LTD Management
Logistics & Supply Chain Management Consulting Solutions That Work
Portuges

SHARPER FOCUS FOR THE GLOBAL CHAIN

World Wide Shipping
January 2006
www.ltdmgmt.com

SHARPER FOCUS FOR THE GLOBAL CHAIN

Lean is about flow and the elimination of waste. Waste can be defined as anything that does not add value to the product - anything that the customer would not want to pay for. Waste in logistics can be defined as unnecessary activities that result in excess inventories, increased leadtime and increased cost.

To date, much of the focus of lean logistics has been on manufacturing in domestic markets. However, the logistics industry is changing rapidly. We now face global supply chains with the inherent challenge of a complex network of suppliers and logistics service providers. From China to India and throughout the world, lead times have been significantly extended. But these changes to global supply bases may not have received the attention they deserve from lean practitioners.

Global supply chain management contains three key segments:

Visual Description

The current condition of a supply chain can be described visually using "value stream mapping". The value stream comprises all the steps necessary to bring a product from its raw materials through production to delivery to the customer. With value stream mapping, all the steps in the supply chain process are identified and assessed as to whether they add value or create waste. Typically, there are two streams or flows to be described and analysed. These are the flow of product and the flow of information.

This technique works well with the "pull" or Kanban basic approach of supply chain management. Inventory is pulled, not pushed, through the supply chain from customer back through to suppliers. With the pull, excess inventory should be removed from the supply chain.

Mapping is a tool to visualise what goes on. The picture is a way to see the non-value, waste-creating actions for both the product and the information flows. The two flows should be integrated. Otherwise opportunities for non-value added activities and for inconsistent actions are created.

Value stream mapping looks at a key product(s) that have high volume and/or high profit margins. The logistics process for each product is mapped, analysed, waste is identified and a new process for the future is defined and implemented.

Data Collection

The mapping involves gathering customer or store information, depending on whether you are a wholesaler/distributor, manufacturer or retailer. Draw the process - from what triggers the purchase order, back through the suppliers and logistics providers, to delivery.

There can be 15 or more parties involved with the movement of product and information, and both the product and financial chains, so the supply chain can be complex to visualize. And the size means collaboration and co-operation are needed between and among all the parties involved for proper mapping and for identifying waste. A supplier in Shanghai whose key component comes from Thailand must participate actively in the mapping since all this is part of the process. This is not an option.

Or look at a customs broker who does not directly touch the product or the shipping container. He acts with the information and documentation to facilitate the movement of the product. But the linkage among the importer, customs broker, ocean carrier/air forwarder and delivering rail or trucker can create waste, by adding times and by stopping product flow.

Value stream mapping is a picture of the process or what is used as a process. The lack of a real process can create waste, or non-value-added activity. Global supply chain waste occurs as unneeded cycle time, inventory and cost. The cost waste often appears in the transportation and warehousing activities.

A company with no viable global supply chain process often has gaps in the "process" activities. In turn, redundancies occur at various points to compensate for gaps. These redundancies, with their extra and unnecessary work, are islands of waste in the flow. An example of a waste that can arise because of flaws and gaps in a process is expediting.

What also makes lean international supply chain management more complex and unique is that so much activity occurs outside the company. With lean manufacturing and domestic lean logistics, much of the activity occurs within the company.

Company people involved in global supply chain activities often push much of the waste they cause onto the outside parties. They do not understand the complexity and operations of the international aspect, or they have forced the outside activities to adjust to their lack of process and their waste practices. Demanding others to adapt to your waste activities is not collaboration, which is a two-way effort to reduce waste.

Independent Eye

Analyse the map below. It helps to have someone independent here. Someone who is too close to the activity may not be able, in identifying internal waste to "see the wood for the trees". Organisations have dominant departments and dysfunctions that can impede real process - and supply chain management is a process, a cross-functional one.

It is easy to place responsibilities on external parties without understanding what your company does to trigger their actions. See where the process is being forced to fit your company or some other entity and, as a result, creates significant waste. Designing the new process requires clear analysis and thinking beyond traditional logistics. Otherwise, one flawed process can replace another flawed process.

The import supply chain must be seen as one event, not as two separate events of sourcing and of logistics. The dichotomy can show on both the product map and the information map. This affects the handoff from supplier to logistics service providers. Assessing modes, carriers/forwarders, service and ports/airports can reduce time for key products.

More than 25% of purchase orders are not shipped as planned or are not delivered as planned. This significant statistic presents a real opportunity to reduce waste. Supplier performance and supplier lead times are important areas for potential waste reduction and process improvement.

Also, the distribution network may be outdated. It may have been built years before with different store or customer configurations, different products, and other topics. It may have been built when the focus was on storing inventory in warehouses, unlike now when inventory velocity is emphasised. Touching the product to store it often adds only time - a waste result, not value (see map at bottom of facing page).

Bypassing warehouses with crossdock or other transfer facilities at ports can remove time and inventory. Supply chain execution technology can give visibility from the purchase order through to delivery order. It can provide the way to allocate product in transit. Making this part of the new process reduces two key wastes - time and inventory.

Global supply chain management has significant "built-in" time because of the distance involved. This runs counter to domestic supply chains. The extended time can, in turn, create uncertainty and the need for many companies to build and carry additional inventories. Yet time and inventory are two areas of waste for lean to improve. So lean international logistics faces an additional challenge because of its inherent scope and the impact throughout the supply chain, especially within the company.

Global Complexity

Identifying non-value added activities is especially important for worldwide supply chain management. Any activity that adds time and inventory and cost to the already complex activities can obstruct supply chain effectiveness. Value stream mapping is a tool for seeing and identifying waste, both internal and external. Seeing the current activities and the waste can form the basis of plans to improve the supply chain. This procedure is especially critical for high-volume and high-margin products where the impact on the company bottom line is significant.

Collaboration and co-operation within the company organisation and between and among trading partners is important for truly removing waste across the entire supply chain. Accelerating cycle time, increasing inventory velocity and reducing costs for the high-volume and high-margin products can affect return on investment and drive the benefit of lean for everyone to see.

Lean logistics for international business offers significant potential to identify and reduce time, inventory and cost (see map above). And given the size of the international supply chain, both for importing and exporting, the approach merits the effort for bottom-line results. Value stream mapping provides an important tool for understanding the present supply chain and designing a new one.