Newsletter #40 November 2008

Lean & Problems with the Supplier Base

Jim Womack wrote this about problems currently being experienced with suppliers.

“In the current time of gyrating customer volumes and raw materials costs for suppliers, the result is often a zero-sum ritual of customers making threats (based on penalty clauses in contracts) and suppliers making promises to do better (based at most on a hope and a prayer.)

“It is actually all shadow boxing because without careful attention to the shared design and production processes, little improvement in performance is possible. In the short term, the customers have nowhere else to go and the suppliers can't do any better. So both sides get the satisfaction of some cathartic mud wrestling while nothing actually changes.”

Doesn’t this sound like construction? Womack further writes:

“How can we all do better? Well, first, we can't instantly. The short-term future is determined by decisions made long ago. So contracts with their penalty clauses rule. But we can do better in the intermediate and long term if we shift our focus from wrangling over contracts (reflecting arms-length, abstract legal relationships) to managing shared value streams by jointly observing the actual supply process.

“To do this the customer needs to take the first step. Taiichi Ohno at Toyota is said to have said, "The shop floor is a reflection of management". (And if he didn't say this, he should have!) Let me add a corollary: The supply base and the performance of value streams shared with suppliers are a clear reflection of the customer's purchasing management. A brilliant supply base with superior prices, quality, delivery, flexibility, and product performance doesn't happen magically. And it can't be bought off the shelf instantly by visiting some virtual "supplier supermarket." It is created over time by a brilliant purchasing organization. Indeed, creating a brilliant supply base is the real (and only?) value created by purchasing.

“So how do we begin the transition from managing contracts to improving value streams? First, the customer needs a ‘plan for every supplier’, just as Toyota has a plan for every part, every machine, every employee, and ... every supplier. This means determining the right suppliers to work with over the long term and then understanding the current state of every supplier's design and production process for the items supplied.”

But creating a lean supply stream also means that purchasing needs to look inward for a bit of organizational hansei (critical self-reflection) inside its own company walls. Why are schedules from production control so erratic and inaccurate? Why aren't orders to suppliers leveled? Why are the logistics to get items from suppliers to the point of use so loosely managed? Why are design requirements for supplied items frozen so late in the development process?”

We could add – why are suppliers given material orders that have a need date of yesterday? Why are install schedules constantly changing so when the material is delivered on time, it isn’t installed immediately?

While Womack is talking about manufacturing, his next points sound much like construction: “The typical reaction of purchasing organizations when I make these points [questions asked above] is to say, ‘Wait a minute. We just obtain needed items from available suppliers and bargain hard to get good terms in contracts that we can enforce. We have no mandate to look downstream into our organization or upstream into what suppliers actually do in their value streams to meet our needs. And we certainly can't afford to build long-term, stable relationships with suppliers as markets continually gyrate.’ And I respond, ‘Well fine. But you will always have a lousy supply base with poor performance and you will spend your time chasing parts.’

“So it's really a matter of what purchasing organizations think they should do and what they think they can do.

“Doing this will take time and upfront investment but the cost of not acting is far greater over time. So wherever you are in your organization and whatever your organization's current relation to its suppliers, I hope you will lend a hand to help with the critical transformation to lean supply.” [Source: Manage the Contract or Improve the Value Stream? By James P. Womack. Lean Enterprise newsletter, Sept. 16, 2008]

I hear much the same talk from purchasing people in construction. They say, “We can’t change or influence our suppliers, they are larger than us!” What can small and large contractors do?
Meet regularly with key suppliers to determine how to improve the material ordering process. Ask them how to improve the ordering – delivery process and then listen to their answers.
Do joint root cause analysis of major or reoccurring problems.
Monitor supplier performance and share the results. Measure on time delivery. Measure it for the whole order and do not measure by line item. If part of the material is delivered on time and part is back ordered, measuring by line item can make the measure seem good. (Half of the material was 100% on time!) But from the field crew’s standpoint, they may not be able to even do the work until the rest is delivered or may expend more time than budgeted or needed to install some now and some later. Measure the number and value of defective product received.
Determine how to establish more realistic need dates and keep the vendors in the loop as the schedule is planned.
Do a “we get - you get” bidding process. As contractors, we hate when the general or owner is shopping for the lowest bid and not considering quality or relationships, yet we turn around and do the same to our vendors.

Most contractors can’t change the global supply system, but don’t need to - just improve your work situation.

Muda Walk for a Month

We just completed another Muda Walk in a Month event in October. There were 30 individuals participating this year. The results are being compiled and will be reported in a later issue. For more details about the Muda Walk for a month and how it went last year see this article in Contractor Magazine (Oct. 2008)

The Last Planner System* in Mexico

“In our experience with construction companies in Mexico we have been able to reduce delivery time for houses (built in series; those are what we call social interest homes) from 42 to 26 days with savings in waste elimination near 10% of the house value, errors were reduced to less than 5% and a delivery time of 98% in a +/- 3 days window.”
Posted by: "Armando Zambrano" armando.zambrano@gmail.com-Sep 6, 2008

Last Planner System is a trademark of the Lean Construction Institute

A New Type of Waste??

Jim Womack talks about ‘Kaizen Waste.’ He says it is a critical weakness of some companies that routinely launch products with poorly conceived production processes, leading to the immediate need for kaizen. There is even a Japanese word for this practice -- "touzen" – which is used to describe kaizen that should not have been necessary. In construction we sometimes start new functions or change processes for estimating, shop fabrication or field delivery. When a project is started the PM often recreates the wheel for how the job is run. These processes don’t work well and often need improvement (Kaizen). How can we learn how to do it right the first time and not keep redoing it?

Learning Opportunities

You may be interested in attending one of these training seminars presented by Dennis Sowards:

• Jan. 15, 2009 - Introduction to Lean in Construction, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• Feb. 19, 2009 - Eliminating Treasure Hunts”– Applying the 5S’s for Lean Construction – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• March 19, 2009 - Job Planning the Really Works – The Last Planner System, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• April 16 & 23, 2009 - Making Meetings Work for You (must attend both session), – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• May 14, 2009 - Problem Solving Lite (No Carbs) - Getting to the Root Cause, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• Sept. 17, 2009 - Customer Loyalty by Design, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• Oct. 15. 2009 - Introduction to Lean in Service, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy

Other Lean Construction Learning Opportunities:

• Nov. 19, 2008 – LCI Cascadia's meeting in Portland. The program features "The Link Between Innovation within the Engineering, Procurement, and Construction Industry and Lean" presented by John Strickland, CH2M HILL.
• Nov. 20, 2008 – The LCI Southern California will be devoted to Last Planner® with a presentation by Scott Muxen of Herrero Contractors.
• Dec. 10, 2008 – Nor Cal Lean Construction Institute Chapter, Hilton Rose Garden Inn, Fairfield, CA - 6:00 PM-9:00 PM - Pacific Time

A Quick Thought

We let the flow manage the processes, and not let management manage the flow.
- Taiichi Ohno

For more information about Lean applications to construction and especially the 5S’s contact Dennis Sowards at his office at 480-835-1185 or his cell at 602-740-7271 or at his web site: www.YourQSS.com

This e-newsletter is written by Dennis Sowards to share ideas on the 5S’s and Lean practices especially as they are applied in construction. If you have ideas or lessons learned to share please contact me.