This week I’m at LeanFAB, a Charlotte, N.C., lean manufacturing conference organized by the Fabricators & Manufacturers Association. When I pulled into the hotel parking lot this evening, I noticed a truck hauling equipment with a familiar logo: Vermeer, a Pella, Iowa, construction equipment manufacturer The FABRICATOR covered several years ago. The company’s CEO, Mary Andringa Vermeer, is chair of the board of the National Association of Manufacturers and for years has been a vocal lean champion.
Tomorrow’s agenda at LeanFAB includes a plant tour of a local metal service center as well as several sessions on lean manufacturing’s effect on supplier relationships. Managing those supplier relationships, some manufacturing managers seem to be putting quick delivery before price. As just one example, Lynn Benishek, materials manager at Milwaukee, Wis.-based Phoenix Products, told me the company rates suppliers on quality first, delivery second, and price third. If a supplier offers Benishek a quantity discount, she usually doesn’t take it unless she knows Phoenix can use that excess inventory immediately. Instead, Benishek prefers to use (when possible) local suppliers that can deliver quality products in small quantities at a moment’s notice.
Earthquakes, floods, and political unrest have made 2011 stressful for supply chain managers. Considering all these black swan events, you might think companies would be building inventory buffers galore. FMA’s Economic Analyst Chris Kuehl explained that this has happened to some degree. As he stated during a talk at the FABTECH trade show last month, warehouse construction is on the rise.
But according to the latest manufacturing report from the Institute for Supply Management, inventory levels continue contracting. Meanwhile, new orders have jumped significantly, by more than 4 percentage points. As one survey respondent in the fabricated metal products sector put it, "Japanese auto production has returned to 100 percent, and domestic manufacturing continues to increase."
Perhaps the most telling comment came from an electrical components OEM: “Thailand floods [are] impacting our business. Honda and Toyota cut production forecasts, and we are chasing some components made in Thailand.”
Would this manufacturer be chasing components if they were made down the street?
Various continuous improvement efforts aim essentially to speed overall manufacturing time, between the purchase order and the final customer payment. A big part of this involves eliminating wait time. The longer raw stock and work-in-process sit on the floor, the greater the overall manufacturing time.
Larger order quantities, of course, produce larger raw stock inventories that sit for longer periods. As Benishek has found, even a large price cut for greater quantities doesn’t outweigh the money saved from reduced overall manufacturing time. Busy people and machines don’t make the company money, she said. In fact, they spend money. Instead, Benishek watches the shipping dock. The more frequently Phoenix delivers orders, the better business is--because those orders do make money.