Buyers as Agents of Change - MBA Disertation

BUYERS AS AGENTS OF CHANGE

An evaluation of the influence of purchasers in the Japanisation of the UK

components industry, with particular reference to suppliers of pressed metal parts.

ANTON LUKE MIEDZIOLKA

Project submitted in part fulfilment of the Degree of

Master of Business Administration

Middlesex University Business School

September 1993

MBA/Middlesex University/A. Miedziolka/1993 2


By virtue of the grace invested in my royal office I have decreed unto you to forge one thousand suits of armour and ten thousand arrowheads.

You have failed to obey this command! At the peril of losing your heads to the axe, to the amusement of the inhabitants of Stockholm, in the city square one holiday eve at my discretion, I once again command you to comply with my wishes.

An early example of supplier motivation - Gustavus Vasa, King of

Sweden to the Kungshammeren crown foundry; sixteenth century.



Executive Summary For the makers of many manufactured goods, the markets of Europe, North America and Japan are relatively mature if not stagnant. Heady days of market growth have been supplanted by markets that are largely one of replacement. Thus in order to grow, or indeed survive, manufacturers are being forced to compete strongly for market share. To do this they are continuously having to reduce costs while at the same time both improving their levels of quality, flexibility and service and raising the performance of their products. In addition to this fight for market share, niche players are increasingly under attack from the more adept international manufacturers. These larger companies are learning to introduce new products quickly and make them efficiently using flexible manufacturing processes. They are able to produce tailored products at low volumes and, because they benefit from the economies of scale, they manufacture at low cost. Such trends are occurring at the same time as international standards are being unified and trade restrictions reduced. Competition, and especially international competition, is now fierce with many global industries in turmoil. One such industry, perhaps one of the most dynamic of business sectors, has been chosen to be the focus of many of the examples cited in this dissertation. This industry is the world's largest; it is the automotive industry. The automotive industry is a major employer. In the European Union, for example, over ten per cent of the workforce is accounted for, either directly or indirectly, by the industry. Thus, in the eyes of many people, the recent move to start manufacturing in the UK by Japanese 'lean' producers constitutes an invasion that signals the start of the latest European car war. American and European companies are now struggling to catch up with the more efficient newcomers. Moves towards lean production by the automotive manufacturers, and their suppliers, have impacted strongly on many other manufacturers. This is both because the ideas used are transferable, and also because these companies often buy components from the same common supplier base. This dissertation examines the nature of the forces acting on the UK component industry to cut its costs, improve its quality and to become more flexible. It relates the forces that are acting on component companies to the improvements that they have already instigated. Chapters 2 to 4 represent the literature survey. They are intended to provide a comprehensive insight into the structure of the component market and the trends present. These chapters start with a review of what lean production is, move to the dynamics of the competitive market and conclude with an overview, of what many people regard as the natural corollary of lean production, partnership sourcing. The hypothesis and survey were designed to investigate the links between the ideas that offer so much potential for reducing non-value added costs - lean production - and


the need for customers and suppliers to move towards lower costs. The study specifically examines the pressures to improve that are applied by customers of small and medium sized component companies, and how these pressures reveal themselves in the internal moves by the supplier to help reduce total acquisition cost and improve quality and flexibility. The raw data from the research presented in Chapter 7 is extensive and consists mostly of practical detail that industrial buyers and small businesses may find of use. In later chapters the raw data are condensed into a series of indices to allow an analysis to be made of the external and internal drivers of change. This analysis revealed that there is a strong correlation between external, customer imposed, pressures to reduce total acquisition cost and the internal improvements made by the supplier. Further research revealed that companies could be frequently divided into two camps, although their position varied dependant upon the issues concerned. These two camps could be called "Ahead and Relaxed" and "Reluctant Movers". In the first group, companies seemed to be in control of the change processes within their business, they were generally ahead of the demands of their customers and were relaxed about those demands. The second group appeared to be reluctant to change. Hesitant about the techniques they did not initiate, they were being drawn against their will into manufacturing and management techniques that they were uncomfortable with. The principal recommendations from the findings are that the purchasing organisation should understand the market and its own strategic needs from that market. It should then move to achieve a supplier base that satisfies its corporate needs, aware that developing suppliers can be costly and that its success is dependant upon the capability of the supplier to improve. Supplier development is best done by carrying the change agents in the supplier with you; they should be enthusiastic about the proposed changes, and should not feel that the purchasing organisation is just tinkering. This approach, together with others developed in this study, can lead to lasting benefits, where both purchaser and supplier enjoy a vigorous relationship of continuous improvement and can feel more confident in their ability to respond to, deter, or initiate competition.


Acknowledgements This dissertation could not have been written without the help of the many people who talked to me about their work, or their area of specific expertise, as I was doing my research. They include the people interviewed who enabled me to test my hypothesis and whose anonymity I have preserved. I am in their debt. I would also like to acknowledge Dr Edgar Hibbert of Middlesex University for his assistance and support. Particular thanks must go to Nigel Couter, Director Purchasing at MK Electric Limited, who not only initiated my MBA education and secured sponsorship for me, but who has been a ready and valued source of advice and encouragement. To my colleagues at work, especially Greg McCrea, Tony Alston, Gareth Griffiths and not least Linda Rowlett - thank you for your patience and support. I would also like Julie to know that lending me her computer for over a year was marvellous. Finally I would like my family to understand how much I have appreciated their encouragement and interest, and for Carmel to know how lovely she has been in helping me through the months of this study.



Contents Executive Summary 5 Acknowledgements 7 List of Figures 11 1 Introduction 13 1.1 Introduction 13 1.2 The Global Automotive Industry 13 1.3 Introduction to the Study 14 2 Lean Production - A Literature Review 15 2.1 Introduction 15 2.2 The Third Industrial Revolution 15 2.3 Lean Production Explained 16 2.4 Lean Production and People Management 18 2.5 Excellence, Total Quality and Kaizen 19 2.6 Critiques of Japanisation 20 2.7 Conclusion 21 3 The Japanisation of British Industry - An Overview 23 3.1 Introduction 23 3.2 The Pressure to Invest in the West 23 3.3 The American Experience and Reaction 24 3.4 The European Experience and Reaction 26 3.5 The British Experience and Reaction 27 3.6 Benchmarking and the Lessons for British Industry 28 3.7 Conclusion 29 4 Partnership Purchasing - A Literature Review 31 4.1 Introduction 31 4.2 Backward Vertical Integration 31 4.3 Partnership Purchasing 32 4.3.1 Partnership Sourcing - JIT, Japanisation & Lean Production 32 4.3.2 Partnership Sourcing and the Traditionalists 33 4.4 The Lopez Factor 34 4.5 Supplier Development 35 4.6 Conclusion 36 5 The Hypothesis and Objectives of the Study 37 5.1 The Hypothesis 37 5.2 Objectives 37 6 Methodology 39 6.1 Introduction 39 6.2 Sources of Information 39 6.3 Choice of Interview Method 39


6.4 Hypothesis Testing 40 6.5 Industry Selection 40 6.6 Sample Selection 41 6.7 Approach Taken 42 6.8 Validity of Data 43 6.9 Applicability of the Results to other Industries 43 6.10 Conclusion 43 7 The Findings - Raw Data 45 7.1 Introduction 45 7.2 Turnover and Customer Base 45 7.3 Customer Relationships 47 7.3.1 'Closeness' to Customers 47 7.3.2 Supplier Development and Cost reduction 49 7.4 Quality Pressures 51 7.4.1 External Quality Demands 51 7.4.2 Internal Quality Demands 53 7.5 Production Pressures 54 7.5.1 External Production Demands 54 7.5.2 Internal Production Demands 55 7.6 Human Resources Management Policy 56 7.7 Conclusion 57 8 The Findings - Analysed 59 8.1 Introduction 59 8.2 Success of the methodology 59 8.3 Graphical representation of relationships 60 8.4 Applicability of the results to other industries 64 8.5 Conclusion 64 9 How the Findings Support the Hypothesis 65 9.1 Introduction 65 9.2 Anecdotal evidence 66 9.3 Conclusion 66 10 Conclusions and Recommendations 69 11 Appendices 73 Appendix 1 Questionnaire . 75 Appendix 2 A Comparison of Quality Management Methods 79 Appendix 3 Statistical Quality Control - Control Charts and Sampling Plans 81 Appendix 4 Indices Allotted to External Drivers To Improve Supplier Performance. 82 Appendix 5 Indices Allotted to Internal Drivers To Improve Supplier Performance 83

12 Bibliography 85


List of Figures

Page

Figure I Sales per annum 45

II Percentage of sales accounted for by the top three customers 46

III Percentage of sales accounted for by the automotive industry,

either directly or indirectly 46

IV 'Closeness' to Customers 48

V Open Book Costing or Not 49

VI Supplier Development and Cost reduction 50

VII External Quality Demands 52

VIII Internal Quality Demands 53

IX External Production Demands 54

X Internal Production Demands 55

XI Human Resources Management Policy 56

XII Overall Internal Pressures vs. Overall External pressures 60

XIII External Quality Pressures vs. Internal Indicators of Quality

61

XIV External Production Demands vs. Internal Production Demands 62

XV Index of Overall Internal pressure vs. Sales per Employee 62

XVI Index of Overall External Pressure To Improve

vs. Sales per Employee 63

XVII Number of Employees vs. Sales £m per annum 63

XVIII Average Sales per Employee 64



1 Introduction 1.1 Introduction In today's competitive environment, businesses are becoming increasingly reliant upon their supplier base in order for them to survive. Quality, cost leadership and customer-orientation are the key success factors in being able to compete. Together these factors increasingly cause companies to specialise and thus place greater emphasis on their core businesses. The consequence of this is a lower level of in-house manufacturing, and therefore a higher level of out-sourcing. Note that the suppliers are themselves becoming more specialised and are thus less interchangeable. Historically, and in times of severe economic downturn, the stronger customer has usually placed pressure on the weaker supplier to reduce prices. Frequently this has left the supplier effectively competing with its customers and often without the means to develop. Many people are now coming to believe that such price pressure can be an incredibly short-sighted and dangerous practice. Hence, in purchasing circles, the current hot topic is partnership sourcing. This is where, through sound co-operation, the entrepreneurial potential of suppliers can be harnessed, total acquisition costs can be continuously reduced and the supply and new product development processes dramatically improved. 1.2 The Global Automotive Industry The worlds largest industry is the car industry. During the past decade it has undergone a manufacturing revolution that has strongly emphasised the need to work closely with suppliers. Western car producers in North America and Europe have suffered from Japanese manufacturers invading their home markets with products that are cheaper to produce and are more in tune with the aspirations of their customers. Western manufacturers started by focusing on becoming leaner and thus reduced their non-value-added costs. They did this using techniques that were relearnt from Japanese manufacturers such as Toyota. Examples of the techniques concerned are JIT production, statistical process control and value analysis. In the process of reducing non-value-added costs the Western companies were forced to work much more closely with their supplier base. Some companies have considered that they need to treat their suppliers as real partners and develop a fair and trusting relationship. Others, such as General Motors in America, have responded to their own financial crises with drastic panic moves to cut purchasing costs.1 GM's moves have lead the chief executive of one leading US

1 GM's biggest short term cost reductions are estimated to be the purchasing cost reductions of $4bn achieved between the end of 1990 and the end of 1993. During this time the 27 North American purchasing units have been consolidated into one.


automotive supplier to say that "The scar tissue does not heal very fast. Trust must still be rebuilt." Increasing competition has led Western producers to reduce their supply and total acquisition costs. Their designs have been improved by, for example, designing for manufacture and better using the skills of suppliers. In addition the flexibility, quality, and efficiency of their manufacturing and new product development processes have been radically improved. In virtually all cases the requirements on the supplier base for the Western automotive industry has changed significantly in the last decade. The supplier base has needed to develop new skills and substantially improve and upgrade its products and services. Some automotive companies have tried to develop their suppliers in a "Japanese" manner, that is gradually, with respect, help and a focus on mutual improvement while others have been more ruthless in achieving the changes thought necessary. 1.3 Introduction to the Study The pressures on the automotive industry to improve competitiveness has led to considerable changes in both supplier relations, and supplier development. Automotive component Buyers have been innovative and this, coupled with their large spends in the market, has changed their suppliers markedly. The purpose of this study is to better understand how to effect change in one's supplier base, hence this study incorporates many examples from the automotive industry. The dissertation focuses on the comprehensive approach to manufacturing called lean production, and on the impact that the disciplines and philosophies involved in lean production have both on the purchasing process of the OEM company and upon its supplier base. This study is split into a literature survey to consider all the relevant issues, a section where an identified problem is explored and a survey that attempts to shed light on the problem. Finally conclusions and recommendations are drawn from the information available. The problem concerned is of course the perennial one of how to get the best out of one's suppliers.


2 Lean Production A Literature Review

2.1 Introduction Lean production is a way of manufacturing that impacts on much more than the assembly line. It is frequently described in revolutionary terms by its proponents and has been credited as the way that the Japanese have been able to move ahead of the rest of the world in the global car 'wars'. This chapter discusses the importance of lean production, what it is and some of the effects it is having on people and supplier management. 2.2 The Third Industrial Revolution It is now hackneyed to remind ourselves in Britain that this country was once the workshop of the world. The industrial revolution began in 1750 in Britain with the introduction of the steam powered loom. The country's industry and its dominance of shipping helped it to forge an empire covering a quarter of the globe. Britain was the economic superstate of the nineteenth century. By the turn of the twentieth century many industries were mechanised but the assembly of engineered components remained a craft. Components were not made accurately and highly skilled fitters were needed. Craft production meant that it was just as efficient to produce one car as 10,000. The second industrial revolution arguably occurred in America in 1908 when Henry Ford was able to build cars from parts that were completely and consistently interchangeable. The parts were easy to fit to one another and could be produced in high volumes. This feat alone enabled massive productivity gains to be realised, but it was the later event, of the introduction of a continuous assembly line, that is generally credited as the inception of mass production. The age of American hegemony had dawned. Womack et al (1990), describe the introduction of mass production excellently in their book "The Machine That Changed The World". The authors detail the extensive research done on the automotive industry by the International Motor Vehicle Program 1985-1990 at the Massachusetts Institute of Technology. Their research revealed that the third industrial revolution had already happened and that the pre-eminence of mass production had been displaced by lean production. The lean production system, alternatively known as the Toyota production system (Cusamano 1991), was described by Womack et al as the reason why the Japanese motor industry is out-performing the West's mass production-based system.


Lamming (1993), p2, also recognised the mastery of the lean production paradigm over that of mass production. He called the change in manufacturing techniques the 'third transformation'; the first two transformations being the start of mass production and then later that of mass production with extensive variety. Womack et al did not describe the introduction of lean production as the third industrial revolution but they knew it to be revolutionary. It was however Mr Jose Ignacio Lopez de Arriortua, a colourful and charismatic character, who coined the term (Financial Times 9/9/93). Lopez is, at the time of writing, the production and purchasing director of Volkswagen. Enticed from his post as global purchasing director of General Motors in the US, he is, in many ways, a wanted man. In a speech to a motor industry conference1 he stated that: "Those that fail to grasp that the third industrial revolution is underway are condemned to fall by the wayside..." To support his statement Lopez recalled that in 1963 the Japanese industry produced only 600,000 cars, Europe 7.28m and North America 8.37m. Car exports were virtually nil. In 1991, twenty-eight years later, North America produced 7.46m cars with negligible exports, Europe made 12.77m but sold most of those at home, Japan exported 1.83m to North America and 1.34m to Europe and emerging countries produced 5.09m. His warning on the fate of the West's industry is underlined both by Japan's rising trade surplus, which in 1992 surged by 37.6% to a record $107bn, and also by the facts that support the observation of Tim Jackson in his book Turning Japanese (1993): "With Europe's single market, Japanese companies can now attack from the inside...The key is management: their better products, customer service and employee training have beaten the USA at its own game, and the grim economic reality that America woke up to in the 1980's may soon be ravaging Europe in the 1990's." 2.3 Lean Production Explained The term 'lean production' was first used by Womack et al (1990) to describe the Japanese motor industry's manufacturing system. Womack et al, Cusamano (1991) and Taiichi Ohna (1988)2 all have similar descriptions of its origins at Toyota. After World War II the Japanese economy was in a parlous state. The motor industry, although protected from competition, was forced into supplying a wide variety of products in low volumes. The Japanese market could not support, and the car manufacturers certainly could not afford, the North American approach of dedicated

1 Financial Times Motor Industry Conference 8/9/93, Frankfurt, Germany. 2 Taiichi Ohna is the engineer who, along with Eji Toyoda, is given much of the credit for developing lean production at Toyota


machines, long production runs and large stocks.1 Hence, pioneered by Toyota, the Japanese found it necessary to have modest batches produced on small multi-purpose equipment. Tooling had to be set-up quickly and often. In addition the unions at this time were powerful and were supported by strong, American induced, labour laws. In order to allow redundancies at Toyota, the unions, after a long strike, won the right to have jobs for life2 . Workers, knowing that their future was tied to the company, became more flexible and Toyota responded by investing in training. To make a car requires about ten thousand parts, the production planning of which can be extremely difficult. To cope with this complexity, Toyota introduced a pull production system, which only caused parts to be made when they were required. This planning system, known as Just in Time (JIT), had major ramifications in the management, design, production, and purchasing practices. Toyota found that the combination of a committed flexible workforce, who had more responsibility, coupled with the JIT production of small batches from multi-purpose equipment, lead to tremendous productivity improvements. More surprisingly it also led to equally significant quality improvements. Quality improved because of the immediate peer pressure that applied in a close knit production system that was designed not to tolerate failures in supply. Quality costs were also reduced by the rigorous application across Japan of the quality enhancement ideas of the American consultants W.E. Demming and Juran (1988). Their ideas suited the Japanese management methods which devolved responsibility down the hierarchy. As Morrison (1992) has explained, the full benefit of the statistical quality control technique of the control chart (SPC) is felt when the quality is monitored continuously, by machines or by operators. Whenever a defect is encountered it is diagnosed immediately and the solution implemented immediately, even if production has to cease while this is done. In addition to the above drivers for change, there are in Japan natural shortages of both material and land resources. In many Japanese companies, such as Toyota, this seems to have encouraged an abhorrence of waste and formed the basis of their continuous, incremental improvements. In many ways the Japanese approach to continuous improvement is exemplified by the scientific management of Frederick Wilson Taylor3 . The main difference between the two approaches though is that in Japan the workforce is largely instrumental in, and responsible for, the drive to improve.

1 Cusamano (p270) talks of Fords production line economics which dictated that 500,000 right door panels might be made, the parts stored and the machine switched off until further right hand doors were needed. 2 They also demanded, and got the resignation of the company chairman Kiichiro who had, incidentally, introduced the concept of just in time manufacture to Toyota in the 1930's. 3 An explanation of Scientific Management, or Taylorism, is given by Schroeder (1989) pp533-535.


Westerners who work in Japanese companies described their cultural approach to new ideas as being "magpie like". The Japanese people are said to have the knack of successfully incorporating new ideas into their practices by continually re-inventing tradition. In this way lean production can be thought of as a mixture of Western and Japanese ideas that have been set in a Japanese context. One of the weaknesses of the work by Womack et al (1990) was that lean production is not succinctly defined. However, it is clear that lean production is a broad philosophy and should not be thought of as a tired mish-mash of techniques such as kanban, that have already been partially applied in the West to varying degrees of success. Note that Womack et al described lean production to Western manufacturers in 1990. Generally, however, all the ideas of lean production were presented by Schonberger (1982, 1986) when he reviewed the new Japanese manufacturing techniques that were being introduced into America by firstly Japanese companies and, later, by the local industries. This literary example provides an indication of the slow take up of these ideas in the West and the extent of the Japanese advantage in manufacturing. The main benefit of Womack et al's thesis though, if they are to be believed, is their message that lean production is going to change not only the way things are made but the fate of nations, and how we think and how we live. As is frequently stated, but in another context, the Toyota production line practically never stops. 2.4 Lean Production and People Management The mass production system of the type advocated by Henry Ford, prompted by the scientific management ideas of Frederick Winslow Taylor1 relied on a steep hierarchy of managers overseeing line workers who are responsible for nothing more than the mind numbing task of assembling sets of components. Specialisation of work and division of labour had lead to companies having many functionally based departments with the tendency not to communicate. Management in such companies may be divorced from the realities of production and unions can become entrenched trying to protect their members by way of job demarcation. According to Womack et al (1990) however, lean production turns this view of mass production on its head. Multi-disciplinary teams are the norm and unions co-operate in ensuring that the workforce is flexible. Management is sited close to the shop floor, or even on it, and should experience production work every year or so. Responsibility for efficiency and for many tasks are devolved to the workers, wasteful production is cut and levels of productivity and quality soar.

1 As described by Halberstam (1987), p. 73


Lean production, however, means that less people are needed in manufacturing and that those employed are multiskilled and under stress to continuously improve. As Donovan (1993) has explained, when large companies float the idea that middle aged workers are of less use than fit well-educated recruits, this raises the "Spectre of the throwaway workforce". This idea is supported by Professor Charles Handy who in his book The Age of Unreason (1992) forecast that industrial trends will result in far shorter working lives. The idea of the workers being over stressed, was reiterated by both Demming and Juran in their criticism1 of the Zero Defect concept developed by Crosby (1979). Cusamano (1991) pp305-307 sustains this argument by reporting that the JIT pace has been blamed for an unusually high rate of accidents and suicides amongst the Toyota workforce - or "human transfer machines" as one employee put it. It appears clear that the drive to cut non-value added costs, which is the imperative of lean production, will meet significant resistance from those that are affected. As Davis and Olson (1985) stated: "Unfortunately change is not simply a rational process of demonstrating that the new method is better for the organisation. Change that appears desirable to one group may be perceived as a bad idea by another." 2.5 Excellence, Total Quality and Kaizen During the 1980's there was a rash of consultants and books in America trying to re-invigorate the indigenous industry that was reeling from the Japanese onslaught of manufactured goods. In the main they did this by focusing on what can be described as Japanese management, quality and production techniques and applying them to the West. Tom Peters et al (1981, 1985, 1987) has propagated the ideas of 'excellence' in management practices. According to Peters et al excellent customer service should be coupled with constant innovation and that this can only be done if the company makes the full use of all the employees. Peters also focuses on continuous improvement with a nice phrase "If it ain't broke, you haven't looked hard enough." Other writers have focused on Total Quality, defined by Jones (1992 p22) as: "...a strategy for improving business performance through the commitment of all employees to fully satisfying agreed customer requirements at the lowest overall cost through continuous improvement of products and services, business processes and the people involved." Total quality is one of four quality management approaches (see Appendix 1): a) Quality Control b) Quality Assurance c) Total Quality Control and

1 As reported by Oakland (1989) p26


d) Total Quality Management. Constanzo (1993) has described the Japanese technique of Kaizen1. It is a familiar message, which put simply is incremental continuous improvement. A typical claim is that it "....marries a host of production and quality techniques to boost productivity by up to fifty per cent and reduce inventory and waste". 2.6 Critiques of Japanisation One writer who bucks the trend is Charles Bruce (1987). Bruce argued that the massive superiority in worker productivity attributed to Japanese car manufacturers, over their Western counterparts, was just a statistical error. He claimed that the author of the statistics had just divided the total number of cars produced by the total number of workers in each company and ignored the fact that Japanese automotive companies subcontract more than the Western ones. As Womack et al and later studies such as The Lean Enterprise Benchmarking Project in 1993 (Jones, D., et al) prove Bruce has used 'common sense', as he calls it, to come to the wrong answer. Graham (1988) has advanced the view that "The adjective 'Japanese' creates an imperative for introducing (innovative and profit enhancing) changes in working practices". His argument is that manufacturing techniques observed in Japan were not necessarily initiated there and that anyway they have been radically modified to suit Western organisations. He thus questions the validity of calling them Japanese. Womack et al (1990) similarly recognised the problems inherent in using national stereotypes, hence they called the innovative production and management techniques, that they found in Japan, 'lean production'. Drucker (1990) agrees with Graham that the Japanese manufacturing techniques were not initiated in Japan He states that generally the US has "....lacked the methodology to build quality and productivity into the process... and (also) lacked the methodology to move responsibility down the manufacturing process." For Drucker this is the main lesson of Japanese manufacturing techniques. He draws on additional arguments to construct his 'post-modern' factory of 1999. The essence of this factory would be conceptual - the product of four principles: a) Statistical Quality Control is changing the social organisation of the factory by reducing the need for indirect costs such as supervision. b) New manufacturing accounting methods allowing the integration of manufacturing with business strategy. c) The modular organisation of manufacturing where semi-autonomous modules surrounding the factory allow low cost standardisation and flexibility. d) The systems approach2 which is the embedding of manufacturing into the business of creating value. Here functional managers are replaced by business managers. 1 The term Kaizen was first used in the UK in 1985 when Nissan UK introduced it to its supplier base. 2 This is similar in some respects to Business Process Re-engineering as explained in the Financial Times articles May 24, June 2, 11,18, 24, July 5, 12, 23, and 28th 1993. See also Brealey, N., Re-engineering the Corporation.



2.7 Conclusion When reading the literature what is remarkable is that the message given is a familiar one. Writers seem to agree on the critical success factors that have enabled the Japanese manufacturers to take the world by storm in the fields of cars, cameras, video recorders, televisions, hi-fi and motor bikes to name a few industries. Authors describe Japanese techniques in detail and they talk of companies in the West that are trying to compete by copying them or by introducing similar philosophies more acceptable to the Western worker. Success stories abound, but if all of this is so self evident why are there so many companies that do not appear to have heeded the advice. When change has been attempted many companies have implemented it only half heartedly or have failed in their change process. If the message is assumed to be correct, then the answer maybe that these companies are victims of their own inertia and complacency. They may however be victims of the almost revolutionary fervour projected by most of the proponents of Japanese techniques. Zipkin (1991), for example, contrasts the pragmatic, insistent and practical case for JIT by writers such as Hall (1983) and Shingo (1989) with the romantic rhetoric of Schonberger (1982, 1986). Certainly the introduction and the management of change in organisations is critically important and has proven very difficult to effect. The title of the recent book by Tichy and Sherman (1993) however appears to be particularly apt:

"Control your own destiny or someone else will." Chapter Three is an analysis of how some Western companies are attempting to control their own destinies.



3 The Japanisation of British Industry

3.1 Introduction The title to this chapter focuses on the British experience of Japanisation, however to better understand what has happened in Britain one must have also have an appreciation of the pressures operating within the Triad regions of Japan, North America and Europe. This chapter provides a brief survey of the those pressures. It goes on to explore the West's response, and in particular the British response, to the Japanese industrial invasion. The chapter concludes with a review of how successful British industry has been in emulating the productivity and quality successes of Japan. Note that the arguments presented in this chapter are illustrated principally with examples from the worlds largest global industry - the automotive industry. 3.2 The Pressure to Invest in the West In 1992 the Japanese trade surplus was $107bn; a 37% rise on the previous year. The reasons for the increase lay in the continuing manufacturing prowess of its exporting industry, the rapid appreciation of the yen and the country's economic slowdown as it slid into recession. Japanese trade relations with its main partners in the West were worsening as Japan seemed unable to stimulate home demand for foreign produced goods. In the other two Triad markets of North America and Europe, Japan was witnessing the formalising of the North American Free Trade Area (NAFTA) agreement, the election of a US President, President Clinton, who was avowedly supportive of US industry, and the completion of the Single Market legislation in the European Community. Trading blocs appeared to be increasingly protectionist and the moribund Uruguay round of the General Agreement of Tariffs and Trade (GATT) was, after seven years, looking as if it might fail to reach a conclusion. The potential development of both an isolationist America and a Fortress Europe reacting against a rampant Japan seemed a possibility. The Triad markets account for 82% of world gross national product and 81% of world trade1. Having a reduced access to trade in these markets would have major implications to Japanese manufacturers. Not only would they lose global market share but they would also lose the stimulus of competitive international markets and the access to their emerging technologies. The dangers of protectionism however, had been foreseen and pre-emptive action taken. Many Japanese companies have been investing in manufacturing facilities in the US for over a decade, and Japan has become the second largest external investor in the countries of the European Community. These early moves have enabled many

1 From notes of an MBA lecture, 6/10/92 on International Marketing by Dr K. Newman.


Japanese companies to receive the benefits of establishing a de facto insider position within the markets of their principal overseas customers. Their actions were supported by Kenichi Ohmae (1985) who advised that in order to safeguard current and future markets, all multinationals must seek to become true insiders in the Japan-Europe-US Triad. Ohmae (1991) later evolved his ideas into the need for companies to become global but most of the Japanese companies have remained at the international ethnocentric stage with few progressing to becoming multinationals with polycentric orientation, and fewer still becoming truly global. 3.3 American Experience and Reaction Japanese companies have been building plants, and transferring production technology abroad, since Kawasaki set up a plant in Lincoln, Nebraska, in the late 1970's. Just In Time production was introduced to the Americans in the plant in 1979 and to the company's suppliers soon after that. Richard Schonberger who was a professor at the local University published a study in 1982 of the Kawasaki plants in both America and Japan. His book was entitled "Japanese Manufacturing Techniques: Nine Hidden Lessons in Simplicity" and it described most of the key points, in the Japanese armour. Schonberger (1982) admitted that, because of the slow implementation of these ideas in the US, he was sometimes unable to cite a particular element of the Japanese system being discussed. His comprehensive account has, perhaps, a major failing in that he seemed to believe that the techniques could be applied individually to a company, while leaving its culture and organisation virtually intact. A later work by Schonberger (1986) was able to cite nearly one hundred American corporations that had adopted the just-in-time production and total quality control (TQC) strategies (See Appendix I for a definition of TQC). In this work Schonberger appears to recognise the need to change the hierarchical management structures. He noted that "...world class manufacturing depends on a blended management - rather than domination by a separate group...". In 1986, Schonberger also used the idea of continual rapid improvement. Womack et al (1990) described in detail, the way in which Japanese automotive companies set up factories in the US with remarkable success, first through joint ventures, and then later with direct investments. The NUMMI1 venture between Toyota and General Motors is an example where what was described as the worst plant in the world was transformed by the new Japanese managers into one of America's best. Much of the expensive equipment was removed, but the workforce remained the same, and productivity was dramatically improved. Adler (1993) uses the NUMMI example to provide evidence to reject the current creed2 that bureaucracy is wrong because it hobbles an organisation's capacity to change and learn. He describes Taylorist procedures being used to continuously improve but with the 1 Adler (1993) gives a full account of this saga. He also explains that General Motors entered into the joint venture because it wanted to find out about Japanese production techniques, while Toyota was trying to defuse the trade issue by building cars in the US. 2 As exemplified by Tom Peters (1987) in Thriving on Chaos.


initiative coming from the workforce not the management; in many ways this is effectively the technique known as Kaizen. NUMMI was a watershed for the American car manufacturers as it was proof that the Japanese production techniques that had worked in Japan and on American greenfield sites, could also be made to work with the same American auto-workers that had failed with the system used by Detroit. By 1993, after more than a decade of losing ground to seemingly invincible Japanese competitors, the US automobile manufacturers are starting to claw back market share. Dickson (1993) develops the themes of Womack et al (1990), explaining how the Americans have learnt an immense amount from the Japanese about speedy vehicle development, lean production, and the need to build the highest quality into their product. Chrysler, the smallest of the US majors, seems to have learnt the most. For example they have fundamentally changed their new product development process by involving suppliers early on in the project and creating multi-disciplinary teams1 . Pugh (1991)2 has brought together many of the Japanese and Western techniques, including the above ideas, to produce a rigorous and effective new product development approach called Total Design. Prowse (1993) in his analysis of the US productivity has suggested that American companies are undergoing a manufacturing "...renaissance of sorts...", citing the fact that quality of US cars has greatly improved and that the top selling car of 1992 was a Ford rather than a Honda as it was for the previous three years. In contrast to these positive viewpoints are examples such as the US subsidiary of the Japanese tyre manufacturer Bridgestone Tires. This was an American company, purchased by Bridgestone in 1988. Following a $1.5 billion investment in the company and a kaizen programme of worker-led continuous improvement the productivity of the US subsidiary is said to be still 65 to 70% that of Bridgestone's Japanese plants3 . Another example of poor US response is given by Dickson (1993) who reports that "General Motors..... is still restructuring but it is still extremely inefficient compared to its rivals". Dickson warns that the US revival is due to factors which could prove temporary. Firstly Japanese producers in the US still purchase substantial quantities of components from Japan and have been hit badly by the rise in the yen and secondly that, in the face of the US President's tough trade rhetoric, they may have tempered their previously aggressive expansion into the US.

1 The innovative Neon car was developed in 31months from design approval to first production. This compares with 40 to 48 months for most European makers. (Financial Times 8/9/93). 2 The author can vouch for the effectiveness of this approach having worked with it for over two years to help launch many excellent new products, e.g. MK Masterseal, a winning range of outdoor wiring devices. 3 The Financial Times 24/8/93.


3.4 The European Experience and Reaction Japanese manufacturers who export have benefited from the conditions in their home market (Porter, 1990). The intense rivalry of their home producers, coupled with a large, homogeneous and discerning market has provided them with a strong foundation to win markets abroad. The European experience, however is one of national markets fragmented by language, legal and cultural restrictions1. In response to external competition the European Union (EU) has strengthened its own interventionist role and set up the single market. The automotive industry illustrates the pressures involved. Official estimates are that one in ten jobs in the EU economy depend on the automobile sector. Its central position in the EU economy is clearly under threat though when one realises that currently one in nine cars sold in Europe is now Japanese while in the US that figure is one in three2. Local content laws have some effect but their introduction has been countered by the movement into Europe of Japanese component companies. The strong links that these companies already have with the Japanese automotive companies has resulted in a number of European component companies claiming unfair advantage. As one British supplier said "...it is not much use trying to talk technically on the Rover parts we make. .... the design authority is in Japan and they have their own suppliers to advise them". Perhaps because of this reason, or maybe because they need to be pressurised in the worlds most competitive market, some larger western component suppliers, e.g. subsidiaries of General Motors, are now manufacturing components in Japan. If the component companies are concerned, then consider the plight of the assemblers in a recession that has seen many European markets shrinking by up to 20% during six months of 1992. Volkswagen (VW), struggling with a 100% break-even level in its core German plants, is suffering massive losses in its lower price-market Spanish subsidiary Seat. Planned investments by VW into its Eastern European partner, Skoda, and also into a 'super lean' factory, have been shelved and the company has fought furiously to woo, and retain, its now embattled production and purchasing director Mr Lopez de Arriortua. The other automobile companies have also been making strong attacks on costs. The industry is restructuring with companies merging or forming joint ventures, and older plants either being upgraded, or in the case of a Seat one, scheduled for closure. Fiat has seen its home market share drop from 60%, in 1988, to 44%, in 1992, and its chairman is publicly airing the question of whether the group's future is in automobiles3. The company's fight back though is typical of the lengths European manufacturers are making to achieve the higher productivity level necessary.

1 It is often said that American multi-nationals in Europe are more European than the Europeans 2 Jackson (1993) p14 3 The Financial Times 9/8/93.


Fiat has created a new factory for its, hopefully life saving, new product the Punto. The factory, at Melfi, is a showcase demonstration of Fiats new theology of the "integrated factory" which it has tested over the last eighteen months at its existing plants. Melfi is a greenfield site with a new young workforce and no union restrictions. It promises to match the best Japanese productivity levels, revolutionise the way that Fiat deals with its component suppliers and take the company 'beyond' lean production. Melfi is, they say, about the organisation of people; described as the softer issues of motivation, participation, involvement - "...the integration of man and machine". It is too soon to tell whether this factory is similar to that conceived by Drucker (1989). All this is occurring when the Nissan plant is expanding with their European Car of the Year, the Micra, when Toyota's new factory in Derby is due to be making 100,000 cars a year by 1994 and double that in the late 1990's and when Honda is starting to take over its own production from Rover at its new Swindon plant. There looks to be a massive over-capacity problem burgeoning in Europe but, as Womack et al point out, it is not that there is too much capacity, just too much of the wrong sort and too little of the lean variety. In other industries also there has been considerable focus on productivity and customer service. Asea Brown Boveri, for example, has had considerable success in its programme to halve all lead times by the end of 1993. Siemens automation division has also tried to cut lead times in the face of Japanese competition; its solution is to launch the product with perhaps 70% of the features rather than waiting for 100%! As Jackson (1993) has said Japanese firms have succeeded in America and Europe primarily because they have offered high quality products at the price the consumer will afford. He states that they could do this because they are flexible, innovative organisations that have earned the commitment that they get from their workforce. 3.5 The British Experience and Reaction As Jackson (1993) p.7 put it when in 1984 Nissan began the task of setting up their first Japanese car plant in Europe.."....the very last thing that they wanted to do was to make expensive, unreliable British cars in dirty factories where uncooperative workers and class conscious managers fought over trifles". In 1992 Nissan UK was the thirteenth largest exporter in the UK (excluding financial companies), exporting more than Glaxo, Vauxhall Motors and BTR. The new Micra, a European Car of the Year, will further boost the company's exports. UK industry has moved a long way from the dog days of the 1970's and early 80's when the country's industry was often riven with industrial action. Following the cowing of the unions, management has in many areas reviewed its investment strategy and its management approach to create, in some cases, efficient industries equal to, or superior to, those in Europe. The long haul that Rover has experienced is a testament to that regeneration of industry but its chairman George Simpson has suggested that it


is time for other industrialists, in many small and medium sized companies, to "start learning Japanese". Rover, the largest manufacturer of cars in the UK, has made its comeback after a fourteen year relationship with Honda. According to Simpson1 the learning process has given the company a valuable insight into the best practices and processes of the Japanese. Rover has reduced costs, for example, by moving to JIT production, introducing TQM and lean distribution, and by creating a more flexible workforce. During the 1980's many of the UK companies were attempting to 'Japanise' and capitalise on the presence of Japanese companies that were increasingly preferring to invest in the UK rather than in continental Europe. Turnbull (1986) talks of modular production areas at Lucas Electrical being introduced. In these manufacturing modules, kanban is used and operators do their own inspection. The stores function is eliminated and progress chasing is unnecessary. Turnbull conceded however that the introduction of the new management processes became more coercive as worker power diminished. This change in the management/worker relationship occurred when employees became aware that Lucas would close facilities and open elsewhere rather than suffer union actions. Smith (1988) gives an interesting insight into the Rover personnel management philosophy at the time. He found that Rover had converted to a quality system where the operators were responsible for quality using SPC, etc.. McKenna (1988), Giles and Starkey (1988) and Wilkinson and Oliver (1990) have all written on the effects on the workforce of Japanisation. They are all aware of the changes in management style that have occurred but contend that much of the acceptance of the changes was due to the weakness of the organised labour force. Indeed McKenna argues that Ford actually shifted the balance of power to the worker when JIT was introduced as strikes could more quickly cripple the company. Teamwork and responsibility are other features of improved work practices. In Rolls Royce Motors, the workforce is organised into sixteen businesses with each business responsible for cost, quality and delivery. Charge hands and foremen are no more and within the flatter structure there is a total flexibility of labour2 . The changes in human resource management policies described above are now such a part of the UK culture that the Trades Union Congress said on 8/9/93 that Japanese style working practices should no longer be considered "alien". UK industry has clearly made significant improvements in numerous areas but many people are now asking whether their operations can be termed world class. The next section attempts to answer that.

1 Financial Times 7.4.93 2 Financial Times 10/3/93


3.6 Benchmarking and the Lessons for British Industry In September 1993, Toyota, Japan's largest car maker, began the first regular shipments to Japan of components from its new engine plant in North Wales. The parts will be worth a relatively small £5 million a year but they have a symbolic value as well as a practical importance. They are seen as the formal stamp of approval of quality at the UK plant and they are also being produced at a cost that more than justifies the shipping costs1. Production has started at the new Toyota factory at Derby. This factory will be making about 100,000 cars and engines a year at the end of 1994 and this is expected to double by the late 1990's when it will be spending £700m annually on components from European suppliers2. Toyota has gone to great lengths to select its new European supplier base and intend to have 60% of the components sourced from Europe in 1994 and 80% by mid 19953. One constraint that Toyota has in achieving their subcontractor targets was highlighted in a report by Jones et al (1993) entitled "The Lean Enterprise Benchmarking Project". Their study compared the performance and management practices of nine component companies in the UK and nine in Japan. They found that no UK companies could be termed world class in terms of a combined quality and productivity standard while five Japanese companies could. They then compared the performance of the five 'World Class' companies with that of the 'Others'. World Class companies were found to be 76% more productive than the Others, their sales volume was 150% more, partly explained by automation, and the value of those sales was double the 'Others' category with just 16% more workers. Quality defects were also substantially reduced in World Class companies. The researchers identified that in World Class companies the team leader held a pivotal role in many key management activities, while in the UK companies, more responsibility had been devolved to operators and skilled workers. Another study (IBM Consulting Group)4 found that UK companies believe that they are better than they really are. 73 % thought that they matched or mostly matched their international competitors while the researchers judged only 2% to be world class but they found that a further 42% were real contenders to join the elite. 3.7 Conclusion This chapter has made a long sweep through the issues of Japanisation. It was intended to set into a context the issues that are affecting companies (suppliers or buyers) that are dealing with the more internationally competitive markets such as the automotive industry. However many other companies may also find the advice from Jones et al (1993) of value: 1 The Financial Times 8/9/93. 2 The Financial Times 8/9/93. 3 The Financial Times 11/2/93. 4 Procurement Weekly 18/6/93.


a) Benchmark your company and find out how far you are behind. b) From the resulting crisis create a shared vision. c) Recognise that the gap can only be met from using all the skills of the workforce. d) Organise the firm into process flows. e) Eliminate non-value added activities from your processes. f) Find out what your customers really require and build to order and not stock. g) Create opportunities to learn from world class customers or joint venture partners. h) Encourage teams to benchmark their activities and create examples of best practice. i) Build a shared destiny relationships with your suppliers - through establishing supplier clubs. This last point is a lead in to the next chapter which explores how the ideas of lean production, and the trends towards Japanisation, are creating pressures on industrial buyers to move towards partnerships with their suppliers.


4 Partnership Purchasing 4.1 Introduction Increasing specialisation and business focus has resulted in many companies having an escalating reliance on a supplier base that is itself specialising and becoming less interchangeable. The risks associated with these trends have led many companies to firstly re-evaluate how they relate to suppliers and secondly to move away from the traditional competitive, arm's length approach. In addition the steady introduction of lean production methods into Western manufacturing companies has resulted in greater focus on the non-value added costs within the supply chain. Internal costs are being reduced with JIT techniques for example, which in turn impact upon the supplier base and thus on the customer-supplier relationship. Industrial buyers are also keen to ensure that their suppliers are reducing their own non-value added costs. In the UK, as in many other countries, the concept of 'Partnership Sourcing' has been promoted as the 'world class' way to secure specialist external resources and to reduce total acquisition cost. This chapter is a review of the arguments and literature relating to partnership sourcing. 4.2 Backward Vertical Integration One way to reduce risk and to achieve a closer integration with the supplier base is backward vertical integration. This is where customers move up the value chain and purchase the operations of their suppliers. Unfortunately this strategy conflicts with the acknowledged wisdom of business focus and the divesting of non-core businesses. Hence the recent tendency has been to draw back from buying one's suppliers and moved towards a quasi-vertical backward integration with the supplier base (Lamming, 1993). This has allowed companies to be closely involved in the operations and development of their suppliers while receiving all the benefits of an entrepreneurial, specialist supplier base. In Japan the quasi-integration, described above, has been achieved by companies who have a mutual self-interest. Frequently these companies have cross-ownership of shares to achieve groupings of companies with a self interest to work together. These groupings are called Keiretsus and have been described extensively by Lamming (1993) and Womack et al (1990). In the West they would be either illegal or discouraged because of the anti-trust legislation that exists.


In the UK, one form of this quasi-integration is termed 'Partnership Sourcing' and defined by Partnership Sourcing Limited, of the CBI, as: "....a commitment by both customers and suppliers, regardless of size, to a long term relationship based on clear mutually agreed objectives to strive for world class capability and competitiveness." 4.3 Partnership Purchasing Much has been written about partnership purchasing recently1 and most of this is uncritical. Griffiths (1992) is typical of this approach to the subject. His treatment of the area is comprehensive, and persists with the idea that if the two parties believe in the concept sufficiently, and if both of them try hard enough, then partnership sourcing will offer the lowest total cost together with a host of other benefits. The customer-supplier relationship is said to be at its best when it involves mutual trust, respect and openness. Open book costing is thought of as just a powerful tool and would be used with joint improvement teams, continuous assessment, improved forecasting, simple agreements and the involvement of all relevant departments.

4.3.1 Partnership Sourcing - JIT, Japanisation and Lean Production The concept of partnership sourcing, as mentioned in the introduction to this chapter, falls neatly into line with the drive to reduce total acquisition costs. In this concept customers are required to work more closely with what is an increasingly valued supplier base that is becoming less interchangeable. The overlapping requirements on the supplier base from JIT, Japanisation and lean production have been the major drivers for change in the areas of schedule adherence, quality and production flexibility . Writers such as Schonberger (1982) recognised that the Japanese buyers valued close co-operation with their suppliers much more than did Western buyers. In 1986 Schonberger identified an increasingly important role for the supplier - co makers in profit - when in his book on World Class Manufacturing he devoted an entire chapter to the customer-supplier relationship. He also identified supplier cost containment strategies, continuous improvement of suppliers, the adverse effects of JIT warehousing and global sourcing, and the use of supplier base reduction to focus better on the suppliers who remain. Womack et al (1990) reported that lean producers had a greater willingness to listen to the ideas of suppliers and placed more of the onus for change on themselves. They stated that co-operation Japanese style, is not a cosy relaxed relationship but an agreed rational structure for analysing costs, determining prices (which may be reducing) and for sharing the profits.

1 Partnership Sourcing Limited has developed an extensive guide to partnership sourcing. The booklet, published in1992, is recommended reading for all those people interested in Partnership Sourcing.


4.3.2 Partnership Sourcing and the Traditionalists The word 'traditionalists' in the above title was deliberately chosen to highlight the way that competitive negotiation has been portrayed by the more avid proponents of partnership sourcing. The adversarial approach to industrial purchasing and selling is frequently described as being characterised by hostility and mutual suspicion. Lack of trust adds to non-value added costs such as inspection and both parties are drawn to short term gains and become less willing to help one another. Carlisle and Parker (1989) in 'Beyond Negotiation' are initially almost mawkish with the sweetness and light they shed over customer-supplier relations1 and in a recent CBI publication2 Nissan profess that they do not flex their muscles while another company insists that it does not threaten its suppliers. Typical of the more evangelical writers is Cousins (1992) who stated that: "In order to remove this adversarial approach to procurement, the buyer under this new philosophy will have to change the way he/she works ...Instead of bidding off a multitude of suppliers against each other .....the buyer will have to consider one or maybe two suppliers..." My underlining. One authority, when questioned by me on this apparent over-emphasis, replied that his UK readership included a lot of industrial buyers who bought purely on price and who had not yet considered any way other than bid tenders. Writers on partnerships also tend to support their theories with evidence from companies who appear to be performing marvellously in reducing their total costs. These companies have partnership approaches that vary from the benign 'we'll let them take care of it' attitude (as with some customers of fastener suppliers) to the grinding continuous improvement pressure of companies such as Nissan. For many hard nosed buyers and salesmen, who consider themselves tempered in the heat of negotiation, the writings of some people on partnerships may appear to be arrant nonsense. Sheridan (1991) calls it the "The triumph of optimism over experience" and has described partnership sourcing as a "Flopsy-Mopsy-Bunny". He suggests that, in a competitive world, partnerships are only of any use if the fundamentals (business decision making ) are right. His comment "Show me a good buyer and I'll show you a good deal" is indicative of many practitioners of negotiation such as Steele, Murphy and Russill (1989) who would regard Nissan's apparent rejection of coercion as just another negotiating tactic. They appear to believe that suppliers to Nissan etc. always understand that the sanction of the loss of business is ever present even though it is mainly kept in the background. Steele et al recommend that threats, while being a legitimate negotiating tactic, should generally remain

1 The book by Carlisle and Parker (1989) does become more practical after an initial approach to purchasing that seems far too trusting of all comercial relationships. 2 Boardroom Report - Best Practices In Purchasing CBI, DTI (1993).


implicit and that it if they are to be used at all then they should be used with care and in the latter part of a negotiation. It might be though that the use of competitive negotiation dwindles in favour of open book costing, in much the same way that 'fire fighting' has, in some companies, been largely replaced by upstream purchasing and better planning. 4.4 The Lopez Factor Mr Jose Ignacio Lopez de Arriortua (Lopez for short) is the current production and purchasing director at Volkswagen (VW) and was until recently global purchasing director at General Motors (GM). In the words of Lloyd (1993), Lopez is the worlds first international business super-star. He has been described as charismatic, eccentric, and is known as "the warrior" at VW. The reason for his reputation is that he has been asking suppliers to make price cuts of up to 20 % and many have been able to agree. Contracts have been ripped up and 'global sourcing' implemented. Global sourcing is where General Motors essentially buys from the lowest overall price supplier including freight charges etc. Being 'Lopezed' has now entered the vernacular. To help suppliers reduce their costs, Lopez introduced life of car contracts and 'PICOS'1 squads, whose job, when invited in by the supplier, is to suggest ways by which the company's internal costs can be improved and the company developed. VW and GM are the two lumbering giants of the Western automotive scene and are having the most difficulty in trying to react to the lean production techniques of the Japanese and the newly Japanised. After years of market growth in the European market, the dramatic 20% slump in demand in 1992 hit VW hard. The company was already struggling to be profitable as although it was the largest European producer it had an overall break-even level of 100% of capacity. General Motors has been under pressure longer than VW. During the 1980's it invested an estimated $20bn to $30bn in automation but it still lost 20% of its US market share. Following the threat of more effective producers both GM and VW are now moving to lean production plants (and beyond) requiring low stocks, JIT deliveries and habitual continuous improvements. For all their talk though about partnerships, both GM and VW have pursued a macho approach to supplier relations. For example GM has suggested that suppliers face big fines for late or poor quality deliveries2 . Some industrialists have even forecast that the departure by GM and VW away from either the corporatist German values, or the partnership sourcing philosophy, signifies the future of customer supplier relationships.

1 PICOS is a Spanish word. Its direct translation means “spear”. 2 The Financial Times 23/12/92


There is evidence however that while suppliers, who have been Lopezed, may hang on in there for a while, they are unlikely to feel that their customer has their interests at heart. They appear to be disinclined to go out of their way to volunteer help or to invest in equipment for GM or VW work. The Lopez strategy appears to be a short term fix for companies desperate to recover profitability1 . 4.5 Supplier Development The PICOS supplier development teams from GM have tended to focus on the potential for cost reduction in order to achieve price reductions for General Motors. There appears to have been little concentration on improving the supplier as a way of thinking favourably of GM. For any Buyer purchasing goods from a supplier with a number of different customers, the challenge may be to positively raise the profile of the customer so that the service the supplier gives is disproportionate to the share that the customer has. GM appear to have done this more with the stick than the carrot. A contrast to the GM approach was explained to a recent conference by the Director of Purchasing at Nissan (Hill 1992). Nissan has Supplier Development Teams whose objective is "To help existing suppliers develop and improve their capability and performance". Nissan also provide written feedback every quarter with comments and benchmarks against the other Nissan suppliers of the company. Toyota also involve themselves, when requested, in actively helping their suppliers. In the case of AES Ltd2 , Toyota has encouraged training to improve flexibility etc. so that now the training bill amounts to half the cost of wages. Toyota have suggested simple improvements which cut only seconds off each production cycle but taken together the small contributions have made the British company much more competitive. Other practical ideas for support are given by Barrie (1990) who showed how important it was for the customer to have a clear strategy before attempting supplier development otherwise it will lack credibility. 4.6 Conclusion There appears to be considerable evidence and support for the idea that working closely with one's suppliers, in a manner that advances and benefits the supplier as well as ones own company, does provide dividends and can reduce total acquisition cost. If the attempt to reduce the costs of the supplier appears to be a one way affair then the supplier will eventually become less interested in the work and uncompetitive.

1 The Evening Standard 6/10/93 reported that GM, in the USA, was having supplier quality problems that were attributed to the Lopez price reductions. 2 The Financial Times 20/8/93.


Open book costing, although not necessary to drive cost reductions, does appear to remove adversarial negotiation and lends credibility to the idea of a partnership with mutual respect. The question that needs to be answered is whether the yearly reductions in cost, that are formally or informally agreed, actually compensate for the process cost improvements that the supplier would have made when under competitive price pressure. The purchasing strategy chosen appears to be dependant upon the situation, together with the potential size of the rewards available, given the extra costs that closer relationship will cause.


5 The Hypothesis and Objectives 5.1 The Hypothesis Today the more progressive Buyers are targeted to reduce total acquisition cost and hence improve supplier price, quality, flexibility etc.. To achieve this objective, the Buyers are trying to develop pro-active purchasing environments and effect changes in the supply process. The hypothesis in this study flows from the following scenario. In many cases the suppliers to OEM companies have become jaded from their exposure to traditional adversarial commercial relationships. Suppliers often find that their own reluctance to react positively to what is perceived as yet another purchasing regime, is coupled with a stagnation of new ideas and a deep resistance to change. In this situation requests for change by customers could be met by apparently positive responses which are only skin deep within the organisation. For example the supplier may take on board the paperwork of Ford's Q1 requirement and change its delivery frequency but the quality manager remains an inspector and the managing director a proponent of a 'just in case' stocking policy. Customers, may believe in their ability to influence suppliers to change their practices, but how realistic is their belief? The hypothesis is that: There are causal relationships between the external, customer imposed, pressures to improve total acquisition cost and the indicators of the internal improvements made by the supplier. 5.2 Objectives The primary objectives of this study were as follows: a) To test the validity or not of the hypothesis. b) To discover which external drivers of change are effective in prompting

specific responses within the supplier base to try and improve. c) The study will benchmark those companies that participate, although the

results are confidential and cannot be presented here. d) A primary objective, but one that is outside the remit of this report, is the

development and implementation of a programme that supplements the drive to improve the total cost of the supplies process at the author's employer, MK Electric Limited.

e) Over-riding all of these objectives though, is to set into context the forces

acting. The reader should obtain a comprehensive insight into the market, its structure and the trends operating within it. This understanding is thought to be a pre-requisite to correctly making effective purchasing decisions.



6 Methodology 6.1 Introduction When testing a hypothesis the actual process used to collect and analyse data is important. This chapter describes the sources of data used in this dissertation and the way they were accessed. The rationale for the industry and sample selection are also explored, together with the issues involved in the design of the interview/questionnaire, data validation, and the research of other industries. 6.2 Sources of Information The library services, including the on-line databases, of Middlesex and Hatfield Universities were of primary use in the literature research. Core texts on lean production, Japanese manufacturing, partnership purchasing, and the purchasing function were supplemented with articles from journals, and with the author's own MBA course notes. Newspapers, and in particular The Financial Times, were an important source of information on current issues. Literature available at Partnership Sourcing Limited, of the Confederation of British Industry, was of use as were the interesting discussions held with its Deputy Director, Mr Norman Hosford. The data for the study, presented in chapters 6,7, and 8, were collected by telephone interviews. A third of the companies interviewed this way were later visited and further interviews made. Five other companies were also visited specifically to discuss the findings of the telephone interviews. Many informal sources were tapped such as the wisdom and experience of other people in Purchasing at MK Electric Limited. 6.3 Choice of Interview Method The survey was intended to test the hypothesis There are causal relationships between the external, customer imposed, pressures to improve total acquisition cost and the indicators of the internal improvements made by the supplier. This involved people discussing with a total stranger - the researcher - some of the competitive advantages and failings both of their own company and that of their customers. In order for these people to feel comfortable, and be open with the information, it was necessary for them to have a rapport with the interviewer and to feel in control of the interview. Other reasons for choosing the telephone interview, as the principal means of data collection, were as follows: a) Although company visits may provide better information on the level of

implementation of techniques, they were not considered to be an effective use of time, given the data to be collected. Four companies interviewed were visited later to gauge the validity of data received in the telephone survey.


b) People are probably more willing to spend time talking to a research student on the telephone than they would completing a form.

c) Interviewees were accustomed to being questioned about their companies on the telephone.

d) Unfamiliar concepts and jargon could be explained more easily on the telephone than in writing as only those explanations necessary were given.

e) The people contacted were busy people. Telephone calls were made at times that suited them. In addition the attitude of the interviewees changed markedly from being slightly reserved at the start of the conversation to positively voluble after five minutes.

A postal survey would not have resulted in either the amount of detail obtained or the extensive anecdotal information provided. 6.4 Hypothesis Testing To test a hypothesis it is preferred that the variables which are not being analysed either remain constant or have their effects averaged out. In practice this is difficult. Hence, to test the hypothesis given, an attempt was made to reduce the impact of other variables. It was recognised that the time necessary for telephone interviews would limit the sample size and thus, rather than survey a range of industry types, a single industry was selected. This industry choice was determined by the need to reduce the impact of extraneous variables. 6.5 Industry Selection This study was intended to shed light on two principal areas affecting the purchase of components from small OEM suppliers. These were: a) The external pressure imposed by customers to reduce total acquisition cost. b) The improvements made by suppliers which help reduce total acquisition cost. Thus the focus of the study was on the customer and organisational pressures affecting companies. The pressed parts industry was selected because it was believed that the remaining four drivers for change (competition, financial, regulation and technology) identified by KPMG (1992), in its study on change management, had relatively low impact. The reasons for this belief are as follows: a) Competitor Pressure: Customers are reluctant to move tooling between suppliers not least because of the danger of disruption to production. Tooling is frequently old and its true condition is often unknown to customers. Some suppliers part own the tooling which increases the expense of moving tools. Many customers have rationalised out some of their suppliers to work more closely with the remainder. Hence these customers will be reluctant to waste the effort made in building relationships. Customers with a reduced supplier base may also find the risks of moving business higher as each remaining supplier has more of its tools than before.


b) Financial Pressure: This industry operates on tight profit margins. Generally it avoids over dependence on one industry by diversifying the customer base. The current recession will have weeded out the financially weaker companies. c) Regulation Pressure: There is no specific regulatory pressure except safety legislation for guarding presses. d) Technological Pressure: Many of the presses in use today are over ten years old. New presses have speed and maintenance advantages over older ones but, as their initial prices are high, in comparison to the received benefits, their purchase is difficult to justify. It was hoped that the data obtained from researching the pressed parts industry would be applicable to other industries. 6.6 Sample Selection The discussion in this section focuses on the criteria used to select a sample of companies for the study. Having selected an industry the potential companies were filtered to achieve a more homogeneous selection designed to focus onto companies similar to those already supplying the author's employer. The companies surveyed fitted the following criteria: a) Industry: primary business is the production of pressed metal components for supply to OEM customers. The Standard Industrial Classification for this industry is 'Mechanical, marine and precision engineering - punching and pressing SIC 3289-D'. (There were two exceptions to this criterion.). b) Focus: companies were excluded where secondary activities such as assembly or powder coating accounted for more than 5% of sales. c) Quality: BS 5750 Part II approved. d) Size: yearly sales of between £0.5 and £6 million. e) Press Type: predominance of progression and second operation presses rather than multislide or transfer presses. f) Press Size: concentrated in the 5 to 200 tonne range. The two exceptions indicated in the above criteria are both suppliers to the author's employer, MK Electric Limited. The core business of one was the manufacture and sale of press tools, with the sales of pressed metal components accounting for about 25% of turnover. The other company had its sales split approximately 40% springs and 60% pressed parts. Except for information on the turnover and number of employees, the data used from both of these two companies relate only to their pressed metal part operations. Four of the companies surveyed were chosen because they were suppliers to the author's employer, MK Electric Limited. The remaining companies surveyed were randomly selected from the BSI Buyers Guide (1993) and from the sales literature already held by MK Electric Limited. The number of companies that appeared to fit


the selection criteria, and therefore could have been selected from these two sources, amounted to forty-eight. An indication of the size of the entire UK market is given by the number of companies listed in the section for Pressings, High Speed, Large Run (Section 35-03.038) in CBI UK Kompass (1987). There are 164 companies listed. The study is based on data from twelve UK companies who manufacture pressed metal parts for OEM customers. The original sample size chosen was twenty-one companies however three companies could not be contacted and one company's representative was enthusiastic but always too busy to help. A further five companies were approached but refused to participate in the survey. Given the number of suitable companies, the sample size selected was thought adequate to provide indicative evidence of the practices of, and pressures on, a broad range of companies in the industry. 6.7 Approach Taken The interviews were conducted on the telephone in single sessions lasting over 45 minutes in duration during the summer of 1993. It was decided to focus the research on the perceptions of senior executives who had frequent customer contact. Thus the people interviewed were owners, managing directors, sales directors or sales managers. If they either did not mention, or were unaware of, certain company practices then it was assumed that either they did not occur in the company or that they had not reached a level worthy of note. A questionnaire was used to standardise the questioning and to formalise data collection, but in order to both relax the interviewees and encourage candour, a number of open-ended questions were employed. Whenever it became necessary to return the respondent back to the question, or when a particular subject had not been mentioned, then only the prompts indicated in the questionnaire were used. Before the survey was started the questionnaire was checked in a pilot run with a 'friendly' sales manager. This lead to a number of refinements that allowed the questioning to flow more easily and for inconsequential questions to be removed. The questionnaire covered the following areas: a) Customer Relationships: the operational 'closeness' of relations with customers. b) Supplier Development: the pressures that customers exerted on the companies to improve, in particular in the areas of quality, flexibility, delivery performance and cost control. c) Factory Practice: the extent to which lean manufacturing was introduced in terms of approach to quality and to running with minimum levels of inventory. b) Human Resources Management Policy: the involvement of the employees in improving productivity and quality, indexed by the priority of training and how 'progressive' employment practices were.


The questionnaire and prompts used are given in Appendix 1 6.8 Validity of Data The questionnaire contained several internal cross checks that, not only helped to check the veracity of the answers, but were also intended to make interviewees reconsider concepts and thus prompt more ideas. The information provided on the telephone was corroborated with visits to four of the companies interviewed. The visits allowed for further discussions on lean production and customer-supplier relationships, both with the original interviewees, and with production and quality staff. 6.9 Applicability of the Results to other Industries In order to determine if the information from the study was supported by the experience of people in other industries, five face-to-face interviews were held. The companies involved were amongst the market leaders in the following industries: diecasting manufacture, electrical contact manufacture, the factoring of industrial fasteners, electro-plating, and the production, assembly and finishing of pressed metal parts. The people interviewed held equivalent posts to those in the press part study. They were from companies, or clearly defined business units, of under £6 million per annum turnover and had similar customers to those of the press part companies. 6.10 Conclusion The design of the study was intended to provide a broad base of information from which useful and practical recommendations could be drawn and extrapolated to other industrial situations. It was important that the potential users of this information believe in the rigour of the reasoning behind the study, and that they felt that this was matched by the validity of the information obtained.



7 The Findings - Raw Data 7.1 Introduction The data from the survey is presented in two forms. This chapter is a review of the raw data, charted in terms of the number of positive responses, and Chapter 8 is an analysis of the linkage between the external and internal drivers of change. In the review of raw data, reference is made to the individual questions asked, the response rates obtained and to current thinking. The questions are divided into the following sections: customer relationships, quality, production, and finally human resources management. A lot of data is presented here and it has been largely left to the reader to draw their own conclusions from the responses given. The data consists mostly of practical detail which industrial buyers and small businesses may find of use. The chapter begins with an overview of the size and distribution of major markets of the companies concerned. Note that to protect the confidentiality of the companies surveyed no company names are used in this study. Charts showing specific data on the twelve companies cannot be cross referenced by using the x-axis numbers 1 to 12. 7.2 Turnover and Customer Base Indications of the breadth of companies surveyed are given by the even distribution of characteristics shown in the figures I to III. The yearly sales of the companies presented in Figure I give an insight to the varying sizes of the companies surveyed, but not unfortunately to the range of their organisational complexity.

Figure I Sales per annum

0

1

2

3

4

5

6

7

1 2 3 4 5 6 7 8 9 10 11 12

£ MILLION P.A.

The research highlighted that many companies have a high reliance on a few customers. This is shown in Figure II.


Figure II Percentage of sales accounted for by the top three customers

0%10%20%30%40%50%60%70%80%90%

1 2 3 4 5 6 7 8 9 10 11 12

In some purchasing departments the idea of purchasing over 15 to 20% of a company's sales is normally considered risky as, for example, the supplier may be unable to be sufficiently flexible between periods of high and low sales to the customer. This could result in the supplier experiencing labour and financial problems with the consequent worsening of service to, and exposure of, the customer. Similarly suppliers to OEM's frequently state that they try to cap their own exposure to market movements by attempting to limit the proportion of sales to both individual customers and industries. The orthodoxy then is challenged by the data found. The company with the second lowest turnover for pressed parts had 90% of its sales from its top three customers, while the one with the smallest turnover had 54% of its turnover with just a single customer. They both appeared to be less concerned with the risks of a possible sudden loss of business than the other firms surveyed. These others were larger and many stated that they were actively trying to diversify their customer base by targeting other industries. One cited its sales to Ford UK Ltd as having been reduced over three years from 45% to 22% of turnover by primarily increasing sales to other markets. The results given in Figures II and III do not necessarily bear out the idea that the companies had a diversified customer base.

Figure III Percentage of sales accounted for by the automotive industry, either

directly or indirectly

0%

10%

20%

30%

40%

50%

60%

1 2 3 4 5 6 7 8 9 10 11 12

Figure III shows the dependence of the companies on the automotive industry.


Four companies were substantially involved in the automotive trade while the remainder had less than 20% of their sales to the industry. Of the 12 companies only one had apparently managed (or maybe wanted) to diversify its portfolio of customers to the extent where individual customers accounted for less than 7% of turnover and industry sectors for less than 20%. Its top ten customers had only 43% of company sales. By coincidence or not, this risk averse strategy was coupled with the lowest turnover per employee of the twelve. 7.3 Customer Relationships The relationships that the companies surveyed had with their customers was assessed in two ways. Firstly in reviewing the way they communicated with their customers, that is their 'closeness' to them, and secondly by looking at how customers and suppliers approached supplier development and cost reduction. Note that the responses given in this section refer to the experiences of the interviewees with their top three customers. 7.3.1 'Closeness' to Customers As was argued previously, many of the companies researched were very dependant upon a small number of customers for most of their sales. For example a third of the companies had between 40% and 60% of their sales focused on the automotive industry (see Figure III). These figures indicate how exposed some of the companies were to large changes in demand from a particular customer or industry. To determine whether people felt that their companies had partnerships with some of their customers the interviewees were asked to choose which of the following relationships it had with any of its top three customers: a) A traditional, friendly, helpful but competitive relationship. b) A partnership based on mutual trust, openness and continual improvement together. c) A relationship different to the other two already described. Note that the definition of a supplier-customer partnership used in the question is based on that of Partnership Sourcing Limited (1992) except that it deliberately ignores both open book costing and whether or not the partnerships were formalised. The research suggested that, according to the above description, 54% of companies had partnership relationships with at least one of their top three customers For example one company thought that it had an excellent relationship with the subsidiaries of General Motors (GM) it dealt with. Having said this, the same interviewee said that GM "....must have a 60 days (payment period)....", "....price increases were a non-event...", "....GM insist on open book costing....", and


"....frequently they want to screw prices down". While this does not seem to be an equal partnership it was one that the company seemed happy to accept. This company regularly completed a six page form, for GM, on the pressed part supplier's efforts to continuously improve. Another company enjoyed a particularly close and robust relationship with a company that supplied complex assemblies to automotive assembly companies. The supplier visited the customer twice a week and the customer reciprocated every fortnight. Both companies circulated monthly a form, to each of its departments which dealt with the other company, asking people to record their experiences of the other partner. Once a month a review meeting was held to discuss both the previous months business and the survey results. The interviewee said that these meetings "....can be quite bloody!" At a recent meeting, the customer was told that they were becoming "over dominant". Figure IV gives an overview of the closeness of relations between customers and suppliers and thus an indication of the level of pressure that was exerted on both the suppliers and customers to improve their operations.

Figure IV 'Closeness' to Customers

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Machine operatorsoccasionally visit customers.

Operators of some customersvisit occasionally

Some Customer-Supplierrelationships are partnerships

The top three react well toconstructive criticism.

Some top three customersvisit at least 3 times p.a..

Customers visit 3 or 4 times p.a.

Customers visit over 4 times p.a.

With regard to the frequency of visits by customers to the supplier, two sets of core customers tended to visit infrequently if at all. These were industries with long life cycle products and companies in the electrical industry (excluding Japanese customers and the computer industry). This could indicate that the companies in the electrical industry have long life cycle products but the impression given was that their buyers were just not switched on to the purchasing techniques used in the automotive trade. The best of the suppliers to automotive assemblers appeared to be more diligent and helpful customers to the pressed part industry, than the automotive assembly companies and their subsidiaries. This may be because the automotive assembly companies, that have taken on board the ideas of lean production and partnership purchasing, were largely buying complex assemblies from a 'first tier' of suppliers. These first tier companies appeared to be under pressure to perform more efficiently from all customers, especially from Nissan, Toyota, and Honda. As a consequence the more 'progressive' of them were in turn working more closely with their suppliers.


The question on constructive criticism was actually asked at first without the word constructive being used in order to see if it would prompt a negative reaction. Whether or not there was a reaction the question was quickly followed by the words "I mean constructive criticism". Generally there was a reaction and it was fairly mild, however one person almost exploded at the thought that he might criticise his 'partners' in the automotive assembly industry. Their response it seems would be equally explosive. He explained that "You don't criticise, you talk. Discuss things, offer suggestions and they listen.". Another interviewee explained that "....the automotive assembly industry buyers are arrogant, primarily because they always know the best way to do things and every few years they change it all around saying the old approach was wrong and now the best way is like this....". Porter's strategic planning model (1980), includes seeing suppliers as competitors. In order to ensure and develop competitive advantage, Porter recommends 'tapered backward integration' - gradually cherry picking the operations of suppliers, to increase control of added value at their expense. Potentially this leaves the suppliers with the most difficult and least rewarding parts of the process. Only one company described an experience that could fit this scenario and this was with just one customer. The customer withdrew its newer high running tools to set up its own press-shop and left its older, more troublesome, and lower running tools with the displeased supplier. There must however be other customers of pressed part suppliers who have their own press-shop and run high volume parts in house, perhaps close to their assembly, while buying lower volume items from companies that specialise in this area. 7.3.2 Supplier Development and Cost reduction

Figure V Open Book Costing or Not

0% 10% 20% 30% 40% 50% 60% 70%

Some core customers w antopen book costing

Companies that offer openbook costing

The research indicated that many companies operated different forms of open book costing with some of their core customers. This varied from the basic where a small company spent a day every year with a customer working through the prices of each of the different components, to the more sophisticated customer who knew the full manufacturing details involved and who offered new work with both the price that they were to pay for it and the percentage cost reduction expected every year thereafter. General Motors have caused considerable changes in the market place with the aggressive purchasing approach that they have taken over the last few years. They have, torn up contracts, introduced global sourcing, and demanded price cuts of up to 20% from some suppliers. In return GM have offered help to achieve the cost reduction required and also 'life of car' contracts. GM have also created supplier


development teams, called PICOS teams, in order to disseminate to their supplier base the techniques of total cost reduction and to help the suppliers put them into practice. One company surveyed found GM's global sourcing policy hard to live with. GM, it seems, get quotations from three or four companies and choose the best price unless the UK supplier can match it. This meant that they had to equal the prices of foreign competitors with lower labour rates in Turkey for example. This company thought that continuous improvement was a matter of survival for them and nothing less.

Figure VI Supplier Development and Cost reduction

0% 10% 20% 30% 40% 50% 60% 70%

Supplier development of fersare expected to be of use.

A share of process costreduct ions are passed on.

Price reduct ions are the resultof joint ef fort .

Some customers expectregular price reduct ions

Some customers actuallyprovide useful help.

Some customers promotecont inuous improvement .

Some customers of fer help todevelop the supplier.

A few of the companies were frustrated that their suggested cost reduction proposals were seemingly held up be the customers technical department. This appeared to colour their reaction to requests from the customer to cut costs and less inclined to react positively in price negotiations. One such company representative, who had to formally set targets with a customer, said that he was not interested in receiving help from customers to develop the company, as he believed that they were just tinkering. Process cost reductions were not automatically passed on in virtually all cases except where the customer contributed either tooling costs or the impetus to improve through the use of Supplier Development Teams for example. Savings resulting from ideas from the actions of GM's PICOS teams were split fifty percent each as were most jointly developed cost reductions. The suppliers only appeared willing to voluntarily pass on all of the cost reduction if it could see it being passed on to the end customer in a price elastic market; the resulting increase in sales then benefited both parties. A number of customers were looked on very favourably as they helped in some way with the training of personnel at their suppliers. One company obtained a grant from its local metropolitan council to supplement a part of its training budget that it pooled with the training budgets of its suppliers. In this way, companies in its supplier base had access to training resources that, ordinarily, they could not afford. There was some indication that the most forward thinking companies selected the customers with whom they were interested in forming partnerships. One company


specifically opened a press-shop in South Wales to service the Japanese companies manufacturing computer and electronic products. They took the view that the Japanese approach to manufacturing and customer-supplier relationships was "...a philosophy that makes sense", it was "The only way". This company was in many ways the most advanced of all the pressed part companies surveyed in terms of its 'Japanisation'. Not surprisingly, its sales manager had an MBA; the subject of his dissertation was the Japanisation of a large British company which was a first tier supplier to automotive assemblers. Positive Comments "One buyer does listen to ideas but then he's especially helpful." "You've got to cut costs." "We're now leaner and keener." "5% reductions every year are expected. If we can't achieve it they offer help." "Passing on of cost reductions? Possibly, well it depends on the customer, one now their schedule is always spot on......" Negative Comments "They (automotive assembly companies) don't visit too often except for social occasions." "Personally I think that they're just tinkering." 7.4 Quality Pressures Both the external and internal drivers to improve quality are assessed in this section. 7.4.1 External Quality Demands The principal external driver to improve quality appeared to be core customers who did not inspect supplies. These customers were mainly in the automotive and computer industries. Counting and inspection of bought out items by customers are non-value added operations and are indicative of insufficient trust in the supplier. In place of counting an alternative technique is back flushing where customers pay, without first receiving an invoice, for what they calculate they must have received. One of the companies surveyed was involved in back flushing but this was not a question specifically asked. The requirement for high quality supplies has lead to 58% of companies having customers that insist that their Supplier Quality Assurance (SQA) procedures are used. In many cases these procedures include statistical process control (SPC). Possibly the most well known SQA requirement is the Ford Q1 system. This is a comprehensive specification for the way that many of the internal company practices are to be done. Many of the companies that do not have either Q1, or the General Motors equivalent (Targets For Excellence), disparaged the accompanying paperwork as unduly bureaucratic and time wasting.


Figure VII External Quality Demands

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Some customers discuss criticalcharacteristics of new parts

BS5750 was introduced due tocustomer pressure

Some customers demand a zerodefects policy

Some customers demand theirSQA procedures be used

Some core customers insist thatSPC is used

Some customers do not inspectsuppliers goods

Generally customers were just requesting BS5750.

Some customers were demanding BS5750.

From the data it appeared that there are more customers who have procedures that are intolerant of non-conformities, than there are customers who are pressing for measures to assure quality by demanding techniques such as SPC and SQA. Customers were more interested in the parts being delivered reject free than in how the supplier achieved that condition. This view was supported by the smallness of the number of companies who had customers who bothered to discuss with them the critical characteristics of new designs and tooling. In this, the automotive assembly industry seems to be the major culprit of double standards. One interviewee commented "Automotive companies say they do this but they don't bother. They don't have enough people". This evidence contradicts both the Ford and General Motors quality manuals for example and also the experience of another company in the pressings industry, Grote and Hartmann (UK) Ltd, whose quality manager (Baillie, 1991) has written in uncritical terms of the quality demands of the automotive industry. The customer preference for suppliers to implement the UK standard BS5750 seems to have been a major driver for the suppliers to act. This standard regulates quality assurance systems in companies. Companies making safety critical components such as toe protection caps for safety shoes generally appear to have introduced the standard much earlier than for example those supplying the automotive trade where the customer SQA was given more prominence. Appendix 1 gives an overview of the position of BS5750 in the context of other quality methods. Positive Comments "The discipline it instils is good." "We haven't had a rejection from Ford for nearly four years, and I'm proud of that.", Negative Comments "We learn with experience." "Most customers don't know what the critical characteristics are!" "We would like to be involved at the concept stage, but they design it, get the prototypes made elsewhere, and, by the time we get it, it's a cock-up."


7.4.2 Internal Quality Demands Many writers, including Morrison (1992) and Schonberger (1982 & 1986), argue that SPC and control charts, together with JIT production and a relentless pursuit of the causes of non-conformities, are the techniques that allow Japanese manufacturers to drive realistically for zero defects.

Figure VIII Internal Quality Demands

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Operating machines is largely done by setters.

Quality circles are in use.

A zero defect policy is actively pursued.

BS5750 was initiated because it was thought to be useful.

The decision to use SPC is driven by a tool capability study.

Process FMEA's are completed for new tooling.

Corrective actions are driven through to a conclusion.

SPC is used on some tools.

SPC done by operators only.

SPC is done by both operatorsand patrol inspectors.

SPC is done by patrolinspectors only.

The fact then that so many of the companies report using SPC is very positive. There does however appear to be an over-reliance on sample plan inspection which as Morrison (1992) points out is hardly used in Japan. A comparison of SPC and sampling plan control is given in Appendix 2. There was also a recognised over-use of patrol inspectors. Partly this was because the operators either were not properly trained in SPC or were not trusted to do it correctly. Certainly the general impression given was one of lack of trust. Process control techniques are known to be much more effective when they are done either automatically or by the operator. As the majority of the work done by these companies does not warrant dedicated control equipment, process control by operators, and not patrol inspectors, is the way to approach zero defect. The question about whether SPC is driven by whether the tooling is 'capable' of operating consistently within the design tolerances is a bit misleading but only in the sense that Japanese manufacturers tend to try to design parts well within the known capability of the process. In this case their SPC would consist of checking dimensions at the start and end of the production run but it would remain SPC. The question "Are corrective actions driven through to a conclusion?" was on reflection felt to lead the respondent too much. Hence, although a number of people stressed it was done, it is believed that the 67% positive response rate is too high.


Although not specifically asked, no respondents linked JIT or even small batch sizes with improving quality. This finding is definitely at variance to the literature where in all texts from Schonberger (1982, 1986) to Cusamano (1991), to Womack et al (1990), the evidence that JIT improves quality seems overwhelming. Only two companies had operators who were also setters. The remainder seemed unaware of the value placed, by companies like Toyota, in operators both not having to wait for a setter, but also being in control of their own quality. Schonberger (1982) talks of a company where an operator sets and runs 14 different tools each day on a Bliss 60 tonne press. Apart from being astounded at the quick set ups and short runs that this involved, some interviewees felt that such a suggestion could lead to a strike. More worrying though, was that none of those asked knew of this practice. Positive Comments "Quality went too far down the fit for purpose road and had to be pulled back." "We've sent some operators on a two day SPC course and we've just started using it." Negative Comments "The quality manager cost a fortune so we got rid of him and now I do it all." "A Zero Defect policy is impractical as we have so many tools used just once a year." 7.5 Production Pressures Both the external and internal drivers to reduce total production costs are assessed in this section. 7.5.1 External Production Demands The research revealed that for over three quarters of the companies some of their core customers exerted a high degree of pressure to not only deliver frequently but on time. "Ford might, just might, forgive you the one time but not the second" was one quote.


Figure IX External Production Demands

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Some customers use Kanbanplanning systems

M ost customer ow n their tools100 % .

JIT deliveries required by somecustomers

Some customers prefer smallbat ches, of ten

Some customers monitor deliveryperformance.

Some customers do not t oleratelate delivery

For customers, goods frequently delivered and used in small quantities are more likely to result in on time deliveries from the supplier. This is because the supplier becomes aware of the customers manufacturing plan, makes product to suit and in most cases builds a contingency stock. Other advantages for the customer of such deliveries is that the working capital and floor area that are tied up in holding stock are dramatically reduced. Customers also tend to promote JIT delivery requirements as, if the supplier starts to manufacture in a JIT way, the total acquisition cost can be improved by the supplier reducing its own stockholding costs and increasing its level of quality and flexibility. One major motivator for suppliers to provide on time deliveries is the sanction of customers to move tooling away to those that promise a better service level. The ability to move tooling at no cost can ease the decision to move away from a supplier, hence some suppliers are keen to have part ownership. Positive Comments "Kanban delivery is the change that has been most useful to the company." Negative Comments "We would like to hold stock if we could but we don't have time to build stock." "To be honest, we don't discuss the performance reports the customers send us." "We make just in time for the automotive industry but the electrical industry ask for monthly deliveries." "One company wanted us to make in weekly batches from equipment that had a two or three day set up time. We got rid of them." "One company sent a van for a part worth just a penny." 7.5.2 Internal Production Demands

Figure X Internal Production Demands


0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Kanban / Pull systems areused internally.

Some purchasing is just intime.

The company has a set upreduction programme.

Preventative maintenanceprogramme for machinery.

Self monitoring of deliveryperformance.

Manufacturing response to JITdemands.

Standard packaging is used.

Training is given to achieve aflexible workforce.

JIT production for JIT deliveries.

Usually JIT production for JIT deliveries.

JIT deliveries produced in monthly batches.

The responses on training, standard packaging and preventative maintenance were predictable, but the number of companies monitoring their own delivery performance was unexpected. The reason for the high degree of control of schedule adherence was that it was considered a matter of survival for those companies delivering to automotive and computer companies. For these companies late deliveries to core companies did not occur. Set up reduction programmes had been tried but only a few had much success. One such programme had the enthusiastic backing of the managing director and the sales director felt that they were really driving towards small batches with single figure set ups (i.e. under ten minutes) a distant possibility. He stated that the flexibility of JIT and set up reduction were improvements that had made the most impact on the operation of the company. Another company described set up reduction as useful "up to a point" but it was still aiming for 5 minute set up times. A third company believed it had achieved single digit set ups and produced everything just in time. For those that had not tried it the standard excuse used was that it was impractical as they were a subcontractor with a large variety of tools each used on a variety of machines. The second most popular answer was "Who's going to pay for it?". The most important advice seemed to be to ensure that all new tools could be set quickly and that a tool standardisation programme was in place to improve existing tooling. The deliberate use of a small raw material stores area was cited as the way in which 17% of companies approached JIT purchasing. This seemed more an attempt to constrain the company buyers than involving them in a cost effective practice. Positive Comments "Everything is made in small batches just in time. We operate a 5 day lead time." Negative Comments "We have eleven raw material suppliers and we move from one to another regularly."


"We don't think set up times can be reduced." 7.6 Human Resources Management Policy

Figure XI Human Resources Management Policy

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

A Total Quality Managementprogramme is in place.

Benchmarking is doneagainst the competit ion.

Performance graphs areprominent ly posit ioned.

A Continuous Improvementprogramme is in place.

Employees are involved inimprovements.

Training is given a highpriority.

The research indicated that, apart from training in machine operation, the level of training of employees was disappointingly low even from some of those who stated that training was a priority. Having found this dismal picture there were some brighter spots. One company had converted a conference room to double as a training facility and was using "Business for Change" video recordings from the BBC in their drive for continuous improvement. Another company, with 105 employees, was working for an Investors In People award and also had two employees sponsored on a part time MBA course. A third company boasted that it spent two percent of its turnover on training. The TQM and Continuous Improvement programmes were generally introduced very recently and only 8% of companies had both initiatives in place. Positive Comments "We understand that Continuous Improvement needs three things for it to work; total management commitment, total management commitment and total management commitment." "We're involved in breaking down the barriers between departments" Negative Comments "A consultant tried to involve the employees, but they got scared so we dropped it." 7.7 Conclusion As was stated in the introduction there is a lot of data presented in this chapter. The conclusions that can be drawn from the information are generally highlighted in the text in the form of the pointed positive and negative comments. Further conclusions are presented in Chapters 8,9, and 10 where the findings are respectively analysed, tested against the hypothesis, and used to draw conclusions and recommendations.


The following chapter draws together the external pressures for change with the internal measures taken by the pressed part companies to improve their organisations and operations.



8 The Findings - Analysed 8.1 Introduction This chapter examines in statistical and qualitative detail the possibility of causal relationships between the external customer imposed pressures to improve total acquisition costs and the indicators of the internal improvements made. Apart from analysing the potential of an overall relationship the analysis also looked further into the possible relationships between external and internal quality pressures to improve and between external and internal production pressures to improve. The chapter begins with a review of the success of the methodology used in selecting and collecting the information in the survey. 8.2 Success of the Methodology The selection of the industry for study was gauged to be successful. None of the interviewees mentioned, either obliquely or not, regulatory, financial or technological pressures and none appeared to feel that in the short term they were under threat of losing existing business to more efficient competitors. It was believed that the interviewees answered honestly and without using 'sales patter'. In part, this was because they obviously related easily to the questions posed, which appeared to be in sympathy with the many of their day to day problems. One of the questions (on corrective action) was later thought to be too leading and hence replies to this question are suspect and are highlighted later as such. The broad spread of data found, tended to indicate that, within the selection criteria, the companies interviewed were randomly selected and representative of many within their industry. The data are however, inherently biased towards the more 'progressive' companies as four out of the five who refused to participate described themselves as "traditional" press companies. They justified themselves with additional comments for example "We're just your normal old press shop", "We haven't changed for years" and "We don't do any Japanese things here!". The cross-checking, especially the visits to interviewees, revealed that the information received in the telephone interviews was fundamentally valid, but it exposed some of the weaknesses of the crude 'point scoring' data collection approach used. The fact that someone might say that their company performs a technique may well be true, but what may be more important, is the personal and company-wide depth of knowledge and level of commitment to the technique.


8.3 Graphical Analysis of the Data In order to obtain an overview of the data it was necessary to condense the results of the questionnaire into a series of indices. Each of the questions asked was allocated a score, usually of one point. Where there were two or more encouraging answers possible the question was allocated a higher points value and the graded answers given were allotted different points. Thus one point was allotted against a situation where core customers visited 3 or 4 times a year and two points for more than four visits. In all cases the allocation of scores to questions was achieved through using a cavalier approach coupled with common sense. The allocation of points to the various questions concerned is given in the Appendices 4 and 5. The first figure is a plot of the index of overall internal pressure with the index of the overall internal pressure to improve. It is intended to be a direct and forthright support or denial of the hypothesis: There are causal relationships between the external, customer imposed, pressures to improve total acquisition cost and the indicators of the internal improvements made by the supplier.

Figure XII Overall Internal Pressures vs. Overall External pressures

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Index of Overall External Pressure

Ind

ex o

f O

vera

ll In

tern

al P

ress

ure

The line drawn is one of best fit, calculated by the least squares root, Regression analysis calculations show that the Pearson Correlation coefficient is 0.752, which leads to the conclusion that the above hypothesis tested positive at the 99.5% significance level.(i.e. there is a 0.5% chance that the hypothesis is wrong) This statistical approach is very much dependant both on the randomness of the original selection and on having sufficient data points to average out rogue data. Hence it should be fully understood that by having just twelve data points the statistical results are in doubt.


To preserve anonymity the data has been deliberately presented in a manner that hinders the tracking of individual company results. Unfortunately this also frustrates the reader from drawing their own conclusions about individual companies. From my own notes of the individual companies, what was immediately apparent about those companies who were positioned above the line in Figure XI, was that they seemed to be in control of the change process within their business, that they were generally ahead of the demands of their customers and that they were relaxed about those demands. Those companies under the line conversely appeared to be reluctant movers. Hesitant about the techniques that they did initiate, they were being drawn against their will into manufacturing and management techniques that they were uncomfortable with. The next figure plots the internal and external quality pressures present on companies.

Figure XIII External Quality Pressures vs. Internal Indicators of Quality

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

External Quality Pressure Index

Inte

rnal

Qu

alit

y In

dex

The line through the data is the best fit line using the least squares rule. The relationship between the internal indices of quality improvement and the external quality pressure index is statistically less significant than the overall comparison. The hypothesis tests positive only at the 95% significance level. The Pearson coefficient is 0.512 and thus only 26% of the correlation was due to the regression. (The corresponding value for Figure XI was 57%). In a similar way to the analysis of overall data given in Fig XI, the companies above the line were much more relaxed about their abilities to control quality.


Figure XIV External Production Demands vs. Internal Production Demands

0%

20%

40%

60%

80%

100%

120%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

External Production Demands Index

Inte

rnal

Pro

du

ctio

n In

dex

The relationship between the data obtained on production was not significant at the 80% level. The line drawn on the graph passes through zero and the weighted average results. What was noticeable was that the two companies who pushed their internal production index the highest were not over burdened by external production demands. These two companies had a substantially higher turnover per employee than the other ten companies. An attempt was made to link turnover per employee with the indices of overall internal pressure and also with that of overall external pressure.

Figure XV Index of Overall Internal pressure vs. Sales per Employee

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Index of Overall Internal Pressure

Sal

es p

er E

mp

loye

e £

p.a

.

This relationship showed a 99.5 % significance level that the hypothesis was positive.


Fig. XVI Index of Overall External Pressure To Improve vs. Sales per Employee

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%


Sal

es p

er E

mp

loye

e £

p.a

.

This relationship was statistically significant at the 97.5% level. The average sales per employee are presented here in two ways.

Figure XVII Number of Employees vs. Sales £m per annum

0

1

2

3

4

5

6

7

0 50 100 150 200 250

Number of Employees

Sales £m

p.a.

This regression was significant at the 99.5% level.


Figure XVIII Average Sales per Employee £

per

an

nu

m

0

10 ,000

20 ,000

30 ,000

40 ,000

50 ,000

60 ,000

70 ,000

1 2 3 4 5 6 7 8 9 1 0 11 12

These two figures are indicative of the range of companies studied and possibly their randomness in selection. 8.4 Applicability of Survey Results to Other Industries With regard to the research done to determine the applicability of the survey results to other industries, it was decided that the additional discussions held, with representatives of other industries, provided only anecdotal evidence. This is one of the principal weaknesses of this study. Apart from the fact that the discussions held were informal there was no attempt made to link the differing competitive, financial, regulatory, and technological pressures that these industries were under to those experienced by the pressed metal parts industry. In general the discussions supported the results found in the survey. They all recognised the external pressures, the generic customer types and the internal struggles to improve. Another factor that was two of the companies interviewed, who were very much the market leaders, were generally under much more internal stress than that applied externally. One company representative, for example, complained that one of its top three customers was probably unaware of its efforts to promote total quality management that had been initiated a year previously. 8.5 Conclusion With the exception of the external and internal production pressure results, the data sets presented above correlated at high levels of significance which indicates a relationship between them. Note though that the case for one set of data being dependant upon the other set was not made. Note also that the statistical evidence would have been substantially different, if the one company that consistently held the highest indices, had not been included in the survey. These hypothesis test results are discussed further in Chapter 9.


9 How The Findings Support The Hypothesis 9.1 Introduction The research was to investigate the hypothesis: There are causal relationships between the external, customer imposed, pressures to improve total acquisition cost and the indicators of the internal improvements made by the supplier. The approaches used to test the hypothesis involved a series of questions that related to the factors of production that the company management had control over and to the demands and support that the customers placed on the companies surveyed. To summarise the results the data were collated and presented in an x-y plot discussed in Chapter 8 and reproduced here again for convenience.

Pressures vs. Overall External pressures

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%


Ind

ex o

f O

vera

ll In

tern

al P

ress

ure

The line drawn is one of best fit, calculated by the least squares root. Regression analysis calculations show that the Pearson Correlation coefficient to be 0.752, hence the proportion of the variation which can be attributed to the (assumed) relationship is 57%. These figures lead to the conclusion that the hypothesis tested positive at the 99.5% significance level.(i.e. there is a 0.5% chance that the hypothesis is wrong). This information has been reproduced from Chapter 8 in order to emphasise that too much reliance can be put onto statistical treatments of data.


9.2 Anecdotal Evidence What was striking from the visits to four of the companies surveyed was the difference between: a) where a technique was being implemented because it was fundamentally thought that to be a good idea and b) where a technique was used primarily because it was a customer, or head office management, requirement. The first situation was marked by an apparent receptiveness to learn from the technique that made it seem as though the technique would gradually seep into the company psyche. In the second situation, where the technique was forced on the company, the perception was that the technique concerned was bothersome and that really it was unnecessary. In this second case the full worth of the technique was not achieved. Certainly the evidence suggested that if companies were interested in making a change because they believed in it, then the change would be more likely to be successful. If companies implemented a technique because a supplier had insisted on it, then it was more likely to be just a cosmetic response to please the customer. An example of this is where the purchasing company buys in a JIT way, because they want to drive non-value added costs from the system, only to find that the supplier, who supplies in a JIT form, holds stocks for the customer who will, of course, pay for this stockholding in the price paid. Note that a JIT store is not true Just In Time, but its presence can sometimes mean lower costs for the customer. For example a JIT store for industrial fasteners may prove cost effective as the parts are of low monetary value but when unavailable, result in high costs to the business. Such a service can be pricy with one fastener supplier estimating that JIT stock management adds 20 to 30 % onto the component price. 9.3 Conclusion The message for the purchasing organisation is that worthwhile improvements in its suppliers can only be truly achieved by the suppliers themselves. If a buyer, or an outside management, wants suppliers to adopt a new idea or practice then the change agents, within their suppliers, must be convinced of the merit of that idea or practice. Only then will the change stand a chance of overcoming the natural inertia within the supplier's organisation. Note that although it may be desirable to convince a supplier of the usefulness of a customer requirement before implementing it, this is not always necessary. Sometimes the customer will need to insist that it is implemented before the logic is


accepted by the supplier, in other cases the needs of the customer will over-ride the reluctance, or prejudice, of the supplier. Finally, where a supplier does not meet the needs of the customer then that customer has two options. The first option is to try to instigate improvements within the supplier and thus, effectively, invest in their development. Costs involved may include: • The resource needed to try to convince change agents that change is desirable. • The resource required to offer training and/or engineering support • The costs involved in receiving an inadequate service. • The costs involved, and opportunities lost, in not having a world class supplier. The second option for a dissatisfied customer may be much more cost effective. It is to move to a more appropriate supplier. Both options should be strongly considered.



10 Conclusions and Recommendations 1 To achieve effective procurement decisions the purchasing organisation has to

understand the market environment and the forces that are acting upon their supplier base.

Recommendation: Regularly undertake an environmental scan and record the

results. The results should be easily accessible to all personnel, within the company, for whom the results are relevant.

2 To achieve effective procurement decisions, resourcing and supplier

development the purchasing organisation has to understand its own strategic needs from its supplier base.

Recommendation: Regularly conduct a strategic needs assessment of the

supplier base based on the corporate plan, and use the assessment together with environmental scanning data and a detailed evaluation of the existing suppliers to produce a purchasing plan to achieve the supplier base needed. Implement the plan and regularly review the situation.

3 Developing suppliers to match the strategic needs of the business can be an

expensive and time consuming exercise. It involves non-value added costs that are usually not attributed to the suppliers concerned.

Recommendation: Choose suppliers that are the most appropriate to the

business needs. They should be amongst the best in their industry or capable of quickly developing to that standard.

4 Where the purchasing plan involves supplier development the costs involved

have to be justified by the expected benefits. Recommendation: Identify the opportunities for total acquisition cost

reduction, select the suppliers for development, propose a joint action plan, and estimate the resources required. Use the plan to conduct a cost/benefit analysis and then determine whether, or in what form, the plan can proceed. Regularly review the situation to check if the forecast costs and benefits proved to be accurate.


5 Supplier development involves both continuous improvement and step change. Recommendation: Programmes for development of the supplier base should

involve programmes that cross the entire supplier base as well as plans that are tailored to specific suppliers.

6 To achieve results when trying to affect the supplier base, carry the change

agents within the supplier with you by ensuring that your arguments are relevant.

Recommendation: Construct a brief business plan for each core supplier and

compare your ideas with that of the supplier. Where the two plans differ, understand why.

7 Failure to develop suppliers can occur when the purchasing plan primarily

focuses on the benefits for the buyer. Recommendation: Ensure that trying to improve the supplier, in terms of

profitability, skills, robustness, etc., is a core part of the programme. 8 Failures to develop suppliers according to the purchasing plan occur when

customers are perceived to be just tinkering. Recommendation: Adequately resource the departments dealing with

suppliers, do not make promises you cannot keep, and respect your suppliers. Finally remember to be realistic, but ambitious, in making your demands on others as:

Nothing is impossible for the man who doesn't have to do it himself.




Appendices

Table of Contents

Page

Appendix 1 Questionnaire . 75

Appendix 2 A Comparison of Quality Management Methods 79

Appendix 3 Statistical Quality Control - Control Charts

`` and Sampling Plans 81

Appendix 4 Indices Allotted to External Drivers To Improve

Supplier Performance. 82

Appendix 5 Indices Allotted to Internal Drivers To Improve

Supplier Performance 83



Appendix 1 Questionnaire Prompts are in italic letters The Interviewee

1 Name 2 Position

The Organisation

3 Name of Company 4 Date Established

5 Turnover p.a.

6 Sales split by product: Components % Tooling %

7 Number of Employees: Total Direct & Indirect

8 Equipment Type Type: Progression Bruderer/SMV/CVA/HME

Tonnage Range Secondary Operations Hare

Multislide Bihler/Finzer/Rockwell/H & F

Transfer

Quality

9 Describe your company's approach to quality?

Quality Circles

Zero Defect Policy

Total Quality Management

Continuous Improvement Programme

Do you have some customers who do not inspect?

10 I believe that you have BS5750. Is it Part II (I,III,IV ), when did you get it

11 Why did you get it (BS5750)?

Customer demand/Customer Request or It was thought to be useful

12 Have you got some main customers who insist on things like Ford's Q1

Who are they?

13 Do you use SPC Y/N Who: Operators

Operators and Patrol Inspectors

Only Patrol Inspectors

14 When do you find that SPC is used Driven by tool capability study

Customer Insistence or Specification

Policy for all tools


New Tooling and Parts

15 How do you evaluate where your process is likely to fail?

Do you do a process FMEA?

16 How frequently does the customer tell you the critical characteristics (of the

new tool)?

Do they visit to discuss it? Y/N Do they give you information from the design FMEA? Y/N

Manufacturing (Internal techniques that the company has taken on to improve)

17 Have you done or are planning any of the following:

Preventative Maintenance

Continuous Improvement Programme such as Kaizen

Set up reduction programme

JIT Purchasing

Kanban/pull production techniques

Cross Training of workforce to improve your flexibility

Benchmarked your competitors

Do you use standard containers and packaging

Which did you find most useful?

18 What sort of training is done?

19 What sort of proportion of your operators are also setters?


Customers

For the next few questions can you consider just your top three customers in turnover

terms; I do not need to know who they are.

20 What percentage of business do they account for?

21 Do they provide forecasts and blanket orders

Are the forecasts useful?

22 Do they put you under pressure to deliver frequently in small batches?

Do they put you under pressure normally? Which sectors?

23 Are JIT deliveries needed?

24 If they ask for JIT deliveries do you make Just in Time,

or in monthly batches, or quarterly?

25 If you do not have JIT deliveries do you find that weekly deliveries for the

same part are made?

26 How is delivery performance monitored?

By yourselves/by the customer or by both?

Tooling

27 Do they (customers) own the tooling a 100% or do you own some of it?

28 How often do the customers move tools between suppliers?

Do customers "cherry pick"? Do you feel threatened?

Relationship with customers

29 How would you describe your relationship

30 Given the following three relationships which ones would suit your top three

customers:

a) Traditional, friendly, helpful but competitive.

b) A partnership based on mutual trust, open-ness and continual

improvement together.

c) None of those

31 Do you operate open book costing and do your customers want it?

32 Do the main customers pay on time?


33 How do you achieve price changes with your customers

34 Do they know your cost structure and therefore do not 'haggle'

35 Do they want you to follow a Continuous Improvement programme

36 Do they do anything about helping you or is it just talk?

Supplier development teams

37 Do they (customers) say that they want to help develop your company?

38 A general question - do you think that its right that a supplier is expected to

pass on manufacturing cost reductions to customers?

When do you do it How much do they get? 100% ?

39 How frequently do your top three visit?

40 Do they react positively to criticism.....constructive criticism that it?

41 What proportion of your business is for the automotive industry, either directly

or indirectly?

Do you deal with this area directly?

42 Finally Can you name some of your customers and tell me which industry that

they are in?


Appendix 2 - A Comparison of Quality Management Methods According to Chase (1989), the four main quality management approaches are Quality Control (QC), Quality Assurance (QA), Total Quality Control (TQC) and Total Quality Management (TQM). Attributes of the four methods are compared overleaf. Quality Control is exemplified by the statistical quality techniques (as discussed in Appendix 2) of sampling control plans and control charts (the latter is often known as Statistical Process Control or SPC). A framework for Quality Assurance is provided by BS5750. This 'horizontal' standard was introduced in the UK in 1979 and has since been adopted internationally as ISO9000 and in Europe as EN29000. Hornby (1991) says that the achievement of the standard provides considerable competitive advantage to companies, but he points out that there are differences between total quality and BS5750 which may cause them to "push in different directions". Heap (1991) explains that BS5750 has a narrower structure than total quality and likewise its aims are also narrower. The principles of total quality control, as established by Feigenbaum (1991), incorporate the tools used in quality assurance and systems analysis together with the concept of continuous improvement. Its limited success is, according to Chase (1989), due to its association with manufacturing and its non-acceptance by management The Japanese have pioneered the use of all the above techniques and blended them with their management approach1. The principal difference though between the Japanese approach to quality, and the usual Western way is the Japanese attempt to integrate "Quality" into all working practices of the company, thus making quality improvements a way of life. In the West this approach is called Total Quality Management.

1 See the Ohna (1988) and Cusamnao (1991) on the Toyota Production system and Womack et al (1990) on their description of the Japanese manufacturing systems which they call lean production.

METHOD 1 Philosophy Starting Point Benefits Responsibility for Quality Goals

Principles Quality Cost Improvement Focus Customer

1Source: Chase (1989)

QC Inspecting Quality In Production 'specification, itemised costings Few, causes more problems than it solves QC Department through individual inspectors Defect detection

Post-production inspection Trade off between cost and quality Improvement by increased specification Product Uncertain

QA Building Quality In Adoption of procedure manual, introduction of variance analysis Improved product quality, evidence of procedures, market entry QA Department i.e. centralised staff function Production to design specification, defect prevention

Production process monitoring. Specified quality at specified cost Improvement by improved product specification and SPC Production External

TQC Organising Quality In Blueprinting operation, use of problem solving techniques Cost reduction (waste and inventory), production to customer specification, fewer suppliers Systems and operations, through design and installation of controls Cost reduction & meeting specification through continuous improvement

Total operational control? Cost reduction through quality improvement Project based improvement by doing it right first time, correcting own errors, insistence on quality first Customer specification External customer, internal customer quality chain

TQM Managing Quality In Understanding customers establishing quality management structure, culture change Guaranteed quality, the ability to manage change, customer satisfaction, habitual improvement Organisation wide responsibility through devolved strategic vision Habitually and competitively meeting customer requirements

Holistic Cost reduction through quality improvement. Customer driven habitual improvement Total Quality? Customer perceived quality? Enhancing quality Internal/external customer boundary no longer valid. Everyone is a customer.

Appendix 3 Statistical Quality Control - Control Charts and Sampling Plans

There are two major quality control techniques that are used to control ongoing

production; these are control charts and sampling acceptance plans. Both methods

were developed in the 1920's. They are based on the use of statistical analysis, and

feedback, to improve quality and they do not need statistics experts to operate them.

The sampling acceptance plan is used to inspect product once it has been produced. It

is a way of inferring the level of rejects in the entire batch by measuring the number of

rejects in a small sample. The resultant feedback is thus long after the production run

is completed and the operators only feel a tenuous ownership of the problem that

caused the rejection.

Control charts, frequently known by the term Statistical Process Control (SPC),

provide better control than sampling plans. They are best used during the production

process to give a rapid response to changes in the process. Generally companies that

introduce control charts tend to have moved away from the almost total reliance of

sampling plans, coupled with inspecting first and last off samples. Consequently the

natural progression is for the trained person, the patrol inspector, to take the SPC

measurements. The full benefit of the technique though is felt only when the quality is

monitored continuously, by machines or operators, and whenever a defect is

encountered it is diagnosed immediately and the solution implemented immediately,

even if production has to cease while this is done.

Morrison (1992) argued that this is the essence of Japanese production philosophy

which is based on the premise that defects need not necessarily happen and should not

be allowed to happen. He states that the Japanese do not rely on sampling plan

inspection and he calls for its demise in this country also.


Appendix 4 Indices Allotted To External Drivers To Improve Supplier Performance

The following table is lists the weighting put on each of the responses of the interviewees. The intention was to use the data to evaluate the potential relationship between internalmeasures of improvement and external pressures to change.

EXTERNAL INDICATOR OF PRESSURE Possible IndexValue

QUALITY DEMANDS1. SOME CUSTOMERS DO NOT INSPECT 12. SOME CUSTOMERS DEMAND ZERO DEFECTS 13. REASON FOR THE INTRODUCTION OF BS5750 A) CUSTOMERS DEMANDED BS5750 (2 POINTS) 2 or

OR B) CUSTOMERS REQUESTED BS5750 (1 POINT) 1

4. SOME CUSTOMERS SPECIFY OWN RIGOROUS QUALITY ASSURANCE PROCEDURES 1

5. MOST CORE CUSTOMERS MEET TO DISCUSS CRITICAL CHARACTERISTICS FOR NEW TOOLS 1

6. SOME OF THE CUSTOMERS INSIST ON THE USE OF SPC 1

Possible Sub-total 7PRODUCTION DEMANDS

7. MAJOR CUSTOMERS APPLY PRESSURE TO DELIVER FREQUENTLY IN SMALL BATCHES 1

8. JUST IN TIME DELIVERIES REQUIRED BY SOME CUSTOMERS 1

9. SOME CUSTOMERS OPERATE KANBAN / PULL PRODUCTION PLANNING SYSTEMS 1

10. SOME CUSTOMERS MONITOR THE DELIVERY PERFORMANCE OF THE SUPPLIER 1

11. SOME CUSTOMERS DO NOT TOLERATE LATE DELIVERIES 1

12. THE MAJORITY OF CUSTOMERS OWN TOOLING 100 % 1

13. SOME CUSTOMERS INSIST ON JIT MANUFACTURE 1

Possible Sub-total 7CLOSENESS OF CUSTOMER RELATIONSHIPS

14. PROPORTION OF SALES ACCOUNTED FOR BY TOP THREE CUSTOMERS

A) 36 % TO 55 % (1 POINT) 1 or

OR B) 56 % TO 75 % (2 POINTS) 2 or

OR C) 76 % TO 100 % (3 POINTS) 3

14. VISITS FROM SOME OF THE TOP THREE CUSTOMERS

A) MORE THAN FOUR TIMES PER ANNUM (2 POINTS) 2 or OR B) BETWEEN 3 AND 4 TIMES PER ANNUM (1 POINT) 114. TOP THREE CUSTOMERS REACT POSITIVELY TO CONSTRUCTIVE CRITICISM 117. OCCASIONAL VISITS TO SUPPLIER BY THE OPERATORS OF SOME CUSTOMERS 318. SOME PARTNERSHIP RELATIONSHIPS (IGNORE OPENBOOK COSTING) (2 POINTS MAX.) 219. OPENBOOK COSTING / PRICING PRACTISED WITH SOME CORE CUSTOMERS 120. REGULAR PRICE REDUCTIONS ARE EXPECTED BY SOME CORE CUSTOMERS 121. YEARLY COST REDUCTIONS FROM THE SUPPLIER ARE THE RESULT OF JOINT EFFORTS 122. SOME CORE CUSTOMERS PROMOTE CONTINUOUS IMPROVEMENT 123. SOME CORE CUSTOMERS OFFER HELP TO DEVELOP THE SUPPLIER 124. SOME CORE CUSTOMERS ACTUALLY PROVIDE USEFUL HELP FOR THE SUPPLIER 1

Possible Sub-total 17NATURE OF THE CUSTOMERS BUSINESS

25. PERCENTAGE OF SALES ACCOUNTED FOR BY AUTOMOTIVE OR COMPUTER INDUSTRIES A) 21 % TO 40 % (1 POINT) 1 or OR B) 41 % TO 60 % (2 POINTS) 2 or

OR C) 61 % TO 80 % (3 POINTS) 3 or OR D) 81 % TO 100 % (4 POINTS) 4 or26. SOME OF THE CORE CUSTOMERS ARE JAPANESE COMPANIES 1

Possible Sub-total 5Overall Possible Total of Index Points 36


Appendix 5 Indices Allotted To Internal Drivers To Improve Company Performance

The following table is lists the weighting put on each of the responses of the interviewees. The intention was to use the data to evaluate the potential relationship between internalmeasures of improvement and external pressures to change.

INTERNAL INDICATOR OF PRESSURE Possible Index

ValueQUALITY1. ZERO DEFECT POLICY 12. BS5750 WAS INITIATED BECAUSE IT WAS THOUGHT USEFUL 13. PROCESS FMEA'S ARE COMPLETED FOR NEW TOOLING 14. THERE IS PROCEDURE FOR DRIVING CORRECTIVE ACTIONS (MAXIMUM OF 2 POINTS) 15. SPC IS USED A) OPERATORS ONLY DO SPC (3 POINTS) 3 or OR B) OPERATORS AND PATROL INSPECTORS DO SPC (2 POINTS) 2 or OR C) PATROL INSPECTORS ONLY DO SPC (1 POINT) 16. USE OF SPC IS DRIVEN BY TOOL CAPABILITY STUDY 17. QUALITY CIRCLES ARE USED 18. OPERATING MACHINES IS LARGELY DONE BY SETTERS 1

Possible Sub-total 11PRODUCTION9. THERE IS A PREVENTATIVE MAINTENANCE PROGRAMME FOR MACHINERY 110. JUST IN TIME MANUFACTURE

A) ALWAYS MANUFACTURE JIT FOR JIT DELIVERIES (3 POINTS) 3 or OR B) USUALLY MANUFACTURE IN JIT WAY FOR JIT DELIVERIES (2 POINTS) 2 or OR C) USUALLY MANUFACTURE MONTHLY FOR JIT DELIVERIES (1 POINT) 111. THE COMPANY MONITORS ITS OWN DELIVERY PERFORMANCE 112. SOME PURCHASING IS JUST IN TIME 113. THE COMPANY HAS HAD OR STILL HAS A SET UP REDUCTION PROGRAMME 114. STANDARD PACKAGING AND CONTAINERS ARE USED 115. TRAINING IS GIVEN TO ACHIEVE A FLEXIBLE WORKFORCE 116. THE COMPANY USES OF KANBAN / PULL SYSTEMS INTERNALLY 1

Possible Sub-total 10HUMAN RESOURCES MANAGEMENT17. A TOTAL QUALITY MANAGEMENT PROGRAMME IS IN PLACE (MAXIMUM IS 3 POINTS) 318. A CONTINUOUS IMPROVEMENT PROGRAMME IS IN PLACE (MAXIMUM IS 3 POINTS) 319. PERFORMANCE GRAPHS ARE VISIBLE 120. EMPLOYEES ARE INVOLVED IN IMPROVEMENTS 121. TRAINING IS PROMOTED 1

Possible Sub-total 9OTHER MOTIVATORS TO IMPROVE

22. IF YOU DISCOVER A SUBSTANTIAL PROCESS COST REDUCTION HOW MUCH DO YOU

PASS TO THE CORE CUSTOMER IF IT REQUIRES NO CUSTOMER INVESTMENT

A) USUALLY 100% (2 POINTS) 2 or OR B) USUALLY ABOUT 50% (1 POINT) 123. DO THE MANAGEMENT EXPECT OFFERS OF SUPPLIER DEVELOPMENT FROM THE 1 CUSTOMER TO PROVE OF USE

24. THE MANAGEMENT IS A MAJOR MOTIVATOR 125. THE ORGANISATIONAL STRUCTURE IS A MAJOR MOTIVATOR (MAXIMUM OF 2 POINTS) 226. SHOP FLOOR PERSONNEL OCCASIONALLY VISIT CUSTOMERS 127. BENCHMARKING IS DONE AGAINST THE COMPETITION (MAXIMUM OF 2 POINTS) 2

Possible Sub-total 9

Overall Possible Total of Index Points 39


Bibliography Adler, P.S., (1993), Time-and-Motion Regained, Harvard Business Review, January-

February, pp97-108 Baillie, C., (1991), The Automotive Industry - A Demanding Customer, Purchasing

and Supply Management, October, pp21-22 Bell, M., (1991), How To Deliver JIT, Professional Engineering, December pp14-15 Bruce, C., (1991), Japan: Myth and Reality, Purchasing and Supply Management,

November, pp27-29 BSI Buyers Guide 1992/93, (1992) Carlisle, J.A. Parker,R.C., (1989), Beyond Negotiation - Redeeming Customer -

Supplier Relationships, Chichester: John Wiley CBI, DTI Publication, (1993), Boardroom Report - Best Practice In Purchasing -

Making The Most of Customer-Supplier Relationships, CBI, DTI Chase, R.L., (1989), Winning With Quality, Bedford, England:IFS Publications Constanzo, Lucia, (1993), Eastern Look To Course On The Job, Engineering, August

p36 Coopers and Lyebrand Deloitte, (1991), Report on Activity Based Costing for MK

Electric Limited, Internal circulation only. Cousins, P., (1991), Choosing the Right Partner, Purchasing and Supply Management

March Crosby, P.B., (1979), Quality Is Free, McGraw-Hill Cusamano, M.A., (1991), The Japanese Automobile Industry: - Technology and

Management at Nissan and Toyota, Harvard University Press Davis, Olson, (1985), Management Information System McGraw Hill Dickson, M., (1993), Hard Pedalling on the Comeback Trail, Financial Times 2/6/93 Donovan, P., (1993), Spectre of the Throwaway Workforce, Evening Standard,

11/10/93 Drucker, P.F., (1989), The New Realities Harper and Row


DTI/CBI Publication, (1993), Innovation: The Best Practice - The Report , DTI and CBI

Farmer, D., Beyond Partnerships, Purchasing and Supply Management, September Feigenbaum, (1991), Total Quality Control, Ed 3 Rev, McGraw-Hill Francis, A., (1988), Business Mathematics and Statistics, Ed 2, DP Publications Gadde, L., Hakansson, H., (1993), Professional Purchasing, Routledge Garraham, P., (1990), The Nissan Enigma - Flexibility at work in the Local Economy,

MacMillan Giles, E., Starkey, K., (1988), The Japanisation of Xerox, New Technology, Work and

Employment Vol 3, No. 2, Autumn Griffiths, F.,(1992), Alliance Partnership Sourcing - A Major Tool for Strategic

Procurement, Purchasing and Supply Management, May Halberstam, D., (1987), The Reckoning, Bantam Hall, R., (1983), Zero Inventories, Homewood, IL: Dow-Jones Irwin Handy, Charles, (1992), The Age of Unreason, Penguin Heap, J., (1991), Quality and BS5750, Management Services Hill,P., (1992), Partnership Sourcing and Procurement, 18/6/93 Institute of Purchasing

and Supply, Presentation Hornby, D., (1991), Going For Gold, The TQM Magazine Jackson, T., (1993), Turning Japanese - The Fight For Industrial Control of the New

Europe, Collins Jones, C., (1992), Developing A Total Quality Strategy, Management Services Jones, D., Delbridge, R., Lowe, J., Ward, M., Cheese, P., Thayer, B., Sakuda, I., &

Oliver, N., (1993), The Lean Enterprise Benchmarking Project, Andersen Consulting

Juran, C., (1988), Quality Control Handbook, Ed 4, McGraw-Hill Kompass, (1987), CBI UK Kompass register, Ed 25, East Grinstead: Kompass

Publishers Lamming, R., (1993), Beyond Partnership - Strategies for Innovation and Lean

Supply, Prentice-Hall


Lloyd, T., (1993), The Spaniard in the Works Sunday Telegraph 21/3/93 McKenna, S., (1988), Japanisation and Recent Developments in Britain, Employee

Relations Vol 10 No. 4 Morrison S.J., (1992), What's Wrong With Sampling Inspection, Professional

Engineering, June , pp16-17 Murdoch, J., Barnes, J.A., (1986), Statistical tables for Science, Engineering and

Management and Business Studies, Ed 3, MacMillan Oakland, J.S., (1989), Total Quality Management, Heinemann Professional Publishing Ohmae, K., (1990), The Borderless World - Power and Strategy in the Interlinked

Economy, Collins Ohmae, K., (1985), Becoming a Triad Power: The New Global Corporation, Mckinsey

Quarterly, Spring, pp7-20 Ohna, Taiichi, (1988), The Toyota Production System , McGraw-Hill Partnership Sourcing Ltd., (1992), Making Partnership Sourcing Happen, CBI Peters, T., (1987), Thriving On Chaos, Pan Books. Peters, T.,Waterman, R.H. Jnr., (1981), In Search of Excellence, Harper and Row Peters, T.,Austin, Nancy, (1985), A Passion For Excellence, Collins Pilditch, J.,(1987), Winning Ways, Harper and Row Porter, M.E., (1980), Competitive Strategy: Techniques for Analysing Industries and

Competitors, New York: The Free Press Porter, M.E., (1990), The Competitive Advantage of Nations, New York: Free Press Prowse, M.., (1993), A Potential World-Beater, Financial Times, 8/2/93 Pugh, S., (1991), Total Design - Integrated Methods for Successful Product

Engineering, Wokingham, England: Addison-Wesley Schonberger, R., (1990), Building a Chain of Customers: Linking Business Functions

To Create a World Class Company, Free Press Schonberger, R.J., (1982), Japanese Manufacturing Techniques - Nine Hidden

Lessons in Simplicity, Collier MacMillan Schonberger, R.J., (1986), World Class Manufacturing - Lessons of Simplicity

Applied, Collier MacMillan


Schroeder, R.G., (1989), Operations Management - Decision Making in the Operations Function, McGraw-Hill

Sheridan, D., (1991), Triumphs of Optimism over Experience, Purchasing and Supply

Management , September Shingo, S., (1989), A Study of the Toyota Production System from an Industrial

Engineering Viewpoint (revised edition) Cambridge: Productivity Press Smith, D., (1988), The Japanese example in South West Birmingham, Industrial

Relations Journal, Spring Steele, P., Murphy, J., Russill, R., (1989), It's a Deal - A Practical Negotiation

Handbook, McGraw Hill Tailby, S., Whiston C., (1989), Manufacturing Change - Industrial Relations and

Restructuring, Oxford: Basil Blackwell Taylor, G., (1991), Is Paperless Trading A Reality? Purchasing and Supply

Management, December, pp26-29 Tichy, N., Sherman, S., (1993), Control Your Own Destiny Or Someone Else Will,

Doubleday Turnbull, P.J., (1986), The Japanisation of Industrial Relations at Lucas Electrical,

Industrial Relations Journal, Autumn Womack, P.J., Jones, D.T., & Roos, D., (1990), The Machine That Changed The

World, Maxwell-MacMillan Zipkin, P.H., (1991), Does Manufacturing Need A JIT Revolution, Harvard Business

Review, January - February pp 40-50 Reprint 91111

Buyers as Agents of Change - MBA Disertation

Documents

mk electric

cust om ers

backward vertical

pressed metal

pearson correlation

open book

financial

industrial