If there’s one thing that ruins the productivity of your day, it’s when a needed item isn’t available.
A wonderfully designed business may have skilled workers, state-of-the-art machinery, and a talented management team. But the business yields nothing if the needed items to run it aren’t there.
Managers deal with challenges such as absent workers, power failures, and machine breakdowns. In most cases, they find ways to overcome these challenges and thereby avert costly problems.
But when it comes to the unavailability of an item, there are hardly any outright remedies. Once one finds out that an item, whether it be a raw material, a packaging box, a spare part, or even a light bulb that’s critical to a business operation, isn’t there, it will inevitably lead to downtime.
No one likes downtime. When downtime occurs, the impact is irreversible. Output is lost; productivity suffers; costs go up; deadlines are not met; customers don’t get their orders; the bosses complain.
The best way to deal with downtime is to avoid it. Make sure it doesn’t happen. And the first best starting point is to ensure that one has all the items, components, and materials it needs and when it needs them.
So, how do we do that?
- Establish a policy; a realistic and doable policy
It’s one thing to have a policy to guide managers in buying and stocking items. It’s another to have a policy that’s realistic and doable. Many enterprises routinely plan materials, components, and parts based on unrealistic policies. These enterprises end up experiencing expensive downtimes.
For example, a buying clerk orders 1,000 litres of fuel because there’s 500 litres in inventory and the policy is to stock no more than 1,500 litres. The business operation, however, require 2,000 litres of fuel a week. Because there’s only a maximum of 1,500 litres on stock at any one time, the enterprise runs the risk of running out of fuel and shutting down.
Obviously, the policy of having only at most 1,500 litres of fuel is unrealistic. The policy should perhaps consider a minimum purchase quantity of 2,000 litres and perhaps a buffer stock of at least 500 litres, to cover for possible delivery delays.
A viable policy should be in tune with the needs of the enterprise and doable in terms of capabilities from the source (i.e. vendor). It sounds like common sense (and it is) but many enterprises, believe it or not, follow outdated policies that are based on past practices that don’t consider current needs and capabilities. These enterprises experience expensive downtimes, as a result.
There should be a policy for every item, part, component, and material involved in the operation. The policies established should be realistically and respectively applicable for every item. One may have a sweeping policy that covers many items although experience has shown that doing that results in inefficiencies and undesirable outcomes (i.e. downtimes). This is simply because a sweeping policy seldom covers for each item’s uniqueness.
The best approach would be to “plan for every part” which Chris Harris best describes in his essay (https://www.lean.org/Downloads/The_Plan_for_Every_Part.doc). Mr. Harris argues that operations management should catalogue every item’s identity and background information. This not only includes its specifications but its supply information as well, that is, its sources (vendors), purchase information (e.g. vendor’s terms & conditions), shelf life, storage requirements (e.g. requires refrigeration), and handling (e.g. fragility).
What an item’s characteristics are, how the vendor supplies it, and how it should be stored and handled, would guide managers in the buying and stocking of every item of the operation.
Managers are accountable for the delivery of products and services. Purchasers are accountable for the cost of items and the reliabilities of vendors in delivering items to the quantities and qualities specified. Finance is accountable for the management of an enterprise’s wealth. The accountabilities of all three overlap when it comes to inventories.
Purchasing managers would prefer to buy items in bulk at discounted prices, especially if these items are imported from other countries.
Finance managers would prefer that inventories be kept to a minimum to avoid tied up cash in working capital.
Operations managers would want to have enough inventories to avoid run-outs that would result in downtimes.
All three (3) disciplines need to reconcile their preferences to arrive at a consensus of policies for the items needed for an enterprise’s operations. Balancing the preferences to arrive at a consensus is key as an enterprise would no less want a business that saves on cost, have lower working capital, and provide competitive customer service.
- If one can’t collaborate, at least communicate
Many enterprises don’t want to collaborate with their suppliers. They’d rather have an arms-length relationship that doesn’t require having to share to much information or end up at a negotiating disadvantage. Enterprise executives simply don’t want to put too much trust in vendors (or in anyone for that matter).
Some enterprises collaborate closely with suppliers so much so that the latter have exclusive contracts. But that’s not a popular thing in industries as enterprises prefer to have multiple suppliers for the items they buy such that there’s always the option to sourcing from someone else.
Not opting for collaboration does not mean enterprises shouldn’t communicate with their vendors especially when it comes to the day-to-day supply of key materials, components, or parts.
When enterprises order from vendors, they order based on projections of output. And more often than not, these projections change from time to time.
On the other hand, external factors such as commodity price increases, foreign exchange fluctuations, and events in global trade are constantly influencing the supply of any item. Talking about these things with suppliers may help in anticipating upcoming challenges.
There is no downside in dialogue. It’s always to everyone’s benefit to have two-way communication on issues that would affect each party’s business. And it always helps if each party empathizes with the interests of the other. There is no harm in talking. Information sharing is never a waste of time. Customers and vendors can still be careful when it comes to disclosing confidential data. One doesn’t need to share too much to have a constructive relationship.
No enterprise executive favours a business shutdown because something wasn’t available. Downtime is never an option when there are deadlines and targets to be met. Managers should check the policies of all items and plan for every one if there isn’t one already. Operations, purchasing, and finance managers should strive for consensus in policies to avoid conflict with the overall enterprise’s strategy. Enterprises should also have open lines of communication with suppliers to anticipate issues.
It sounds like hard work to make sure one has every item available when needed. It is hard work; nothing is ever that easy. But it’s better than the stress and aggravation one gets when there’s no stock of that one essential part, component, or material one needs for the business.
Ellery's Essays 