By Tom Wallace

This is the fourth and final column in our series on flexibility. In the prior three months we've looked at flexibility from the standpoint of products, processes, and planning and scheduling. Along the way we've articulated certain principles that bear on this flexibility issue, and they're summarized in Figure 1. You may notice that we've added a sixth and seventh principle which deal with suppliers.

Supplier partnering is an essential issue in achieving high flexibility. If the company views its suppliers as part of the team, as integral members of the supply chain, as sources of innovation and continuous improvement, then it'll be in a good position to capitalize on its suppliers' strengths in the drive for flexibility.

Question: How can you be flexible if it takes forever to get purchased components and materials. Answer: You probably can't. For example, if much of your products' optionality is in purchased items which have a 10-week lead time, but if you have only two weeks from receipt of your customers' orders until you ship, then you have a major problem. You can try to brute force it via holding lots of inventory (thus going counter to principle of flexibility #1), but that almost always doesn't work. If you don't believe me, try it for a year and see what happens. I predict lots of inventory, late and incomplete shipments, and unhappy customers.


Supplier products and processes
Most of your suppliers are manufacturers, just as you are. Therefore, doesn't it follow that the principles of manufacturing flexibility apply to them just as they do to you? You bet it does. And I submit that part of your job, as the customer of your suppliers, is to make it easy for them to be flexible. You may need to redesign some of your purchased items to enable them to take advantage of the principle of deferral (principle #2).

Similarly, as with one's own products, supplier components and materials should be designed and specified holistically to optimize the entire supply chain, not merely to minimize purchase price (principle #3). In most companies, this requires a cross-functional group from the customer company — purchasing, production, product design, logistics, etc. — working closely with their supplier counterparts as a team striving toward a common goal. Collaboration, cooperation, shared expertise — all these are light years away from the arms-length, confrontational, "kick-butt-and-take-names" purchasing practices of the past. Treat your suppliers as key components of your supply chain; treat them as members of the team; treat them as partners.


Supplier scheduling
When the purchasing manager's economic index shows that lead times are increasing, does that mean that it's taking companies longer to make their products? Of course not. It means, quite simply, that companies are receiving orders at a faster rate than they're shipping product. Their backlog of unshipped orders increases. New orders come in at the back end of the queue and, hence, must wait longer to start getting produced. As business picks up, purchased lead times stretch out — at the very time when you need quick response from your suppliers. What to do?

The solution is a technique called supplier scheduling. It says to establish medium- to long-term contracts with suppliers (out beyond the duration of the quoted lead time), plan overall volumes with them, and then hold off committing to mix — the specific items — until shortly before the supplier needs to finish them. With this approach, along with the other changes cited above, it becomes possible to schedule the suppliers on a very short cycle. It becomes much more practical to respond quickly to changing requirements which, of course, are most often triggered by changing customer demand.

Supplier scheduling calls for some changes which used to be considered as highly radical: establishment of ongoing contracts with suppliers, elimination of hard copy purchase orders, and putting the schedulers in the customer's plant in direct communication with the supplier's scheduling people. Clear and timely communications, not legalisms, become the centerpiece of the customer/supplier relationship. This includes both people-to-people communications as well as the method of sending schedules to the suppliers. Your options for the scheduling task include:

1. Physical kanbans (cards, containers, etc.)
2. Electronic kanban triggers, perhaps via the Internet
3. Mix-specific schedules, transmitted:

• electronically
• via fax
• via express or regular mail

One last word on supplier scheduling: Don't try to do this unless your schedules are valid. Does your formal scheduling system truly represent what you'll need and when? Well, if your inventory records are lousy, if your bills of material are incorrect and incomplete, and if your master schedule jumps around like crazy, then your scheduling system doesn't matter much and you're running the business via the hot list. If you have these issues, you'll need to fix them. You'll need to get your internal house in order before you lay a lot of heavy expectations on your suppliers.


Down with trade-offs
Remember how we felt about quality 20 or more years ago? Conventional wisdom maintained that quality is expensive. It said that if you want to increase quality, you'll have to tighten specs, pay more for purchased materials, do more inspection, and incur more scrap and rework. This will raise costs, squeeze margins and possibly drive selling prices higher than the market will bear. Today we know that this trade-off between high quality and low cost is not valid; as quality goes up, costs go down (if you do it right, of course). It seems foolish that we ever felt the way we did.

But are there other trade-offs that still bedevil us? You bet. And one of the nastiest is the perceived trade-off between customer service (order fill) and low inventories. The conventional wisdom says that you need to determine how much customer service you can afford, because it takes tons of inventory to provide very high customer service levels.

Some of you right now are thinking "nuts!" and you're right. What we've attempted to show in these columns over the past four months is that it's possible to ship a wide mix, ship quick, ship complete, ship on time, and do it with lower inventories. Companies are doing this today, and they're winning in the marketplace. Most of you who said "nuts!" are probably working for them. Another trade-off is biting the dust.


Time-based competition
Now I don't know anything about running a bank, or an insurance company, or a retail store, but I have picked up a few strongly held notions during my 35 years in manufacturing. One is that speed wins. A few years ago, "time-based competition" was all the rage. Today we don't hear much about it; and I suspect that's O.K. because we don't need another label for flexibility — a concept that's been around for decades. What we've covered in these last four columns, under the general topic of flexibility, is really all about speed. It's all about doing things faster, better and at lower cost than the competition. (Have we completely covered the topic of flexibility? Not at all. There are other aspects of flexibility — one dealing with capacity and another with new product launch — that are beyond our scope here.)

One of the most insightful observers of the manufacturing scene is Professor Terry Hill from the London School of Business. In his book, "Manufacturing Strategy" (MacMillan, 1985), Terry talks about "order winners" — what wins orders in the marketplace — and how that should drive the firm's manufacturing strategy. Some years ago, high quality was an order winner — companies that had it won more orders. But not any more. Today, quality is mainly an "order qualifier" — if you don't have it, the customers won't even consider you. It's no longer a differentiator.

So here it is. Do your products (and services) have high quality and can you provide them cost effectively? If not, you'd better fix that. Now. Before it's too late. You don't have much time, because you won't be around much longer if you don't.

If you can deliver high quality cost effectively, then where do you go next? Well, in many industries, the race goes to the swift. Speed wins. Flexibility — the ability to ship a wide mix of products in very short lead times, with high levels of on-time and complete order fill — can be a major differentiator. It can win orders in the marketplace. I expect flexibility to be the next major competitive battlefield, similar to what quality was in the 1980s. It's hard work to get flexible, and it takes the involvement of many people within the total supply chain — but the paybacks can be enormous.

Figure 1. Seven Principles of Flexibility 1. You can't become flexible via inventory and expenditures. (Covered in this column in the March 1997 issue.) 2. Defer adding the optionality until after the customers tell you what they want, and then do it quickly. (Covered in March) 3. Design with the customer and the supply chain in mind, not just the raw cost of the product. (Covered in March) 4. Quick changeovers, in-line flow processes, and source assurance of quality are indispensable elements of flexibility in manufacturing. (Covered in April) 5. Via the use of planning bills of material, hedge only on the unique components rather than carrying safety stock on all finished products. (Covered in May) 6. Partner with your suppliers and treat them as integral elements in your overall supply chain. 7. Schedule suppliers based on their finishing lead times, not on their total quoted lead times which include backlog.

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