Lean sourcing: Automotive supplier develops protocol for cutting procurement costs

The cut-costs mantra doesn't let up in the automotive industry, and original equipment manufacturers (OEM) continue to turn to their suppliers to help alleviate the margin crunch. While suppliers may already have pared their own costs down to the bone, opportunities may still exist in the gaps covered by lean sourcing applications and associated best practices.

One auto industry supplier heard a different drummer and developed a homegrown solution to help its OEM partners. Pulaski, Wis.-based MCL Industries engineers and makes 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,” says Gary Lofquist, CEO, 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 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,” says Lofquist. “Our objective is to help OEMs that have exhausted the potential for lean methods to reduce their inventory costs.”

Why go with a homegrown solution? “We're mavericks to some degree,” says Lofquist. “But we also know 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.”

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 felt that our survival in five or 10 years was at stake,” explains Lofquist. “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. 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 says. “And some OEMs have never fully linked the lean practices of their manufacturing lines to their stocking systems.”

To deliver LeanSourcing as a program, MCL established a supply chain management group and increased its staff by about 20 percent. MCL does not charge for its LeanSourcing Program. Rather, 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 says. “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:

1. Early-stage engineering: OEM and MCL engineers work collaboratively to optimize parts production and functional performance while minimizing material and assembly costs.
2. Early-stage production planning: maximizes efficiency and production speed while managing the entire supply chain to meet delivery demands.
3. Collaborative production tracking: comprehensive information system for real-time tracking.
4. Direct-to-production-floor delivery: delivery/receiving process ensures parts and kits are in production area exactly where and when needed.
5. Joint identification of production and operational cost savings: collaborative analysis dissects production cycle 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, says Lofquist.