Lean Supply Chain and Logistics Management, page 11
9. Integrated planning and execution flow—The idea here is to attempt to have technology on the global logistics side that follows the planning and executive process (i.e., automated and integrated). Ideally, this should be real-time or close to it, and as was pointed out earlier, much of the international freight movement data is still collected manually. This is truly the ultimate way to make sure your global supply chain and logistics function is Lean.
10. Financial supply chain management—It is especially critical on the global logistics side that financial processes for things like letters of credit, financial settlement, and other import/export documentation do not interfere with the flow of goods. So it is important to have both internal personnel skilled at this, as well as partners and software vendors, to make sure that international transportation planning and execution are integrated and as efficient as possible. [www.scdigest.com, 2006]
Addressing Wastes in the Global Supply Chain
Tom Craig, in his “International Logistics—Beyond the Four Walls” article points out that there are many other areas to look for waste that are specific to global supply chain and logistics and include:
Use technology to manage supplier performance and to integrate the movement of information among and between all parties.
Design a process that is lean and includes all parties and that differentiates among different commodities and products and among different customers.
Collaborate with key suppliers and logistics providers.
Link demand and demand planning with replenishment and buying.
Reduce the number of suppliers and logistics service providers to streamline the supply chain, without sacrificing results.
Focus on supplier performance; control the supply chain at the international source. The offshore supply chain begins with the purchase order; transportation is a derivative of the purchase order and of supplier performance.
Understand transport differences and options such as ocean carriers offering different transit times, different sailing schedules, different destination ports and different canals to the East Coast (Panama Canal versus Suez Canal).
Align your financial supply chain with your trade supply chain. These two chains involve different sets of players with differing objectives and practices.
Use a 4PL or 3PL to manage your offshore supply chain. Work with a supply chain service provider that understands the total supply chain complexity and operation. His interest should be your supply chain, including your suppliers and purchase orders, not just your freight. The firm should use process, technology and people to do this. The people should be located in the same country and locality as your suppliers. [Craig, 2011]
According to international supply chain consultant David Sardar of Cross Country Consulting (www.crosscountryconsulting.biz), areas to look for waste in international supply chain and logistics include “order processing, processing [of] all export documentation, clearing customs, and transportation. Partnering with a broker that knows the industry and your business is critical. Very few, if any, brokers are good for all locations. Local brokers have contacts in certain ports and this helps with their knowledge of what causes delays in certain ports.”
Furthermore, Mr. Sardar has found that “minimizing time and costs from final inspection to the point of sale or use is the goal. To do this it would start from how quickly suppliers process orders, pick, pack, ship, clear customs and get it to the destination. Customs and getting it on the best ship or plane and to the best destination port or airport is the key. In making our supply chain leaner we were able to eliminate a few non-value added steps and this reduced our total cycle time as well as reduced costs.” [Sardar, 2011]
Global supply chain and logistics is a complex process. As described in this chapter, there are plenty of opportunities to look for activities that are non-value-added from the customers’ viewpoint using tools such as VSM and using a continuous improvement process to eliminate or at least minimize them.
CHAPTER 10
Keys to Success: The Patient Gardener
Over the years, many fads and buzzwords have come and gone. In many cases, it is because they were not really great ideas, but in other cases, it was because there was not the proper environment necessary for them to take root and grow.
If you look at how companies are run overseas, you will realize that they tend to take a longer-term view of the world than Americans. They also focus more on training, as was pointed out earlier the book (U.S. firms average 7 hours of training per year, while other advanced countries average hundreds of hours per year).
The Lean transformation process is truly a journey that can take a long time and requires patience and support. Companies that expect huge short-term results are usually disappointed and tend to give up, while those that stick with it can attain some significant, long-term results, including lower costs, shorter cycle times, inventory reductions, increased capacity, reduced defects and rework, and greater employee morale.
Key Success Factors
There are a number of key success factors (KSF) critical for a successful Lean journey.
Lean Training
First of all, it is important to train the entire organization to ensure that everyone understands the Lean philosophy, as well as has an understanding of all of the concepts and tools. It can be useful to have an outside trainer and facilitator to come in to lead kaizen events, especially in the early stages. As they used to say about consultants, “They borrow your watch to tell you what time it is.” Recently, I delivered some 5S training and kaizen events at the truck maintenance facility at a 1.5-million square-foot distribution center for a major toy retailer. Due to rapid growth in the fleet and limited space, the storage area of the facility had become quite a mess. While they were aware of this, it took someone from the outside to help them to look at things differently and understand the benefits of workplace organization. The end result was more storage space, which was desperately needed (and it was much more organized so it was easier to find spare parts and supplies).
Management Support
It sounds simple, but no type of change can be successful without top management actively driving and supporting the change with strong leadership. Often, when companies do employee training using grants, management seems to look at it as “free” training, without considering the potential long-term commitment required to get the potential benefits of the training. That type of thinking is rarely successful for anything other than short-term results. Management has to be in it for the long haul, otherwise it is doomed to fail. In fact, it is a good idea for your overall company business strategy to include Lean.
There has to be a commitment from everyone in the organization to make it work, not just management. Lean and continuous improvement in general should become part of everyone’s job, from the job description to the review and reward system. A small amount of time should be set aside during every meeting to discuss Lean projects and progress. Everyone should be encouraged to question the status quo.
Lean Structure
It is always a good idea to designate a Lean champion to spearhead continuous improvement activities. In many cases, those who really believe in the benefits of Lean hire full-time Lean champions. When doing so, you should try to find a good, experienced change agent as the champion. The more structure you have to accomplish your Lean goals, the better chance for success. Some companies also assign Lean coordinators and even subject matter experts (SMEs). The coordinators are responsible for various kaizen events and the SMEs may be trained to train and manage for specific types of events (e.g., 5S, VSM, etc.).
It is usually the Lean champion’s responsibility to create a kaizen agenda and communicate it to operators and others in the organization, who are members of the empowered teams.
To get started, it is usually best to pick an area that is visible, yet manageable in size and one that can be dramatically improved, such as a small supply storage or work area with a lot of traffic. This way, the organization can see that you are both serious about Lean and can see how it can make a difference. As mentioned before, after general Lean overview training to everyone, some companies go right to VSM, and others start with 5S events. Which way a particular company goes depends on its size and the industry it is in, among other things. In any case, it is important to start mapping value streams to identify opportunities and begin as soon as possible with an important and visible activity. While doing this mapping, it is always helpful to benchmark or compare data within your industry and outside your industry to help prioritize improvements.
It is important to become as lean as possible within your company’s “four walls,” then expand to customers and suppliers. In many cases, if you do not eventually partner with suppliers and major customers on the Lean journey, the full benefit of Lean is never reached and in some cases, you are just passing your inefficiencies on to suppliers, making them less efficient. One Lean client we had was partially funded by a major (large) customer who had been through a Lean journey themselves. They had reached the point where they wanted their major suppliers to become more efficient as well. There were however “strings attached”—the supplier was responsible for improving specific metrics such as on-time delivery, lead times, etc. That way it was a win-win situation for both the customer and supplier.
Teamwork and Lean
Teamwork is fundamental to compete in today’s global environment in general and is fundamental to Lean in particular. Teams help support a process that defines and solves problems using Lean tools.
These days, most employees have been on some kind of team, whether it is a management team, quality circle, new product team, etc. It is pretty much the “way of the (business) world” these days. In fact, it seems that teams are more the norm than the exception in today’s environment.
Making Teamwork Happen
To make teamwork happen, executives must communicate the clear expectation that teamwork and collaboration are expected from the group. Management must talk about and identify the value of a teamwork culture and reward and recognize it. Over time, stories and folklore develop that people discuss within the company that helps to emphasize teamwork.
Most successful teams have a large degree of employee empowerment or the authority to make decisions on their own. In many cases, teams are self-directed, which gives the members this added sense of empowerment. In order to ensure success, management must provide adequate support, training, and establish clear objectives and goals. There is always the “what’s in it for me” question, so the idea of financial and non-financial rewards are important. From a simple “pat on the back” or treating the team to lunch to actual financial rewards can be useful and meaningful.
In general, it can sometimes be difficult for managers to give up control to the team, but as long as they make sure that there are adequate controls in place, it can be successful.
When teams are successful, organizations and employees can benefit from an improved quality of work life, increased motivation, improved satisfaction, better quality and productivity, and lower turnover, among other things.
However, on the other hand, there are higher costs involved as a result of greater wages, training, and capital costs needed to be successful.
Sales and Operations Planning (S&OP)
We will delve more into teams and kaizen events in the next chapter when we discuss VSM and how teams and kaizen events are necessary to get to the “future state.” In the meantime, we will discuss the topic of sales and operations planning (S&OP), a function that is also team-based, but rarely discussed in the context of Lean Enterprise.
S&OP Defined
In its simplest terms, S&OP is a way for a business to ensure that supply can match demand, at least on the aggregate. As discussed previously, Lean teams plan and execute on a shop-floor level, but S&OP can be a great tool to make the connection between the kaizen event goals and objectives and corporate ones. As we know, inventory is one of the eight wastes and covers variability in a process. Through the use of S&OP, inventory can be directly controlled. In general, there are two general ways to reduce inventory: (1) more accurate forecasts and (2) shorter cycle times. The S&OP process attempts to improve and control both of these.
S&OP, also called aggregate planning, is a process in which executive-level management regularly meets and reviews projections for demand, supply, and the resulting financial impact. S&OP is a decision-making process that makes certain that tactical plans in every business area coincide with the company’s business plan. The net result of the S&OP process is that a single operating plan is created that allocates company resources.
S&OP increases teamwork between departments and helps to align your operational plan with your strategic plan. It is a process in which various targets are set (e.g., forecast accuracy, inventory turns, etc.), and progress against the strategic and operational plans are reviewed in a series of meetings.
The objective of S&OP is to have consensus on a single operating plan that meets forecasted demand while minimizing cost over the planning period. It should allocate people, capacity, materials, and time at the least possible cost, while ensuring the highest customer service possible.
Supply and Demand Options
In order to meet predicted demand, there are capacity options available, which include the adjustment of production rates, labor, and inventory levels, as well as the use of overtime, part-time workers, and subcontracting.
Alternatively, there are also some demand options as well. These include influencing demand, backordering, counter seasonal product offerings, and service mixing.
These approaches can be implemented to varying degrees by using what are commonly known as chase, level, or mixed strategies.
A chase strategy allows production to meet demand for each period by adjusting production or labor rates. This works wells in the service industry, but in goods it can cause major headaches from constantly laying off and rehiring and training personnel (as well as the added costs as a result).
The level strategy basically uses inventory as a buffer to keep staffing at consistent levels. There are downsides to this such as carrying way too much inventory, and as inventory is made much earlier than needed, there may be too much of the wrong items and not enough of the right ones!
Many companies, use a combination of the various capacity options mentioned previously, which is called a mixed strategy.
The S&OP Process
The series of meetings prior to the final S&OP executive-level meeting are:
1. A demand planning cross-functional meeting, at which forecasts are reviewed with a team that includes (at the very least): operations, sales, marketing, and finance. Typically, forecasts have been generated statistically and aggregated in a format that everyone can understand and confirm (e.g., sales might want to see forecasts and history by customer in sales dollars).
2. A supply planning cross-functional meeting at which agreed-upon forecasts have been “netted” against current on-hand inventory levels while factoring in information such as safety stock targets, lot sizes, and capacity constraints to create production/purchasing plans. Again, this data will usually be reviewed in the “aggregate” by product family in units, for example.
3. A pre-S&OP meeting, at which data from the first demand and supply meetings are reviewed by department heads to ensure that consensus has been reached.
As the logistics manager at a major household products company, we used this type of process (even before it was called S&OP), to accomplish aggregate production planning for the various company-owned and -contracted manufacturing sites. We would always put pressure on the plants to cycle through our products more often, which was a challenge. In the past, they were used to scheduling production on a monthly basis with some priorities. We used the ABC method to push the plants to run the A items every two weeks (and eventually weekly), B items monthly (eventually biweekly), and so on. It took a lot of time and continued pressure to get the plant manager behind us as is typically the case, changeover costs were the issue, resulting in larger-than-needed batch sizes.
Simultaneously, we put in place a collaborative forecasting process using a statistical forecast as a “base” at the item level (actually at the SKU level—item at a distribution center), which was aggregated in various units of measure and levels to share with marketing, sales, and finance among others. Forecast accuracy targets and measurement (by ABC code) were crucial to this process’s success.
We would have a monthly process where we would first come up with the most accurate collaborative forecast possible and then run our production plans to match supply with demand, which was then reviewed by a management team.
Over time, the company was able to significantly reduce inventory levels while improving customer service directly as a result of this process.
S&OP increases teamwork between cross-functional areas. It puts your operational plan in line with your business plan. S&OP is a formal process in which targets are set, and progress against the business plan is reviewed.
S&OP and Lean
From a Lean perspective, a robust S&OP process acts as both a planning and control method at an executive-management level as various metrics indicating the level of waste, such as forecast accuracy, inventory turns, and on-time and complete shipments, to name a few, are benchmarked externally to set objectives (as well as matching the company’s strategic plan) and also measured to know when things are in or out of control.
