On-Time Delivery, Lead Times & Capacity
Material Shortages and Capacity Constraints: Rethink Your Rules on Materials and Suppliers
Parts shortages and conservative supplier rules often cap plant output. Challenging them finds capacity you already own, at no new investment.
Checking your assumptions and the rules governing your process applies to the supply chain, too. After all, rules are set and boundary conditions are established for how you deal with your suppliers. Therefore, you should also review your supply chain policies to identify opportunities to increase output – by examining your rules and assumptions regarding materials and suppliers. By the way, we’re still finding extra capacity you already have, so your investment in this is zero. If you’re internally constrained, finding that excess capacity means more sales, more productivity, and more profit. Your ROI will be, let’s see… infinite.
The goal is to change the rules that are affecting your ability to make MORE. The supply chain or supplier strategy is a great place to start.
What about the material specification itself? Most material specifications are established by a default rule of thumb intended to minimize the risk of failure. The result is a conservative specification that covers a wide range of situations. I seldom see material specifications designed to maximize throughput.
What’s available to challenge? Everything. Dimensions, tolerances, material specifications, storage requirements, quality checks, etc. Another place to look is deeper in the supply chain. What about your suppliers’ suppliers? What you challenge will be determined by what gives you the most productivity.
When we worked with a boom manufacturer, we found that the output of a particular boom type was constrained across all suppliers by a worldwide scarcity of a key component. This scarcity was about three links earlier in the supply chain. We looked for a substitute. Working with the engineering and supply chain teams at the supplier and the customer, we found another material that was significantly cheaper, allowing them to purchase three times as much of the new material for the same price as the old material. With all materials in full supply, the boom manufacturer was able to boost output tenfold!
Not only are the technical specifications open to challenge, but your supplier management rules are open to question, too. Just as engineers create conservative rules to minimize technical risk, it is common practice to establish policies to minimize commercial risk.
We frequently examine aspects such as batching policies, supplier qualification, preferred supplier selection (with sole sourcing being my favorite), quantity-based price breaks, delivery frequencies, and more. Often, supplier selection relies heavily on price, with little regard for supply risk.
When we worked with one supplier, we questioned a long-established rule limiting their purchases from any one supplier to no more than half that supplier’s total output. This limitation was restricting their output because they lacked the supplies to produce more. This easy fix unlocked the potential to quickly and dramatically increase supplies and, in turn, the factory’s output.
Finding extra capacity is not rocket science, but it does require attention to the process and a willingness to challenge what you’ve done in the past – sometimes an uncomfortable task. I enjoy it, though. Eli Goldratt, my friend and mentor, famously said, “Sacred cows make excellent steaks.” I agree.
Lesson 5 of my eBook, Achieving Top Performance Under the Worst Conditions: 7 Lessons Learned from a Disaster, shows how we sacrificed those sacred cows in the materials and supply chain and, in turn, achieved great results.