Controls, Checks, and Balances

Lance Dixon -- Purchasing, 1/25/2001

So now you believe JIT II onsite supplier relationships and techniques just might offer efficiencies to your purchasing function. But how do you control the money? What governs the supplier's rep in placing your POs on his or her own company? Is there too much faith and harmony here? Let's review the controls, checks and balances.

The answers lie in two conversations: one addressing business sense and one reviewing mechanics or procedures. Let's review the basic control procedures:

1. Existing parts are purchased at a cost level set by prior competitive bidding.

2. These cost levels are frozen—part by part—in the standard cost system, and become part of the JIT II agreement.

3. The supplier in-plant rep can place orders on the supplier company only at the standard cost. If this doesn't occur, the computer system that monitors all buying activity generates an exception report.

4. Volume, timing (late, early?), and quality of incoming materials all are subject to normal manufacturing plant controls.

That covers control on purchasing for existing requirements. Setting and controlling new-part costs is a different art form. JIT II offers in-plant suppliers the world's best selling opportunity by giving them direct access to design engineers.

After the supplier in-plant tells the engineer about a great idea or process, the engineer says either yes or no. JIT II doesn't limit the flow of ideas into design engineering. If the engineer says "yes," the purchasing department may exercise its option to bid the new part in the marketplace. The marketplace sets cost levels on new parts and keeps the JIT II relationship crisp and businesslike. However, only rarely can the marketplace compete with the JIT II supplier's delivery and cost levels derived from early insight and involvement.

These are the basic control procedures that have passed the test of time with both customers and their JIT II supplier partners

Next month: Common-sense JIT II supplier selection.

JIT II is a service mark of BOSE Corporation. Concepts were conceived and implemented by Lance Dixon, executive director, JIT II Education & Research Center. To order JIT II video (26min.), send $295 (check or MO) to Purchasing Magazine, P.O. Box 497, New Town Branch, Boston, Mass. 02158. For JIT II information, textbook, seminars, call (508) 766-7080 or write BOSE JIT II Education & Research Center, MS 4A1, The Mountain, Framingham, MA 01701.