LEAN is about reducing waste and adding value.  Adding value for shareholders and customers is important, but to be truly successful in the long run, an organization should strive to add value to all of its relationships, benefiting its employees, its community and, of course, its vendors.

Here’s an example of a “LEAN” organization that didn’t get this point:

The China manufacturing subsidiary of a Really Big Corporation  (we’ll call them “RBC” for short) purchases small volumes of manufactured components from it’s vendors.  In order to cut inventory costs and reduce lead-times to almost zero, it requires its vendors to stock both excessive amounts of raw materials  and also a fairly large quantity of it’s finished goods (which are the customer’s components).

The strategy is, in the narrowest sense, successful.   RBC holds almost no component or material stock, and yet, whenever RBC needs one or one thousand components for it’s manufacturing, they are always on-hand immediately.  Zero Stock!   Zero Leadtime! And if RBC has a spike in demand it’s no problem (for them)  because their vendors have been commanded to hold lots and lots  of raw material on-hand.  Just in case. (Better safe than sorry, I always say)

OK, they’ve added value for the shareholders; cash flow is improved and the risks associated with stocking is drastically reduced.  And they’ve added value for the customer, because lead times are reduced and flexibility  is enhanced.

The problem is that RBC has not really reduced waste, it has just dumped it upstream, which is as smart as pissing into the wind (or tugging on Superman’s cape).   Because the waste that RBC has driven out of its internal material flows has now shown up as liability on the balance sheets of its vendors.   And make no mistake, the waste is flowing back to them– as a result of waste dumping, RBC cannot command the  price reductions in might, because vendors are raising prices in an effort to  offset the cost of carrying  so much slow-moving inventory.  In some cases valuable vendor relationships, costly for RBC to initiate and develop, are in jeopardy, meaning that they will likely  spend time, money and “bandwidth” to find, qualify and train new vendors.

The sad part is, it doesn’t have to be this way.  RBC could have achieved a most of its objectives without unduly burdening its vendors by working with them to set up reasonable and fast-moving buffer stock procedures.  How this is done would vary from vendor to vendor, but to a certain extent, it can be accomplished.  An added benefit is that the vendors who were not versed in LEAN could have learned some valuable inventory management techniques.

Don’t worry too much– RBC will be just fine (they are, after all, Really Big).  In addition, I understand that they are open to learning, and may change their ways.   I write about it because I hate  to see otherwise respectable and forward-thinking companies giving LEAN a bad rap with this type of implimentation.