Supply Chain Online | Blog by Ian Marshall
Ian Marshall is one of the UK's most experienced Purchasing & Supply Chain professionals. Over the past 40 years he has worked as UK Purchasing Director/Manager for some of the world's biggest multi-national businesses. These are some of his stories...
How To Satisfy An Unhappy Customer
Ian Marshall 01/12/13
During my time as Materials and Purchasing Manager at GEC Small Machines in the 80's and especially my last 2 years when I was also in charge of the factory as Manufacturing Director we had a number of problems with motor rejects at the testing stage where something like 10% of the smaller motors were rejected every day mostly due to excess noise.
The majority of these were for air-conditioning applications which was a hotly contested business with many overseas suppliers contesting for the trade. It was generally felt that our motors were lower in quality (a British disease unfortunately) but the main problem was the fact that we used shell type bearings which was the standard for the product worldwide, mainly due to the lower cost. To help out on this I asked the superintendent in charge of this production line to make a few samples using ball bearings which would be slightly more expensive but maybe quieter. The motors produced were totally silent and passed the noise test with flying colours, we had to make a slight modification to the shaft that the bearings sat on but it was easy to do.
I asked the engineer to listen to the motors, which he did, but refused to sanction the design change because shell bearings were the type everyone used. The cost worked out about 10p more per motor but there were no rejects at all saving much more than 10p per motor. So we had an impasse with the design team and could not get the design change through. However I was adamant that we should, so told the sales team we would not accept any more orders on the production schedule until we could get the design change accepted. The Chief Engineer refused to accept this and spoke with the MD who had sympathy with my view, so heads were stuck in the sand until the next batch of motors ordered were several weeks late and we were being pushed by the customer for delivery.
I still refused to make them unless we had the design change and the Chief Engineer had little option and drove to see the customer on the South Coast and asked their engineers to install them in one of their units to test them. The outcome was that the customers' engineering people said they were the quietest motors they had ever seen and approved them immediately for all future production.
So now here we had a design which was capable of being produced with zero rejects and a happy customer so everyone was happy all round. And most of all a Supply Chain with zero defects. It was also another win for the people who embrace change rather than run away from it.
How Not To Set Up A Supply Chain
A long time ago I took on a role as Materials Manager for a manufacturing company in the Midlands. They were convinced that the "way to go" was to make (almost) everything in-house so that they had control of the costs.
There was this one component that was quite complex and was basically an electrical part fitted to most products and with quite a long lead time so they did as much as possible of the production in-house.
It was basically a steel component which was machined and covered with a rubber-like insulation. Usage was quite high and it was fitted to a wide range of products. The process started with a purchase of 10 Tonnes of steel from a local mill which had a longish lead-time (about 8 weeks). This was about a year's worth of material and was the minimum purchase size. This was delivered in coil form to the factory and then sent back out to another local company to be de-coiled and cut to length. This process would take 2 to 3 weeks depending how busy the company was at the time. Note the handling of this material too. In and out several times.
The cut lengths would be delivered back to us and we would then send them out in small batches (maybe 3 months’ worth of usage at a time). The machining of the individual parts from the longish
cut lengths would take 4 to 6 weeks again depending how busy they were at the time. They were then
sent back to us and we kept them in stock sending them out to be rubber-coated either as a complete
batch or a smaller batch at a time as the process was quite delicate and to have too many lying about in the stores was not good as they could be easily damaged. Again 2/3 weeks for delivery.
It was not rocket science to see that there must be a better way to handle the production of this part.
First of all the lead-time itself was quite ridiculous:-
- 8 weeks for the steel to be cast and delivered
- 3 weeks to be cut to length and delivered
- 6 weeks to be machined and delivered
- 3 weeks to be rubber-coated and delivered
- 20 weeks total lead-time when starting from scratch.
Of course you never started from scratch as processes were in place constantly but it took some monitoring and what happened if there was a boost in demand? Well the whole process was capable of being massively upset.
The obvious way to deal with this complex Supply Chain was to get the supplier with most interest in
the process to take it on. So we brought in the machinist to ask him if he would handle the total
Supply Chain for this component. After some deliberation he decided it was too complex for him. So we set about finding someone who would and eventually succeeded. We found a local larger company who were used to buying in batches of steel, cutting and machining it in-house and who also were used to dealing with coating processes and had several suppliers for this. They made some sample batches for us and they were perfect and the whole process was done at a lower cost which we were not expecting. Even better they were quite happy to stock them for us and deliver weekly supplies.
So we now had a component with basically zero lead-time, taking no space to stock as we had no lengths of steel to hold, no delivering of parts to sub-contractors and no problem of dealing with spikes in demand. To top it all we were making a cost saving of over 5% which was totally unexpected.
Ian Marshall 29/11/13
Introducing the Xerox Copier to The USA - GEC 1983
By 1983 the copying machine was so popular Xerox decided to introduce it into North America. They owned the rights to the machine itself but not the gearbox which was a product of GEC. They could not produce one themselves or source one locally in the time frame so asked for our help (GEC in the UK). They could source the electric motor which was a standard product which they made in Mexico, but needed our assistance in designing a slightly different gearbox that would match the design of the motor which was different from our own design for the European machine.
First we had to meet the potential supplier of the final geared motor and help with the design. The Mexican supplier and the USA designer came to our Midlands premises to see our facility and meet our design team and after three days of meetings we had the basis of a product. It was agreed we would build a new design gearbox in the UK to suit the USA motor which was slightly different.
To facilitate the total design it was agreed we would have to amend the designs of some of our components in the gearbox and arrange new tooling for production. Samples would have to be made first and tested, and upon completion of this we would hold a meeting of all concerned in the offices of the USA engineering team in Rochester, New York. This meeting took place in the Autumn of 1983 and I went along with the chief engineer of our company and also engineering and QA people from Holland. We met up as a team of 15 people on a Monday morning and had three days to thrash out what we hoped to achieve with the engineers of the product in the USA and their publishing and QA people. By the third day we had a design almost approved and an agreed price of the gearbox we were to supply to Mexico plus the cost of tooling needed to set it all up. We also had a timetable of when we should be able to start production build based on when samples were expected to be available for testing.
This again was a successful project which was a little easier than the first one as it was only a modification but much had to be done to make the final product suitable for meeting the rules and regulations of the USA. It was a great example of four different countries working together to produce a product to suit a different market and another enjoyable project to be involved with.
Finally just to mention that this was quite a Supply Chain and took some organisation to set up. Four different companies involved from four different countries speaking three different languages, each with its own separate engineering teams who had to work in harmony to get a new product designed and launched - and it worked with little disruption. A great project, the cultural differences were most noticeable at the breakfast table on the day we all met for the first time as a team – the choice of different foods brought to the table was amazing.
Ian Marshall 18/11/13
The Problem With Salesmen (And How To Solve A Customer Problem) - GEC 1986
It is 1986 and I am still at GEC Small Machines and a salesman reports a customer problem. It had apparently been on-going for some time and the customer was talking about raising it to a higher level in the group. The Sales Manager seemed to have reported it to the Works Manager and nothing had changed. I am asked to get involved as it is also a shipping problem. So I arrange to visit the customer on my own as I was not sure how the salesman represented us.
It turns out that the rep was not doing much himself except blaming the factory and telling the customer he was chasing the “problem” up. Apparently he made a monthly call to see the customer and sat in his office telling him he was doing everything he could to sort it out whilst having a cup of tea and inviting the Buyer to lunch who declined the offer.
We had a facility with customers to carry stock in our warehouse if they would underwrite the value of the stock in case they stopped using a particular product. The salesman had not alerted this facility to them. The customer tended to order batches of 50 of each of the motors they used, about four or five different types. They had two problems - one about late delivery and the other about “drip feeding” their orders. This sometimes happened when a batch of 50 was made and one or two were rejected so we would ship 48 in one batch the other two a day or so later. I could understand this problem especially as it could take three deliveries sometimes to complete an order. Looks bad on the paperwork.
First I agreed we would put a month’s stock in our warehouse, also that they should place their orders at the start of one month for shipment by the end of the month. I also walked around their factory with their Buyer and noticed they used a certain type of pallet for moving their products through their factory (they made industrial pumps) and when our motors arrived in their stores they unboxed them and put them on a pallet before moving them into their factory.
It seemed to me the logical solution was for them to send their pallets to us and we would ship them back full of motors. They could get 12 on a pallet and I agreed they would order in multiples of 48 (four pallets) each month and send back on our lorry however many pallets they wanted delivering the next month. No rocket science there and the customer had the right delivery every time and did not have to double handle them, so it was a win-win situation.
The customer was delighted with the solution and asked us not to send the sales guy in any more. He didn’t last too long after that.
Ian Marshall 13/11/13
Project Managing the Introduction of a New Xerox European Product - GEC 1982
It was January 1982 and I had just moved from Eaton Axles in the North East back to Stafford to become Materials Manager at GEC Small Machines based at Newcastle- under-Lyme, with responsibility for Materials Management and Purchasing.
The Supply Chain Director was panicking about a delayed product introduction into the factory which was a motorised gearbox to drive a brand new Xerox Photocopying machine which was to be their flagship product for Europe for the foreseeable future. Full production was 6 months away but we were still at production sample approval stage and had recently closed down another factory where this product was to be produced and everyone had left leaving a big gap in the product knowledge. In addition the pre-launch had been successful and production was to double from 1000 per week to 2000 and we were the only supplier.
We were still sourcing most of the components and several had to be re-designed following changes to the product design. In addition the factory at Newcastle, now making the product, had not been approved by Xerox Quality Assurance engineers and this was a big issue not to be easily settled and resulted in me working side by side with the Xerox purchasing people who had to somehow steer their QA people through the process with our help.
The product was to be built in Venray in Southern Holland and I was travelling to and fro with samples and information and at one stage 50 production samples in the back of our Granada estate car to win final approval before production. They had been working hard in the recent months to bring on another supplier in Japan managed by Xerox Japan and were confident they would have this back up supplier ready some months if not weeks after the launch.
Fortunately my involvement with the purchasing people gave them confidence that the project was being managed successfully for I was in almost daily contact and working round the clock to ensure all was well and the five major suppliers of the critical components were all properly approved and prepared. I was of course liaising internally with our design engineers and QA people to ensure we maintained communications.
I ensured we took advantage of my relationship with them by insisting we had the lion’s share of the volume and they only gave 25% to Xerox Japan as the supply line was quite long and communications difficult for them so we benefited from the increased volumes. During this 6 month period the Supply Chain Director was taken ill and I was now the main contact with them and they were quite amazed how easy it was to get information from us and I ensured when their demand increased even further that 100% of any additional volume was given to us. Looking back it was this “breaking” of the Supply Chain that allowed us to cut all the corners and achieve the short lead times that were essential to the project’s success in the time frame.
They kept their promise and gave us 100% of any additional business above expected volume and we ensured we had the capacity to build it. The product was successful for both us and the customer and it turned out to be the highest volume product in our business and ran successfully for several years. For me this was an enjoyable project as it had to be made to work and did no farm to my career in GEC.
Ian Marshall 01/11/13
Ian's Supply Chain Terminology – Popular Job Titles on Supply Chain Online
One who buys. Usually in charge of a product or range of products and with objectives of saving money by buying at lower prices so is therefore responsible for finding new suppliers at better prices/ quality/shorter lead times and also ensuring they perform. Typically in a serious company the buyer employed would be knowledgeable in the products he is expected to buy and be educated enough to operate at senior level with big suppliers at MD level etc.
Supply Chain Manager
Typically someone with the responsibility of getting the product in in whatever state (i.e. could be finished goods or raw materials) and having the responsibility of moving the product from goods inwards to shipping and all the operations needed in-between (i.e. inside the chain of supply) and finally getting it to the end customer. The SCM could have responsibility for purchasing or not (depending how big a company it is)
Procurement / Purchasing Manager
Purchasing Manager would be responsible for at least an area of purchasing and maybe one of many with such a title in a large company. Usually these days he would be responsible for setting up contracts, finding the right suppliers for the products he is buying but not necessarily involved in following up orders for ensuring they are delivered in a timely manner. This would be left to the Procurement Manager and his team who are responsible only for ensuring deliveries come in as requested. It would be unusual to have one person with both responsibilities. However Procurement is a USA term and can be used for either Purchasing or Procurement functions.
This role is typically used in the service industry (banks/ insurance companies etc) where a category is a simple item of demand. For example someone could be responsible for the procurement of all company cars/ IT equipment/ telecoms/transport, each one of these items being a "category". In overall control could be a Services Manager or inside a manufacturing business a Non-Production Purchasing Manager (also known as NPP Manager), normally responsible to an overall Purchasing Manager or Director.
A person responsible for a specific contract or a range of contracts and would be typically found in for example the construction industry where one person with this title would be responsible for delivering a specific contract, say a large building or a bridge etc or in a business making large pieces of equipment and handling one specific large order or range of products and staying in touch with it till completion and customer satisfaction.
A person responsible for obtaining (or buying) a product or range of products via electronically communicated needs and setting up the means to do this. This could be done by letting it be known to an industry that you were about to set up a reverse auction at a given date and time online at whatever electronic address and the sellers putting in bids for the business. In this case the lowest priced provider wins the business, hence the term "reverse auction". The auction would be open for maybe 30 mins and bids would come in slowly with all the action in the last 2 minutes. You can see the value of each offer but not know who the competitor is.
Normally this person would have the responsibility of controlling the value/level of inventory (also known as stock) within certain parameter financial values and ensuring obsolescence was avoided. Typically in a large factory or business with large/wide product ranges and the need to manage it closely.
It can be difficult to differentiate between Supply Chain Manager and Logistics Manager in job titles these days. The word logistics derives from a French word which was used mainly for the supply and movement of troops and equipment to the right place. But basically it is ensuring that A gets moved to B on time every time without any problems.
This was a USA job title evolved in the late 60's/ early 70's when Purchasing in large companies had to improve for efficient use of resources (i.e. inventory control was not good, nor was on-time delivery) so a new position of Materials Manager was created and it was hoped would bring together the challenges of getting the right product in place at the right time and the right price with the hope of having reduced inventories. Unfortunately there was no magic dust or wands to wave and it took a number of years before the idea worked. It needed better computerised systems before any success was made but it did improve the process eventually and is quite normal these days where he may or may not have control of purchasing but usually not in large businesses. So basically a man not in purchasing who is responsible for ensuring the supply of products/ materials to the right place on time. Bit like the Procurement Manager... who came along 20 years later.
This could be someone inside a business who is responsible for managing the level of demand of certain products or services, often vital or scarce products (for example electricity or gas/ other fuel) where it could be very important to ensure correct levels of availability of an item is readily available or expected to be at a given time. It could also be a physical product of vital need.
Purchasing & Supply Chain - Increased Production – EATON 1979
In 1979 we were in deep trouble due to increased demand, lack of production and the fact that we needed to increase output both to meet the extra demand and the fact that we had to build more of our major components, crownwheels & pinions, the very heart of the product as we had to reline the carburising furnace as the lining would not last beyond the summer. This meant producing 300 + per day when we were actually only producing 200/220. These parts were big components weighing between 30/35kgs for a small one and over 100kgs for a big one so difficult to handle. We had to get 2 weeks in front of production in order to have stock whilst the furnace was relined which would take up to 4 weeks, using 2 weeks of factory closedown + 2 extra weeks to do the repair.
The Supply Chain for these products was both long and complicated due to the physical size of both the raw material produced at the forge and the number of Manufacturing operations inside the factory once the forgings were delivered. There were 20 + operations involved including turning, drilling, gear cutting, frazing and several heat treatment operations all of which totalled as long as 6 weeks so the forecasting of the needs at every stage was critical and needed close co-operation with the customer who understood the delicacy of the process and worked closely with us.
We started the push from early in the year but no matter what we did production levels remained flat. I was vociferous in my criticism of the factory management as we had managed to get the extra volume of raw materials but the factory failed to increase the output and the material stocks were increasing around us. The internal supply chain of the finished product was complex with up to 20 different operations to manage making lead time around 3 to 4 weeks.
So I was asked to give up my production control job for 6 months and manage the output of the factory for these important components for this period of time to achieve the stock build. I soon realised we were trying to make too many small batches which was losing time due to changeovers on the gear cutting machines which took 8 hours each. In addition we were not putting as many components through the furnace due to the operators not stacking the loading equipment high enough. I was given the excuse that loading them any higher would lead to them falling over inside the furnace but we tried it and there was no problem. I was working 12 hours a day and coming in at the weekends, the factory worked 24/7 as far as the furnaces were concerned but there was insufficient management control at weekends. My presence Saturday and Sunday morning helped.
It took about a month to establish these 3 issues so to alleviate the small batch problem I agreed with the trade unions that we would sub-contract all small batches to Eaton in the US who produced the same parts in Cleveland and they could turn them round quickly enough. Immediately output increased by 25% and after agreeing to buy the raw components in an annealed (softer) condition, a process we normally did in-house but the supplier could do this process for us leaving us with additional capacity to run the other carburising furnace longer. This increased the output by closer to 50% giving us more than enough to achieve the 300+ per day objective, achieved 2 months earlier than target. I was getting very frustrated at some of the issues as the trade unions were suspicious of everything I suggested and so challenged it but we got through in the end as they knew we had to achieve this additional output. Looking back these things should have been simple to spot and deal with earlier but they never had been.
No-one thought it could be done but it was just a matter of establishing the bottlenecks and unblocking them, also a few customs and practices had to be looked at, agreed and changed. Just seeing the output increase from 200/220 per day to 300/325 every day was more than enough satisfaction for me but I also got my first big promotion and transfer to a new division we had recently acquired as Purchasing and Materials Manager with my first company car so this was the start of my management career and it happened within weeks of finishing the project. It involved moving 200 miles south to the midlands which was an exciting venture for me, less so for the family but we all went. Typically in a small to medium size business the function will be headed by the accountant if in the service sector or maybe the works manager in a manufacturing company.
Purchasing & Supply - Improve Sales Orders! - Eaton Axles 1979
It was mid-1979 and I had just been promoted to Purchasing and Materials Manager at an Eaton unit in the West Midlands, Darlaston to be precise. It was a relatively small unit with 200 employees making heavy axles for lorries. Slightly different from the one in the North East, with higher volumes but no differential set so a lower unit price for the finished product. We supplied a range of customers including Foden who took a 1” thick axle which needed a 2000T press to bend and form. The whole building shook when this was in action.
It was fairly obvious from day one of the purchase of this factory from Rubery Owen that at some point in the future the 2 businesses would be amalgamated and a move back to the North would be on the cards. The largest purchase was sheet steel which came mostly from Scandinavia so the Supply Chain could be quite long especially in the winter when the North Sea froze over!
There were only 2 suppliers in this business in those days, Eatons and another well-known automotive business, so there was a quite competitive environment for which one of us would get the most business. The buyers in the automotive trade were the best in the business and agreed with our sales people what percentage of the business would be allocated to each of us. This system applied to all the customers in the market and there was a constant competitive battle between the 2 suppliers.
I was drawn into this competitive battle because the business was not won on price alone but also on our delivery performance record and I was encouraged by our Procurement Director to keep in close touch with our main customers and keep the supplies on time, which had not been happening recently.
So I began to hold a monthly meeting with the 2 main customers where more than 50% of the business was involved and quickly set up a good rapport. This involved a day long visit each month where a long drawn out boozy lunch was the order of the day followed by detailed discussions of the next 2 months’ worth of orders. Whilst the business split was “locked in stone” by the supposed “agreed” split between us and the competition the detail of the actual orders in the following 2 months was left to the discretion of the schedulers at the factories who in reality wanted an easy life with a guarantee of delivery promised in stone. So we went through the actual schedules planned as orders where I was able to influence the numbers of axles line by line based on the numbers of units I could actually promise. These numbers were changed on the schedules and re-issued.
The bottom line then worked out that we always had the lions’ share of the business and the split moved to 60/40% split in volume terms in our favour and an increase in business. We got away with this as the other supplier did not realise the numbers were being modified and we always met the volumes as requested.
This went on for about a year before we actually closed the factory and transferred the business back to the factory in the North East from whence I had come a year earlier and I was one of only 2 people who was kept on and asked to return North to a higher level role.
Ian Marshall 30/09/13
Inventory Reduction Programme – Eaton Axles 1977
My first promotion in Purchasing was to manage the production control dept. The Supply Chain of the product was quite extensive and we had built up too much inventory in recent times.
Eaton Axles was a big factory in the North East employing 1200 people making heavy axles for lorries for all the vehicle manufacturers in both the UK and Europe and there were 20 different machine lines and 2 assembly shops. Turnover was around £20 million, equivalent to £200 + millions today.
It was felt to be out of control and needed to be dealt with quickly as it was both expensive and in addition we were renting an empty warehouse close by as we were running out of space in the storage areas in and around the factory. The target was to reduce material stock levels by 50%.
I quickly established that the previous incumbent in the job had deliberately over-ordered the materials just in case more were needed than the actual programme demanded. All this excess stock was doing was creating confusion and giving the factory too many choices of what job was next. It didn’t take long to establish what our real needs were for the coming weeks and the suppliers were all contacted to be told to expect little in the way of purchasing in the next 2 months or so as we were over-stocked.
Fortunately the mid 70’s was a boom period and everybody was busy so nobody minded orders being delayed by a couple of months. We had to have long talks with them to make these agreements but everyone went along with it. Naturally the trade unions were suspicious of our motives believing we were running the factory down prior to a sale or closure but they had to accept what they were told and went along with it.
After 3 months we were half way there towards the 50% reduction and the amount of space opened up in the factory was amazing and everyone could tell what job was needed next as we only allowed material into the factory a few days before it was required. The effect on lead-time was also amazing as we could fit new urgent orders into the programme easily whereas previously this was not possible. After 6 months we achieved the 50% reduction (from £4million to £2million round figures) and of course no longer needed the rented warehouse so another saving.
The finance dept were pleased with this result which was good for working capital and wondered why it didn’t happen years ago. There was also a considerable effect on profit that year as the output improved and we turned down less orders than normal – not forgetting this was in a boom period where lead times were long and getting hold of supplies was sometimes difficult.
Ian Marshall 20/09/2013
The Problems of Purchasing and Supply Chain - Part 1
The problems, if there are any, with the Supply Chain of a business depends largely on the size of the business involved, the sector the company operates in and who is in charge of the function.
It is unlikely that either of the people in these functions will have any serious experience in negotiating deals with suppliers for long term contracts, nor will they understand the level of experience needed to achieve satisfactory terms of supply through negotiations. In service organisations different skills are needed than those in manufacturing businesses. This will often lead to appointing people in the purchasing function who do not have the necessary skills to achieve the best results.
In a manufacturing business it is not unusual for the person heading the function (often the works manager) to set the priority of the purchasing team to ensure parts and materials are supplied on time rather than ensure the best price is achieved. In a service business it is not unusual for the finance director to have a large say in who should have the business for example on supplying the services for computers, stationery, telecoms, advertising etc. In both these cases the level of price and the satisfaction of the service may again become a secondary priority. This does not achieve the best results for your pricing or service levels.
In the case of a larger business with a substantial turnover – perhaps in the tens or hundreds of millions - then professionals should be appointed who understand the business of the company they are employed by, know and understand the products they are making and the supply chain involved in the materials for making them. Often one of the issues is whether to have a single source i.e. to put your eggs in one basket, and find the best possible supplier to deal with.
In this latter case what is needed are technically qualified people who understand the markets in which they are operating in, and are therefore able to forge long term contracts with appropriate terms to satisfy both parties. This will ensure that the company gets priority service levels with some assurance on future pricing and service levels in return for supplying sufficient levels of business to the supplier (i.e. both parties are signing up to a long-term mutually satisfactory contract and terms of supply).
In a larger company the person in charge of purchasing will typically be a director of the business or reporting to a senior director who supports the function. In large businesses it is not unusual to have a senior purchasing person for services and another senior person for production materials. These people will be in charge of these functions and need to know the needs of their business inside out and the supply markets for the products and service they will be procuring.
The Purchasing and Supply Chain profession (also known sometimes as Procurement) has come a long way since the 60’s and 70’s when there was little in the way of organised professional people outside of the big businesses such as automotive, computers and electronics which was largely started in the USA with companies like IBM, Xerox, aerospace and the automotive companies leading the way. These days it is a very worthwhile and satisfactory career option for people who want to operate on the opposite side to sales, in a career which is just as demanding.
Ian Marshall 05/09/2013 Google+