Consultants Forum
Interdependent Purchasing-The JIT Evolution Continues
By Ed Wright, CPIM
This article describes some of the changes under way in the health care
industry as customers consolidate into buying groups, distributors merge
and manufacturers
either get very cost effective or fall out. Tycos Instruments Co., a wholly
owned subsidiary of Welch Allyn Corp., manufactures medical instruments
such as stethoscopes, blood pressure gages and electronic monitors. Close
relationships with customers have always been a premier concern. Now, customers
are demanding more from these relationships-pushing back inventories, seeking
price concessions and eliminating certain "non-value added" activities.
The health care industry as a whole has long been into electronic data interchange
(EDI). Typically, this has meant sending customer orders/purchase orders,
acknowledgments and invoices through an electronic clearinghouse and downloading
transactions between parties. There has been some progress in the payment
of funds electronically. Now, however, things are changing. On a recent
visit, a customer started to prod us to go beyond traditional thinking with
EDI. Why even bother to open a purchase order? Why even bother with an invoice?
What can be done to eliminate as much cost and preserve as much cash as
possible?
Upon returning to our facility, I relayed these EDI challenges to the plant
staff only to receive blank stares and the comment, "You mean, like
we're doing." Here, mercifully, my embarrassment at being the last
person in our industry to catch on to this trend can end. Perhaps redemption
can be found by being one of the first to document it.
It seems to me that the key word for this evolving trend in customer/supplier
relationships is interdependence. Relationships remain key, for trust has
to exist between the principals involved. Success has to be mutual success.
Problems have to be mutual problems. It was the same with total quality
and Just-in-Time in the 1980s. It made little sense for customers to have
to re-inspect material that was just inspected by the supplier. So after
trust was established, companies eliminated the redundant inspection.
Now carry that logic forward. What other activities between customers and
suppliers are redundant? What activities are non-value added? If we are
interdependent upon one another and trust one another, what steps can be
eliminated?
A few days later, that same customer sent us an inventory status report
via E-mail over the Internet. Who needs an EDI service? We can plan the
customer's inventory of our materials for him and react more rapidly to
demand spikes because we don't have to wait on his MRP system and planning
schedules. Given a little time and familiarity, his inventory status file
sent over the Internet will be uploaded into our planning system and used
to create customer orders and drive requirements. Invoices? I'm not sure
that we need them. We're in this together. We can debit his bank account
electronically. He can compare the weekly value of his inventory receipts
to his payments to us as an audit. As interdependence grows, the needed
checks and balances will decline.
Carry this further. We already do practically the same thing with our key
supplier. He inquires remotely into our system to download an inventory
status report that can be used to drive his replenishment orders and shipments.
Prices are negotiated over long intervals-perhaps tied to raw material commodity
costs. Purchase orders, like the shop orders of old, are a thing of the
past. Delivery problems are anticipated and usually resolved. He may do
the same with his suppliers.
The companies that establish such interdependent working relationships will
have a tremendous cost and lead time advantage over their independent rivals.
Through interdependence and cooperative efforts, costs can be driven down
each year. Over time, the activities that don't add value to the end product
for the end customer will fall out. The firms that don't add value will
do the same.
Ed Wright, CPIM, is the business unit manager for Tycos Instruments
in Arden, N.C. and Diatek Instruments in San Diego. Both are wholly owned
subsidiaries of Welch Allyn, Inc. of Skaneateles Falls, N.Y. A past president
of the Asheville, N.C., Chapter of APICS, Ed was also the founder and a
past president of the Foothills Chapter in Morganton, N.C. He has a B.S.
degree in business administration from the University of North Carolina
in Chapel Hill and is currently enrolled in the MBA program at Western Carolina
University.
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