Should We Blame Lean Manufacturing for the Recent Gadget Supply Shortage? [View article]
Oh, "Lean" is just a framework for the natural process of an industry becoming more efficient. The "Lean" geniuses were the industrialists of the past, like Ford and Armour who figured out a century ago how to take steps out of the production process, reduce waste, and reduce operations to their simplest level.
It's a conscious management decision to reduce buffer stocks and beat on the supply chain people to reduce things like inventory costs. They know that there are going to be failures in a statistically measurable number of cases, and weigh the cost of the failure versus the improved efficiency that they get by streamlining the system. If there are product delays, that keep them from selling a few more hundred thousand units, they knew what the risks were and made the calculation. If it was not a conscious decision, then they should have done a better job of the analysis.
I think it is much more common for chaos to be put into the system because of short or insufficient "product validation" time. The engineers design the product and/or software, the prototypes work, but there is plenty of debugging that occurs in the process right after that because they can't test absolutely every function absolutely, and there are frequent surprises. I would be willing to bet that when the analysis is done, it's that stage that is frequently responsible for the product shortages on roll-out. Design changes are made, inventory has to be junked, and there are a lot of do-overs once the initial feedback comes back from the marketplace. The more extensive the product testing, the less this is the case, but the management decision in that case is the testing and validation time versus "speed to market".
That image of Steve Jobs on the stage trying to get his new gadget to work ought to be a lesson for everybody, as should the Toyota accelerator assembly issue.
You can't test things forever, nor can you eliminate all of the risk. The big problem in new product development, especially in complex industries, is weighing the cost and time delay of the prototype testing versus the consequences of the failure, and that same principal can be applied to every system in the operation.
Should We Blame Lean Manufacturing for the Recent Gadget Supply Shortage? [View article]
You have not seen too many of these supply contracts, evidently. At some point, it becomes you and your lawyers against one of the Fortune 20 and their lawyers, and they can wait forever and you cannot, and they know that and you know that. So, depending on your size and their size, a contract is only as good as your ability to enforce it.
Here is another example: A smaller supplier sells many different product lines to a much larger customer. The big customer makes up 35 or 40 or 50% of the overall sales for the supplier. The customer says "we need you to produce X for us, and here is the schedule". The supplier invests in the capacity and then the customer backs out. Do you then sue the customer over the new project, knowing that half of your sales go to them?
The Korean model might be better on this. In the little automotive places down around the new Hyundai plants, the parent company has a significant equity investment in the supplier. There is common interest on the part of both parties, there is enough control of the process that the supplier can do what it does best, and they are assured some rate of return over the long run.
So, the outmoded concept of "war" between you and your customer is no longer the applicable model.
Should We Blame Lean Manufacturing for the Recent Gadget Supply Shortage? [View article]
<It’s extremely difficult for the suppliers to ramp up capacity suddenly>
For suppliers upstream in the supply chain, especially small ones, how do you confidently add capacity with so many unknowns in the system right now?
You are a supplier of components. Your giant downstream customer comes to you and says "I am going to need X million components with the following ramp up schedule"....the ramp up schedule is just an estimate from a marketing person... You take a risk investing in capacity, particularly in the current climate in the financial system.... what if they're wrong, and you mortgage the company and the business falls through?
I can give you some real-world specific examples from automotive of people who built plants and added capacity based on an agreement with an OEM customer that ended up in Chapter 11 because the platform fell through, or even worse, someone else came along with a lower price and they switched suppliers...What are you going to do, sue your customer?
If you are a small supplier, getting in bed with a customer much bigger than you, such as AAPL is actually quite risky. You have a chance to make a lot of money, but you know that you are going to be under constant price pressure from others who are going to be bidding to get this business....and you know that you are going to have growing pains..... and there is no such thing as a secure future....
Should We Blame Lean Manufacturing for the Recent Gadget Supply Shortage? [View article]
It's a conscious management decision to reduce buffer stocks and beat on the supply chain people to reduce things like inventory costs. They know that there are going to be failures in a statistically measurable number of cases, and weigh the cost of the failure versus the improved efficiency that they get by streamlining the system. If there are product delays, that keep them from selling a few more hundred thousand units, they knew what the risks were and made the calculation. If it was not a conscious decision, then they should have done a better job of the analysis.
I think it is much more common for chaos to be put into the system because of short or insufficient "product validation" time. The engineers design the product and/or software, the prototypes work, but there is plenty of debugging that occurs in the process right after that because they can't test absolutely every function absolutely, and there are frequent surprises. I would be willing to bet that when the analysis is done, it's that stage that is frequently responsible for the product shortages on roll-out. Design changes are made, inventory has to be junked, and there are a lot of do-overs once the initial feedback comes back from the marketplace. The more extensive the product testing, the less this is the case, but the management decision in that case is the testing and validation time versus "speed to market".
That image of Steve Jobs on the stage trying to get his new gadget to work ought to be a lesson for everybody, as should the Toyota accelerator assembly issue.
You can't test things forever, nor can you eliminate all of the risk. The big problem in new product development, especially in complex industries, is weighing the cost and time delay of the prototype testing versus the consequences of the failure, and that same principal can be applied to every system in the operation.
Should We Blame Lean Manufacturing for the Recent Gadget Supply Shortage? [View article]
Here is another example: A smaller supplier sells many different product lines to a much larger customer. The big customer makes up 35 or 40 or 50% of the overall sales for the supplier. The customer says "we need you to produce X for us, and here is the schedule". The supplier invests in the capacity and then the customer backs out. Do you then sue the customer over the new project, knowing that half of your sales go to them?
The Korean model might be better on this. In the little automotive places down around the new Hyundai plants, the parent company has a significant equity investment in the supplier. There is common interest on the part of both parties, there is enough control of the process that the supplier can do what it does best, and they are assured some rate of return over the long run.
So, the outmoded concept of "war" between you and your customer is no longer the applicable model.
Should We Blame Lean Manufacturing for the Recent Gadget Supply Shortage? [View article]
For suppliers upstream in the supply chain, especially small ones, how do you confidently add capacity with so many unknowns in the system right now?
You are a supplier of components. Your giant downstream customer comes to you and says "I am going to need X million components with the following ramp up schedule"....the ramp up schedule is just an estimate from a marketing person... You take a risk investing in capacity, particularly in the current climate in the financial system.... what if they're wrong, and you mortgage the company and the business falls through?
I can give you some real-world specific examples from automotive of people who built plants and added capacity based on an agreement with an OEM customer that ended up in Chapter 11 because the platform fell through, or even worse, someone else came along with a lower price and they switched suppliers...What are you going to do, sue your customer?
If you are a small supplier, getting in bed with a customer much bigger than you, such as AAPL is actually quite risky. You have a chance to make a lot of money, but you know that you are going to be under constant price pressure from others who are going to be bidding to get this business....and you know that you are going to have growing pains..... and there is no such thing as a secure future....