MGMT-6087 - Quality Management
When Joe Vollbrach, Vice-President of Operations for Murphy Manufacturing, was given a CEO’s directive to investigate Lean production concepts and to implement them if appropriate, he was slightly apprehensive. Everyone knew, he thought, that ERP was the best way to run a manufacturing operation, and they had been pretty successful with their ERP System. Once Joe read a couple of books and a magazine article or two about lean production, however, he thought maybe there was something to oi and it sure seemed simple enough. Dozens of companies had reported great reductions in inventory cost and other forms of waste, and with Murphy Manufacturing having only 5-6 inventory turns a year, the prospect of significant inventory reductions was very appealing.
Encouraged with the success stories and very mindful of the CEO directive, Vollbrach wasted no time. He put out a directive to all his people to implement lean production the way it was working in the book examples he had read. A few months later, however, he was beginning to wonder about the truth of the success stories in those books. The following are some of the examples of the complaints he was getting and the problems he was facing.
Karen – The Purchasing Manager
“Joe, this JIT and lean production are a disaster for us. It’s not only costing us a lot more money, but the suppliers are getting really angry with us. Since our raw materials inventory had typically been high, you said we should order smaller quantities and have it delivered jut-in-time for its need. Sure, we can cut down on the raw material inventory, but that cost savings has been more than made up with all the increased cost.”
“First, purchase orders are not cost free, and we are making a lot more of them. That’s also taking up a lot more of our buyer’s time.”
“Then there’s the transportation cost. Since most of the trucking companies charge a lot more for less-than-full truckloads, our costs are going sky-high with more frequent deliveries of smaller loads. Combine that with expediting costs, and it gets really bad.”
“Our schedules are changing more frequently, and without the raw material the production people are often asking for next day delivery of material they need for a schedule change. We are flying more parts in, and you know how much that costs.”
That’s not all. Our suppliers are really wondering if we know how to run our business. We’re changing the schedule to them more frequently, and they only way they can hope to meet our needs is to keep a lot of our inventory in their finished goods. That’s costing them a lot of money in inventory holding costs as well as administrative costs to manage the inventory and process all our requests. They not only have more requests from us, but it seems like everything is a rush order. They’re pressing us hard for price increases to cover their increased cost to keep us a customer. I’ve held most of them ...