Lean Supply Chain

Lean focuses on lean philosophy which is about elimination of waste in all forms at the workplace. Specific lean methods include just-in-time inventory management, Kanban scheduling systems and 5S workplace organization.

Lean Process in Lean Supply Chain

There are four key Lean concepts: identifying value, the value stream, pull, and perfection. There are four key Lean concepts, which can be visualized as a pyramid. The base of the pyramid being identifying value, the value stream as the next level, then pull as the third level, and the topmost level is perfection.

Identifying value – Identifying value should always start with the customer, who you ship the product or service to, or the downstream process customers. If an activity doesn’t add value for a customer, then it’s a sign that it’s a process that needs to be improved. Identifying value is important, as it defines direction for the organization. Examples of activities that don’t add value include wasted movement, re-work, or extra inspection time because you don’t trust the process to get it right the first time. Then think about what it is that creates value in a process or product. A good way to do this is to look at it from the customer’s point of view to see what they perceive as value and then try to determine what brings the most value for the organization.
The value stream – The next Lean concept is called the value stream, which is any series of activities and processes that create value in an organization. To determine the value stream, you use the technique called value stream mapping. Value stream mapping requires that you capture lots of data such as cost and quality data. The data gathering should include suppliers and customer as well. Once all the information is processed, you can decide whether any activities or processes need to be restructured in order to improve overall performance. One technique that you can use is to create current state maps with data, and then think about future state maps and look at the differences between the two.
The pull system – The next important concept is the notion of pull. This is the idea that instead of pushing inventory through planning into the system, you actually allow the customer to trigger a pull through of inventory or information to support downstream processes based on consumption. By doing that, you can greatly reduce and eliminate wait time that’s associated with traditional planning processes. In addition, this will lead to minimal inventory being required.
Perfection – The final concept is perfection. A dedication to continuous improvement is absolutely critical in the practice of Lean. All organizations would quickly agree that from a safety perspective, the only acceptable goal for safety would be zero – zero injuries, deaths, lost time, accidents, or even near misses. You need to have to have the same attitude toward waste and defects in your processes. Zero is the only acceptable goal. You may never actually get to zero but there needs to be committed, continuous improvement to drive perfection. It’s also important that the customer’s voice is heard regarding the elimination of waste and in determining what value-add means.

Mudas and 3Ms of Lean Supply Chain

Muda is a Japanese term meaning “waste” as, lean manufacturing is a Japanese management philosophy hence, Japanese terms and concepts are used extensively. There are 7 mudas or seven types of waste that are found in a manufacturing process which are

Overproduction – Producing more than the customer requires is waste causing other wastes like inventory costs, manpower and conveyance to deal with excess product.
Needless Inventory – Inventory at any point is a no value-add as it ties up financial resources of the company and is exposed to the risk of damage, obsolescence, spoilage, and quality issues. It also needs space and other resources for proper management and tracking.
Defects – Defects and broken equipment results in defective products and subsequently customer dissatisfaction, which need more resources for solving.
Non-value Processing – It is also called over-processing, for which more resources are wasted in production, their wasted movement and time. Any processing that does not add value to the product is waste like in-process protective packaging due to extra manufacturing steps.
Excess Motion – Unnecessary motion due to poor workflow, poor layout, housekeeping, inconsistent work methods or lack of standardized procedures, is a waste.
Transport and Handling – It is shipping damage and includes pallets not being properly stretch wrapped (wasted material), or a truck is not loaded to use floor space efficiently.
Waiting – These are wastages in time, due to broken machinery, lack of trained staff, shortages of materials, inefficient planning and waiting for material.

Lean Supply Chain Management

Lean supply chain management is not exclusively for those companies who manufacture products, but by businesses who want to streamline their processes by eliminating waste and non-value added activities. Companies have a number of areas in their supply chain where waste can be identified as time, costs, or inventory. To create a leaner supply chain companies must examine each area of the supply chain.

Procurement

Many businesses have complex purchasing operations because they believe that their purchasing needs are complex, but this is not always true. Large companies often have corporate purchasing groups as well as local purchasing, which means that at the headquarters they may have a purchasing department that dictates policy to the local purchasing groups. Quite often the purchasing function at the headquarters is duplicated at the lower level and there is a waste of resources. By having two purchasing departments, central and local, vendors can often be given different information. They can be given multiple contracts, one central and many local contracts that can lead to variations in prices depending on location. This varying information can cause multiple records to be stored on computer systems so that employees do not know which vendor is the one that they should use or be in contact with.

Overall multiple purchasing departments can lead to significant waste within the organization. The companies that practice lean supply chain management reduce their procurement function so that each vendor has one point of contact, one contract and offers one price for all locations.

Businesses are looking to new technologies to assist them in improving procurement processes.

These include internet based purchasing that allows requisitioners to purchase items from vendor’s catalogs containing company-wide contract prices. Changes in payment options to vendors can also streamline processes. Companies that use a two-way match, which is payment on receipt rather than payment on an invoice will reduce resources in their purchasing department as well as improve supplier relationships.

Lean Manufacturing

Lean supply chain management gained popularity in the manufacturing area, as this is where significant improvement can be achieved. Manufacturing processes can be improved to reduce waste and resources while maintaining operational performance. Quality is an important part of lean manufacturing. Having zero defects in the manufacturing process reduces waste and increases efficiency within the organization as a whole. With greater quality customers will no longer return goods, which means fewer resources will be needed for returns and quality issues. Companies who have adopted lean supply chain practices have examined each of their routings, bill of materials and equipment to identify where improvements can be achieved.

Warehousing

Warehouse processes should be examined to find areas of eliminating waste of resources and non-value added steps.

One area the companies should always be working on is the reduction of unnecessary inventory. The accumulation of inventory requires money and resources to store and maintain it. By reducing unnecessary inventory, a company can minimize warehousing space and handling, in turn reducing overall costs.

Transportation

Businesses who want to implement lean processes often look to their transportation procedures to see where they can be streamlined. In many instances, companies find that their efforts to improve customer satisfaction leads to poor shipping decisions. Orders are shipped without combining additional orders to minimize costs or expensive shipping options are selected because of a customer request. Businesses often find that they are using a number of shippers unnecessarily when they could be reducing their shipping options and reduce overall costs.

Lean Implementation Steps

Eliminate All Waste in the Supply Chain So That Only Value Remains – Creating a smooth flow of products downstream in a lean supply chain requires all departments and functions in the organization to work in collaboration. In the supply chain, the seven wastes translate to:

System complexity—additional, unnecessary, steps and confusing processes
Lead time—excessive wait times
Transport—unnecessary movement of product
Space—holding places for unnecessary inventory
Inventory—inactive raw, work-in-process, or finished goods
Human effort—activity that does not add value
Packaging—containers that transport air or allow damage
Energy-(Sometimes called the eighth waste): eliminate wasteful energy in the supply chain: minimize electricity, gas, utilities, etc.

Consider Advancements in Technology To Improve The Supply Chain – The following are a great list of technology investments that should be at the top of the list in the quest for the lean supply chain:

Workforce Management throughout the Supply Chain,
Omni-channel fulfillment, RFID,
Supply Chain Management (SCM) systems, Electronic Data Interface (EDI),
Trading Partners Interface (TPI-Retail Value Chain Federation),
Customer Order Management,
Customer Relationship Management (CRM)/Cloud Solutions,
Transportation’s Yard Management Systems (YMS) to manage and track freight in the 3PL’s yard outside the warehouse dock doors,
GPS for tracking freight,
a Transportation Management System (TMS),
and any other technology that streamlines the supply chain and improves communication and value to the customer.

To drive further value, look for technology providers in the logistics and supply chain space who can integrate these systems together.

Make Customer Usage Visible To All Members of The Supply Chain – Flow in the lean supply chain begins with customer usage. Visibility to customer usage for all supply chain partners is critical. This sets the supply chain pace.

Reduce Lead Time – Reducing inbound and outbound transportation logistics gets us closer to customer demand which results in reduced reliance on forecasting, increased flexibility, and reduced waste of “overproduction”. When you create your Sales, Inventory, Operations and Production Plan (SIOP) monthly, or more frequently, invite your top Suppliers and Customers to the SIOP meeting. Work in Collaboration to reduce lead times and brainstorm how you can create a Lean Supply Chain that brings value beyond your customers’ expectations.

Create a Level Flow/Level Load – Leveling the flow of material and information results in a lean supply chain with much less waste at all critical points in the system.

Use Pull Systems, Like Kanban – Kanban Pull systems reduce wasteful complexity in planning and overproduction that can occur with computer-based software programs such as Enterprise Resource Planning (ERP) which creates a Push system with too much wasteful inventory going into the warehouse. Pull systems permit visual control of material flow in the supply chain. You can also use Ship-to-Use (STU) systems. Quality Assurance goes to your suppliers, qualifies them for their quality systems and enables them to ship to a point of use on the production floor to avoid sitting in a warehouse as wasteful inventory.

Increase Velocity, Throughput and Reduce Variation – Fulfilling customer demand through delivery of smaller shipments, more frequently increases velocity and throughput to your customers… This, in turn, helps to reduce inventories and lead times and allows you to more easily adjust delivery to meet actual customer need consumption.

Collaborate and Use Process Discipline – When all members of the lean supply chain can see if they are operating in concert with customer need consumption, they can more easily collaborate to identify problems, determine root causes, and develop appropriate solutions to solve any root cause problems. Lean’s Value Stream Mapping (VSM) helps break down processes and gives you the ability to rebuild your process more effectively. Utilize Six Sigma’s DMAIC: Define, Measure, Analyze, Improve and Control to solve any problems or roadblocks. Lean’s PDCA can also be used: Plan, Do, Check and Act. Any and all members of the lean supply chain should use these tools to solve problems and reduce costs to increase value to the customer.

Focus on Total Cost of Fulfillment – Make decisions that will meet customer expectations at the lowest possible total cost, no matter where they occur along the supply chain. This means eliminating decisions that benefit only one part of the stream at the expense of others. This can be achieved when all partners of the lean supply chain share in operational and financial benefits when waste is eliminated.