A Lean Supply Chain for Everyone

Businesses are continually cutting supply chain and logistics costs, and although their efforts have been partially successful, there is still much to do, not only in cost reduction opportunities but also in productivity and quality gains.

Businesses can reduce the costs of their logistics operations and supply chains by applying lean manufacturing principles. In the lean methodology, teams continually look for improvements by identifying and eliminating waste, which is defined as any activity that does not add value. The end product or service is the value-added effort of transforming the raw materials into finished goods. Any activity that doesn’t add value for the customer—such as a product being stored, inspected, or delayed—is 100% waste.

In most supply chains, from when the material or information enters the system until it is delivered to the customer, the full cycle is primarily waste. Little of this processing time adds any value from a customer’s perspective. Lean manufacturing professionals refer to this cycle time as the dock-to-dock time. The shorter the time, the leaner the manufacturing process is.

The lean methodology uses a value stream map, a form of process flow mapping for supply chains and logistics. On the map, an activity such as warehousing is represented as a box whereas transportation is represented as a line. Value stream mapping is used to separate value-adding and non-value-adding activities and to identify risks. The stream begins at the customer and flows through the system back to the suppliers.

Many concepts and tools in a lean practitioner’s toolkit can be applied to your supply chain and logistics function. Some are relatively simple and easy to understand, such as 5S-Workplace Organization, visual workplace, and layout. Others, such as batch-size reduction, quick changeover, and total productive maintenance (for equipment-related waste), are more complex. All require ongoing training, support, and commitment from both management and employees.

Getting started with lean requires a fundamental understanding of non-value-adding activities—waste—from the perspectives of both the ultimate customers and any downstream parties that are providing material or information.

Eliminating Waste: Muda

The strictest form of lean is muda. In Japanese, the word means “futility.” The concept relates to eliminating waste. In lean, there are eight types of waste:

1. Defects: Anything produced that requires parts and labor that cannot be used is an obvious waste of time, effort, and materials.

2. Overproduction: One of the most misleading forms of waste is producing more than is required, which is often done to meet a throughput KPI.

3. Waiting: If employees are ready and able to do work but do not have the materials needed to do a job, costs increase.

4. Underutilized Talent: Often, the most ignored form of waste is the “employee genius.” The people closest to the work often know exactly how to improve the processes but are not empowered to do so.

5. Transportation: In a traditional supply chain, products are transported from where they are made to a large distribution center. When they are shipped out to the customer, they possibly travel back across the same roads. This can be a huge waste of energy, time, and effort. Warehouse Anywhere developed a decentralized warehousing system so that products were stored closer to the customers in an attempt to make every mile productive.

6. Inventory: Having too much inventory may be disguised as being agile, but cash is tied up in storing goods. This money may be better utilized for something else, such as marketing or upgrading technology.

7. Motion: At a smaller scale than transportation, motion is the wasted movements and energy of the people performing unnecessary or inefficient tasks. Such activities may be repeated over and over again.

8. Redundant processing: Marketing a minimum viable product can help to eliminate processing waste by ensuring that each change is one actually desired by consumers.

Eliminating Unevenness: Mura

Another form of waste is the peaks and troughs in demand. Most retailers experience a large jump in demand around occasions, which means hiring extra staff and overtime. In a completely lean supply chain, demand would be consistent or increase predictably.

Although being lean is important, to reduce costs and still be able to respond to changes in demand, businesses also need to be agile. They have to scrutinize their entire supply chain, from beginning to end. Many opportunities will be evident only when the whole system is analyzed.

Lean Supply Chain Tools

Lean Six Sigma

Six Sigma measures and attempts to control the variability inherent in manufacturing a product. When a product is delivered consistently, the customers will learn to trust the brand, which will result in increased sales. Achieving reliability in manufacturing and the supply chain will mean that forecasting is more accurate, so that the organization can adopt just-in-time inventory. Reducing variability also means there are less waste and fewer returns. The least profitable bit of the supply chain is the stuff that goes back to the warehouse!

Just in Time

By mapping and fully understanding everything about an agile and lean supply chain, products can be delivered almost as soon as a customer places an order. In turn, each sales order triggers a purchase order to replenish the product in the warehouse, which triggers the manufacturer to produce more. This cascade improves customer experience and results in a very lean supply chain.

Kanban

A kanban pull system avoids the need to rely on forecasts based on sales trends, because the various entities in a just-in-time supply chain see the demand at the right time for the right amount. To achieve this, different organizations have to integrate their systems with triggers for each subsequent process.

Kaizen

Kaizen refers to making continuous improvements. In 2 Second Lean by Paul Akers, ongoing improvement should be placed at the center of a company’s culture. Every employee is empowered to identify opportunities for improvement. Often these are recorded on video to highlight the improvement. Kaizen can be organized as a project with stakeholders from the shop floor to senior executives. The aim is to continually increase throughput and reduce costs. The team in a kaizen project typically follow these steps:

1. Value stream mapping: Everyone involved in the project helps to map out the entire business process. Each activity and each product movement is recorded, for example, on sticky notes.

2. Metrics: These are devised to compare the current state of the business against the improved state so that the return on investment of the project can be evaluated.

3. Analysis: Using brainstorming and other techniques, promising ideas for improvement are identified.

4. Implementation: The best solutions are implemented. The metrics are used to evaluate the outcome and calculate any cost improvements.

5. Feedback: If a solution works, the project can be terminated. If the gains are insufficient, another solution can be tried.

The 5 Why’s

The best solution is often not the solution to the first problem. Often the real issue is hidden under multiple layers. If we ask “Why” after each answer, we should eventually find the root cause. For example, the iPhone was not the result of consumer demand for a smaller phone but from asking “why” until the real needs were revealed.

Summary

Lean tools can be used to increase your competitiveness and give you a significant advantage in these tough economic times. Once you and your team start considering the many opportunities to reduce waste, you’ll wish you had started on the lean journey sooner!