Lean Supply Chain

Supply Chain

The effective use of any of these techniques and strategies in tandem can have a positive impact on cycle times, the elimination of non-value-added activity, inventory, and increased productivity. The immediate impact on the balance sheet and income statement and consequently the relief on working capital is a strong motivation for continuing efforts in re-engineering of the supply chain.
 
Transforming a disjointed supply chain into a lean supply chain requires a great deal of analysis and coordination. An organization must identify all non-value-added activity; address fragmented functions, adversarial supplier relationships, and an unwillingness to share important information. Basic processes such as order fulfillment, production and logistics flows need to be analyzed. Operational areas must be fully aligned with business strategies, goals, and performance metrics. Every relationship must be clearly defined and their impact on the value stream be understood. The performance of key suppliers and customers in terms of quality, delivery, and service should be expressed in relation to their impact to the financial bottom line.   Finally, to optimize the value creation, all activity associated with the supply chain should have a close alignment with organizational goals and strategy.
 
As processes and activities are synchronized into a value stream, the lean supply chain transcends ALL functionally-driven strategies, techniques, and performance metrics. Although individual functions may be efficient, a well-coordinated number of key processes yield better results.  

Is this your process?

How well a lean supply chain will perform is dependent on the maintenance of optimized and synchronized processes, established world class suppliers, and meeting customer needs. Remember, the key to any efficient supply chain is to eliminate the cause for the pause and match demand to production and single source suppliers. Clearly, the lean supply chain strategies as described are applicable to every type of industry as well as retail and healthcare environments. ​

Supply chain optimization efforts begin with this core group of critical drivers:

Product Flow

In many supply chains, products tend to move forward in a “push” system.   Under this system (in response to forecasts) inventory is built to a consistently high level which clearly strains working capital, while increasing lead-time, scrap, and rework.   The opportunity to reduce inventory and non-value-added activity takes place when the supply chain is physically mapped and then redesigned.   A primary result of this redesign is often an approach called “Kanban”.   The Kanban technique allows for the radical change from a “push” to “pull” system which brings stock to the point of consumption only when it is needed for replenishment.   A logistic system that links suppliers and customer requirements, Kanban provides a methodology for pulling only those components that are required to meet immediate production requirements.   Kanbans are a simple parts-movement system that depends on cards and boxes/containers to take parts from one work station to another.   The essence of the Kanban concept is that a supplier or warehouse will only deliver to the point of use as needed.   Workstations located along the production lines only produce/deliver components when they receive a card and/or empty containers.   Since Kanban is a chain process, production or delivery of components are pulled/issued to the production line.   Kanbans drive the movement of materials from cell to cell in a modified pull system.   Material is delivered to internal customers all along the supply chain in the shortest, unobstructed manner as requested by the user.

Customer Demand

As total cost to the lean supply chain becomes an overall initiative, organizations are beginning to investigate the entire customer/supplier network for potential improvements.   Outsourcing key production assemblies and production activity to suppliers who invest in equipment and projects that are mutually beneficial and share key information create barriers of trust throughout the supply chain.   As trust is established and resources are pooled, satisfying customer needs at the lowest cost are attainable.   An effective supply chain in any true partnership must include a list of customer needs and a selection of customers who can facilitate critical success factors.  Techniques like Quality Functional Deployment (QFD) and “Voice of Customer” can be implemented to formalize the bridge between suppliers and customers.  Suppliers are utilized to evaluate how they can help reach benchmarks.   The value sought by suppliers is the reduction of total cost, improvement in quality and achieving process improvements quickly and effectively.   Suppliers are qualified and a small number are selected as partners.   Essentially, a lean supply chain operates more efficiently with a reduced number of single-sourced suppliers.  Concurrently, as part of the Supplier Qualification Process, raw material is certified to insure inspection-free reliable components are delivered directly to point of use. 

Information Flow

A robust supply chain must work with accurate information starting with forecasting to delivery of products to end-users.   Supply and demand should be synchronized considering factors such as service levels, variability, events, and capacity as processed by technology platforms and users of the information.   Virtual networks (e-commerce) link participants and activities including raw material suppliers, manufacturers, distributors, wholesalers, and consumers.   Enterprise resource planning systems and the Internet are now the technology platforms that process information quickly and efficiently. MPS, MRP, planned events, and internal/external schedules are driven by data that is actively received from customers.   Inventory levels, consumption triggers, production schedules, order points, material consumption, and back-flushing activities are based on customer product requirements.   In this case, data is used to share information (forecast) and the execution of production schedules and supplier delivery schedules.  

​Customer/Supplier Linkages

Forecasts are essential to the supply chain, if for no other reason, than to support financial planning.   It provides rough-cut capacity planning data, and a basis for negotiating annual supplier blanket agreements.   For the most part, it is used to provide information and data that provides projections and glimpses of the future.   Beyond these features, the forecast has little value in day-to-day operations. The shift to customer actual demand requirements drive the execution of short-term schedules, daily production output, and supplier delivery requirements. Actual customer demand replaces forecast and is fed directly into the MRP System.   Customer demands drive planning outputs, and internal/external schedules.   Replenishment and work schedules are driven by customer demand, literally synchronizing ALL activities related to the supply chain.