Small Suppliers and JIT Purchasing

INTRODUCTION Since it was first discussed in the literature, the just-in-time manufacturing philosophy has influenced the teachings and practices of managers, academics, and consultants. Most of the current published material focuses on the implications of JIT for the manufacturer that implements the system.|1~ However, a noticeable omission is the impact of JIT manufacturing on the purchasing relationship that exists between JIT manufacturers and their small business suppliers. The move toward cooperative supplier-buyer relationships is changing the way JIT buyers identify and select small business suppliers. Two of the most critical issues a new or growing small business faces are its ability to (1) develop new sales opportunities, and (2) keep costs under control.|2~ Consequently, it is important for small businesses to understand the implications of serving JIT manufacturers so they can focus their sales-prospecting efforts, make informed decisions about whether to pursue a JIT customer, and if so, create an attractive business arrangement for both partners. Furthermore, it is critical for a JIT buyer to recognize the supplier's situation before initiating the buyer-seller relationship. This article introduces a model that illustrates the environments of different types of JIT manufacturers--and the requirements JIT sourcing imposes on the relationship between buyers and prospective suppliers. It then discusses the options small businesses have for serving different types of JIT manufacturers, and how a JIT buyer can benefit from understanding these options. Recommendations are drawn from interviews that were conducted during two separate research projects that studied JIT purchasing practices and the subcontracting activities of Department of Defense prime contractors. JIT PURCHASING AND SMALL SUPPLIERS A great deal of attention has been focused on JIT in larger companies, such as Hewlett-Packard, Xerox, Toyota, and Kawasaki USA.|3~ Only recently have researchers addressed the influence of JIT on small manufacturers, either as potential users of JIT or as suppliers to a JIT manufacturer.|4~ Most of the research has focused on the use of JIT by small manufacturers.|5~ The lack of research addressing small manufacturers as suppliers to JIT companies is an irony, given that many small manufacturers are suppliers of parts, components, and subassemblies to larger companies.|6~ Sales by small businesses to federal prime contractors alone were $27.2 billion in 1989.|7~ Researchers and business leaders have discussed the benefits available to those manufacturers that implement the JIT philosophy systemwide: reduced inventory, increased quality, reduced lead time, reduced scrap and rework, and reduced equipment downtime.|8~ One of the first steps in the implementation of JIT is to move toward JIT purchasing--a move that requires a fundamental reevaluation of the company's posture toward suppliers. Traditionally, purchasing departments have been encouraged to develop and qualify new suppliers, increase the length of qualified supplier lists, spread purchases around, and hold raw materials inventory to reduce vulnerability to unanticipated surges in demand and to poor quality and delivery performance of suppliers. In contrast to the traditional competitive posture, proponents of the JIT philosophy have encouraged firms to cultivate cooperative relationships with a smaller number of suppliers that have demonstrated excellent quality and commitment to delivery performance. As more firms move toward JIT purchasing, the environment that their suppliers face is becoming more competitive, with JIT customers exercising powerful influences over supplier profitability and survival prospects.|9~ The changing competitive environment created by JIT may be summarized in terms of three characteristics which have serious implications for suppliers that are prospecting for sales with JIT manufacturers: (1) demonstrated excellent quality, (2) frequent, on-time deliveries, and (3) very large volume commitments or single sourcing arrangements. …