From the Archives of a Common Sensei Volume 27: EARLY LOCAL PARTS ORDERING FLOW

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.

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As an illustration of an assembly parts staging methodology, the attached drawing (rough as it is) was one that we used during the start of Toyota’s US Lift Truck manufacturing operation in the early 90’s.

The basic philosophy was to:
1) Establish a method to receive and distribute material in the most cost efficient, timely, and orderly manner
2) Provide a base method/procedure on which improvement will take place

For further explanation, below are the different “Part Types” used to identify how various parts were to be used.  Keep in mind that at the start of the US lift truck operation, several key parts were sourced through the parent company (TAL) in Japan while efforts were started to shift most of the component sourcing to the US.

Japan Supplied Parts:

Kanban – small, inexpensive parts ordered by Kanban

Set Parts – large, more expensive parts designated for specific order (i.e., engine, mast, muffler, drive axle, etc.)

Replacement – replacements for damaged parts

Local Parts:

Supplied in the US (tires, batteries, counterweights)

Keep in mind that this example is from the very initial practices used during start-up of the production efforts.  I have displayed it in this blog as an example of how beginnings take place.  By referring to “From the Archives of a Common Sensei Volume 21” you will learn about the sequencing of product production.  In this volume, we discuss how materials can be staged and prepared for sequentially ordering for sub-assemblies and the main assembly line.  For clarification, the US Toyota Lift Truck assembly process has made multiple upgrades and has built on the original “basic philosophy” multiple times during the last 31 years.  Today it is an example of a highly sophisticated, efficient, and effective processing organization built on multiple improvements using the Toyota Production System principles and behaviors.  This operation has expanded multiple times and today is the leading producer of lift trucks.  Click on the URL to get a better understanding as to how far the Toyota Lift Truck operation has matured over the last 30 years.

By looking back over our previous volumes of From the Archives of a Common Sensei where we try to demonstrate the intricate path of acceptance and use of Toyota methods in the US, it is astounding how much progress has been made and the kaizen principle of continuous improvement continues the path toward uncompromised excellence.  It has been a long and meaningful journey for many of us who have had similar experiences!  Toyota is perhaps the leader in the advancement of TPS and Lean, but there are other organizations where advances have also been made as well.  It’s my experience of working with approximately 300 organizations over my career, the ones that succeed in TPS (Lean) advances require continuity of management that is willing to get involved and lead by the same principles espoused by Toyota.

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