Why Suppliers Need to be Profitable

I talked with a good friend a couple days ago who was scrambling like crazy. Her company had ordered some parts from a distributor with a three-week lead time. No parts arrived and the 3 week window came and passed. She phoned the distributor to query and, unlike her usual conversations with them, found their answers very evasive, vague and uncomfortable.

Suspicious, she immediately phoned the manufacturer of the parts. The problem? The distributor was not paying its bills; the manufacturer was not shipping to them. In the process, her company missed commitments and had a dissatisfied customer.

Lessons abound here. I highlight two.

First, my friend practiced autonomation in an office setting. Yeah, that’s an awkward word, but it, along with "just in time" forms one of the twin pillars of lean. We need to understand it. In short, any system should be set up to do these four things:

1. Detect the abnormality. By her experienced sense of timing, my friend knew something was wrong.
2. Stop. She did not go the next step after learning that no parts were coming. She didn’t do something else. She stopped. Literally.
3. Take countermeasures to fix the immediate problem. In this case, she got the name of another distributor which handled the same part. She called and ordered it. They had it and would ship. The current problem was sorted out.
4. Correct the root cause. She noted that she’d not order again from the first distributor.

The second lesson here is that supplier profitability is critical in a Lean Supply Chain. Classic views of suppliers say "Shoot, I don’t care about their financial health...that’s their business. Just ship me the stuff and don’t be late." Adversarial statements are commonplace. And what happens? You don’t find out till it’s too late that the distributor isn’t paying the manufacturer and your stuff isn’t shipped.

Lean systems become a Lean enterprise when extended to the supply chain. It’s a radically different way of doing business. And one that’s crucial.

I hope this is helpful. Feel free to forward to a friend. Email me