Development of Lean Supply in a Free-Issue Environment
In my role as a research associate in a partnership between Warwick University and bodybuilding company JC Payne (UK),I've begun work towards and MSc in the subject area of distribution and supply networks.
Within this company, the manufacture of truck bodies is carried out in a relatively lean fashion; however significant disruptions are caused by the nature of the free-issue supply of key components such as chassis and tail lifts. Free-issuing of components by the customer restricts the ability of JCP to control production with frequent problems occurring when true product demand is not reflected in the pattern of free-issue supply. This results in periods of feast and famine.
Attached is a copy of my research proposal, any comments or advice would be greatly appreciated. I believe that the tools and techniques exist in lean theory to overcome this problem.
In my role as a research associate in a partnership between Warwick University and bodybuilding company JC Payne (UK),I've begun work towards and MSc in the subject area of distribution and supply networks.
Within this company, the manufacture of truck bodies is carried out in a relatively lean fashion; however significant disruptions are caused by the nature of the free-issue supply of key components such as chassis and tail lifts. Free-issuing of components by the customer restricts the ability of JCP to control production with frequent problems occurring when true product demand is not reflected in the pattern of free-issue supply. This results in periods of feast and famine.
Attached is a copy of my research proposal, any comments or advice would be greatly appreciated. I believe that the tools and techniques exist in lean theory to overcome this problem.
Regards,
Craig Davies
I'm still a bit confused by your use of the term "free issue" - which I interpret to mean "customer-supplied product" upon which the supplier performs a value-added process.
In my experience with this sort of activity
sending machined parts to heat treater or electroplater
or
sending raw castings to a machinist for finishing to print
there were two primary factors which played into our choice of supplier to perform the activity:
capability (the ability of the supplier to perform the activity to our specifications)
capacity (the ability of the supplier to perform the activity within our time window of expectation)
In a Lean environment, there is always a process (sometimes more than one) which has a process time which is fixed and unchangeable. The only way to increase throughput of units per time period through this "bottleneck" process is to increase the number of persons or machines performing the activity.
Part of the planning for a finished product or assembly is to take the two factors (capability and capacity) into account for each component of the finished product. If one supplier does not have the capacity (for any number of reasons, including a corporate decision not to tie up a large portion of capacity into production for any single customer), then the buyer must increase the capacity by changing suppliers or adding more suppliers. Adding multiple suppliers brings another set of factors into play (uniformity and traceabililty of product - especially for critical components which can affect life, health, safety.)
Lean manufacturing environments aren't easy, but they are pretty to behold once they are operating effectively.
From the supplier's viewpoint:
When a customer does not have a steady flow of "customer-supplied" product to operate machinery at prime efficiency to perform the value added process, a supplier has two choices (with the connivance and acquiescence of the customer):
Customer enters into a "take or pay" agreement to buy a fixed amount of production capacity from the supplier each month at two different prices: one price for actual use of the machines including labor and wear and tear on the machines and a second price equal to the lost profit for holding the machines and personnel idle for priority use on the customer's products (see comment below)
or
Customer agrees to buy a minimum amount of finished product per time period and agrees to pay a slight premium for peak flows exceeding that minimum in any given time period. The premium pays for getting priority use of the machines over any other customer of the supplier to meet the subject customer's demand. (see comment below)
Comments: In actual use, the supplier is willing to grant customer a concession to perform work on customer's product with priority over any other customer for two reasons: first, he is assured of a minimum income each time period which he can use to budget his operation and second, because he is compensated for delaying work for other customers to perform priority work on the subject customer's peak demand.
This does not violate the principle of Lean and may, in fact, enhance it, because the customer is justified in paying more to have a guaranteed supply per time period and increased demand in a given time period (resulting in higher payment to supplier per unit) can be offset by corresponding lower costs of overhead per item when more pieces are sold in that time period.
__________________ "Few minds wear out; more rust out"
Inscribed over the entrance of Louis Pasteur School, Chicago
Christian Nestell Bovee (1820-1904) in Thoughts, Feelings and Fancies, 1857
Last edited by Wes Bucey; 15th March 2005 at 02:35 PM.
Reason: add supplier viewpoint
I'm still a bit confused by your use of the term "free issue" - which I interpret to mean "customer-supplied product" upon which the supplier performs a value-added process.
In my experience with this sort of activity
sending machined parts to heat treater or electroplater
or
sending raw castings to a machinist for finishing to print
there were two primary factors which played into our choice of supplier to perform the activity:
capability (the ability of the supplier to perform the activity to our specifications)
capacity (the ability of the supplier to perform the activity within our time window of expectation)
In a Lean environment, there is always a process (sometimes more than one) which has a process time which is fixed and unchangeable. The only way to increase throughput of units per time period through this "bottleneck" process is to increase the number of persons or machines performing the activity.
Part of the planning for a finished product or assembly is to take the two factors (capability and capacity) into account for each component of the finished product. If one supplier does not have the capacity (for any number of reasons, including a corporate decision not to tie up a large portion of capacity into production for any single customer), then the buyer must increase the capacity by changing suppliers or adding more suppliers. Adding multiple suppliers brings another set of factors into play (uniformity and traceabililty of product - especially for critical components which can affect life, health, safety.)
Lean manufacturing environments aren't easy, but they are pretty to behold once they are operating effectively.
From the supplier's viewpoint:
When a customer does not have a steady flow of "customer-supplied" product to operate machinery at prime efficiency to perform the value added process, a supplier has two choices (with the connivance and acquiescence of the customer):
Customer enters into a "take or pay" agreement to buy a fixed amount of production capacity from the supplier each month at two different prices: one price for actual use of the machines including labor and wear and tear on the machines and a second price equal to the lost profit for holding the machines and personnel idle for priority use on the customer's products (see comment below)
or
Customer agrees to buy a minimum amount of finished product per time period and agrees to pay a slight premium for peak flows exceeding that minimum in any given time period. The premium pays for getting priority use of the machines over any other customer of the supplier to meet the subject customer's demand. (see comment below)
Comments: In actual use, the supplier is willing to grant customer a concession to perform work on customer's product with priority over any other customer for two reasons: first, he is assured of a minimum income each time period which he can use to budget his operation and second, because he is compensated for delaying work for other customers to perform priority work on the subject customer's peak demand.
This does not violate the principle of Lean and may, in fact, enhance it, because the customer is justified in paying more to have a guaranteed supply per time period and increased demand in a given time period (resulting in higher payment to supplier per unit) can be offset by corresponding lower costs of overhead per item when more pieces are sold in that time period.
Thanks Wes,
'Free-Issue' is a common term used in the UK (I think with a military history) used, as you suggested, to mean 'Customer Supplied Product'.
I'm experiencing a variation on the 'Free-Issue' situations you mention, where the truck chassis itself is Customer supplied to JCP, JCP's value is added (the truck body) and is then dispatched to the customer. The choices you suggest are ver interesting and I will give them further thought.
Hi Craig,
Our directors introduced lean to our company about a year ago and we've had similar problems. We manufacture flexible printed circuit boards and it's quite common for some of our customers to supply us with free issue components ( resistors, transistors etc supplied free of charge ) for us to assemble to the printed circuit we have manufactured for them. We can neither change the supplier or add suppliers as the customer has specified we can only receive the components from them. However they can be frequently late, wrong or not supplied at all - there are times when we've part assembled a circuit, shipped to them and then had the circuit and remaining components shipped back to us for completion. Our stores people are unwilling to chase up the parts as they don't want to be hounding the customer. It's been like this for the 11 years I've been here so I'd be interested to see what you come up with!
It seems the Electronics and Bodybuilding industries are united by a common problem.
I'll let you know what I come up with then. This is definitely a situation that is an accepted inefficiency... odd, when it is the customer who pays ultimately with the late delivery of their goods.
Development of Lean Supply in a Free-Issue Environment
Linear Mode
