As Japan reminds us, lack of inventory can stall production.

The recent tragedy in Japan underscores the difference between a pure just-in-time supply base management philosophy and system that integrates synchronous flow Lean principles. While JIT minimizes suppliers, inventory and transactions, it also magnifies the impact of a supply base interruption because the emphasis on short pipelines and small lots doesn’t provide much inventory backup in the event of a disruption that lasts several weeks. Conversely, a Lean philosophy, with strategic buffer quantities at key points in the supply chain, offers more flexibility when the unthinkable occurs. 

There is no question that excess inventory can be considered waste and drives non-value-added cost. Yet, in a volatile sourcing environment, lack of inventory at either the raw materials or finished goods level can translate to unavailability of final products in the distribution chain. Japanese supplier strategies often involve geographic clustering or a large percentage of available production in single facilities. This supports a JIT model, but opened the door to vulnerability to regional disaster. It will be interesting to see how these companies restructure their operations to mitigate future risk.

In the near-term, all companies utilizing impacted components will face some sourcing challenges. Many component manufacturers came back online rather quickly; however, significant supply shortages remain in the sub-tier supply chain on such commodity items as resins, chemicals, silicones and foils. Much of the world’s supply of these and other commodities comes from northern Japan. The issues were lack of diversity of available resources in some commodities and the failure of companies to properly diversify supply bases.

However, going forward it will be an important lesson learned. From EPIC’s perspective, it underscores the value of some of the investments we’ve made over the past two years. It also underscores the value of OEM and electronics manufacturing services provider partnering. We know now, more than ever, that successful Lean supply chain execution involves risk management and risk mitigation strategies. An EMS provider can identify potential materials issues, but if the OEM isn’t willing to adopt recommendations, vulnerability will continue. At the same time, OEMs can also have constraints that limit their ability to adopt recommended changes. A true partnership looks at both sides of that equation. From our perspective we understand that customers need to base decisions on good data, and address that in two ways: First, we start making recommendations as early in the product development process as possible. And, second, we try to have tools and experts knowledgeable enough to address issues that may arise later in the product’s lifecycle.

In today’s volatile materials environment, design for procurement is critical. While a JIT philosophy focuses selecting a best few vendors, design for procurement looks at increasing options over time. We use SiliconExpert’s (siliconexpert.com) lifecycle management software in this process to:

• Check component lifecycle status.
• Perform engineering parametric analysis.
• Monitor product change notifications (PCN).
• Check RoHS/Hazmat status.
• Analyze market data.

This tool supports both frontend design analysis and the search for options later in a product lifecycle to address sustainability concerns. Tools such as this enable monitoring of global market conditions and the earliest warning possible on component availability or obsolescence issues. Minimizing single source components prior to a design being locked down can bring a ten- to twentyfold savings over the life of the product. But, more important, identifying a range of alternate sources can provide flexibility over time.

There is also value in backing this type of tool with strong expertise in critical commodities. Our commodity management philosophy focuses on both suppliers and customers. At a supply base level, commodity managers are focused on developing strategic suppliers who understand Lean philosophies, developing global pricing and terms to provide flexibility in sourcing regions, and performance monitoring.

At the same time, these managers also focus on customer issues, including Lean deployment, product development support, supply protection and cost measurement.

Value analysis/value engineering (VA/VE) is used to further address customer requirements over the life of the product, including:

• Cost reduction.
• Operational performance improvement.
• Product quality improvements.
• Identification of cost avoidance actions on future programs.
• Product life extensions.

Suppliers also support this proactive approach by holding in-house sessions on technology roadmaps and market trends.

Pure JIT strategies are deployed where it makes sense. For example, bulky packaging or product housings are normally sourced close to the build site. However, the overall materials strategy has been focused on building flexibility in and ensuring that adequate supplies of material are available to support variations in demand. Sole sourcing is discouraged.

While the result doesn’t address all the challenges of the current market, it does provide a strong set of resources in adapting to the changes in the current market. JIT and Lean both have their place in building more efficient operations. The challenge for supply base managers continues to be properly identifying non-value activities. Right-sized bonds usually have some buffer stock, and a robust supply chain has multiple sources.

Todd Baggett is vice president – supply chain at EPIC Technologies; This e-mail address is being protected from spambots. You need JavaScript enabled to view it .