This blog is dedicated to thought leaders and practitioners working in manufacturing. The aim is simple as it is lofty: to be a source of relevant information that challenges assumptions and offers insights into the thinking behind best practices. Format: blog posts, videos, and hearing directly from members in short but rich snippets.
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“No manufacturer... possess enough knowledge and manpower to work effectively with more than one vendor for any one item.” -W. Edwards Deming
What did the good Dr. Deming really mean by this statement? It might not mean what you think it does. Read on…
Not long ago, I was involved with setting up a vendor managed inventory program with a local manufacturer. At the start of the project, the Materials Manager informed me the company decided to reduce the number of suppliers from 453 to 250…in one year! I held my tongue while imagining the ensuing chaos. This got me to wondering about the underlying assumption for the drive to reduce the number of suppliers.
Take a poll at your place of business and ask Supply Chain Managers, Purchasing Managers, Directors of Procurement, Vice Presidents-Operations, General Managers, IT Directors, and CFO’s one question, “Why are we reducing the number of our suppliers?” What kind of answers do you get?
My guess is that 85.7% of them will be incorrect. Typical replies may look like this:
Jumping on bandwagons without understanding foundational principles can lead to all sorts of unintended (but deserved) consequences. Let’s look to a recognized source about this situation: W. Edwards Deming.
Deming famously made the following two statements:
“No manufacturer... possess enough knowledge and manpower to work effectively with more than one vendor for any one item.”
“A second source, for protection, in case ill luck puts one vendor out of business temporarily or forever, is a costly policy.”
Based on these two quotations, one might begin to justify the decision to eliminate suppliers. Nothing in these statements suggest how best to do this, however. And is this what Deming meant anyway?
Let’s dig deeper into Deming, who was at the start of this evolution in manufacturing. The conclusions may surprise you.
Deming divided the purchasing world of suppliers into three segments:
Deming realized the #1 reason to reduce the number of suppliers is to reduce variation! It follows then that parts or sub-assemblies where variation in form/fit/function is critical, a single source or major business partner makes sense. It is ill-advised to put those suppliers on the reduced-supplier list. For everything else, the number of suppliers may not be a driving issue where the juice is worth the squeeze.
Lesson Learned: The law of unintended consequences often comes into play when the reasons for an action are not clearly understood. It’s OK to question assumptions.
If you want a new idea, read an old book.
By: Jim Drennen, CPIM
Jim’s business career spans over 37 years in various management positions including Vice President/General Manager, Division Manager, Marketing Director and Materials Manager. Jim earned a B.S. from Heidelberg University and an MBA from the University of Toledo. He serves as adjunct faculty at The College of St. Scholastica, teaching courses in strategic leadership for change, Internet marketing, and marketing strategy. Jim is certified CPIM through APICS. He is the marketing coach for the Manufacturers Alliance.