How Do We Know Our Supplier Will Never Fail?

Published on February 28, 2013

Filed under: Supply Chain

How Do We Know Our Supplier Will Never Fail?

In our other articles on the supply chain, we provided an overview of how to create flow and Operational Excellence in the supply chain, how to create supply chain connections, and even how to make flow in the supply chain visual. 

But what guarantee do we have that the systems we create will ensure a stable flow that does not break down one month from now?  Or two months from now?  Or two years from now?  Put another way, how can we ensure that our suppliers and our supply chain will never fail?

How we answer this question is critical, because after all the work we put in to create supply chain flow and make it visual, we don’t want the flow to erode to the point where we end up reverting to managing the supply chain again.  If this happens, we will be putting energy into running the business instead of growing the business and lose the competitive edge that Operational Excellence has given us.

While it seems a tall order to ensure a supplier will never fail, in reality, it comes down to two things:  technical design of the supplier’s value stream and the implementation of Operational Excellence at the supplier. 

On the technical design of the supplier’s value stream, it is important to know exactly what product family flow is, and which family our products are in.  A detailed product family matrix can help with this (see the article Focus on the familes, located under "Mixed Model Production" in the learning center or for further reading consult the book Creating Mixed Model Value Streams.) 

Once the supplier has established product family flow, the concept of “the interval” is critical.  While we often think of supplier capacity, the interval tells us the amount of “mix” the supplier can make.  For example, if a supplier tells us they can deliver 100 parts per week, we know to only order up to 100 parts per week.  But what if we order 100 parts comprised of 75 different part numbers?  That’s a different story, and our supplier will probably fail. 

By using the concept of the interval, we establish supplier capability instead of supplier capacity.  This ensures we provide orders that fit within the supplier’s capability.  It also eases the workload on us, the customer, because we no longer have to worry about the details of part numbers and quantity.  We simply have to know the total number of parts and part numbers we can order without exceeding the supplier’s capability. 

On the supplier implementation side, in order for our supply chain connections to have a good chance of working, it is beneficial if the supplier we are trying to make a connection with has already started implementing the principles of Operational Excellence.  If the supplier does not have established flow by product family in its organization, it will probably be difficult for them to consistently meet our needs regarding the connection established.  Therefore, making sure we’ve chosen the right supplier to model the concepts will tip the odds of success in our favor. 

Supplier education and establishing performance thresholds for review are also critical to making sure the supplier never fails.  If we’re going to set up a new connection with a supplier, we need to educate them about the connection, the way it works, how the signals are sent, the physical pathway on which the material flows, and everything else.  But we want this education to encompass much more than a simple understanding of how the supply chain connection will function. 

Formal education with the supplier on Operational Excellence should start with the definition of Operational Excellence itself, then the nine questions, and then a detailed explanation of the eight principles.  It’s particularly important to do a deep dive on the first principle, where we design for flow, and to cover all areas of the organization, including the shop floor, the office, and the supply chain, to make sure the supplier can speak the same language of Operational Excellence we do. 

Once we’ve conducted education on the principles and concepts of Operational Excellence and created a connection with our supplier, we need to establish performance thresholds for review in terms of on-time delivery, quality, and other metrics. 

For example, suppose two weeks go by and everything is normal with our supplier connection, but at some point over the next month, our supplier delivers our shipment ninety minutes late.  Do we need to meet with our supplier?  What about if the supplier delivers all of its shipments on time after that, but two in the next three months contain defects?  Do we need to meet with our supplier then?

There’s no universal standard for everyone, so we need to pre-define what level of performance necessitates a review with the supplier.  Are the mistakes described above mishaps and flukes, or are they systemic problems?  If we haven’t established performance thresholds that dictate when we need to have reviews with our supplier based on their performance, we’ll soon fall right back into the trap of management dependency where we “muscle the flow” to get the supply chain to perform at the right level. 

Establishing performance thresholds for review doesn’t just apply to the effects we feel from our supply chain in the form of on time delivery, defects, and so on, but also from the internal happenings at the supplier. 

For example, consider whether we would want to be notified if a supplier’s operation or key value stream is down for five minutes. Probably not, but what about if the supplier’s operation or key value stream is down for three days?  In this case, most everyone would agree that they need to know about it. But at what point between five minutes and three days do we need to know if our supplier is having a problem?  This is something we need to pre-establish before we ever “turn on” our connection with the supplier to avoid falling back into supply chain management.

Selecting the right supplier for a connection, educating that supplier, and establishing performance thresholds for review will help ensure that our supplier never fails and eliminate the need for supply chain management.