenishment signal from the customer is determined:
    • Typically reaching a level of inventory
      • enough exists to allow for fabrication and/or delivery of item.
  • Notification to supplier is communicated.
  • Supplier either immediately sends pre-planned quantity or initiates preplanned production quantity:
    • If they send from pre-planned quantity, its' depletion at supplier authorizes replenishing that planned quantity.
  • THIS PRACTICE ESTABLISHES A MINIMIZATION OF INVENTORIES (at both customer/supplier) AND BETTER UTILIZES THE SUPPLIERS' RESOURCES.

Look for more insight in the next article entitled, "WHAT ARE THE TOOLS TO BE EMPLOYED FOR LEAN THINKING?"!