Establishing Optimum Supply Chain

This is the third article in a series of three on the industrial services and rebuild business focusing on the marketing of engineered customer products; establishing the value proposition of an industrial service and rebuild product; and establishing the optimum product supply chain.

Situation

Crawling down from his tree stand in the cold of November with his bow was no easy trick at his age. Jim was unhappy he had missed the buck due to the shift in the wind, but as he trudged to the camp at the end of the day he was more upset about work.

He had grown the customer base for his products and services and demonstrated the value proposition to his whining customers who wanted a lower price. Now he was under serious pressure from his ownership to improve the profitability and working capital turns. No one understood the difficulty of the market place. It was hard to make a decent profit and sales in this global economy. Now they demanded more money and much less inventory dollars.

The owners did not understand. Jake knew he was already getting a price premium and the competitors had more inventory. The competition used that inventory constantly as a leverage proposition with his customers. It was not fair. His product group was providing the best long lasting solution value proposition in the industry. Products backed by the strongest and most talented engineering group in the business. There was a limit on what a team could deliver.

How many times did he have to explain the problems?

Perceived Solution

Jake’s team brainstormed the problem. The only solution was to raise prices and lose customers. Inventory cut would mean longer lead times and fewer happy customers.

Process Tools Deployed

The tools of lean manufacturing were deployed beginning with Value Stream Mapping that documented the service and rebuild process from initial teardown to quote to rebuild to shipment and billing. The results identified opportunities to improve the flow of material by keeping partially machined components prior to when they became unique to the customer. These became a Kan Ban item reducing inventory.

Many components were sourced in China partially machined to reduce the cost improving profitability. This supply chain integration took significant effort and was aided by a disciplined approach to identifying, qualifying, checking, and re-checking for quality and capacity.

Solution

The solution was to eliminate waste in the product, redesign components as appropriate and package the pricing of the product so the customer could understand the value proposition.

The integrated team working with their customers determined the best life mix of components to retain the life of the product advantages. The global sourcing group found overseas less expensive equivalents.

Jake’s team compared the life cycle costs of the materials for the customer and offered the more expensive material with a longer warranty, offering the cheaper material as an alternative with less of a warranty.

Components were redesigned for manufacture or sub-contractors were used to lower cost.

Study was given to the customer with a full service arrangement as had been the practice or an alternative of quick replacement was offered as a tiered program.
Information Technology was applied to reduce the time spent by application engineering and the customer was educated on the value of the engineering reports to keep them running.

Results

The customers were maintained with few price decreases. The education on the value added proposition further entrenched Jake’s group at the customers. The material provided was easily used by the customer maintenance personnel to support more spending with their management groups. Profitability was increased and inventory turns improved.

The development of the value added proposition for the customers was only one part of the industrial service success story. On Friday, an article on establishing the optimum product supply chain for those services will be posted. Join me every Monday, Wednesday and Friday for a new look at leveraging your human capital to attain a sustainable competitive advantage.