Moving Beyond Lean Manufacturing to a Lean Supply Chain
Written By: Michael Bittner
Published On: September 13 2005
Most of the buzz and activity around the adoption of lean manufacturing concepts within an enterprise has been linked to the shop floor. Production operations have been the target of most lean manufacturing deployments, but lean manufacturing principles and techniques can be extended beyond the shop floor to processes that are unique to and transcend efficient production operations and supply chain operations. Stretching lean manufacturing principles toward a lean supply chain is a tall order, and only a few early adaptor enterprises such as Toyota, Lockheed-Martin, Nokia, Delphi, and Honeywell can speak to the challenges and successes of lean initiatives. To date, over 50 percent of all U.S. manufactures report some type of lean manufacturing initiative in process, while less than 10 percent report transition of lean principles beyond plant production.
However, these progressive companies show that the extension of lean manufacturing concepts across the interdependent supply chain network of suppliers, customers, and partners can result in real value creation for the savvy enterprise. Lean supply chain operations require continual planning, monitoring, and refinement. They can also undergo transformational changes in response to technological developments. Creating a lean supply chain by streamlining business and production processes to significantly reduce cycle time, increase production yields and quality levels, decrease inventories, minimize waste, lower costs, and increase customer satisfaction are the potential rewards.
This is Part One of a two part-note.
Lean Beyond Manufacturing
|Lean concepts transcend manufacturing operations to the extended supply chain network.
Organizationally, manufacturers have not traditionally been structured to have all the components of the supply chain responding in harmony to customer demand.
Manufacturers, who have traditionally focused on making products to forecast, pushed them into the supply chain with high levels of inventory to counter unplanned variability. These same manufacturers relied on brand equity and catchy marketing campaigns to create demand, and move excess products. Real consumer demand information was hidden in components of the supply chain and not visible in any actionable format. Manufacturing based on consumer demand has not been the priority but instead the focus has been on asset utilization, production efficiencies, and cost cutting. Fragmented IT applications did not help integrate and synchronize business processes from customer demand back to manufacturing schedule execution for profitably meeting demand.
But this is changing as leading manufacturers turn to interdependent supply networks which embody back-end business planning and operations in conjunction with lean methodology and practices across the supply chain. Modern supply chain strategies driven by lean manufacturing tools and concepts will distinguish the performance-driven enterprise. Traditional manual pull systems fall short when applied to a networked supply chain model for the following reasons:
- Lack of visibility across the networked supply chain
- No standard traceable collaboration medium
- Manual systems are slower by nature, and more error prone
- Manual approaches struggle with demand variability or spikes in demand
As companies deploy lean strategies in the production environment, the following points should be considered as an expansion of the scope of the project.
- In transitioning of the production environment to support a customer driven demand model, firms must also extend this strategy through the supply chain
- Lean practices can in some cases be implemented throughout the supply chain simultaneously, albeit cautiously
- Improvements in supply chain communication and collaboration are a prerequisite to complete production efficiencies
- Understanding the impact and integration requirements of lean with networked partners is a key variable to achieving real results
Focusing on improving lean methodologies and practices through technology can result in enhanced supply chain network communication and collaboration among its participants. Lean enablers in the form of software applications, in conjunction with best practices, are evolving but adoption has been slow. Managing the business process change cycle has been a primary challenge.
Lean and Supply Chain Efficiencies
|Extended supply chain efficiencies will emerge as lean mechanisms from manufacturing are deployed.
Progressive manufacturing enterprises will be able to build responsive and agile manufacturing operations synchronized with the associated supply chain network structure that profitably meets real customer demand, rather than merely making efficient use of manufacturing resources, with the lowest costs being the measure of success. Traditionally, the enemy to profitability and responsiveness is the inventory buffers that must be in place to counter unpredictable manufacturing performance. Processes that result in a quick response to change while maintaining control of operations will become an indispensable manufacturing advantage. The advantages of lean manufacturing concepts with demand driven techniques, extended through the supply chain, deliver:
- Real time supply chain communication and coordination
- Real time supply chain scheduling
- Inventory reduction through demand-based replenishment
- Reduction of non-value added work internally and externally
- Improved demand signal management across the supply chain network
- Focus on material flow across the entire supply chain
Profitably building a lean supply chain network requires that manufacturing operations synchronize with customer demand and produce acceptable quality products as needed. A manufacturing strategy that is based on reduced variability, production to demand, waste elimination, and optimal cycle time will drive over all supply chain success. Manufacturers that cannot control variability will not be able to move toward lean demand driven replenishment strategies cost effectively.
Where the Real Value Is Found
|Real value creation is found via the extension of lean manufacturing concepts across the supply chain network.
The real return on investment (ROI) "bang", when extending lean concepts through the supply chain, comes from the improved execution activities of the entire business, not just the manufacturing operations functions. Research studies have estimated that the benefits of extending the lean methodologies and techniques throughout an interdependent supply chain network could be multiplicative, relative to the benefits derived from a single enterprise deploying the same tools solely at the shop floor level. While current empirical evidence is lacking, the research community expects objective and quantifiable data to support this hypothesis in the next few years as more deployments across supply chain networks become a reality.
Meeting the requirements of customer driven demand with its implied uncertainty and variability through interdependent supply networks is not a small undertaking and will take time, especially for the cultural aspects of the required change in mindset. Manufacturers must start now by building a cross-functional team to define their manufacturing and supply chain network strategy, and designing a roadmap for deployment of applications that incrementally build manufacturing and supply chain agility.
- Evaluate each supply chain process as to applicability of lean concepts, both enterprise and cross-enterprise
- Include major suppliers, customers, and partners as part of the audience during the transition to lean concepts as they are deployed across the supply chain
- New supply network strategies may need to be considered while deploying lean concepts
- Build mutually beneficial relationships with partners to share information and synchronize planning activities driven by customer demand characterized by pull demand concepts
- Build the correct supply network, including the supply side component, to prevent stock out, excess stock buffers, and replenish on demand
- Strive for agile, same-day manufacturing execution capabilities with minimal variability in order to meet real customer demand
- Integrate IT applications for synchronized business processes that connect customer demand to business execution