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"It is impossible for ideas to
compete in the marketplace if no forum for
their presentation is provided or available."
Thomas Mann, 1896
The Business Forum
Journal
Applying Lean
Concepts to the Supply Chain Network
By Charles C. Poirier
Overview
If ever there was a time for a business to be lean, it's
now. Lean concepts have become significant factors and a powerful force for
radically transforming hundreds of companies. Its impact on business
performance is beginning to be felt, and will be a major factor in the
future success of supply chain improvement efforts. What difference can lean
make to a business? A major analyst group reports that best-in-class
manufacturers averaged the following performances:
98 percent on-time delivery
93 percent overall equipment effectiveness
5 percent inventory costs as a share of revenue
When compared to other companies, these leaders are:
121 percent more likely than laggard firms to have
expertise in lean at the executive level
150 percent more likely than laggards to be sharing
best practices across the enterprise
206 percent more likely than laggards to be
extending lean to supply chain
Lean Supply
Chain as a Modern Improvement Technique
The lean supply chain is defined by the Council of Supply
Chain Management Professionals (CSCMP) as a set of organizations directly
linked by upstream and downstream flows of products, services, finances and
information that collaboratively work to reduce cost and waste by
efficiently pulling what is needed to meet the needs of the individual
customer. From our perspective, the concept includes:
Perfect first-time quality Zero defects,
revealing and solving problems at the source
Waste minimization Eliminating all activities
that do not add value or create unnecessary safety nets
Continuous improvement Reducing costs, improving
quality at the source, increasing productivity and using information
sharing to find optimized conditions
Pull processing Products are pulled by consumer
demand
Flexibility Producing different mixes or greater
diversity of products quickly, without sacrificing efficiency at lower
volumes of production
Building and maintaining Building long-term
relationships with suppliers and customers through collaborative risk
sharing, cost sharing and information sharing arrangements
Companies that foster lean put customer satisfaction
first. They view data exchange between partners as a tactical advantage and
treat employees as valued assets.
They have active, continuous improvement programs,
collaborate with supply chain partners on innovative process standards, and
enforce company product standards with the industry and partners. Features
include visibility to what is actually happening across the enterprise,
access to information at the point of need, and synchronization of supply
chain processing to eliminate failures and re-manufacturer or re-shipment.
Lean Fits the
Current Economic Turmoil
The current economic conditions are introducing new
demands on business almost faster than they can be met. The new economy is
calling for innovative alliances, shared value propositions, real-time
visibility, perfect order management and, most of all, mutual success. It's
a market-driven, customer-satisfying environment where failures lead quickly
to loss of revenues. In such an environment, lean becomes a solution when
combined with other best practices across a supply chain. Supply chain
mastery is enhanced and leads to: quick response without increased costs,
accurate and online data documenting of what is actually happening across
the enterprise one version of the truth and metrics that help drive the
right decisions.
Elements that make a difference with lean involve value
stream mapping to pinpoint the areas offering potential for improvement, set
up and changeover reductions to best possible standards, kanban techniques
to move materials only when needed to the point of need, and meeting
impeccable safety standards. Lean focuses on speed across the value stream,
waste elimination throughout the processing and ridding the system of
non-value-adding actions. It applies information technology to provide the
kind of accurate facts that lead to deployment of the right improvement tool
to opportunities most critical to performance and customer satisfaction. It
leads to accurately specifying values by product and service so offerings
can be matched with a customer segmentation needs analysis.
The extension of lean concepts across a complex supply
chain network of suppliers, customers and partners can result in dramatic
financial improvements for all. Significant benefits in reduced cycle times,
increased production yields and quality levels, decreased inventories,
minimized waste, lowered costs, and increased customer satisfaction are to
be expected, which in turn drive increased revenue and improved operating
margins. Lean supply chain operations require continual optimization,
monitoring and refinement which cannot be accomplished without a solid IT
platform. As backbones and data repositories, traditional solutions such as
enterprise and supply chain planning applications can be essential for
enabling a holistic, lean manufacturing operation.
However, many lean purists hold that traditional IT
applications such as ERP, by definition are anti-lean using push logic to
populate the manufacturing operation with materials, rather than pulling
actual customer demand-driven inventories to create a continuous flow
environment. Applying standard costing and least total cost logic will often
drive decisions that prove to be counterproductive if the impact of the
total supply chain is not considered.
Lean supply chain projects take time and as companies
grow, challenges must be overcome. However, many components of an extended
lean enterprise can add significant value in relatively short periods of
time. To do so, companies need tightly integrated and highly functional
solutions that can manage and execute long running, event-driven business
processes across the enterprise. Using supply chain management solutions
enables functional business process capabilities and service oriented
architecture to provide the business processing platform to deliver that
functionality.
Combined, supply chain management and lean solutions
create a platform for contemporary logistics. This platform will open new
doors of opportunity for companies to drive additional revenue while
decreasing supply chain costs.
These improvement areas range from the very short term to
the strategic:
Tactical
Benefits
Implementation of supply chain management/lean solutions
allows for efficiencies to be gained across discrete supply chain processes,
such as warehousing, supplier and manufacturing plants, and logistics and
transportation operations. Benefits include increasing overall labor
productivity and order accuracy while decreasing inventory and labor costs
throughout the supply chain.
Innovative
Opportunities
Supply chain management/lean solutions allow companies to
think outside the box and realize opportunities that may not have been
previously achievable. Initiatives may include: direct store delivery
programs, shared services, multi-channel distribution, or migrating from a
pre-paid to a collect model for transportation to drive down transportation
costs.
Evolutionary
Initiatives
Companies take business performance to new levels with
supply chain management enabled with lean techniques. In today's environment
of better, faster and cheaper, companies must look for ways to streamline
business processes and focus on core competencies to drive customer value
this may mean outsourcing initiatives or off-shoring manufacturing.
Inventory
Reduction
A key principle of lean is reducing inventories to the
bare minimum. The effort to do so turns out to be powerful in finding waste
and inefficiencies throughout the supply chain. A business process platform
is useful in this endeavor as it coordinates the supply chain so that each
participant is only producing what is actually being used at the next stage
not what they expect to use. The result is smaller lot sizes and frequent
deliveries, resulting in low levels of inventory throughout the supply
chain.
The bottom line is that supply chain management can be
enhanced through application of lean concepts and techniques. The result is
a solution for transforming a company in difficult economic times. Rather
than give into troubling circumstance, the leaders are using the current
environment to get lean and rid themselves of everything that does not add
value.
 Charles C. Poirier is a
Fellow of The Business Forum Institute and is currently the
President of ASC Institute, LLC based in Spring, Texas. Chuck has
written fourteen business books and contributes six to ten white papers
and points of view each year on areas of topical business interest,
favoring subjects that have to do with contemporary business issues and
how to add business value across enterprises. He was a partner in CSC
Supply Chain Solutions/Strategic Services practice and is a recognized
authority on supply chain management, strategic leadership, e-business
techniques and the collaborative use of technology around the world. His work has been translated into ten
languages. He is a frequent presenter at national and international
conferences and meetings. With more than forty years business experience,
including senior level positions. Chuck holds a bachelors degree in
industrial management from Carnegie-Mellon University and an MBA from
the University of Pittsburgh and is an adjunct professor at the Lake
Forest Graduate School of Management.
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