Operations Management For Dummies, 2nd Edition
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One of the major characteristics of a lean company is the relationship operations managers maintain with their suppliers. Lean organizations such as Toyota view their supply chain as an extension of the company, not as an adversary, as is common in traditionally managed companies.

For a healthy relationship with suppliers, follow these rules:

  • Minimize the number of suppliers. The smaller number is easier to manage and allows you to develop closer relationships.

  • Establish long-term relationships. Long-term contracts provide assurance to suppliers that they’ll have revenue and allow them to focus on long-term improvements that will improve the product they produce for you.

  • Establish clear expectations on cost, quality, and responsiveness. These expectations must be both clearly understood and obtainable.

  • Share the risks and rewards. Provide incentives for improved supplier performance.

  • Develop effective lines of communication. Share operational information such as process times and demand forecasts. Provide an environment where suppliers are encouraged to inform you of potential problems so that you can be prepared to act and implement solutions.

  • Invest in supplier continuous improvement and development. When a supplier improves, either by increasing quality or reducing waste, this benefit is automatically passed on to you in an improved product. Lean manufacturers have been known to send their own employees into supplier facilities to help them increase quality and reduce costs.

Toyota embraced these supply chain principles. While researching his book The Machine That Changed the World, author Jim Womack found that the average number of suppliers for a Japanese plant was 170, compared to the average of 509 that supplied American plants. He also found that suppliers do benefit from multiyear contracts that allow them to focus on production rather than procurement.

About This Article

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About the book authors:

Mary Ann Anderson is a consultant in supply chain management and operations strategy. Edward Anderson is an associate professor of operations management at the University of Texas McCombs School of Business. Geoffrey Parker is a professor of management science at the A. B. Freeman School of Business at Tulane University.

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