WHAT IS LEAN SUPPLY CHAIN MANAGEMENT?
Lean is how a properly designed and operated supply chain should function. A lean supply chain process has been streamlined to reduce and eliminate waste or non-value added activities to the total supply chain flow and to the products moving within the supply chain. Waste can be measured in time, inventory and unnecessary costs. Value added activities are those that contribute to efficiently placing the final product at the customer. The supply chain and the inventory contained in the chain should flow. Any activity that stops the flow should create value. Any activity that touches inventory should create value.
WHAT MUST BE DONE TO BE LEAN?
Supply chains gain waste and non-value added activities for many reasons, both internal to the company and external. Regaining the lean supply chain may mean addressing many of the same issues that created the problems of extra and unneeded time, inventory and costs.
The ideal approach is to design the perfect supply chain and fit your company’s operation onto it. Supply chain management is meant to reduce excess inventory in the supply chain. A supply chain should be demand driven. It is built on the pull approach of customers pulling inventory, not with suppliers pushing inventory. Excess inventory reflects the additional time with the supply chain operation. So the perfect supply chain would be lean with removing wasteful time and inventory.
A supply chain, with the pull, flows back from deliveries to the store or to the customer warehouse back through to purchase orders placed on suppliers. Anything that delays or impedes this flow must be analyzed as a potential non-value added activity.
To develop a lean supply chain, firms should:
- Understand lean is an ongoing, continuous improvement approach as compared to business process reengineering which can be viewed as a one-time change.
- Gain top management’s commitment. Continuous improvement requires ongoing support.
- Build a multi-discipline team for the project—one that understands lean supply chain management.
- Analyze the total supply chain process, not just the outbound part or just the inbound part.
- Map the process.
- Assess for gaps or redundancies that create time, the key waste.
- Avoid cannibalizing the process, such as focusing on warehousing or transportation or other activities instead of studying the entire supply chain process.
- Realize cause-effect impacts. High freight cost, for example, can be a problem or a symptom. Inventory can be a problem or, more often, a symptom of a problem.
- Drive for root causes, not symptoms.
- Ask customers about how well your supply chain operates. Since the supply chain is built on customer pull, the end user has a vital view.
- Comprehend the complexity of supply chains with multiple suppliers, distribution centers and customers.
- Appreciate the fundamental impact of international sourcing and shipping on time and inventory.
- Use event management and exception management to add management and control. Supply chain complexity increases the need for event and exception management technology and capability.
- Grasp the impact of the organization and culture on supply chain process design and operation.
- Analyze the effect of continuing external events, such as with Homeland Security for imports, on lead times and on lean dynamics.
- Calculate the risks of the lean supply chain.
- Mitigate risks in the redesign. This is both good business and meets requirements with Section 404 of the Sarbanes Oxley Act.
- Observe the effect that time has on inventory and on an effective process.
- Assess where standardization is feasible and where customizing to specific customers requirements is needed.
- Collaborate with suppliers. It is a requirement, not an option; and it is a two-way exchange.
- Demand supplier performance. It is vital to a lean supply chain operation.
- Measure the present process as total cycle time, costs and inventory (both in dollars and units) and the inventory turns.
- Integrate the supply chain. Breaks in the flow, both internal and external, can be pockets of waste.
- Identify non-value added activities, their effect and their cause.
- Rationalize the process.
- Improve the process to drive change.
- Streamline the process for unnecessary complexity and unnecessary suppliers and service providers.
- Know that technology cannot overcome process flaws.
- Involve your people—employees, suppliers, service providers—to provide input on present supply chain effectiveness and for improvements.
- Incorporate technology, such as supply chain execution technology, as part of the process improvement. It is an enabler. Understand where standard ERP and other software may and may not enable a lean supply chain.
- Make the supply chain visible; recognize that blind spots can be areas of waste.
- Recognize the viability of outsourcing as a driver of needed changes.
- Probe for uncertainties that create inventory and other waste. Forecasting accuracy is one area of opportunity.
- Investigate reasons why product does not flow in a more consistent and predictable manner. Order and shipment releases from suppliers, for example, can create inbound flows that can mitigate time and inventory buffers.
- Position inventories at the proper distribution centers. The right inventory at the wrong facility can result in inter-facility transfers that add time and extra transport costs and can delay customer order deliveries. This is a non-value added action that generates waste.
- Be open to the changes of a lean supply chain. From technology, such as RFID, to a completely redesigned process, significant change can be expected.
- Include change management in your lean program requirements.
CONCLUSION. Lean supply chain management is not about “fixing” what someone else is doing wrong. It is about identifying and eliminating waste as measured in time, inventory and cost across the complete supply chain. This requires continuous effort and improvement.
A lean supply chain can take reduce time by 10 to 40%, inventories by 10% to 30% and costs by 10% to 25%. Continuous improvements can take payback to the upper range—and beyond. This is a significant benefit to ROI and to the bottom line.
-Tom Craig; LTD Management, http://www.ltdmgmt.com/mgmt.htm
LTD provides logistics consulting for strategic and tactical needs. The scope of capabilities is broad and includes supply chain management, outsourcing, transportation, warehousing, inventory management and more for both domestic and international.
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