10. The Weakest Link

When we think of a weak link, we generally picture a chain with one link that has been compromised and is about to break. The chain might be very strong and capable of great things, but one link stands in the way of that being able to happen. We can use the same analogy with an organization and what it’s capable of doing, given the resources, but is not able accomplish because of weak links. Weak links would suggest that there is something substandard or not quite right with either human resources or processes within the organization.

This chapter is intended not to point fingers or place blame on individuals but rather to shed light on where possible improvements can be made and where certain critical areas in the organization might be weak, causing areas to suffer. Organizations are built or structured around processes, and as you have seen, the success of the organization is largely dependent on the development and implementation of these processes. As you have also seen, processes are simply a group of work tasks that accomplish a desired objective when complete. If one task in the sequence of tasks is not being performed correctly, it can appear as a weak link and adversely affect the whole process.

When looking at weak links within the organization, it must first be determined that you are simply looking for an area of work that has a higher probability to negatively influence the process being completed. Because there are several areas in the organization where weakness can be measured, this chapter focuses more on the supply chain and inventory control element of the organization. This text also addresses weaknesses in processes, management, and training of human resources. In the area of supply chain management, we will be looking at three fundamental parts: purchasing, suppliers/vendors, and inventory control.

Supply chain management operates much like the rest of the organization in that it is built on processes. Processes can be designed well or poorly and documented or not. Evaluating weak spots in supply chain management requires the manager to review the process and determine whether what has been designed is the most efficient and correct way to perform the tasks. This is an important step because it generally leads to a lesser-performing process or part of a process and reveals weak spots. Problems might be found within the processes themselves, or there might be issues not related to a process that result in its not being performed as desired. Weaknesses could also be found as a result of decision making by certain human resources. In supply chain management, there are many decisions that have to be made with regard to procurements, supplier or vendor relations, and inventory control. The ability of individuals to evaluate information and make sound decisions might be an area where weakness can be improved.

Managers might solicit the help of the purchasing agents in the department to gather feedback on current processes they are performing and compare those to the current documents of those processes to see whether anything has changed. It might be revealed that purchasing agents are not following the documented process and this is why weaknesses or failure might occur. It also might reveal that the current process has been improved over the documented process, resulting in a more efficient way to perform the process. The manager might discover that there are processes that have not been designed, developed, or documented at all, and purchasing agents are simply performing activities on the fly with little or no guidance. This type of activity is where weakness or failure can be most prevalent. Depending on the skills and ability of the purchasing agents, weakness or strength is subject to the individual purchasing agent’s ability. This is when a process can be out of control because the tasks and decisions that are carried out are at the discretion of the individual purchasing agent, which can result in inconsistency, success, or failure.

After the manager has reviewed the documentation and compared the process as documented against the processes as carried out by the purchasing agents, the manager might find that the purchasing agent’s abilities play a larger role than expected in this particular capacity. This is when the manager should evaluate which purchasing agents have been assigned to specific tasks to ensure that their abilities, skills, and knowledge match what will be required in that process. In the procurement process, purchasing agents will find themselves having to make decisions that require a creative approach leading to an area of potential weakness or strength. When materials, equipment, resources, and inventory are purchased for an organization, things don’t always go as planned and creative workaround strategies have to be developed. This might be the result of a phone call with a supplier who has informed you that something is no longer available and new action must be taken. This is when skill and experience come into play as to how the purchasing agent will approach the situation.

When filling a position in the organization, hiring managers must always evaluate the resource individually for their skills, background, and experience to ascertain whether an individual has the knowledge base to make critical decisions required in a position. In many cases, decisions might have to be made in the course of processes that are difficult to articulate in process documentation. This is again where strength or weakness might be seen on more of an individual basis. The manager has to separate what the process documentation calls for by design, for a particular situation, and discretionary decision making that the resource might have to conduct given a situation. In some cases, proper training can guide the resource as to on what basis certain decisions are made and what course of action is best for the situation. In other cases, experience might be the only way some decisions are made correctly because it would be difficult to document or train those types of decision scenarios. In either case, the human resource and the decision process are key to success and must be monitored by the manager.

Another area of strength or weakness within the procurement department is the ability to manage contractual agreements with suppliers and vendors. The relationship with the supplier is critical and can be an area of weakness if care is not taken in the development of the relationship. This relationship can be from informal occasional purchasing to complex contractual arrangements spanning years of deliveries and invoicing. In either case it’s important to note that the relationship established with a supplier can and will generally be on two levels:

1. A relationship is formally established between the organization and the supplier, and in some cases they are engaged in a contractual agreement.

2. A relationship is established between the actual buyer within the organization or the purchasing agent in the procurement department and the contact or contacts at the supplier.

Relationships are formed between two people when repetitive purchasing is being done by the organization with a particular supplier, and that relationship can and might in some cases impact the outcome or success of certain procurements. With some organizations, orders received at a supplier are processed in a more structured way relative to pricing and any additional elements related to the objects being purchased. In some cases, special considerations might be taken with regard to pricing and priority shipping, and the person taking the order might have a physical inventory check done to ensure that product is shipped per the customer’s requirements. This type of relationship is developed over long periods of time when a purchasing agent has several contacts with an order taker at the supplier and has developed a rapport.

When things are purchased for the organization, they can be purchased under two primary categories:

1. Noncontractual direct purchases

2. Contractual purchases

Items purchased under a noncontractual purchase agreement are purchased over telephone, Internet, or mail-order types of order processing. These are considered simple orders, in which the purchasing agent has a particular item in mind and the supplier can fulfill delivery of the item with no special conditions. In most cases, noncontractual purchases fall under the supplier standard purchase agreement for pricing, delivery, payment, and return policy. Because most procurement would work fine under this type of an agreement, the supplier is not obligated to guarantee inventory levels, pricing, and special delivery or returns. If the procured item is not used on a product or sold by the organization, noncontractual purchase agreements for most items will be fine. For items purchased for products sold by the organization, projects or situations that might constitute special conditions, delivery schedules, or specifications, a contract might be a better way to control that type of procurement.

If the organization is manufacturing products and the bill of material has been developed with material cost associated with it, this would be an example of items that would need to be purchased under contract to guarantee pricing and delivery schedules to maintain the overall cost of an item being manufactured. Contracts can also be used to help protect the organization, and if weaknesses are discovered with certain supplier relationships, contracts are a way to help strengthen the procurement process.

This will be the case only if the organization has resources skilled in negotiating contracts. If contracts are not negotiated correctly, weaknesses in the procurement department—such as poor price negotiation or poor delivery schedules—can become permanent and long-term problems can be locked into the contract. It’s important, if contracts are to be used, that resources skilled in contracts carry out this process to ensure the best interest of the organization.

Weakness can also be seen within the information that procurement departments use to make purchases. Information is powerful when used correctly, but can be devastating if incomplete or incorrect. Purchasing agents can procure the correct item only if they have all the pertinent information at hand to ensure that the item meets all the requirements requested. All too often, items are purchased with partial or incorrect information and, to the disappointment of those requesting the purchase, upon delivery they find that something is not right and the purchase has to be redone. This weakness results in wasted time and money for both the organization and the supplier and is something that can be improved or eliminated through process improvement. The procurement department can develop tools that better organize information such as order request forms to help structure and outline a minimum amount of information required to make a purchase. Developing these types of tools improves the procurement process and helps eliminate incorrect purchases due to lack of information.

Another form of information relates to supporting documentation with regard to purchasing. This might be a bill of materials, or a revision of drawings such as a mechanical drawing revision that would indicate the most recent changes or modifications to the item. Changes within the organization are inevitable, but they have to go through a process in which they are documented so that others in the organization will have the latest information about that particular item. If something is being procured off of a mechanical drawing or a bill of materials, it’s important for the latest revision to be purchased so as not to continue purchasing items from an older revision that’s no longer wanted. This is another example in which a structured change order process can reduce mistakes and weaknesses within the organization.

1. New versus established supplier

2. Manufacturer versus distributor

3. Internet based

4. Domestic or foreign

How long a supplier has been in business can play a role in the relationship with that supplier and in whether it is a weakness or strength. Older, more established suppliers have more experience and might be less likely to make basic fundamental mistakes in order processing. Because this is the general perception with older companies, it should be proven through the relationship and not simply accepted as the rule. Newer companies might or might not have well-established processes and might have lesser-experienced people who make the relationship more problematic. As with the older companies, this is simply a perception to take note of, and it should be verified through the relationship and not established as a rule. On the other hand, older companies might have a tendency to be more set in their ways and less likely to be aggressive and negotiate for business. Newer companies wanting to take market share might be more aggressive, putting them at a slightly better competitive advantage.

Suppliers fall into two categories: manufacturers and distributors. Manufacturers of products in some cases might sell and distribute their own product directly. Other manufacturers might choose to have their products distributed by secondary companies called distributors. Distributors in most cases do not manufacture anything but simply purchase product for resale. A distributor might play a small role in some assembly of items they distribute, but this would not be considered manufacturing but rather just offering products they sell in an assembled form. Weaknesses can be found with both manufacturers and distributors.

Manufacturers that sell their own products have a tendency to focus on the processes within production and less on product distribution and sales. If they have not developed processes to organize sales, this can make it difficult from a procurement standpoint to do business with them. If the manufacturer produces a simpler product, more emphasis might be placed on developing distribution and sales that allows the manufacturer to compete against both distributors and other manufacturers who distribute their own product. The strength in working with a manufacturer is that they have more resources to help with product knowledge and questions concerning particular product details. The weaknesses typically are an underdeveloped order-processing department that makes procurements with that company slightly more difficult. A distributor’s weakness generally is in a lack of product knowledge or information because they typically do most of their work out of manufacturers’ catalogs. Distributors also find it difficult to manage returns and/or perform warranty work. Distributors typically have a well-developed order-processing department because that is their primary function.

Organizations in this day and age have found Internet-based business or e-commerce to be an improvement in the overall business strategy. This can be a plus for the procurements department or those trying to find information on product and pricing because the Internet can facilitate quick and easy search and information gathering, meaning less time spent on phone calls with companies. Older, more established companies in some cases have not developed an Internet-based presence like a Web site, catalogs, and/or order-processing capability. If the company does not have an Internet presence, they will have to conduct their business through hard-bound catalogs or CD-based catalogs, as well as phone call, e-mail, or mail-order processing. This is old-school and was done for decades; it’s not that it’s wrong, but it’s just another way to reduce competitive advantage and lose market share.

Purchasing agents need information such as corporate headquarters’ location, branch location addresses, and phone numbers that allow them to get in contact with the organization. This can be a big competitive advantage over companies that have no Internet presence. A weakness with companies that have no Internet presence is the increased difficulty purchasing agents have in finding information about the company. This can be a problem for the purchasing agent, because it usually takes much longer and requires more work to verify company information.

Companies in either manufacturing or distribution generally find it easier to work with companies closer to their location. This is primarily due to the price and logistics of shipping. Domestic companies typically do not have the issues with shipping and customs that foreign companies might run into. This can be a weakness, but as more foreign companies are doing business with other countries around the world, shipping and customs are becoming a more streamlined process and are not always seen necessarily as a weakness. If foreign countries do not have personnel who can speak the same language as those in your organization, this can typically be where weakness is found. As you have seen, information accuracy in the procurement process is very important and the language barrier can present issues with information accuracy.

1. Incoming inspection of materials received—Materials for manufacturing that are first received and inspected.

2. Materials needed to manufacture the product—Inventory purchased for product, stored at the facility, and/or located within manufacturing referred to as work in process (WIP).

3. Finished goods inventory ready for shipment—Product completed through manufacturing and ready for shipment.

• Managing inventory without damaging it

• Locating inventory sensibly so that it can be quickly and easily accessed by manufacturing staff

• Managing nonconforming material or rework

Production inventory accountability is one of the hardest things to manage because inventory is moving constantly through various processes and can be challenging to keep track of. The manager might solicit the help of process developers or manufacturing engineers to address WIP inventory and evaluate weak spots on the production floor. The first potential problem area is how inventory is stored. Depending on what type of inventory there is, this can be simple or can require complex shelves and racking systems with elaborate holding and separation methodologies. Weakness is evident when inventory can be damaged simply by the way it is stored and can cause rework or scrap as well as costing resource time.

The second potential problem area is in the placement of material and inventory at the process work spaces. One of the most costly expenses is human resource efficiency, relating to the number of movements workers have to make during a process. Evaluating where the materials and inventory are in relation to the person performing the process can reveal weaknesses if the inventory is not optimized in its placement. Remedying the situation might require using better racks, bins, or shelving, or might involve a change in the layout of a work space that reduces how far the person has to reach or walk during the process. This can be a big time saver and can eliminate weakness in resource efficiency and production floor space.

The third potential problem area is in managing nonconforming inventory and rework. It is a known fact that in most production environments, there will be damaged goods, rework, or scrap that will need to be accounted for. This presents two things to consider: tracking the material and where to store the material during evaluation. This again might be an opportunity for a process developer or manufacturing engineer to identify an area in production to manage the process of rework evaluation. Tracking the material can become difficult because the inventory might be taken apart and now stored in pieces, mislabeled and confused with other good inventory, or just lost in the system somehow.

This area within production can be a resource drain on the organization, but if properly designed and managed, it can save the organization from this potentially large weakness.

Supply chain management can be very complex for an organization, but that doesn’t mean it has to be full of problems and potential weakness. Even the most complex organizations can have well-thought-out supply chain and inventory management systems that are very efficient and run very smoothly. This could come about in part because managers determined that they could not manage that part of the organization, at that size, and be cost-effective. So they developed a plan to break the organization into functional areas and evaluate critical areas for potential risk and weakness. It is not that hard, and when improvements are made, the benefits are seen and can be measured for success. This will generate more interest in this type of process improvement as the manager starts to feel that she has more control over elements of the supply chain.

• Contracts can be negotiated by those skilled in negotiating to help set conditions for procurements and eliminate weaker negotiating that might happen periodically in the department.

• It is always best to do a little research on the company you are looking to do business with to get some background information. Start with one or two small purchases to test their process and abilities to determine how a future relationship might look.

• The Internet can give organizations the ability to be seen around the world, and to tell the history and structure of the organization as well as telling about the products, pricing, and order capabilities.

• Care must be taken in doing business with organizations in foreign countries to make sure that the contact person the procurement agent will be dealing with is well-versed in the language and that the lines of communication are clear.

• Properly trained incoming inspection staff can save the company time in blocking nonconforming material and money in avoiding rework on the production floor.

• Inventory management systems that are designed for the product are an example of Streamline Thinking, and protect material and human resource time and costs.

• How the material is stored can play a role in reducing this confusion, and better design of this type of process allows special tracking, storage, and segregation of product to isolate noncon-forming materials from the rest of production.

• As improvements to weaknesses result in improved cost and time management, other managers will get onboard and implement the same thinking, which helps improve the entire organization.