Andrew Hemmings, of Tier Link Limited brings us the second part of his ideas on the most effective way to undertake a lean supply chain.

Whilst few within supply chain would argue against the concept and its potential benefits, there are barriers. Research carried out across leading manufacturing companies within the U.S.A showed that whilst 90% considered themselves as lean, only 20% extended deployment beyond the shop floor.

Within the supply chain the main barriers were identified as:

● Perception that lean only applies to manufacturing operations.

● Different operating practices and standards between trading partners.

● Lack of commitment from all trading partners within a value stream.

● Lack of established measures to quantify the business value of lean and hence ROI.

● Resistance to change.

Most supply chain teams will have awareness of the basic principles of lean, however, for some its application beyond the shop floor will require a shift in mindset to gain acceptance in other areas of the business. If supply chain is under the operations management structure, it is likely that lean has already being practiced within the factory and can be used as a platform from which to extend.

Different operating practice and standards between partners is commonplace. It is important that relationships develop, at least with major suppliers, recognising that the mutual benefit of lowering supply chain total cost equates to increased profitability for all partners. The sharing of information as well as synchronised planning activities based on customer demand are key.

Most businesses will operate with a single set of performance measures. However for any supplier, it is important that any standards or measures used reflect how the customer base measures performance especially if supplying different business sectors.

One barrier that is always present is the independence of the supply chain members themselves. Each operates as a P&L centre, for which protecting self-interest and maximising profits do little to promote openness or partnership. Any manager who has experienced joint customer/supplier development programmes will be familiar with protecting what is perceived as confidential data that could be used to establish manufacturing costs. The objective of lean is to eliminate waste from which cost savings are an inevitable bi product. To encourage buy–in from partners, objectives for the lead site are better aimed at activities that can be perceived as either non-profit eroding to the supplier or result in savings for all parties.

A lack of commitment to build upon this would question the sustainability of long term partnerships.

As with all change programmes that require the adoption of different working practices, the application of lean concepts involves people. The term lean will itself sound threatening to some and the prospect of change will conflict with those who have a vested interest in maintaining existing practice. This can extend from shop floor practice through to management commitment and can present an additional barrier that should not be underestimated.

A further obstacle within organisations that have been practicing lean, often for many years, is an unwillingness to extend into the supply pipeline because implementation internally has either failed to deliver the results in the expected magnitude or the gains have not been sustained. In most situations, failure can be attributed to either unstructured deployment that is primarily reactive to spikes in performance, poor ownership at management level or lacking in tactics to address both short term and long term problems.

 

Implementation

The starting point is always supply chain and product selection. High impact on the business and high probability of success are the two criteria that need to be satisfied particularly for the first project. Whilst cost and delivery lead time are most likely to be the initial selection criteria for impact, the wider aspects of costs beyond purchase price alone also need to be considered. The hidden costs of expedited inbound and outbound freight are typical and should be easy to quantify. Less obvious, but no less important, are the costs associated with manufacturing planning changes, from which downtime, line changeover time and overtime costs may be incurred. It is important to evaluate the main supply chain processes within and across enterprises in order that performance metrics span the supply chain network and provide a measure of the returns gained from collaborative practice. Such measures are essential to linking opportunities and enabling task prioritisation.

Major suppliers need to be on-board and should have the drive to improve their operations or meet customer needs as well as be able to provide the necessary resources to adequately support their participation. The next phase is to set objectives and obtaining supplier buy-in

Objectives need to be measurable and preferably with some history, in order that the effects of system optimisation can be tracked and compared against past performance. To encourage supplier buy-in objectives are better aimed at issues that are seen as non-profit-eroding, for example inventory reduction without taking the consignment stock option, lead time reduction, transactions and error elimination, demand amplification minimisation to stabilise cash flow. Waste elimination and system performance are always the overall objectives. Suppliers should see themselves as partners rather than just participants and equally see the benefits for themselves as well as be committed for the long haul.

The concept is about “partnership development” where win-win is seen as the end result by all parties.

Current state evaluation and future state drafting is based on extended value stream mapping, (EVSM) about which there are numerous publications.

Where lean supply chain extends beyond EVSM is in the use of the diagnostic to evaluate the supply chain management processes, in particular collaboration and integration, and should reveal both a top-down and bottom-up perspective. The diagnostic provides the metrics by which the framework for the `improvement programme can be established and measured. The opportunities identified and lessons learnt during the first value stream analysis are likely to apply equally in other value streams that comprise the same supply chain members. This opens the door for rapid gains.

There are numerous methodologies and routes to managing any programme implementation, but experience shows that to implement and sustain the future state – see figure four – there should be:

● A structured deployment policy and improvement programme driven by future state goals linked to clear strategic enterprise objectives.

● Ownership at senior management level

● Tactics that combine daily problem resolution, to maintain momentum, with long term problem solving through structured high impact improvement events driven throughout the whole supply chain and practiced daily using appropriate lean methodologies.

 

In conclusion

The limitations of commonly adopted practice for supply chain cost reduction are self-evident and do not examine the waste generated through differing management and control processes used by each of the supply chain members. The implementation of lean practice that not just targets specific products but also, when combined with supply chain best practice, evaluates the overall way in which supply chain management processes of individual members integrate, presents a clear way forward to identify waste and subsequent cost saving. The size of the financial opportunity can be easily measured in terms of materials spend, supply chain labor and overhead costs such as transport, storage, pallets etc. The hidden costs of inventory and impact on cash flow through demand amplification are also quantifiable.

Whilst there will be barriers, include protecting self-interest, task complexity as well as the normal resistance to change, they are surmountable and programs having a structured deployment policy based on future state business goals and objectives linked to customer requirements will achieve results.

For those choosing to take this route the main Features and Benefits are:

● It targets significant opportunity – the supply chain can account for over 65% of operating costs

● Waste elimination, leading to cost savings without profit erosion

● It encourages strategy alignment of key suppliers with own business strategy

● Standard performance metrics against supply chain management processes.

● Enhanced customer perspective – innovative supply chain

● Supplier perspective – partnership, joint improvement

● Focus on hidden costs that are not recovered in the selling price

● Competitive advantage gained from a supply chain having shared goals and objectives.