Adopting Win-win Supplier Relations
The success of testing and adopting lean manufacturing in Herman Miller plants led to efforts to similarly transform the supply chain. The company recognized that its suppliers ran their plants largely the way Herman Miller did at Spring Lake in the 1990s, and that they were equally rife with wasted effort and material. If suppliers were to help Herman Miller in lowering costs, changes in supply chain management were required that would be probably even more radical than those that Herman Miller had undertaken in its internal operations.
Purchasing chief Drew Schramm launched the “First Mile” program in 2002 to reverse old practices. Each person in Schramm’s operation had been managing 30 to 40 suppliers, spending most of his or her time studying spreadsheets and working the phone for quotes. In the new program, Schramm shifted some purchasing people to managing only core suppliers. Instead of 30 suppliers, people in the core group manage just five, spending their time developing their capabilities. This became the dawn of Herman Miller’s adoption of collaborative, win-win supplier relations.
Schramm kicked off the First Mile program by meeting with small groups of core suppliers, usually represented by presidents or owners. This is what he told them: Herman Miller wants continuous improvement in quality, delivery, and price. We will help you, providing experts such as former shop-floor leaders from Spring Lake, to work on your shop floor to introduce HMPS-style changes. The alternative outcome is that Herman Miller will gradually shift its business to other, leaner suppliers.
The first hurdle was to get suppliers to take Herman Miller’s new overture seriously. The purchasing business had long been a game of playing one supplier off against another to drive prices down, and the suppliers were used to the way the game was played. Chad Anderson, a member of the lean manufacturing consulting team that now works with suppliers, says the suppliers’ first reaction was one of incredulity: “You mean the guy who was beating me up is now going to help me?”
Progress on the new program was uneven. One large supplier signed on but lacked enthusiasm. After making one round of improvements, the supplier’s vice president of operations argued that the value of the gains was modest. He said Herman Miller was due about $6,000 in pricing benefit. By Herman Miller’s estimates, the benefit should have been more like $100,000.
Schramm, annoyed, was ready to cut ties with the supplier. But events intervened. The supplier’s parent company demanded the supplier vacate 20,000 square feet (1,860 square meters) of space to make way for more parent-company manufacturing. The vice president, with no room to spare yet a demand from his higher-ups to shrink his plant footprint, suddenly embraced the notion of lean manufacturing as a solution, and he asked Herman Miller to ramp up its First Mile effort.
Herman Miller, now armed with leverage to press the supplier to move quickly, asked to receive its share of the expected benefits from reduced waste and increased efficiency up front. Herman Miller managers estimated that the supplier would be able to pass savings of $150,000 on its charges through to Herman Miller. To their surprise — and in a reversal of previous behavior — the supplier came back with a whopping pricing benefit of $890,000.
To the Last Mile
On top of spreading the lean thinking upstream from company operations, Herman Miller extended it downstream, launching, in 2004, a “Last Mile” program to target its dealers. Last Mile aims to help make dealers as healthy and successful as possible — and to help them best represent Herman Miller’s strengths as a company.