A Christmas Card Is Not Enough

Lead times can’t be cut by good intentions alone. Great relationships with suppliers are an essential element.

A critical part of Lean

Last year Ensto reduced suppliers’ lead times 36 percent across the company. In 2014, it plans an additional 25 percent reduction. The initiative may have started with Ensto, but lead time can’t be cut in a vacuum. Without close cooperation with suppliers, it’s impossible to enjoy the touted benefits of Lean manufacturing.

Ensto is a little more than halfway through a five-year program to reform and improve its relationships with suppliers. Choosing the right partners is one part of that: In 2009, Ensto had more than 800 suppliers; today, it has fewer than half that.

This transition to fewer suppliers means seeking relationships where both parties can be profitable at the quantity levels Ensto requires. Ensto is also engaged in finding second source suppliers to ensure stability and quality. It means the e-purchase system which enables suppliers to work from actual orders, instead of depending solely on forecasts.

The alchemy of transition

Pekka Tiainen, Ensto’s Director, Group Sourcing, has the job of managing the transition. So far results are good. “Our lead time has come down, yet delivery accuracy is up. Normally it’s the opposite. If lead time drops, delivery accuracy drops.”

“Our message to suppliers has been consistent: ‘Shorter lead time and better quality at reasonable price level.’ These things must be in balance, and it requires a great relationship with suppliers. A Christmas card once a year is not something you build a relationship on.”

Tiainen says experience shows that when a supplier embraces Ensto’s three-fold goal, then business booms.

One example of this is Eurofasteners, in Nummela, 40 kilometers west of Helsinki, which supplies approximately 1,500 different items to Ensto – including fasteners, plastic parts, electronic components, and tools.

Eurofasteners’ owner Jarno Kontia says his company’s turnover has tripled to nearly two million euros over a period of three years largely due to his business with Ensto. This is even more impressive when one considers he founded the company only three and a half years ago.

“I’m on the phone every day with Ensto” says Kontia, who also takes pains to stay abreast of what’s happening with his key client. “I read Ensto magazines, I monitor their website, I like to know my customer.”

E-purchase

Eurofasteners’ results may be in part credited to their use of Ensto’s e-purchase system, which is tied directly to Ensto’s factories and accelerates its conversion to a pull system.

“We’ve used the e-purchase system two years now,” says Kontia. “It’s the responsibility of the supplier to check the needs, to know the lead times. We physically fill the Kanban boxes for the Mikkeli factory. We dispose of packing materials. At first it was a lot of work, but it’s running smoothly now. It’s easy for me to check quantity levels.”

Consignment and buffer stocks are other elements of Ensto’s program. Consignment is stock physically present in Ensto’s warehouse but remains on the supplier’s balance sheet. Buffer stock is kept in the supplier’s warehouse and becomes Ensto’s once it’s delivered.

Kontia says he initially had concerns about consignment stock. “I was hesitant at first. I wondered how could we manage with all these new items with our huge quantities. But then I considered that to keep all that stuff for Ensto I’d need 2,000 square meters of warehouse.” Due to this, Eurofasteners currently manages with only 500 square meters of warehouse space, though it has plans to double that this year.

Going the Extra Mile

Currently, 20 suppliers use Ensto’s e-supplier portal and participate in the program with consignment and buffering. Pekka Tiainen believes eventually 30 to 35 suppliers will be on board.

“When suppliers see what we require it can be a shock,” says Pekka Tiainen. “They must tightly control the daily process and they must measure all kinds of things in the ramp-up – sometimes totally new things to them.”

“Historically, we’ve had a price emphasis,” says Tiainen. “But now quality and short lead time are at the same level. If these three things are in balance, then we can grow business with a supplier.”

So it helps that suppliers like Eurofasteners share Ensto’s progressive philosophy. Kontia himself travels to Asia several times a year to source fasteners, careful to choose his own suppliers with the same care Ensto does. “I’m looking for the right sized supplier, where my business will matter. They’re usually family-owned companies with similar values.”

In keeping with their values, Eurofasteners started the ISO9000 certification process with the goal of achieving it in the fall. “It may not mean more business for us, but it helps us keep quality in focus,” says Kontia.

Eurofasteners also purchases measuring instruments to enable strict control of plating and angles. “That’s a huge step for a small company like ours. But we do it because we are flexible. We value quality.”

Scott Diel