Abstract
The purpose of this paper is to provide a basic overview of lean supply chain methodology. This will also provide how the concept was evolved over the years. The paper will provide a brief overview of the basic pillars of lean supply chain and then look at the tools used to implement and monitor lean supply chain methodology. This paper also will discuss the limitations of the current lean supply chains methodology. It will then compare lean supply chain concepts with agile supply chains and green supply chains to bring out the similarities and differences. Finally the paper will provide some insight into how lean supply chain can become more generic for all types of industries.
Introduction
Lean Supply chain management is a concept that originated from the lean concepts of Ford in 1930s. Taiichi Ohno studied the concept from Ford manufacturing system and then improved it and implemented in Toyota. The overall process Toyota followed at that time for its manufacturing process was known as Toyota Production System (TPS) (Cudney and Cassandra, 2011). However, It was so successful that soon the Toyota production system started gaining popularity around the world and based on the TPS a new manufacturing process improvement concept called Lean Manufacturing Process was developed. Lean Manufacturing Process was a team based approach that focused on continuous improvement and elimination of non-value added activities from the customer perspective. During that time manufacturing was centralized with many companies only operating in a single country. However, soon many companies started expanding globally and supply chain became an integral part of all companies. Then the concept of ‘Lean’ was extended to include the supply chain and logistics. Lean Supply Chain management theories were developed and started gaining popularity from 1990s onwards. Many companies started implementing Lean Supply Chain practices to reduce non–value added activities. However, Lean Manufacturing was much easier to implement as it was easy to control the parameters in manufacturing but implementing the same concepts were not easy for the whole supply chain (Moyano-Fuentes, Sacristan-Diaz and Martinez-Jurado, 2012). Many companies failed in the proper implementation of Lean concepts while many others could not understand how to implement it across a global supply chain. Lean Supply Chain concepts are still evolving to help companies provide a better framework which can be implemented easily. This essay will provide the basic building blocks of Lean Supply Chain concepts and how those concepts can be implemented in an organization, further highlighting how agile and green supply chain concepts can be integrated with lean supply chain management concepts for the future organizations.
What is Lean Supply Chain Management?
Lean supply chain management is a framework that provides a company with the ways to eliminate waste and reduce non-value added activities from its total supply chain. Lean Supply Chain includes manufacturing, warehouse and transportation. It helps companies design a supply chain in an optimized way to maximize value.
In Lean concepts, waste is measured in terms of time, cost of poor quality and inventory. The main goal of Lean Supply Chain is to reduce waste. Companies may gain non-value added activities from internal as well as external operations. In its early days companies tried to fit its supply chain to a benchmark Lean framework which, however, often failed to produce the desired result. The current practice for many companies is to use a supply chain design that yields maximum benefit (Agus and Hajinoor, 2012). The flow or pull of supply chain takes place when a customer places an order in the store and it then flows through the supply chain to the suppliers who are manufacturing and procuring raw materials. Any process that slows down the flow or impedes the process in between is identified as the non-value added activity and is analyzed using Lean Supply Chain tools. Lean can be defined as a management principle which focuses on supplier network value stream to eliminate cost, synchronize flow, minimize production and transaction cost, establish cooperation and collaboration, develop quick response capability, ensure visibility and align core competencies.
How to Develop a Lean Supply Chain
The basic principle of supplier network suggests that supplier collaboration is an important part in Lean Supply Chain concept. It is seen in many industries that collaboration and cooperation with suppliers have made many lean supply chains successful. Aerospace and automobile are two major examples of this. Many automobile manufacturers and aerospace manufacturers have part suppliers who are very important from product quality and value addition from final product perspective. For example, strategic partnership between GE and Boeing for rotor production and supply has created a better efficiency. GE has more transparency of the demand of rotor from Boeing so that it can plan accordingly and produce efficiently. On the other hand due to GE being taken into the supply chain collaboration, GE supplies better quality parts to Boeing with reduced lead time.
Just in time (JIT) is another main parameter in Lean Supply Chain concept. JIT can be achieved through proper and efficient communication flow. There are different stakeholders in the supply chain. Especially in the current business models, there are many stakeholders of a business spread across the world. For example, Apple’s supply chain has part manufacturers situated in China and Taiwan, assembly lines in Europe, USA and China and sales offices in more than 70 countries, warehouse partners in more than 30 countries and logistics partners across the globe. To operate its supply chain efficiently, Apple needs to communicate efficiently among all the stakeholders. A Lean Supply Chain concept tries to provide a framework for establishing better communication among different stakeholders. Especially the flow of information of a demand element through the supply chain needs to be optimized in such a way that each stakeholder should know what they need to know as soon as a demand is raised from the customer.
Data and KPIs
Data is essential to understand how a company is doing. Without data it is impossible to measure the progress of a company. So it is important to collect data to make decision. For a company there are many sources of data and it is impossible to collect all of those. It is also not required as well. There are certain data and measures that are more important to define a supply chain performance than others. A company should be diligent enough to capture those data.
Major Key Performance Indicators (KPIs) measured for Lean Supply Chain include on time delivery %, Quality %, and Productivity and cycle time (Agus and Hajinoor, 2012). These, if measured across the supply chain, can provide a good picture of the overall efficiency. KPIs are measured on the basis of the data received from the supply chain. Once KPIs are measured then it can be used to identify potential areas of improvement and potential non-value adding areas of business. With proper measurement of data, Lean Supply Chain design can be done for the company. KPIs provide the basic backbone for the design specific to a supply chain.
Lean Supply Chain Tools
Lean Supply Chan is a measurement concept which proposes continuous improvement. Implementation of Lean Supply Chain does not mean a one-time improvement of the areas in business which has non-value adding processes. Lean Supply Chain rather is a concept which proposes implementation of tools in the supply chain which will be part of the company as long as it operates and help the company implement continuous cycles of improvement.
Lean tools are primarily derived from the basic tools used in Toyota production System. First tool which comes as a part of Lean Supply Chain implementation is 6S also known as visual factory. 6S previously known as 5S is a tool for visual checking. Often in an office or shop floor or in a warehouse, improvements can be suggested only by looking at it. It is a simple concept but very effective. 6S proposes sorting, stabilizing, shining, standardizing, sustaining and safe keeping of products and materials in the workplace.
The second tool is known as Total Productive Maintenance. The basic concept behind this concept is that with minimal investment in quality and maintenance, the quality and efficiency of the product can be improved. Process certification is a concept to ensure that a process in question conforms to the standards set by the company. In case of Lean Supply Chain concepts, the process certification extends to supplier certification as well. For example, we often see news like Samsung certified its Chinese part manufacturer. It is nothing but a concept originated in Lean Supply Chain where the main company creates a quality standard and helps its suppliers come up to that standard. Once the supplier reaches that standard the company certifies them. Once a supplier and the process are certified, it becomes a responsibility for the quality control team to ensure that their quality remains as expected.
Another tool used in Lean Manufacturing is called ‘Poka Yoke’ or mistake proofing. There are manufacturing process and logistics processes which are handled manually. Manual operation of a process sometimes causes error. Mistake proofing is technique which identifies the processes which are prone to mistakes, designs a process and creates checks in the process so that mistakes are reduced or if there is any mistake, it is identified quickly.
Setup Reduction is another process commonly used while Lean is implemented in a company. Setup reduction improves the agility and flexibility of a system. Setup reduction also improves the Just In Time process.
Finally, Kaizen is a process which optimizes between the lead time and inventory holding cost. Holding a lot of inventory at any node or any level of production creates inefficiency. However, by implementing Kaizen a supply chain can improve its inventory turnover and lead time.
Benefits of Lean Supply Chain
There are many benefits of a Lean Supply Chain. The main benefit is that it improves an organization as a whole. Lean concepts touch all the functions of a company so that all the parties involved benefit out of it. With proper implementation of Lean Supply Chain, greater efficiency, higher quality and lower cycle time are achieved. Lean Supply Chain concepts also ensure that changes are not static and a culture of continuous improvement is built into the DNA of a company (Perez, Rodolfo and Simons, 2010). Lean is not a concept dependent on culture, rather it is an objective and tool oriented concept that is easily transportable and implementable across the world.
Lean and Agile Supply Chain: Can They Exist Together?
Looking at the basic building blocks and concepts of Lean Supply Chain, it seems that it is a generic concept that can be implemented for any organization. Most of the companies can reap benefit out of the implementation of Lean Supply Chain concepts. However, that is not true always as there are scenarios which are not straight forward for the implementation of Lean Supply Chain. For example, supply chain for disaster recovery is not a good scenario for the implementation of Lean Supply Chain. If a strict Lean Supply Chain concept is implemented in US disaster recovery department end-to-end, then it may so happen that the department may try to reduce the inventory it should keep for disaster to achieve better cost efficiency. This may cause slow response during a disaster. In case of disaster recovery, every minute gained equates to more life saved, so agility is more important in such circumstances. That’s why Agile Supply Chain concepts are more popular in such scenarios. However, Agile Supply Chain is not always cost effective and the relationship between stakeholders may be missing as it works in small agile teams (Cozzolino, Rossi and Conforti, 2012). This may hinder the efficiency. Lean on the other hand can provide those benefits.
If implemented together, Lean and Agile can provide a slew of benefits. In case of disaster recovery, parts of the supply chain are static and non-contingency based. Lean Supply Chain concepts can be implemented for those parts. However, there are certain parts of the supply chain like restoration and emergency team, contingency planning etc. which can be executed using agile concepts. For example, United Nations World Food Program provides food across the world to the needy in times of flood, drought or civil warfare. Whenever a critical situation arises, United Nations needs to react fast to fulfill the need for food. It can implement Lean Supply Chain concepts for managing its food supply and food warehouses around the world (Qrunfleh and Tarafdar, 2013). However, during emergency situations it can use agile methodology for team availability and operations.
Lean and Green Supply Chain
The world is becoming more and more conscious of the environment around us. Many countries are forcing the companies to implement environment friendly process. Even some of the companies are voluntarily implementing green supply chain concepts. Green supply chain concepts propose that companies should design and implement systems that are sustainable from the perspective of environment (Mollenkopf, Stolze, Tate and Ueltschy, 2009). It also proposes waste reduction.
Lean proposes maximizing performance and minimizing cost. Lean does not talk about the end-of-life impact of a product line. Just in time is another concept which is the building block of Lean Supply Chain. However, some of the Lean Supply Chain concepts are in direct contradiction of green supply chains. For example, Lean Supply Chain will highly recommended a product or a production process which minimizes cost and maximizes value even if that product may cause problem to the environment after an end of life (Remien and Tresslar, 2012). However, green supply chain concept will outrightly reject that process not sustainable from the perspective of environment. Furthermore, in case of just in time system Lean Supply Chain concepts propose shorter setup times and more setup changes to make a supply chain more flexible. However, a green supply chain will offers less setup changes as that may decrease environmental pollution by reducing carbon-di-oxide emission.
However, one area in which both the concepts match is waste reduction. Both the concepts talk about waste reduction techniques, lead time reduction and people and organization. Lean Manufacturing concepts can be implemented even in a green environmental regime where lean concepts should take the environmental factors as a constraint while applying its tools to optimize the supply chain (Dues, Tan and Lim, 2011).
Conclusion
Lean is not a new concept. Lean manufacturing is almost a century long management methodology. However, due to the ways supply chains have expanded around the globe Lean manufacturing concepts were not able to provide efficiency to the global organizations. Lean Supply Chain concepts which are an extension of the Lean manufacturing methodology are perfectly suited for the global companies of the present day. Lean manufacturing primarily recommends that non-value added activities from a supply chain should be removed and demands should be met just in time making the supply chain lean. Lean is not a methodology which recommends one time improvement; rather it is a combination of tools catering to different aspects of an organizational performance and helps an organization continuously improve. Lean Supply Chain concepts can be implemented in most of the situations and most of the organizations. However, there are situations where it cannot be implemented directly. Supply chain for disaster recovery requires quick response more than any other parameters. Quick response is only one parameter for lean. It tries to optimize between cost, quality and time. Whereas agile only looks at time. Even in disaster recovery supply chains, lean manufacturing can be implemented along with agile if they are implemented in a de-coupled manner between front end and backend. Similarly, green supply chain concepts are in many cases in direct contradiction of Lean concepts. Lean methodologies needs modification to incorporate changes that are coming into the supply chain due to green initiatives. Overall Lean is a very generic concept which can be imbibed by any company if the design is customized on the basis of organizational goals and needs.
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