It frequently astonishes me that companies here in the US will overlook the importance of their LCC supplier utilizing lean manufacturing. Many will only look at their landed cost, and if that is an improvement in their current cost, then they move forward with buying from the LCC company. However, this really ignores an issue that will in the end most certainly impact their landed costs – the cost of non-quality.
The practical ramifications of using a LCC company that are not using lean manufacturing principles are many. I have listed a few here:
Mixed parts:
Usually occurs when you are buying two parts that look fairly similar but have subtle differences. In non-lean companies, due a number of factors but most frequently poor identification of parts during the manufacturing process, parts will become mixed and you will have to sort out the different parts when they arrive at your facility)
Unapproved material substitutions:
There are numerous ways this happens, but most frequently the LLC supplier will decide on their own that a material specified on your drawing is close to something that is more readily available to them and use it without telling you because they think it is close enough. This is a very common problem and I have found it many times.
Unapproved process changes:
Most lean companies require their suppliers to inform them of process changes to make sure there are no problems with incoming products. However, many LCC companies simply do not think this is required. If you are not visiting the LCC supplier, you will never know about process changes in your products until unacceptable product arrives at your facility.
Ignored quality issues:
There really are two ways to ignore quality issues. The first is just because the supplier never checked for possible flaws and just shipped them to you. The second is that they checked and noticed the flaws, but the supplier decided for you that they are not a problem and shipped them to you anyway. Either way, you are going receive flawed product.
Poorly sorted or quarantined suspect parts:
This issue is related to #4. In this case they noticed the flaw, and tried to correct it via sorting. However, either their sorting methods were not robust enough to make sure the flawed product wasn’t shipped.
Haphazard rework processes:
This is also related to #4, but in this case the decided the parts needed repair or rework. Frequently, these methods will not be similar to the original manufacturing process and thus almost as likely create other flawed product issues as it will be to correct the flaws.
No advanced warning of quality or supply issues:
I believe in the Toyota maxim “bad news travels fast”. This simply means that lean companies inform the upstream users of their products when issues are occurring so the entire team can help resolve the problem and corrections to process and schedules can be made. If your LCC supplier is not lean – they most likely will not tell you of their issues in making flawless products for you.
Delayed product shipments:
Finally, all the above can lead to not only delays in your receiving products, but delays in your ability sell your products using them. At this point, all your savings by using a non-lean LCC supplier will be lost.
Even if you are able to back charge your LCC supplier for these issues, your company will most likely never fully recover the costs associated with these errors, either in real costs that were unaccounted for when the credit memo was issued, or opportunity and reputation costs.