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How companies in the private sector plan and manage their partnerships can mean the difference between success and failure for it is now extremely rare to find companies which can sustain a credible business operation without a network of co- operation between individuals and organizations or parts of them.

The Kanban system Kanban is a Japanese word meaning ‘visible record’, but in the West it is generally taken to mean a ‘card’ that signals the need to deliver or produce more parts or components.

The benefits included manufacturing costs halved compared to the existing source and expectations built of a step change in quality with indications that the defect rate would drop over the first twelve months from the initial level of 2 per cent to less than 0.5 per cent.

There is clear evidence that JIT has been an important component of business success in the Far East and that it is used by Japanese companies operating in the West.

Even in the twenty-first century, however, some organizations do not fully appreciate the important role supply chains play in delivering on-quality, on-time, on-cost products and services in their organization.

The extent to which financial resources are being used to support strategy needs to be subject to continuous appraisal – this will include evaluating investment in the tangible and non-tangible assets, such as knowledge. Nevertheless, according to the UK Chartered Institute of Purchasing and Supply (CIPS), much work remains to be done in understanding how to capture the breadth and depth of the role of supplier management in achieving cost reductions and other benefits – the traditional measures of cost saving are no longer appropriate.

If a qualified, independent third party is used instead to carry out the assessment, attention may be focused by the customer on any special needs and in developing closer partnerships with suppliers. As this requires that suppliers make frequent, on time, deliveries of small quantities of material, parts, components, etc., often straight to the point of use, in order that stocks can be kept to a minimum, the approach requires an effective supplier network – one producing goods and services that can be trusted to conform to the real requirements with a high degree of confidence.

The successful operation of JIT is dependent upon a balance between the suppliers’ flexibility and the users’ stability, and of course requires total management and employee commitment and teamwork.

THE ROLE OF PROCUREMENT / PURCHASING IN PARTNERSHIPS As we have seen, very few organizations are self-contained to the extent that their products and services are all generated at one location, from basic materials. The author recalls the benefits that accrued from bringing together suppliers of a photocopier, paper and ring binders to explain to them the way their inputs were used to generate training-course materials and how they in turn were used during the courses themselves. Similarly in public sector organizations, where the involvement of the private sector has been a key development feature in recent times, there is the need to 71 5 Chapter recognize and build strong external partnerships. Partner organization employees can constitute upwards of 80 per cent of workers in the product or service chain, so a very important part of each organization’s strategy must be the consideration of the values, skills, knowledge and attitudes of partner management and employees. Inspection and trying to control at the end do not prevent poor quality happening, nor are they totally effective in preventing poor quality escaping to customers. Procurement needs to expand its remit into managing risk and vulnerability within the supply chain, particularly in the context of geographically dispersed and distant suppliers. If this extends into the supplier and customer chains, all operating with JIT a perfectly continuous flow of material, information or service will be achieved. In a push system a multi-period master production schedule of future demands is prepared, and a computer explodes this into detailed schedules for producing or purchasing the appropriate parts or materials. One example of this in a medium sized company involved a close working relationship with a partner who had been responsible for producing the written content of the company’s work-based learning materials. Delivering better value from the global supply chain The ongoing management of quality on a global scale requires an appropriate balance of stewarding global quality performance, facilitating global improvement, and managing risk. Just-in-time in partnerships and the supply chain The development of long-term partnerships with a few suppliers, rather than short- term ones with many, leads to the concept of co-producers in networks of trust providing dependable quality and delivery of goods and services. Reliance upon a single source of supply can be risky at any time, but in unpredictable economic conditions it can be downright dangerous. A key aspect of successful partnerships is good communications and exchange of information which supports learning between two organizations and often leads to innovative solutions to problems that have remained unsolved in the separate organizations, prior to their close collaboration. Consolidation of these plans, coupled with an iterative review and approval, provides a mechanism of providing the best possible chance for success.
Partnerships and resources P ARTNERING AND COLLABORATION Business, technologies and economies have developed in such a way that most organizations now recognize the increasing need to establish mutually beneficial relationships with other organizations, often called ‘partners’. The requirement for suppliers to be located near the buying organization, which places those at some distance at a competitive disadvantage, causes lead times to be shorter and deliveries to be more reliable. Some materials or services are usually purchased from outside organizations, and the Planning 76 Figure 5.2 Sample set of sourcing criteria Factor Spectrum Business size and scale Geography Business relationship Business maturity and capability Small Single plant locations Simple contract Capability Upper tier Global footprint Business partnership Capability + maturity primary objective of a ‘Purchasing’ or ‘Procurement’ function is to obtain the correct equipment, materials and services in the right quantity, of the right quality, from the right origin, at the right time and cost. Use of a ‘balanced scorecard’ approach (see Chapters 2, 7 and 8) can help in ensuring that the long-term impact of financial decisions on processes, innovation and customer satisfaction is understood and taken into account. It is also vital to ensure that quality is not solely seen as the Planning 74 responsibility of the ‘Quality Department’. Nevertheless, government departments, the health service, education, police, the armed forces, tax collection bodies and local authorities need to understand, develop and deliver strong external partnerships if they are to achieve the performance levels and targets that the general public in any country desires. Part of the solution is to create a central team that will genuinely be regarded as a ‘value-centre’ rather than a cost-centre. Because joint design and manufacturing (JDM) partnering has become commonplace in some industries, the supply chain now includes the designers and developers. The main feature of the Kanban system is that it pulls parts and components through the production processes when they are needed. In the piloting and evaluation of new technology, the impact on customers and the business itself should be determined. To replace this with computer systems and files on disks requires more than just a flick of a switch. The whole end-to-end process of the criminal justice system may come under scrutiny in order to deliver the paper-free trial, and this will involve many agencies in the process – police, prosecution service, courts, probation services and the legal profession. Partnerships and resources 81 It can be argued that JIT purchasing and delivery are suitable mainly for assembly line operations, and less so for certain process and service industries, but the reduction in the inventory and transport costs that it brings should encourage innovations to lead to its widespread adoption. Like any other resource, knowledge and information need managing and this requires careful consideration in its own right. A key part of this, of course, is identifying with whom those key strategic partnerships will be formed. Exciting alternative and emerging technologies need to be identified, evaluated and appropriately deployed in the drive towards achieving organizational goals. Each material, component or part has its own special container designed to hold a precise, preferably small, quantity. An efficient supply chain process, built on strong confident partnerships, will create high levels of people satisfaction, customer satisfaction and support and, in turn, good business results. This may be aided by presentations made to groups to directors of the suppliers brought together to share the realization of the importance of their organizations’ performance in the quality chains. BS 11000 based collaborative business relationship management systems can be integrated with other management systems in place. Focus on, for example, improving earnings before interest and tax (EBIT – a measure of profitability) and economic value added (EVA – a measure of the degree to which the returns generated exceed the costs of financing the assets used) can in a private company be the drivers for linking the strategy to action. In one company, a potential list of fourteen new suppliers was reduced to a shortlist of five, with one finally being selected as an additional supplier to the original single source supplier. Additional complexity also arises as a direct consequence of the volatility of commodities, currencies and interest rates. Partnerships and resources 77 Commitment and involvement The process of improving supplier performance is complex and clearly relies very heavily on securing real commitment from the senior management of both organizations to a partnership. Procurement or Purchasing can also play a vital role as the organization’s ‘window-on-the-world’, providing information on any new products, processes, materials and services that become available. Yet the ‘supply chain’ is often responsible for most of the labour, materials and equipment involved. It shows how to eliminate the known pitfalls of poor communication by defining roles and responsibilities, and creating partnerships that do nothing but add value to a business. Reduction of the water level to reveal the rocks, so that they may be demolished, is fine, provided that we can quickly get our hands back on the stock while the problem is being corrected. This extends the internal customer–supplier relationship ideas into the supply chain of an organization, making sure that all the necessary materials, services, equipment, information skills and experience are available in totality to deliver the right products or services to the end customer. In some organizations this requires the development of new remuneration and risk sharing models to share the benefits of technological development with suppliers. The golden rule is to never remove resources – such as stock – before the organization is ready and able to correct the problems that will be exposed by doing so. Partnerships and resources 79 Aims of JIT The fundamental aims of JIT are to produce or operate to meet the requirements of the customer exactly, without waste, immediately on demand. Senior management should demand that procurement be able to avoid or reduce the vulnerability of supply chains to disruptions, and increase their resilience should problems occur. The bidding and tendering processes of such organizations by necessity will always be different to those in the private sector. As quality is everyone’s responsibility it must rank with equal importance with other critical areas. Gone are the days, hopefully, of conflict and dispute between a customer and their suppliers. Pure reliance on inspection and ‘quality control’ will not by itself eliminate the risk of producing poor quality products or services. J UST - IN -T IME (JIT) MANAGEMENT The prohibitive cost of holding large stocks of components and raw materials has pushed forward the ‘just-in-time’ (JIT) concept. Policy One of the first things to communicate to any external supplier is the purchasing organization’s policy on quality of incoming goods and services. This programme leads to cost-effective production or operation and delivery of only the required goods or services, in the correct quantity, at the right time and place. In small and medium sized enterprises it is even more important that the financial strategy forms a key part of the strategic planning system, key financial goals are identified, deployed, and regularly scrutinized. The construction of plans for the allocation of financial resources in support of the policies and strategies should lead to the appropriate and significant activities being carried out within the business to deliver the strategy. Inevitably this Planning 78 leads to high costs and duplication of activity, for both the customer and supplier. There are various ways of ensuring the partnership processes work well for an organization. Anyone who perceives it purely as a material-control system, however, is bound to fail with JIT. Administration is kept to a minimum and standard quantities in standard containers are usual. The operation of JIT The tools to carry out the monitoring required are familiar quality and operations management methods, such as: • Process study and analysis • Preventive maintenance • Plant layout methods • Standardized design • Statistical process control • Value analysis and value engineering. Partnerships and resources 73 G LOBAL OUTSOURCING Research by The Economist has shown that the top two reasons for the selection of ‘global suppliers’ were the pursuit of new markets and reducing costs. These systems, when computer-based, were originally called Material Requirements Planning (MRP) but have been extended in many organizations to ‘Enterprise Resource Planning’ (ERP) systems. Below is a brief, high-level overview of a process to strengthen sourcing security in terms of quality, timeliness and cost, by sourcing a second supplier. The British Standard BS 11000, first published in 2010, provides a strategic framework to establish and improve collaborative relationships in organizations of all sizes, with a view to ensuring that they are effective, optimized and deliver enhanced benefits to the stakeholders. 1 Decide the selection criteria that are right for the business Consider sourcing security needs by reference to a set of sourcing criteria. IT support should be designed in collaboration with users to confirm business processes, functionality and the expected utilization Partnerships and resources 83 and availability. The development and implementation of appropriate financial strategies and processes will, therefore, be driven by the financial goals and performance of the business. The requirements of JIT mean that suppliers are usually located near the purchaser’s premises, delivering small quantities, often several times per day, to match the usage rate. How these are managed will have a serious effect on the effectiveness and efficiency of any establishment, whether it be in manufacturing, service provision or the public sector. It took approximately 20 years for JIT methods to reach Western hard goods industries and a further 10 years before businesses realized the generality of the concepts. Only standard containers are used, and they are always filled with the prescribed quantity. 4 Conduct site visits At this stage, really put the candidates under the microscope by scrupulously examining all the factors around the potential deal, including: • Approach to managing a large production and assembly account • Level of interest in the commercial opportunity • Professionalism and ability to quickly accommodate site visits and assessments. S UPPLY CHAIN EFFECTIVENESS IN THE GLOBAL ECONOMIES The urgent pursuit of greater security of supply or improved efficiencies can necessitate the transfer of manufacturing or re-sourcing to alternative supply routes. The challenge is to move from inspection to ‘assurance’ and relatively small improvements here can multiply into big benefits. Other resources Many different types of resources are deployed by different types of organizations. Risk-related issues include managing exposure to commercial and reputational risks, as well as providing improved supply market intelligence, such as forecasting future shortages. But some techniques are more directly associated with the operation of JIT systems: 1. Batch or lot size reduction 2. Arising from this and other similar partnership relationships in the company was improved customer satisfaction and refined processes. If this can be achieved, within the constraints of business and technical confidentiality, it is always a better approach than the arms-length approach to purchasing still used by many companies. In manufacturing, various types of records, e.g. job orders or route information, are used for ordering more parts in a push type, schedule-based system. Most organizations are established in some sort of building, use equipment and consume materials. JIT, like many modern management concepts, is credited to the Japanese, who developed and began to use it in the late 1950s. The number of containers for each part is a carefully considered management decision. The approach recommended looks at five key dimensions of good collaborative working (Figure 5.1): • Strategic alignment : how well aligned are the partners and how do they achieve this alignment at all key levels of management? A supplier of goods or services that has received such attention, education and training, and understands the role its inputs play, is less likely knowingly to offer nonconforming materials and services, and more likely to alert customers to potential problems. In the design of quality management systems, resource management is an important consideration and is covered by the detail to be found in the ISO 9000 family of standards (see Chapter 11). R ESOURCES All organizations assemble resources, other than human, to support the effective operation of the processes that hopefully will deliver the strategy. These range from the use of quality management system audits and reviews, through certificates of competence, to performance reviews and joint action plans. BS 11000 outlines different approaches to collaborative working that have proven to be successful in businesses of all sizes and sectors. The philosophies behind the various TQM and Excellence models support the establishment of partnerships and lay down principles and guidelines for them. An important outcome of JIT is a disciplined programme for improving productivity and reducing waste. Many European and American companies that have adopted JIT have made spectacular improvements in performance. Understanding and applying a sound approach to improving strategic partner- ships and supplier relationships will have a significant return on investment by: • Significantly reducing the management overhead through increasing the level of collaboration on a number of key dimensions that research shows to be critical in effective partnerships. Purchasing/procurement should bring value to their organizations by improved contract management and fostering supplier compliance across the entire lifecycle of contracts resulting in continued overall cost reduction. In addition, joint development programmes with suppliers and customers will be required to establish long-term relationships and develop single sourcing arrange- ments that provide frequent deliveries in small quantities. Collaborative relationships are a prerequisite for tapping into innovations available from suppliers globally and suppliers are becoming increasingly integrated into new product development efforts. It is not possible to create the ‘paper-less’ courtroom, for example, without consideration of the processes involved. Most leading organizations now have supply chain or procurement specialists working in them. The system will only work well, however, within the context of a JIT system in general, and the reduction of set-up times and lot sizes in particular. Similarly the acquisition of funding will affect the ability of public sector organizations in health, education or law establishments to function effectively. This has the potential to be the single most significant influence on organizational strategy, with procurement playing an important role in this effort. There are clear links here, of course, with process re- design and re-engineering (see Chapter 11). The schedules then push the production of the part or components, out and onward. The main point is that there must be recognition of the need to develop closer relationships and to begin the dialogue – the sharing of information and problems – that leads to the product or service of the right quality, being delivered in the right quantity, at the right time. Quality management system assessment certification Many customers examine their suppliers’ quality management systems themselves, operating a second party assessment scheme (see Chapters 8 and 11). They need to identify technology requirements through business planning processes and work with technology partners and IT system providers to exploit technology to best advantage, improve processes and meet business objectives. Moreover, the difficulty of managing quality increases in direct relation to the distance between an organization and its partners, hence the need for a good ‘assurance’ model. Whether this requires a dedicated IT team to develop the strategy will depend on the size and nature of the business but it will always be necessary to assess information resource requirements, provide the right balance and ensure value for money is provided. This will include managing the replacement of ‘old technologies’ and the innovations which will lead to the adoption of new ones. These come in many forms but certainly include financial resources, buildings, equipment, materials, technology, information and knowledge. This is a typical return from a more secure supply chain. Most organizations’ strategies these days have considerable focus on technology and information systems, as these play significant roles in how they supply products and services to and communicate with customers. In some manufacturing companies JIT has been introduced as ‘continuous flow production’, which describes very well the objective of achieving conversion of purchased material or service receipt to delivery, i.e. from supplier to customer. Responsibilities and accountabilities are important here, of course, and in smaller organizations this usually falls on line management. The roll out of any new systems involves people across the organization and communication cycles need to be used to identify any IT issues and feedback to partners. This is achieved with the minimum amount of resources – facilities, equipment, materials, and people. Most large organizations and governments worldwide are increasingly focusing on the issue of sustainability, both from the societal and the environmental perspectives. Visits should be concentrated, however, on improving understanding and capability, rather than on close scrutiny of operating procedures, which is best left to experts, including those within the supplier organizations charged with carrying out internal system audits and reviews. JIT may be used in non-manufacturing, in administration areas, for example, by using external standard as reference points. How an organization plans and manages the external partnerships must be in line with its overall policies and strategies, being designed and developed to support the effective operation of its processes. Whether it is working with key suppliers to deliver materials or components to the required quality, plan (lead- times) and costs, or the supply of information technology, transport, broadcasting or consultancy services, the quality of partnerships has been recognized throughout the world as a key success criterion. A JIT programme can succeed without a Kanban-based operation, but Kanban will not function effectively independently of JIT. Visits and dialogue across the customer/supplier interface are a necessity for the true requirements to be met and for future growth of the whole business chain. A murder trial typically involves a million pieces of paper, which are traditionally wheeled into courtrooms on trolleys. This allows organizations to combine and streamline the way they manage the processes that apply to more than one system. The synergy derived from members of the partnership meeting together, being educated and discussing mutual problems will be tremendous. Chapter 16 on communication, innovation and learning covers this in some detail. The JIT concepts identify operational problems by tracking the following: 1. Material movements – when material stops, diverts or turns backwards, these always correlate with an aberration in the ‘process. Yet, a mountain of evidence now points to the fact that poor quality can quickly, quietly and devastatingly demolish the benefits of any new market gains or cost reductions. It can also advise on probable prices, deliveries and performance of products under consideration by the research, design and development functions. Muhlemann, A.P., Oakland, J.S. and Lockyer, K.G., Production and Operations Management (6th edn), Pitman, London, 1992.