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Continuous improvement in supply chain management.

At loggerheads with a supplier? Creating an in-house position for a firm's representative and allowing him to supervise the planning on materials that company delivers can smooth ruffled feathers and complement the standard JIT approach.

I think often about the benefits our company can bring to the marketplace and what can be done to sustain our growth and success. As I look at our marketplace, I see many companies with many different advantages, and I wonder how my company will compete against them in the long run. When I study our history and culture, it's apparent that our principal distinguishing factor has been our creativity. Repeatedly, we've generated innovations with our products, with our selling and marketing techniques, and with our operations strategies. I suspect creativity is a strength of many successful U.S. companies. Compared to the rest of the world, Americans are raised to be mavericks--and we carry that into our business practices. Why not expand on that strength?

Bose Corp. has elected to build on its creativity, to do something different. Although people like to talk about being different, most don't like to practice it. Our challenge is to prod people into being innovative and using their creativity to do something that's better. In the long run, this is a source of sustainable advantage over our competition.

Creativity can apply to all phases of a business, and a competitive advantage can accrue in any area of a company. Here's one idea that came as a creative solution to a problem we had been having.

To do his job well, our top purchasing executive, Lance Dixon, required more and more people. We fought over staffing levels every year at budget time. One year I just said, "No more people." Neither of us was very happy about the solution. Lance said, "What if I can get the people I need to do the job and not add anything to the payroll?" With an offer like that, how could I refuse? I gave him the go-ahead, and he approached our key suppliers. Through discussions with them and some trial and error, the concept of JIT II was born. The idea springs from the "just-in-time" concept for managing inventory. JIT eliminates inventory and brings the customer and supplier closer together on an operational basis. As it developed, JIT II turned out to have many more benefits--and gained us much more recognition--than any of us could have imagined. The approach eliminates the buyer and salesman from the customer/supplier relationship, and thus, fosters increased communication between the two parties.

REWORKING THE SUPPLY CHAIN

Here's how it works: A supplier employee resides full-time in our purchasing office and replaces the buyer who was there. He is empowered to use our purchase orders and places orders with his own company. In a reciprocal arrangement, the supplier representative does our planning for the materials that his company supplies, thereby eliminating the need for our planners.

Accordingly, the classic supply chain for procuring materials--"planner to buyer to salesman to supplier plant"--is replaced by the one supplier "in-plant" representative operating directly from our computer system and utilizing our purchase orders. It streamlines the whole process.

The major advantage isn't having a customer representative at our location--we've all utilized on-site "liaison offices" at one time or another. Rather, it's that the customer representative is "empowered" to use our system--thereby replacing the planner, buyer, and salesman.

JIT II yielded good benefits early on, but as we got into the program, the risk of abuse was one of my foremost concerns. Where were the checks and balances that assure proper business controls?

As we came to understand, the risks weren't as great as they first appeared, and those that existed were manageable. First, we start in-plant programs with companies we have already come to trust. Their good records for quality, cost, and service are already established. We deal with companies that have a substantial stake in Bose and in our reputation. We jointly interview and select the in-plant representative. Sometimes that individual is working for our supplier, but more often, someone new is hired. For an in-plant rep, the experience is extraordinary. We've even had one of our own employees take a job with our supplier to become its Bose in-plant rep.

OPERATING PROCEDURES

On a day-to-day basis, we apply all of the normal controls that we would apply to our own buyers. All transactions are reported and subject to review and periodic audit. A rep is expected to have his company meet past prices and to implement and share cost reductions with us. Cost trends for our parts suggest that we are doing much better in cost containment and reduction efforts than before we instituted JIT II. Bose buyers bid competitively on new items. If they're not competitive, our JIT II partners don't always get the business, but with all of the internal advantages, that rarely happens.

The entire relationship is reviewed by top purchasing management every three years. So far, we haven't had to switch suppliers. The program has withstood the test of time: It has been working since 1987.

We discovered many operating improvements as we practiced our new system. Fewer people were needed because the system was so efficient. With fewer people passing information among themselves, fewer errors were made. We reduced inventory and gained better supply assurance because we didn't have to second-guess our supplier--his representative was right there working with us. We respond more quickly to crises, because the representative's primary task is to untangle snarls in the buyer/supplier relationship.

CONTINUOUS IMPROVEMENT

As our JIT II system matured, we discovered many beneficial extensions and enhancements. Since the in-plant representative can attend design meetings, we are able to practice concurrent engineering of our new products. We give in-plant employees badges and authorize them to interact freely with our staff, so they're indistinguishable from our own employees. They participate as actively and with the same degree of commitment as Bose employees--with the added benefit that they bring an outside perspective and expertise.

When we plan our production now, we include our in-plants in the meetings. They work on their own plant schedules along with ours. We call this "Concurrent Planning." Not only is our supplier much more responsive to our day-to-day needs, but his own production capacity utilization is much improved as well.

Today we have nine relationships with 12 in-plant personnel. Three suppliers have opted to place two representatives at our disposal.

The efficiency and gain to both partners in the customer/supplier relationship was recognized recently when Business Week named Bose as one of the six "World-Class Champs" in "Supplier Management" in the U.S. Lance Dixon and I had no idea that his solution would be such a smashing success. In fact, I'm still amazed. Now, when I think about doing things differently, but hesitate because of risk, this event always comes to mind and gives me the courage to try once again.

DISSEMINATION

We first shared these operating techniques with the broader business world in February 1991, when Industry Week magazine published an article entitled, "So Long, Salespeople and Good-bye, Buyers. JIT II Is Here." This coincided with the increasing trend commonly referred to as "partnering"--in line with which companies seek improvements in customer/supplier relationships. The idea was adopted immediately by other companies with forward-looking philosophies--with comparable success.

Today there are a number of universities, professional societies, and U.S. companies involved in implementing and refining these JIT II practices.

In the academic sector, Professor Yosef Sheffi, head of the MIT Center for Transportation Studies, has presented a number of one-day JIT II seminars; Professor Roy Shapiro, Harvard Business School, and Professor James Freeland, Darden Graduate School, University of Virginia, have almost completed case studies for teaching purposes.

Professional societies providing educational information include the National Association of Purchasing Management and the Council of Logistics Management, which have published articles and made a JIT II video tape available nationally to their chapters. APICS, the professional society for material planners, has published a series of articles for its members presenting the experiences of Bose and other U.S. companies.

A number of corporations also have implemented JIT II in their material and transportation departments. Each has shaped these practices to its own operating environment, adding refinements to address its particular needs. At conferences, these improvements are shared among participating companies. Several such corporations that shared their experiences at the MIT Center for Transportation Studies JIT II seminar held last October were Minneapolis, MN-based Honeywell; Holmdel, NJ-based AT&T; and Lake Falls, WI-based APV Corp.

A recent article in Inbound Logistics magazine highlighted the day-to-day experiences of Marcia Schou, the JIT II in-plant from Schaumburg, IL-based Jorgensen Steel, who works on the premises of APV Corp., to whom Jorgensen supplies metals. Her experiences are typical. Following are some excerpts from the article.

". . . When Marcia Schou first showed up as a JIT II in-plant at APV Corp., no one at the ice-cream freezer manufacturer knew what to make of her . . . With Schou's new role, APV's purchasing and inbound logistics people would still play a vital role in the flow of product. But in the end, it was up to Schou to ensure that everyone at APV got what they wanted from Jorgensen. Indeed, Schou was even given the authority to write APV purchase orders . . .

". . . 'It's an unconventional way to do business, and we're still getting used to it,' admits Gary Larson, APV world purchasing coordinator . . . But it's not hard to get used to the statistics: Since APV made the JIT II conversion, it trimmed 6 percent off its overall raw material costs. Every day orders are processed, turned around, and delivered within 24 hours . . .

". . . In-plants become more than order placers or promoters of goods. They sit in on daily company meetings with buyers. They hobnob with engineers and brainstorm ways to reduce materials use and handling costs. They listen, listen, listen all week long to what the company really needs, and really wants . . . And, over time, they become intimately familiar with how their product is used at the purchasing company, intimately familiar with the people who design the product, and intimately familiar with the people who actually transform it from raw material into a finished product . . ."

It's exciting to see our own internal experiences replicated in the working environment of a different company, technology, and industry.

OTHER APPLICATIONS

Since JIT II worked so well in our plants, we applied its precepts to our transportation area. When we did so, we discovered a multiplier effect. By assembling representatives from all modes of transportation--truck, ship, customs clearance--we were able to achieve a seamless transportation network. The handoffs are as smooth as those of air traffic controllers, and we don't lose any time in the process. Having everyone working together in one place with access to all of their own company's systems allows a level of coordination that substantially removes the uncertainties related to incoming material. With no uncertainties, material in transit can be planned just like inventory in the warehouse. For a number of our bulkier items, we routinely operate with a one-day supply or less. We used to keep two to three weeks of material--just to be sure.

We're helping our suppliers, too. Removing uncertainties requires improvements in supplier systems. Our freight lines don't lose or damage products very often anymore. If it does happen, their online systems tell us the problem didn't just occur with the supplier, but rather at a particular terminal or on a particular truck. When a responsible supplier is armed with information like that, you can be sure it will take quick action to get to the root cause of the problem--and to make sure it doesn't happen again. As a result, the portion of our shipments that is lost or damaged has dropped to an unprecedented low. Our suppliers often cite this immediate and precise feedback as one of their most valuable improvement aids. All of their customers benefit from it.

On the outbound side, imagine your customer calling and asking for his shipment. Instead of "putting a trace" on it, imagine being able to immediately reply, "It's in the Millville transfer terminal, scheduled to leave there at 10 a.m. It should be delivered to you by 3 p.m. on truck number 1142. No delays are anticipated." This really happens at Bose, and our customers notice and appreciate such service.

These "breakthroughs" in an otherwise static industry prompted this observation from American Shipper magazine: "JIT II places Bose a little ahead of the cutting edge."

THE BOTTOM LINE

We are most often asked for "measurements" reflecting increased efficiencies. In the transportation area, the most commonly cited measurements relate to "on time," "damage," and "shortages." In all three, we enjoy a better than 50 percent improvement measured against industry norms. APV Corp. has stated material cost was reduced by 6 percent after JIT II strategies were implemented. A recent article quotes AT&T as having reduced $1.9 million inventory in one location. G&F Industries in supporting Bose on custom plastic parts indicates its equipment utilization is improved by 26 percent. JIT II alone isn't responsible for all these improvements, but it's a valuable tool that enables our staff to do things we previously would have thought impossible.

Creativity can create a competitive edge. Taking a creative idea--a breakthrough idea--and continuously improving on it can reap benefits that go far beyond the initial concept. I hope the Bose experience will serve as an example, perhaps leading others to discover similar advantages within their own companies.

Sherwin Greenblatt is president of Bose Corp., a Framingham, MA-based manufacturer of component-quality high fidelity loudspeakers. Bose has locations in 14 countries around the world, and Greenblatt is responsible for company operations worldwide.
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Operations
Author:Greenblatt, Sherwin
Publication:Chief Executive (U.S.)
Date:Jun 1, 1993
Words:2305
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