In my Supply Chain Risk 101 post last week Jim Fernandez asked a very good question – to wit, what if the stuff from the high risk place is really a lot cheaper? That really gets at the heart of the supply chain issue. The simple fact is that there is no financial gain from moving a part from a low cost supplier who ships in big quantities with long lead times and dubious quality to a higher priced, lean, high quality local supplier. Doing so will not improve things much and will cost the company profits with little or no offsetting gain. Buyers have fought this battle unsuccessfully and lean leaders have kaizen evented their way to failure with suppliers for years. It is a waste of time.
I was talking to a retired supply chain executive from John Deere about supply chain management last week and we were hypothesizing on the reason for the wide held belief that positions in engineering, accounting, IT, sales and HR are perceived to require degreed, trained professionals, but an open position to be a buyer or scheduler in most companies is seen as something and smart person with a high school diploma off of the shop floor can fill. He told me that an executive once told him (not from John Deere, by the way) that buying is buying, and every housewife knows how to do it well. That statement pretty well tells the tale when it comes to senior management understanding of the supply chain in far too many companies. In fact, the "typical housewife" is a whole lot smarter when it comes to managing the supply chain that the policies of many executives would indicate they are.
Imagine how things would go at home where the exec who spoke to my John Deere friend rules the roost, if he laid down the same metrics and incremental cost thinking management often foists on their supply chain folks. Four times a week he would miss a meal all together because the housewife only delivers on time at an 85% rate. He would get a bill for over a thousand bucks for the extra freezer and refrigerator she bought to store it all since she buys in mammoth quantities from Sam's and Costco in order to minimize unit purchase prices, even though it is only the exec and the 'typical housewife' eating. Two or three times a year he would be flat on his back with ptomaine poisoning because she is only 95% effective at inspecting and sorting the 98% edible from the 2% inedible. The gas charges would be astronomical as she drives all over town to use every coupon she can find, again driven myopically by unit price minimization. Once a year hundreds of dollars of food would be thrown out due to expiration dates and freezer burn, and his conjugal happiness would be severely limited as she is worn out from the constant sorting and counting of the freezer and pantry to figure out what she has and what she needs. Life as a customer of a policy to focus on only on the purchase price would be challenging. On the plus side, however, his purchase price per meal would be very low, which is really all that matters, right?
The problem is that a lean supply chain is a wholistic strategy – and one that pays big bucks – but "cost accounting" and "wholistic" are mutually exclusive terms, and many senior managers do cost accounting a whole lot better than they do strategy. often only understanding the supply chain through a cost accounting prism. Ask many execs about the supply chain and you are likely to get the latest movemet in the price of steel, resins, fiberboard, aluminum or copper on the commodity markets. What you will not get is a dissertation on the current rates of variability in customer demand and how they impact the kanban sizes needed to ship 99%+ on time in a demand pull environment. In fact, ask many senior managers to explain exactly what 'current rates of variability" have to do with kanban sizes, demand pull, customer delivery performance or just about anything else and you are most likely to get a blank stare.
You cannot get from a large lot size, long lead time, inspection based quality supply chain to a just in time, point of use, assured quality supply chain incrementally. It is an all or none deal. Taking one part out of the old model and having it come into the plant in a lean fashion will not put a dent in the big fixed cost base of warehouses, material handlers, incoming inspectors, and folks doing multiple ERP transactions. That stuff all goes away when a strategic decision is made to bring all parts in a la lean.
A lean supply chain strategy pays enormous benefits, but part by part justification of benefits versus purchase price variances will never get you there. It is only when senior management is as smart as a "typical housewife" that a lean supply chain is possible.