It is, says one manufacturing consultant, the most common misconception about the Just-in-Time approach to manufacturing -- the notion that JIT, although it makes many worthwhile changes, ultimately will fail because vendors won't accede to the demands it makes of them. A higher-quality product, more frequent deliveries, increased transportation costs, more in-house inventory of finished goods -- the vendor's litany of objections can sound overwhelming.
JIT consultant Ed Heard doesn't debate the proposition: He dismisses it with a flourish, pointing to Xaloy Inc. Although Xaloy's JIT program has been in place for little more than a year, the company has already involved a number of its vendors in the process. There were trade-offs, Heard argues, but in the end they worked to the advantage of both parties.
Paul E. Smiley, who until recently was purchasing manager of Xaloy, explained the company's relationships with vendors. JIT arrangements, he said, cover some 85% to 90% of Xaloy's total dollar purchases, most of which is steel and alloy materials. In the past, Smiley explained, there was little synergy between customer and vendor: Xaloy simply polaced orders for the type and quantity of materials it wanted, specified date of delivery, and relied on the vendor to produce. Typically it received a three-truckload order of steel each month, plus monthly shipments of alloy. On any given day there was likely to be some $525,000 in raw materials -- including a six-month supply of alloy -- sitting in the company's backyard.
This inventory covered surges in manufacturing, but it also covered a number of problems. Production forecasts weren't always well correlated with purchases. Quality control was lax. The steel and alloy were tested once they reached the plant, and regularly had to be rejected, causing expensive dealys. "But it didn't seem like a big deal then," recalled Smiley, "because we usually had a lot sitting on the floor."
When it decided to extend JIT techniques to its purchasing, Xaloy fashioned an entirely new relationship with its vendors. It provided its steel suppliers, for example, with extensive information on its manufacturing forecasts, indicating the amount, type, and length of steel it anticipated it would need each month for the next six months. It also asked its vendors to stock one month's worth -- which it was then obliged to purchase -- with deliveries made on automatic release dates, or upon request. When the vendor was producing particular types of steel, it would call Xaloy to see if the projections had changed, so that it could adjust its own runs.
The new arrangement did require that vendors carry more in-house inventory, a demand they initially resisted. But there were benefits to them from the system as well. Because they had extra stock, they found that they were able to sell off-the-shelf to customers who had sudden, unanticipated needs, later replacing the amount for Xaloy. According to Smiley, the inventory carrying cost were more than offset by increased sales.
Xaloy now receives its steel weekly, with shipments averaging one truckload and composed of two or three items. Because it orders only in full-load quantities, the company's transportation costs haven't risen. In addition, it requires vendors to provide samples for testing prior to shipping, so that the back-and-forth movement of substandard goods is avoided. "It's helped them to be more aware of the importance of quality material," Smiley said, "and their own inspection of product seems to have improved."
The net effect: Xaloy's raw-materials inventory has dropped from $525,000 to less than $300,000, and the manufacturing operation is much more efficient. For their part, vendors have Xaloy's commitment to an ongoing, rather than a month-to-month, relationship. "In order to encourage them," Smiley explained, "we told them that, as long as they were reliable and the price was competitive, we'd be back as repeat business. We wouldn't be looking the country over for the best deal every month." Xaloy had worried that when cost was no longer the prime determinant, it might wind up paying higher prices; in fact, the opposite has proved true. "We're buying material at the best price we've ever had," Smiley said.