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September 15, 1998

6 Min Read
The Game of Inventory Control:  JIT by Reject

Editor's note: This article is another in a series by Bill Tobin of WJT Assoc., in which he describes molders' relationships with customers.


ArticleImage1394.jpgThe customer's assumption about JIT is that deliveries will show up just in time for production requirements. However, molders usually need several weeks of lead time to order material as well as to queue the mold for a machine. Therefore, the customer does not have the luxury of calling and ordering parts as though his molder were a pizza place. When the molder gets a schedule, it usually has a frozen window of deliveries. Anything outside the window is a projection of deliveries that can change until the requirements come into the window.

In a perfect world, the customer would give a four-week frozen window and then the next eight weeks of projections. Often this is what actually happens. Occasionally, a rather mean-spirited game is played on the molder. His customer's production is slowing down. The customer knows the scheduled shipments within the frozen-window time frame will show up. If the inventory is not consumed, it will take up warehouse space and the accompanying invoices will have to be paid.

Since the buyer's job is measured by inventory management--which is why he negotiated the JIT contract in the first place--under this original plan (we'll call it Plan A) he is stuck with a stream of product coming in the door without being able to consume it in production. Net result: He looks bad.

Checking the Specs
How can the buyer look good? Plan B of course! The buyer calls his QC department and suggests an audit on every part coming in that will eventually become dead inventory. QC finds most of the parts are not exactly to specification. The parts are rejected and the supplier's invoice is put in the shredder. The inventory is sent back down and the customer's payables department does not have an outstanding bill for inventory that will not be converted into product.

When the next unwanted JIT shipment comes in, the same thing is done. Finally, when demand for the product comes back, the customer accepts the shipments and everything is right again.

Nice game unless you are the molder in this position. We all have had the experience when demand outstripped our ability to produce, and anything that fell out of the molding machine could be shipped and paid for. We also have all had the experience of shipping a part that was slightly defective and receiving a deviation. What few of us realized was the trouble we were getting into.

When times are good, most molders and suppliers are very enthusiastic about launching a product. Once the functional tests have been approved, the initial purchase orders are given and both parties see their hard work beginning to pay off. When times are bad, it is usually everyone is on his own and jungle rules apply.

From a legal view the only thing that matters is the writing. If the PO says "parts to print," this is what you have agreed to. If the parts are not to print but accepted (meaning the invoice is paid) it might be sloppy business practice, but it won't necessarily change the contract terms. A deviation in writing by an authorized agent of the customer allows a temporary change in the master contract. However, it does not imply that this deviation will last forever.

Future Protection
Molders can protect themselves. What you, the molder, need to do is simple. In the initial phases of acceptance, make sure your customer has your policy book. In this policy book, make sure there is a section on how you react to releases for production. You must state and firmly stand by a policy that says no matter what the price or urgency of the project, you won't ship parts until one of three conditions is met in writing and is in your hands:

  1. The drawing is revised so the dimensions on the inspection print reflect functional parts typical of your production. The criteria for a quality audit is agreed to by both you and the customer and the requisite inspection dimensions are noted. No other dimensions will be used as accept/reject criteria regardless of how they change.

  2. You will accept from your customer's authorized agent a letter of release to produce. This essentially acknowledges that the parts are not to print, but they work. Because they work, the fact that their dimensions may vary from lot to lot will not be a cause for rejection. Only failing the initial functional testing protocols will be considered cause for rejection.

  3. You will accept a letter of deviation to run production. This letter must be signed by your customer's authorized agent. It must state that it is a letter allowing a deviation from "parts to print" for the sole purpose of getting production started and allowing time for the print to be modified. This letter must have an expiration date and mediation date on it. The first is the date when, if the drawing has not been modified, you (obviously) cannot produce parts to print and therefore you stop production. The second is the date when you look at the new dimensions and check to see if they reflect parts that are typical of production. If not, the deviation expires and you must stop production or violate the purchase order.

What To Do Now?
Any of these solutions are nice for the future. However, what do you do now? The answer is simple: Agree with your customer and accept the reject, and stop production. Assuming you can prove there has not been a substantial dimensional change in what you have shipped in the past, tell your customer you will not ship anything else until the parts have been retested functionally. If the functional testing shows a good part, the drawings must be upgraded. Until this matter is resolved, there will be no further production.

Your customer will initially think he has won. However, when he needs the parts, do not ship until you get the revisions and approvals. He may bluff and growl about pulling the tooling; don't worry. Simply running parts that are going to be rejected is expensive and loses money. If this game is going to continue, let your customer ruin someone else. He is entitled to have his tooling only when he has paid all outstanding bills. You are not required to give your process conditions to your competition. The buyer will figure out that qualifying a new production source is extremely expensive and time consuming. It is easier for him to deal with you honestly. In the future, make sure the buyer understands changes in a JIT schedule can be renegotiated amicably. Rejecting parts because he could not plan or did not want to negotiate is bad business.

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