From the May 1997 issue of Entrepreneur

A couple of years ago, Joe Doran was meeting with some marketing people at Bose Corp. when he heard that one of the giant audio equipment maker's clients had just snapped up its entire inventory of a popular loudspeaker.

In other circumstances, that might have been only mildly interesting industry gossip. But Doranco, a family-owned metal-products maker in Mansfield, Massachusetts, has a special relationship with Bose. As part of a supplier program Bose calls JIT (just-in-time) II, Doran had virtual run of the billion-dollar Framingham, Massachusetts, company's facilities.

After hearing the story, Doran walked over to Bose's engineering department to see if they knew they were about to be out of stock. It turned out he was bringing news not only of a problem but of a potential solution as well.

"We were able to call our manufacturing facility, intercept second- shift production, realign production, and deliver finished product to the Bose distribution warehouse by noon the next day," Doran says. His company's rapid response not only allowed him to make a sizable sale but also helped Bose quickly replenish its stock of an important item, pleasing Bose's customers.

Mutual benefits are frequently the result of JIT II, an innovative program Bose pioneered in the late 1980s. With JIT II, suppliers work hand-in-hand with customers, acting more like partners than traditional buyers and sellers.

Having the supplier's employees on-site, almost as if they were employees of the buyer, is one unusual JIT II characteristic. This allows suppliers to help their customers in ways few would dream of, just as Doran did.

But that's not the end of it. Many JIT II arrangements call for the supplier's on-site representative to monitor the buyer's inventory and be responsible for keeping it replenished--including placing orders on his or her own authority.

Lance Dixon, former Bose director of purchasing and logistics and the man credited with creating JIT II, calls this "empowerment of the supplier within the customer's organization" and says it is the major innovation in JIT II from which numerous benefits flow.

"JIT II allows customers and suppliers to work together closer than they ever did before," says Dixon, now executive director of the Bose JIT II Education and Research Center, a nonprofit organization in Framingham. "The resulting efficiency drops to the bottom lines of both companies."

Benefits, Big And Small

As the name suggests, JIT II is an updating of the just-in-time idea that revolutionized business in the 1980s. The difference is that the original JIT concept pressured suppliers to meet tight schedules, which can cut costs but also stir up supplier hostility. JIT II, in contrast, is designed to create harmony and help both sides.

JIT II fans include IBM, AT&T, Honeywell and many other well-regarded giants. But you don't have to be big to benefit from JIT II. Doranco, now a 200-person company, had fewer than 100 employees when it started with Bose as a JIT II supplier.

Northern Polymer Corp. is a seven-person plastics supplier in Kingston, New Hampshire. Joseph St. Martin, president and founder of the 2-year-old firm, sells plastic resin under a JIT II-type program to G & F Industries Inc., a 170-person injection molding company in Sturbridge, Massachusetts.

Northern's arrangement with G & F calls for the smaller firm to make several visits monthly to G & F's plant, checking inventory and consumption levels. St. Martin stores resin near G & F's facility, ready to refill the larger company's stock on 24-hour notice at market rates. The handshake deal has
St. Martin essentially acting as G & F's resin warehouse without charge or guarantee of any orders for the next year.

"What it does for us is it secures that piece of business for a long period," says St. Martin. "Although we know we have to be competitive on price and react with the market, we have a pretty good idea of what the volume is going to be."

The risk in St. Martin's looser JIT II deal may rest mostly on the supplier, but the situation is different in G & F's more formal JIT II arrangement with its major customer, Bose. G & F's Chris Labonte was the first in-plant rep at Bose, where he worked to understand not only Bose's needs but also those of its customers. Then, once he felt he knew what Bose needed, he was empowered to sign a purchase order for goods from his own company.

Testing Boundaries

The benefits of JIT II aren't available to every company in every situation. According to Labonte, JIT II works best between two firms who do a large continual volume of transactions involving many different parts or products and amounting to a sizable dollar figure.

"I have four or five of these set up, and I can tell you they're not all million-dollar accounts," says Labonte. "But they all have a [substantial] size to them."

The volume of business between many smaller suppliers and customers may never warrant a full-time, on-site employee. Trying to have one just because it's a tenet of JIT II may make the whole relationship uneconomical, Labonte says.

Sometimes suppliers put two or even more people on-site full time, says Dixon. Other times, it may just be a single person one or two days a week. "You let the supplier dictate how many people come in," he says. "That keeps it efficient."

JIT II promises to reduce customer costs by, among other things, having the supplier provide what amounts to an in-plant purchasing department. But if customers move aggressively to cut costs by downsizing at the same time they implement JIT II, says Dixon, they're courting trouble.

Coupling layoffs with JIT II breeds suspicion, resistance and fear among traditional purchasing department employees, dooming the effort. "If the customer wants to achieve downsizing with JIT II, it should bring in the supplier's in-plant people over a year or two," Dixon says. "Then, downsize by attrition."

Trust between companies is probably still the biggest issue. While no one has reported a case of a supplier's in-plant employee irresponsibly or intentionally over-ordering products, it is a possibility, Dixon says. However, would-be JIT II users must look past that fear. But it's not an easy thing.

"The hardest thing," says Labonte, "is to find two partners who really will put together a relationship based on trust, an open-door policy and mutual benefit."

Making The Difference

JIT II isn't complicated in concept--it's simply a case of handing some authority to suppliers working inside a customer's operation. But in practice, numerous wrinkles appear. For instance, in purchasing systems involving electronic data interchange (EDI)--an electronic sharing of information by which the majority of large manufacturers do business today--it may not be necessary to have an employee on-site as often. At the same time, issues such as securing information over a computer network and maintaining controls over unauthorized ordering become more complex.

Many resources are available for learning more about JIT II. Dixon is co-author of JIT II: Revolution in Buying and Selling (Cahners), a $50 textbook on the subject. The JIT II Education and Research Center also holds numerous educational seminars, ranging from one-day courses in Framingham for $700 per person to $4,900 for Dixon to give a presentation off-site. As JIT II spreads, other trainers are becoming certified to teach their own courses.

The first and, often, toughest lesson to learn is that this is a different way of working with suppliers, one in which information and authority is shared to everybody's benefit. But it's a lesson that Joe Doran, for one, feels is well worth learning.

"What it means to our company is we never make the wrong part or the right part at the wrong time," he says. "That, believe it or not, can often be the difference [between] profitability and just breaking even."

Contact Sources

Bose JIT II Education and Research Center, The Mountain, Framingham, MA 01701, (508) 766-4050;

Doranco Inc., (508) 261-1200, info@doranco.com;

G&F Industries Inc., (508) 347-9133, fax: (508) 347-5470;

Northern Polymer Corp., 2 Marshall Rd., Kingston, NH 03848, (603) 642-7553.

Mark Henricks is an Austin, Texas, writer specializing in business topics.