For those of you who have been following our blog of early Toyota learnings, this volume is another piece of the bigger picture that spells out our initial efforts (1990) regarding “Local Parts Ordering”. This volume needs to be linked with earlier volumes in order to begin to understand the reasoning behind the parts flow thinking. I suggest that it would be helpful to look back at Volume 7 (Supply Cycle Analysis), 16 (JIT Vs BATCH! Is It For You?), 18 (Total Cost Management and Supply Chain Management), 19 (The Importance of Parts Consolidation as Related to Just-in-Time) and 22 (Concept of Component Sequencing Parts Staging for Assembly) to better understand how parts supply advanced beyond the attached 1990 process.
Traditionally, many companies have ordered parts based on forecasted projected need, which was most often determined by the forecast handed down from the Sales Department. This in turn may have also been based on the projections of the Marketing Department, who in turn may have founded their numbers on the profit projections. There is no need for me to try to reason why the profit projections were on target with reality or not!
At Toyota Industrial Equipment, the basic philosophy was to: 1) Establish a method to receive and distribute material in the most cost efficient, timely, and orderly manner, and 2) Provide a base method/procedure on which improvement would take place. The attached workflow for ordering local parts is only one piece of the entire component ordering picture. By using the bill of materials for your products, you will have to make some decisions regarding where your parts will be coming from and how they will be used in the assembly/subassembly process. It is critical to determine which components you will need to order locally versus those to be imported. Additionally, it is critical to know those components you will need to project monthly requirements/orders for versus those that can be reordered using a just-in-time (JIT) approach. In most cases, even JIT components will need a monthly forecasted requirement, but they are not delivered and stored in the same way batch components require, using plant floor or warehouse space, additional handling, and associated equipment. Try to start by considering customer order demand and required components AS THEY ARE NEEDED during the build process, working from the customer back to the beginning of the assembly process. Determine how the necessary parts will be supplied, staged, and used in each operation. Provide enough parts for each operation and model mix to assure flow continuation. This calculation will help establish the model parts requirements and will help in determining ideas on how to receive and stage parts.
In the attached drawing (rough and hand drawn at the time), it even shows how rejected parts were handled and resupplied prior to implementing a more refined JIT approach. Please keep in mind that the ordering process arrangement we had with suppliers included quick turn around (even for rejects). The reward for suppliers agreeing to such quick ordering turns included Net 30 days/25 Prox) payment agreement for parts supplied to specifications. Rejected parts took considerably longer to receive their compensation. Also, we maintained logs of reject percentages for every supplier which played into ongoing negotiations when it came time for renewal consideration.
The integration of the forecasting, ordering (incl. Kanban), receiving, staging, pull usage, and reordering should be a step beyond the method included in the attached drawing. Hopefully, this volume regarding Local Parts Ordering Flow will help as you evaluate your current methods and help generate new thinking on how to improve as your organization moves forward.