The Lion of Lean: An Interview with James Womack (page 3)
-- Supply Chain Management Review, 7/1/2005
Page 3 of 4
Q: What’s the downside of squeezing suppliers?
A: There are so many problems with this. Worst case, you can put them out of business and this affects your continuity of supply. More likely, you’ll create supplier churn. And it doesn’t matter whether you’ve already consolidated your supplier base from 5,000 to 50, you’re still going to have churn if the suppliers can’t benefit from their relationship with you. As for the prevalent attitude that if the suppliers screw up, we’ll just fire them, that doesn’t work well either. Competent suppliers will not be lining up for your business.
So when I hear people who claim that they are going lean by doing target pricing, and reducing suppliers, and tinkering with reverse auctions, I have to laugh. They’ve still got the inventories, the supplier churn, the waste that they had before. These situations actually become very embarrassing for me if it is a company I know well and have given some conceptual advice to. But I finally said, “Hey, look, embarrassment is muda, so I’m going to stop feeling embarrassed.”
Q: How should you work with your suppliers in a truly lean environment?
A: First and foremost, you have to be open and up front with them. You need to have an understanding that everybody needs to make a living—and that can be a tough one for some companies.
I was telling a Delphi Supplier Day crowd out in Detroit earlier this year about an interesting experience I had in 1982 in Japan. I wound up having dinner with the managing director for purchasing of Toyota. The company had only a very small number of suppliers, only two, or at most three, per category of need. And the most amazing thing was that they didn’t do bids. They would tell the supplier what something was going to cost. They would say, “Look, here’s the deal. This is our target cost based on what the end customer thinks this product is worth. We have to figure how to get to that target while you make money and we make money. So you have to figure how to take enough cost out so that there’s margin left for you.” In other words, they were working backwards from the customer all the way up the supply stream. So I said to the Toyota executive, “You’ve only got two or three suppliers per category, and you never take bids. How do you know you aren’t being ripped off?” So this guy, who was around 60, gives me an incredibly frosty look and says, “Because I know everything.” Everything? “That’s my job,” he says. Basically, he was telling me that we do our homework, we know what things cost, and we also know where the waste is. The second part to this is that if the supplier is not smart enough to figure out how to take the waste out, Toyota will go over and show them. And it’s basically not a voluntary exercise. There’s this relentless target costing. There is the expectation that real cost and prices always go down.
Q: Let’s say you’re a logistics or a purchasing manager who really believes in the things you’re talking about. What can you do to promote lean thinking in the organization?
A: Well, if I’m in one of those job positions, the first thing that needs to be done is what we call lean math, which is just figuring out what your total costs are. All too often, in purchasing groups in particular, we see a piece-part approach to costing. Basically, it’s the piece-part price at the factory gate plus slow freight equals total cost. You look at that and say, “Gee guys, is that really total cost? I can think of about ten other things that you might have to add in here, like how much expediting you’re going to have to do.” And the answer you typically get is, “Well expediting costs are not part of the plan. Of course, we are doing some expediting but…” Well expediting is never part of any plan. Where did you ever see a plan that said we’re going to make heavy use of expedited air freight? But in reality it’s a part of that total cost of using far away suppliers that you don’t know well and who have weak processes. That needs to be considered, so write it down on your total-cost tally.
After addressing costing, we need to look at the quality situation. Again, the line typically is, “Well, we’re dealing with this new supplier and right now we’re having a lot of warranty claims, but we have a plan, we’re going to fix that.” “Oh, really? When are you going to fix that?” “Well, we don’t actually have a date, we’re just going to fix it as soon as we can.” “Okay, that’s good. Why don’t we write down your real prospect for the cost of warranty claims this year.”
Knowing the total costs will enable you to do things in a very different way. So instead of the usual response of ordering in larger quantities to cut freight costs or beating down suppliers to get an extra 5 percent of the piece-part costs, you open up to different approaches. You begin to understand that maybe it’s okay to have slightly higher freight costs if you have less inventory in the system and if you’re responding more closely to
actual customer demand.
But before this happens, you’ve got to change the way in which people are compensated. You can’t be paying someone based on how well they’re cutting freight costs while the inventory costs are going through the roof.
Q: What’s the key to sustaining a lean program once you get it off the ground?
A: First off, when people come in and tell me, “We’re going to be at Toyota’s level in a year,” I tell them that while that may correspond nicely with their next promotion, it’s got absolutely nothing to do with reality. Lean is not a destination but a journey, as they say…a really long journey, at that. So it’s almost pointless to try to do this as a program. This isn’t a one-year program, it isn’t a five-year program or a ten-year program. In fact, don’t even call it a program. Don’t give it a label. Don’t call it anything. Just do it, and make it part of your everyday life.
Toyota has never had programs. They never declared back in 1950, “We’re going to do lean.” They said, “Gee, we’ve been thinking there’s got to be a better way to do this. We will now start down the path to determine how to do this.” And they’ve been at it ever since. The notion of a quick program is really the enemy of the long-term sustainable success. Putting a label on it is, in general, a bad idea. In some ways, I just wish people would quit using the term lean altogether.
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