I continually see how little attention is paid to woodworking supply chain management (SCM) in our industry. It not only has a profound effect on the bottom line, but can drive the way you conduct your business. In fact, SCM often has unknowingly set the stage for the ultimate demise of some woodworking plants while serving as a springboard to lean manufacturing for others.

What is SCM?

Introduced over 25 years ago, “Supply Chain Management” refers to managing the sourcing and procurement process, plus other logistical issues regarding the movement of all materials and supplies through the processes required to meet your customers’ needs. It also includes shipping and distribution of the finished products. Good management of the woodworking supply chain encompasses the theory of Just In Time (JIT), whereby every step of manufacturing support is executed with perfect timing with all logistical matters coordinated to facilitate the processing and delivery of the finished product to the customer at the right time, with the right quality and at the right cost.

It is important to look at SCM as an integral part of the manufacturing process. Purchasing is simply buying. SCM is managing that process so as to support the goals of manufacturing — to meet the customer’s requirements.

While SCM can be accomplished with the help of sophisticated ERP (Enterprise Resource Planning) software, many small wood products firms rely on manual, in-house systems, coordinated by a one-person or even a part-time purchasing position. Without an effective effort of SCM, a company is vulnerable to waste and disruptions in production, which robs the bottom line. Ignore it and your company can suffer in profitability and service.

One Result of Poor SCM

I will never forget a conversation I had one day with the plant manager at a company that I will call Ajax Fine Cabinetry. I asked what was their order-to-delivery lead time. The answer was six to eight weeks. I don’t know where you are in your company, but in today’s competitive climate, that is an excessive lead time for cabinets. 

The next question I asked was, “How long does it take to get a typical order through your plant?” The reply was, “Five days is the standard.”

If the average lead time is seven weeks — that’s 35 working days. The normal manufacturing time was stated as five working days. Thus, there are 30 working days where — for whatever reason — the order is sitting in a file cabinet or in a computer. When I inquired why this gap was so huge, I got a common reply: “This is the time we have to allow for the delivery of some of the materials and woodworking supplies required for our cabinets.”

SCM at Ajax (and at your company) should be such that there is no delay in processing due to waiting for materials, parts, supplies, etc.

In Ajax’s case, every order did not require items that had a six-week lead time to get delivery to the plant. Some did, so the normal scheduling was based on that past experience. Customers were told an artificial (i.e. longer) delivery time and this practice had actually led to the loss of customers. Ajax often had further delays once the order was released, because they could not find some of the special-ordered materials when it came time to use them in the manufacturing process. As a result, a delay in processing occurred and work-in-process stalled and piled up. When the part was finally found, or received after a frantic re-order, the cabinets were either buried with others in a similar state, or were scattered and damaged.

Let’s look at the consequences of just this one situation at Ajax:

1. The schedule and lead time were dependent on the order-to-delivery lead times from a supplier of semi-custom hardware and not the true process time at the Ajax plant. Such relegation of this responsibility to a supplier is unacceptable.

2. When the hardware did come in, it was misplaced so that when needed, it was not immediately available — sloppy inventory control.

3. Work in progress had to be stopped when the parts could not be found. This resulted in WIP in storage — taking up valuable space.

4. The order had to be pushed back further. Result? An unhappy customer.

5. Cabinet parts in storage on the floor were subject to damage or loss, causing additional delays when the replacement hardware items arrived.

6. The customer could have cancelled the order, at a staggering loss to the plant. Ajax probably would have used valuable space storing the cabinet parts and sub-assemblies, hoping to use them on a future order. The worthless mess would be continually moved until someone finally asked, “What the heck is this stuff here for?”

Value-Added Woodworking Supply Chain Relationships

Your woodworking suppliers should welcome the role of partner in serving your customers through their service to you. Your customers’ requirements should become the primary concern of every link in your woodworking supply chain. Otherwise, you should not be doing business with them.

Whose responsibility is it to define the service you require from your supply chain? Yours! Why let suppliers basically dictate the terms that define serving your customers? Why let your woodworking suppliers’ service drive your order-to-shipment lead times? Because it’s cheaper?

I realize a 5% reduction in annual materials’ cost can double the bottom line of most wood products companies. But there’s a flaw in the basic logic of buying “cheap” — the cheapest does not always yield the lowest cost.

A focus of SCM should be to add value to everything from the woodworking supply chain by reducing waste and unnecessary cost. Instead of accepting a six-week delivery for the specialty hardware item, Ajax should have found a way to add value to that item by getting it from a supplier that would provide it in less time. This could be handled by the supplier holding some stock or by changing its order entry and manufacturing methods to allow for quicker delivery to you.

It Can Be Done

I saw a very good example of a value-added woodworking supplier when working at a midwestern company that made custom furniture and cabinetry. They offered walnut, cherry, oak, maple, and other species. It was a daunting task to stock the right inventory of each species so as to serve the customer and at the same time minimize excessive inventory costs and avoid obsolete material.

The answer was simple and effective. A lumber supplier was found that would place inventory on consignment in a convenient storage building adjacent to the manufacturing plant. When an order came in, the plant would pull from that inventory and immediately begin processing the order. The woodworking supply chain vendor would check the inventory and replace it weekly to a predetermined level and bill the manufacturer for the amount of each species used.

Was the price of this lumber more than from other suppliers? Yes, but that cost, minus the cost avoidance of carrying inventory and possibly running short of material when needed, equaled real savings and lower overall manufacturing costs. There was never a disruption due to a lack of lumber and the company did not carry one single board foot of inventory. This is a good example of working with a vendor to obtain value-added services along with the product that resulted in a win-win situation for both and a good application of lean supply chain management.

Let this serve as an example to get you thinking in your SCM so that you leverage creative value-added relationships that will lead to a leaner supply chain. You will see it become a shortcut to increased profits. (We’ll follow up with more ideas next month, such as simple pull systems.)

Tom Dossenbach is the managing partner of Dossenbach Associates LLC, a Sanford, NC-based international consulting and research firm. Contact him at (919) 775-5017 or e-mail [email protected]. Visit his Web site at www.dossenbach.com. Past Management Matters columns are archived on www.iswonline.com.

By Tom Dossenbach

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