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In the last several years, the manufacturing sector has moved from vertically organized structures to horizontal organizations; that is, a single company no longer controls its product from, let’s say, the mine to the store shelf. Instead, today’s companies control only pieces of the supply chain, and the companies and divisions controlling those various components may be located just about anywhere in the world.
This model enables companies to concentrate on what they do best, but as a result the supply chain has become longer and more complex. Today’s supply chain includes the entire flow of product, starting with raw materials and ending at the retail outlet; it is the largest business process a company has to manage. In addition to its length, the chain has become enmeshed with production processes to the point where the line dividing manufacturing from supply chain logistics has blurred.
Both of those consequences have caused companies to try to make their supply chains more efficient. Fortunately, the blurring of the line between manufacturing and supply chain logistics brings with it the opportunity to move the management concepts that produce efficient manufacturing to supply chain management. One efficient manufacturing concept stands out as most successful: the concept of “lean.”
The Concept of “Lean”
But what exactly is lean? And how can it be applied to supply chain management?
Most people in manufacturing are familiar with the idea. Its foundations are in the Toyota Production System (TPS), created by Toyota founder Sakichi Toyoda, his son and an engineer named Taiichi Ohno, several decades ago. Its success in turning Toyota into an industrial and automotive giant is unquestioned, and many manufacturing companies worldwide have imitated TPS. Lean production techniques have pared the cost of manufactured goods and speeded up their delivery wherever they have been used.
In its simplest form, lean manufacturing means producing goods with less; it applies fewer resources without affecting the quantity or quality of the goods produced. Toyota’s purpose in developing the system was the elimination of waste, and TPS is focused on seven sources of it: over-production caused by emphasis on supply rather than demand; wasted motion due to poor processes; waiting time generated by tuning the production system to the fastest rather than the slowest process; conveyance waste caused by poorly designed supply systems that delay the transit of goods; processing waste from badly designed systems; raw material waste from inefficient design or ineffective supply strategies; and correction waste caused by reworking badly made products.
The results of TPS have included enormous advances in robotic manufacturing systems and factory design, just-in-time inventory management, the “kanban” system of visual inventory replacement cues, demand-pull management of manufacturing planning and others. But lean manufacturing also has evolved into a business philosophy based on a unique set of practices, and the resulting business culture demonstrates how to use these to create a lean approach to other aspects of business; one area ripe for this lesson is supply chain management.
Principles of a Lean Supply Chain
The supply chain permeates every facet of the enterprise, and if a lean approach to managing it is to succeed, the entire organization has to focus on removing waste and adding value. Part of that change requires everyone involved to look beyond the boundaries of the company to relationships with customers and suppliers at all levels. The change in focus is essential, but implementing it can be difficult in today’s international supply chain environment. Nevertheless, the principles of lean business are straightforward and can form the foundation for an organization’s new approach to its supply chain.
First, product value has to be defined from the customer’s point of view, not the company’s. This seemingly simple principle is the key to eliminating waste caused by such things as making the wrong product (one that nobody wants), making the product at an unsuitable quality level, making too much or too little of it, or delivering it too slowly or through the wrong channel.
A second principle is that the supply chain should flow continuously, and so should the information that supports it. Delays and discontinuities in the supply chain process often are caused by starting and stopping processes or information streams that could smooth things out if they were operated continuously.
Product should be pulled by the customer, not pushed by the company. That is, no part of any supply chain process should be started without a complete understanding of the demand destination of the final product that will complete the cycle.
Finally, the entire organization needs to continue to manage toward perfection, concentrating on the elimination of waste and the addition of value in all of its supply chain processes. This is a continuous process that starts with the launch of a lean supply chain management strategy, and it never ends.
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