Lean sourcing: Automotive supplier develops protocol for cutting procurement costs
Ann Avery, contributing editor -- Manufacturing Business Technology, 2/15/2008 9:02:00 AM
The steady drumbeat to cut costs is not letting up, and original equipment manufacturers (OEM) continue to turn to their suppliers to help solve the margin crunch. Often they find that the suppliers already have pared their own costs as much as possible. Then the scramble for survival leads to the increasing array of Lean sourcing applications and best practices on the market today.
One auto industry supplier heard a different drummer and developed a homegrown solution to help its OEM partners. MCL Industries of Pulaski, Wis., engineers and manufactures electrical assemblies for heavy-duty on-road and off-road vehicles. MCL’s customers build in the range of 70 to 2,500 units a year.
“We don’t have the IT infrastructure in place to support a General Motors or Chrysler environment, and we didn’t see a packaged Lean sourcing application that fit our exact needs or our customers’ needs,” said Gary Lofquist, CEO of MCL Industries.
Referring to its proprietary solution as a value-chain synchronization protocol, MCL trademarked the phrase “LeanSourcing” and rolled out its LeanSourcing Program in 2006. MCL continues to refine the program, focusing on complete end-to-end integration of OEM processes with MCL’s electrical engineering and manufacturing capabilities.
“This isn’t software; it’s a program that removes cost from the procurement system by reducing OEM inventory demands, decreasing transactions, simplifying logistics, cutting handling expenses, and increasing production floor space,” Lofquist said. “Our objective is to help OEMs that have exhausted the ability of Lean methods to reduce their inventory costs.”
Why go with a homegrown solution? “We’re mavericks to some degree. But we also know that we’re the ones who are most intimate with our customers. We’ve been doing business with some companies for 15 years or more, and we understand their pain,” Lofquist stated.
Asking the Right Question
To develop the LeanSourcing Program, MCL studied market issues and took a long, hard look at its partners’ needs and at MCL’s internal processes.
“We really felt that our survival in five or 10 years was at stake,” Lofquist said. “We looked at how to achieve internal excellence to deal with the pressure to reduce prices. “We developed our own internal Lean programs, and began to take a close look at our customers’ challenges,” he added. “Purchasing people were asking us to cut our prices, but we gave serious thought to the question, ‘what are they really asking us?’”
One of the key findings, according to Lofquist, was that margin problems are not due to the cost of the parts themselves but to higher operating costs tied to the parts.
“Workflow stoppages are among the most common and costly factors. We saw that most stoppages happen when parts are not available when they’re needed,” Lofquist said. “And some OEMs have never fully linked the Lean practices of their manufacturing lines to their stocking systems.”
Walking the Floor
To provide its Lean sourcing solution, MCL established a supply chain management group and increased its staff by about 20 percent. MCL does not charge for its LeanSourcing Program: it is part of the company’s regular service to its customers, and it has become a “way of life” at MCL, according to Lofquist.
“A team including an MCL engineer and someone from our supply chain management group literally walks the floor with our customer looking for opportunities,” Lofquist said. “We look at what they are struggling with and what operations come together at what points. If, for example, we can identify a way to free up 100 square feet of manufacturing floor space—and they can build one more truck a day—that can significantly improve their revenue and profit.”
While the specifics of the program vary with each OEM partner, MCL’s process takes about three months and involves about four days of the customer’s time. The LeanSourcing Program has five phases:
• Early stage engineering: OEM and MCL engineers work collaboratively to optimize parts production and functional performance while minimizing material and assembly costs.
• Early stage production planning: maximizes efficiency and production speed while managing the entire supply chain to meet delivery demands.
• Collaborative production tracking: comprehensive system information based on real-time tracking.
• Direct-to-production floor delivery: a delivery/receiving process that ensures parts and kits are in the production area exactly where and when they’re needed.
• Joint identification of production and operational cost savings: collaborative analysis that dissects each production cycle to find ways to improve cost-effectiveness.
Three MCL customers including a crane manufacturer and a military contractor have completed MCL’s LeanSourcing Program, and several others are in process, according to Loftquist.
