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LEAN SUPPLY CHAIN MANAGEMENT - THE ESSENTIALS

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A major mass merchandiser has decided to go leaner with its inventories. This decision has significant implications and impact for its supply chain and for the supply chains (and manufacturing) of its suppliers. Lean logistics has just taken a new meaning for everyone. Smaller lot sizes, increased flexibility, more rapid deliveries have been ratcheted up even more as a requirement and way of doing business. Companies are assessing expanding from lean logistics---where tools of lean are used in segments of the company, such as warehousing-and becoming lean across their entire supply chain.

Lean is becoming a strategy method for gaining competitive advantage and even for survival, not just for manufacturers, but also for retailers and wholesalers. Adding value and removing waste are no longer options for companies. Non-lean practicing companies face competition from foreign made goods-competition which can have significant impacts on their business and industry. Even lean practitioners understand that the effort to be lean is ongoing.

Manufacturers have recognized the value of lean for their production area. However lean has not been recognized by retailers, wholesalers, manufacturers and logistics service providers, including 3PLs, as part of a strategy for growth. The value and waste of supply chains has not been given sufficient attention. Some of the lack of attention reflects recognizing the intricacies, complexities and differences of supply chain management, especially where international sourcing and manufacturing is involved.

Surprisingly, retailers and wholesalers have often not recognized the need for lean in their businesses. Their business approach often uses a batch and queue inventory approach. Their common attempt at being competitive has been to push suppliers to reduce prices. After years of this approach, that fruit is no longer low-hanging and may not even be on the tree. So what are they to do to stay competitive? One sound option is to develop and implement lean supply chain management.

WHAT LEAN SUPPLY CHAIN MANAGEMENT IS. Lean and supply chain management have much in common as to recognizing the customer, being based on pull, requiring flow, assessing the waste of inventory, and creating value with growth, not just reducing costs. Companies with a lean supply chain, the inbound from suppliers and the outbound to stores or to customers, have identified the value of the supply chain and the waste that exists and are removing the waste.

The purpose of a lean supply chain is to meet the 5R's of logistics, namely, inventory that is:

Activities that support the 5Rs add value. This applies both to the movement of product and to the movement of information. Conversely, any activities that do not add value, do not further these 5R's, are waste.

By being lean, companies are efficient at lower volumes / lower size lots, have greater flexibility; gain higher productivity, increase product mix diversity, improve rapidity of product development cycle, and have higher quality of performance.

Waste can be difficult to recognize; it is seen and accepted of how the business of the company is conducted. It is deemed as part of the ongoing "process" and is built into whatever is done.

Drawing on the types of waste in manufacturing, there are seven types of waste in supply chain managemen:

  1. Over supply. This is supplying product at a faster rate than customer requires, having it ahead of demand. Bringing in large quantities of product without matching demand creates excess inventory and can cause write-down and fire sales to draw down inventories-and revenues and profits.
  2. Transportation. Unnecessary or slow movement of product adds no value. This can include movement of inventory between company facilities.
  3. Inventory. Firms have more finished product, raw materials, or work in process than the absolute minimum. This includes inventory in transit, regardless of whether it is treated as inventory when it is delivered or not; it is still inventory regardless of such transaction nuances.
  4. Waiting. Delays in previous supply chain steps cause unnecessary waiting of people or equipment. Inventory at warehouses reflect waiting.
  5. Movement. Any unnecessary movement of people during their work is to be avoided. This may be seen in warehouses or in special operations such as kitting.
  6. Defective Service or Product. Poor quality, rework, or scrap because it does not meet the customer requirements adds no value.
  7. Over processing. This is doing more than is necessary.

These waste activities occur in different ways for both Make To Order and Make to Stock companies. Compressing cycle time and increasing inventory velocity are the preferred results for lean supply chain management.

The first requirement to becoming lean is to be able to identify waste. If you are not able to see waste, you cannot begin to remove it and become lean. Waste impacts time required, inventory investment and turns, capital tied up and not earning an adequate return. Lean is about removing waste, not just reducing it.

Being able to understanding and identify waste then requires removing that waste. The initial question then is where and how to begin implementing lean supply chain management.

Three points must be recognized.
First, lean requires a strategy. It is not just a supply chain program or just a manufacturing program. It is a paradigm that requires a change throughout the organization if it is to be truly successful in removing waste and adding value. Organizations must look at everything differently.

Second, lean goes beyond the four walls of the warehouse or factory. It goes beyond the organizational boundaries of the company and extends to suppliers and to customers. This breadth of scope is why it requires strategy for success.

Third, there are lean principles that must be the basis of the lean supply chain. Namely-

CHALLENGES
Supply chain management, especially developing and implementing lean supply chain management, has challenges that must be acknowledged. These are in addition to the "usual" company issues with lean, such as lack of implementation know-how, resistance to change, lack of a crisis to create urgency, gaining resources and commitment, and back-sliding.

Sometimes these challenges are not addressed or appreciated with lean SCM. These include--

HOW TO BEGIN
The initial step to implementing lean is to evaluate and to measure the present supply chain. You have to know where you are to begin the long journey of continuous improvement. Value stream mapping (VSM) is a visual tool to define the current state of a company's supply chain, to identify waste and to lay the foundation in determining the future state flow of the supply chain.

Value stream mapping (VSM) identifies waste in supply chains, especially with regards to time and inventory. Initial VSM efforts include defining the present value stream for product families, those that share common operations or have large volume impact, either units or dollars, or other delineator as determined.

With mapping the current supply chain state, you can then draw on the various lean tools to design the future supply chain flow. This future state should include the infrastructure to support it-training, culture, quality methods, accounting systems, and investment policies.

LEAN TOOLS
There are tools to becoming lean. Each have differences as to ease of use, time to implement, benefits and risk.

There is no "one" tool for lean SCM. Various tools can be used in different areas and in different sequences to add value and reduce waste.

CONCLUSION
Often, there are complementary or supporting processes with lean supply chain management. The additional processes may include Strategic Sourcing to manage supplier performance for critical and important items; Strategic Customer to gain the needed viewpoint of key customers; and Sales and Operations Planning to blend the strategic sourcing and customer with the tactical day-to-day supply chain management.

Getting started with lean and sustaining it with continuous improvement is not easy. Lean takes time, years, to accomplish. There is no quick fix to being lean. Often the waste has become incorporated into the daily operation company-wide and is accepted as part of doing business. In some instances, there may be too much instability in a supply chain to begin lean. The first step is then to increase stability before beginning lean.

But the benefits can be significant from gaining market share, reducing capital tied up in inventory, increasing profitability, improving customer service, increasing capacity and taking time out of the entire company's way of doing things.