Respect

Toyota Principle #11: Respect your extended network of partners and suppliers by challenging them and helping them improve.

Years ago I came to the realization that a company can’t ship their product any faster than their slowest supplier; nor can the quality of its own product be any better than that of its worst supplier. Takeaway? Choose your suppliers carefully and work with them to improve.

Seems logical, doesn’t it? Why would we not do it? Because we let cost drive our decisions.

Dr. Deming realized the lunacy of that practice decades ago when he wrote his 14 Points. His Point #4 is: “End the practice of awarding business on the basis of price tag. Instead, minimize total cost.”

Suppliers need to EARN your business.

What is total cost? Total cost rolls in things like the costs of poor quality and late delivery to the original cost of the product. It isn’t hard for the latter two costs to exceed the cost of the actual product, so choosing the right supplier is extremely important.  Suppliers need to EARN your business.

You have a responsibility to your suppliers.

You’re not finished once you’ve chosen them. You have a responsibility to your suppliers. As you do with your own organization, you need to hold suppliers of goods and services accountable. How?

Step One: Require suppliers to meet minimum thresholds of performance.  Continually measure their performance and report your findings to them no less than monthly.

Step Two: Offer incentives to improve. Like what?  Here are two examples:

1. Most organizations hedge their bets by purchasing similar products from multiple suppliers. This practice allows them to mitigate disruptions caused by weather, strikes (or, in Toyota’s case, a tsunami and nuclear event). When a supplier reaches a preset pair of goals for on-time and quality, offer to increase their percentage of your purchases.  Not only can you give them a greater percentage of the things you already buy from them; offer to purchase other things they sell that you need.  Of course, the same standards apply to anything new you purchase from them.
2. Most organizations offer payment terms like “net 30.” Consider treating deserving suppliers to better terms, say net 15 or even net 10. Those incentives translate to real money.

Step Three: Offer “Partner” status to suppliers who routinely meet your on-time and quality standards. What does partnership look like?

1. Partners are invited to participate in new product designs. That gives them input into what your final product will look like and what materials it will include.
2. Partners are given periodic (annual or at least bi-annual) updates on your technology, business and process forecasts. That helps them to plan their own technologies, business and processes to serve you better.
3. Partners may be awarded dock-to-stock status.
4. Partners may be awarded dock-to-stock status. That means that their delivery and quality are so good that they no longer go through an incoming quality screening and, instead, are permitted to deliver their products directly to the processes at which they’re consumed.
5. Because of their dependability, partners are paid off their bills of lading. That means that, as soon as your organization accepts their product, their bill of lading is sent to Accounting and they are paid directly from that. Neither you nor they have to submit further accounting, although a monthly statement is often a good idea.
6. A further improvement over being paid from their bills of lading is to give partners debit cards from which they may debit your account immediately upon delivery. That eliminates any time spent getting their bill of lading to accounting, writing the check and mailing it.  Moreover, your debit card statement might even eliminate the need to keep costly accounting records.

Along with other forms of help, offer your knowledge and services to help suppliers improve. For example;

• Offer them free classes on Just In Time (JIT) or Statistical Process Control (SPC).
• Offer to perform a Kaizen event on critical processes.
• Work with them to create a Value Stream Map (VSM) and then pinpoint where they need help.
• Offer to conduct a Kaikaku event to streamline one of their systems.

In short, make the decision to treat your suppliers with dignity and respect. Sometimes that means removing your business from them. After all, good suppliers EARN your business.