Lean Supply Chain and Logistics Management, page 18
In “The Rise of the Supply Chain Officer,” Carlos Gordon mentions that having a CSCO enables companies to put “constant effort into designing and managing a lean and agile supply chain that supports the company’s overall strategy.” This can ensure that “partners in the supply chain must be able to work both independently and together, and optimization of performance must occur at both the company and individual levels.” [Gordon, 2008]
One thing we know for sure is that things change, and they seem to be changing faster and faster. As a result, it may be necessary for one company to have multiple supply chains. For example, the Heizer and Render Operations Management text describes how Darden Restaurants (Olive Garden, Red Lobster, etc.), has at least four identifiable supply chains (smallware, professional food distributors, independent local fresh food suppliers, and fresh seafood suppliers). Depending on the product or service this may be the most efficient way to do business. On the other hand, the individual supply chains need to be as flexible and agile as possible to react to changing customer demand patterns. [Heizer and Render, 2010]
It is also important for the supply chain and logistics function to match the company’s strategy. Operations Management by Schroeder et al. mentions a number of strategies and how operations and supply chain must match in order to be successful. [Schroeder et al, 2011] They include:
Competing through quality—Customers help to establish quality requirements, but our employees and supply chain partners make sure we meet them.
Low cost—Focus on waste to eliminate cost that can come in terms of quality issues, as well as SCM costs in areas such as transportation and distribution.
Delivery time—Lead time does not just come from manufacturing, but from your supply chain structure (procurement lead times, transportation modes, and distribution processing of orders, for example).
Flexibility—Customer requirements are constantly changing in this era of “mass customization” and wanting things “now.” The supply chain must be structured to accommodate this to minimize waste. If that is not your strength, then perhaps you should consider concepts such as third- (and fourth-) party logistics, postponement, etc.
In general, you may want to look at your supply chain structure to improve its operation over the long haul. The operations management text by Schroeder et al., mentions these potential improvements:
Vertical integration—Buying suppliers and wholesalers can be an expensive proposition but can also make for a more efficient, predictable supply chain.
Process simplification—This can involve process improvement, or even starting from scratch. No matter, the focus should be on customer requirements and shifting toward demand pull.
Change your supply chain network—This can include changing the number and/or locations of factories, distribution centers, and suppliers. Typically, in the case of factories and distribution centers, this involves a fairly sophisticated network simulation analysis (some companies do it themselves; others use outside consultants; in either case, software is available to make the process a bit easier and more optimal). It can also involve outsourcing, such as the use of contract manufacturers to add flexibility to your network.
Product redesign—This can involve both the number and type of products. Many companies need to do an SKU “rationalization” to reduce the number of items in their supply chain. The Pareto principle or 80/20 rule is helpful in this endeavor. Postponement further downstream in the distribution channel can be a way of simplifying the number of SKUs that you carry as well. Of course the products themselves can be modified to have more common parts (e.g., common components and modules).
Third- (and fourth-) party logistics—There are a variety of services that can be outsourced to 3PLs, including warehousing, transportation, and light manufacturing (usually assembly). A relatively new service is fourth-party logistics providers (4PLs) in which the 3PL activities just mentioned are outsourced and a same or different party also provides additional services such as supply chain design and planning, customs brokerage, and international trade services.
Relationships
As we discussed previously, the supply chain is actually more of a “supply web” with complex interrelationships between customers, suppliers, transportation companies, 3PLs, etc. “The bottom line is that any supply chain must be adaptable and flexible, and leanness and agility are nothing without the integration of suppliers… partners in the supply chain must be able to work both independently and together, and optimization of performance must occur at both the company and individual levels.” [Gordon, 2008]
Going forward, long-term relationships with fewer, more strategic partners can create value through economies of scale and learning curve improvements. Suppliers will also be more willing to participate in Lean JIT programs and contribute design and technological expertise.
The same goes with customer relationships—at least with your major ones. The closer you can get to point of sale (POS) demand, the closer you can get to a “make what you sell” demand-pull process. So while it may be difficult, if not impossible, for companies to set up CPFR type relationships with all customers (it is best to focus on your largest customers first), more of a “partnering” type of relationship needs to be developed with customers to continue to substitute information for inventory in the supply (and demand) chain.
In this type of environment, there are challenges in controlling a supply chain involving many independent organizations. To be successful, you need to have mutual agreement on goals, trust, and compatible organizational (Lean) cultures.
Technology
As a lot of your company’s supply and demand chain is external, the concept of visibility is critical in controlling waste to decrease costs, and increase efficiency and service levels.
Traditional ERP and SCM systems give you good visibility within your facility, but historically, they did not necessarily give you much if any visibility outside. Companies these days have many partners who they need to communicate with, especially with the increase in outsourcing that has gone on. So many of the big players like i2 and Manugistics (both now owned by JDA software) have worked on addressing the visibility problem with their SCM products, and others have partnered with other software companies to enhance outside visibility. The same goes for large ERP vendors such as SAP and Oracle.
Supply chain visibility can be looked at from either a logistics perspective (technology that tracks a product and materials as they move through the supply chain) or a solutions perspective that enables manufacturers to track products throughout the various stages of its lifecycle.
A supply chain benchmark survey by Gatepoint Research and www.E2open.com said that greater than 50 percent of the respondents had in excess of 500 component suppliers or manufacturing partners with 44 percent having poor visibility into tier-1 suppliers, and 75 percent had poor visibility into tier-2 and tier 3-suppliers. In all, greater than 80 percent stated that they had not automated, or only partially automated, their supply chain processes. [www.E2open, 2009]
A 2010 Aberdeen Group survey found that 57 percent of the respondents felt that improving supply chain intelligence was a critical factor for improving overall operational performance. [www.aberdeen.com, 2010]
According to Mary Shacklett in her article, “Supply Chain Software—The Big Spend [Shacklett, 2010] there are three major software trends:
1. There is a move away from traditional corporate thinking that a high degree of software customization to the business produces competitive advantage. Instead, contemporary thinking is that packaged software in a “vanilla” form can do an adequate job for the supply chain, as long it incorporates industry-wide best practices. Customization for corporate business processes still occurs, but it occurs via technologies like services oriented architecture (SOA), which splits off pieces of business logic that can be assembled to support any end-to-end business process without altering the core software. In this way, companies remain eligible for new software releases (and support) from their vendors and also benefit from the R&D the vendor puts into the product to continually improve it.
2. More built-in capability for analytics that assist managers at different levels of an organization with visibility, reporting, metrics, and analysis of what is (or isn’t) going on in the supply chain. Software development is focusing on increased intelligence embedded in the software, as there is a demand for visibility, which can facilitate the accuracy of forecasts.
3. Migration to cloud-based supply chain solutions. This is largely being driven by a need to get a handle on external company transactions with partners and suppliers. [Shacklett, 2010]
Alignment
The concept of alignment refers to having all of the members of your supply chain all moving the same direction so that the entire supply chain can be Lean and flexible.
In the “The Chain of Alignment,” John van Veen makes the case that “inconsistent goals challenge successful internal and external supply chain integration. Divergent objectives lead managers to make self-interested suboptimal decisions that frequently are in opposition to those of other business managers and supply chain members.” [van Veen, 2011] The net result of this type of activity is waste.
A 2009 study for the CSCMP entitled “Mastering Supply Chain Management” by Fawcett et al. found that the largest barriers to the collaborative business model were a turf protecting organizational structure, resistance to change, conflicting measures, lack of trust and lack of management support. In other words, pretty much the same barriers to lack of success implementing Lean in the supply chain. [Fawcett et al., 2009]
Some of the potential solutions to breaking down these barriers included:
Collaborative strategy meetings
Executive steering committees
Collaboration workshops
Cross functional teams
S&OP
Co-located managers
“C” suite SCM executives
Supply chain advisory boards
It goes without saying that a Lean supply chain journey requires an executive steering committee and cross-functional teams, but the most intriguing and potentially most effective concepts mentioned were:
Supply chain advisory boards made up of representatives of key customers and suppliers (and perhaps current software vendors, 3PL providers, public warehousing, and transportation partners)
Co-located managers, which is a concept that larger companies can afford to do (e.g., Proctor & Gamble had up to 200 employees on site at Walmart Headquarters for a VMI program at one point in the 1990’s)
Both of these concepts can make major improvements in visibility and collaboration.
Trends in Lean Supply Chain
As stated at the beginning of this book, Lean has gradually migrated from various types of manufacturing processes (it started in repetitive assembly-line processes, such as the auto industry, and moved to continuous and batch processes, such as the chemical industry) to the office and now, more recently, to the supply chain.
It is even being implemented today in service industries, such as hospitals, hospitality, retail, and restaurants. If we look to the near future that trend will not only continue, but likely accelerate with shortening product life cycles and lead times, continued global outsourcing, and increasing demand for mass customization.
Complementary to this, we can see a definite trend toward more visibility through the entire supply chain, collaboration and connectivity, warehouse automation, electronic data capture, and global tracking of goods movement, which will contribute to the reduction of waste in the supply chain.
All of these trends generate massive amounts of data that need to be captured and analyzed.
Data Analytics
There is a growing trend in the use of data analytics (DA), which is the science of examining raw data with the purpose of drawing conclusions about the information. This information can help to gain better visibility and improve collaboration between supply chain partners, ultimately enhancing or creating value and reducing waste.
The article “The Data Analytics Boom” by John Jordan in a 2010 issue of Forbes Magazine points out that there are many reasons for the rise in the interest level in DA. They include:
A generation of managers trained in the tools of Six Sigma and TQM has learned the value of the application of data to improving a process.
An explosion of available data and capabilities to process that data.
Many of ERP systems have recently put added emphasis and capabilities into analytics.
Supply Chain Analytics and Lean
We discussed the use of Lean analytical tools in Chap. 6, which can be applied to the supply chain.
Data analytics is especially important in the supply chain and logistics field. At The Pennsylvania State University, which has one of the leading supply chain programs in the country, one of the primary learning goals in their masters of professional studies in supply chain management program is to “apply supply chain analytics to improve operational effectiveness and/or make the supply chain a source of competitive advantage” (source: www.smeal.psu.edu).
In “Fueling Supply Chain Transformation—Predictive analytics energizes dynamic networks,” Dogan et al. point out that the increased complexity, shortening product life cycles, amplified price, and volume volatility require managers to have real-time insights into the impacts issues like these will have on the supply and demand sides. [Dogan et al., 2011]
Advances in technology have allowed for real-time analytics to give management more visibility and deeper analysis to be ready for these volatile and ever-changing conditions with more realistic strategies.
This is not all theoretical either. The article points out a real-life example of a major agribusiness company that wanted to improve its supply chain performance. They used supply chain planning analytics to identify the root causes of performance problems and apply the findings to their forecasting, inventory, and delivery functions. The results have included a 20 percent reduction in inventory and working capital, a13 percent reduction in transportation and distribution costs, and an 8 percent reduction in the cost of goods sold.
The main point here is that Lean supply chain transformation programs can benefit from predictive analytics, and this task is becoming easier with the ever-increasing amount of available data and user-friendly tools to gather and analyze it.
Potential Obstacles to Lean Thinking in the Supply Chain
There are a variety of opinions as to the obstacles to Lean thinking in the supply chain. Tom Craig, president of LTD Management, feels that the most significant obstacles are “accounting, the “four walls” mentality and not focusing on the international side of the inbound supply chain.” [Craig, 2011] Kelly Thomas, senior vice president of manufacturing at JDA Software Group, Inc., feels that “the two greatest obstacles to lean thinking are executive leadership and understanding that the journey never ends—in other words, sticking to it once the journey starts. Technology is instrumental in helping with the second of these. Technology can institutionalize lean techniques and provide staying power. Many lean implementations have depended on individuals and manual techniques and if those individuals change positions within the company, much of the enthusiasm and leadership are lost. Some technologies can provide interlocks similar to the concept of poka-yoke, ensuring lean techniques have staying power.” [Thomas, 2011]
No matter what the obstacles, if the challenges are met with a sound methodology and commitment as has been laid out in this book, then failure will not be an option.
Lean Ahead
This book was intended to help supply chain and logistics professionals, corporate executives, teachers, trainers, and consultants to use Lean tools and applications to navigate through the complex and ever changing supply “web.”
When looking at the challenges ahead, you should always be looking to identify and minimize waste wherever it may appear in your supply chain and logistics function. It is always important to realize that, as in Lean manufacturing, not all companies and industries are the same. As a result, Lean tools used will vary. It is always a mistake to use a “cookie cutter” approach, which may doom you to failure. It is also important to have top management support, plenty of training (and incentives) for everyone, and a truly Lean culture to make sure that you have a Lean journey and not just some training or a project or two.
The road is littered with companies that did not change with the times, but their competition did. You should think of Lean as a competitive tool that will protect you from this fate and enable you to get and stay at the front of the pack.
The slides available at mhprofessional.com/myerson and the Lean Assessment Scorecard in Appendix B should help you in this quest. Good luck in your journey and stay the course.
APPENDIX A
Real-World Examples of Lean Supply Chain and Logistics Management
The following Lean case studies are meant to give readers real-world examples of companies that have used various continuous improvement tools to enhance their supply chain and logistics functions. In keeping with the general theme of the book, they are organized using the SCOR model of Plan, Source, Make, Deliver, and Return.
PLAN
Lean Case Study: The Organized Office*
