The 'leaning' of the supply chain
With the supply chain becoming more global and, in particular, the increasing number of products being manufactured in the low-cost regions of Asia, the "leaning" of the supply chain is now widely being regarded as a key element for both global competitiveness and long-term sustainability.
Lean is a systematic approach to identifying and eliminating waste or non-value-added activities in a supply chain through continuous improvement. It is recognised that typically 80-90% of the value stream (from raw material to finished, customer-delivered product) for any given product is waste. That is, non-value-adding activity that is still ultimately paid for by the end customer.
World-class companies such as Coca-Cola and Dell Corporation have already embraced the Lean concept and transformed their supply chains with remarkable results and have therefore set the precedent for others to follow.
A supply chain can be defined as a linked set of resources and processes that begins with the sourcing of raw materials and extends through to the delivery of end-use items to the final customer. Supply chains are essentially made up of two tiers: internal and external. These aspects typically combine to make up an overall integrated supply chain.
Modern supply chains are very dynamic and are characterised by constantly changing relationships and configurations. Supply chain management (SCM) integrates and co-ordinates all of the associated processes, enablers, and resources of a supply chain. SCM also manages the flow of material, information, and funds across an organisation.
There are a number of factors, decisions, costs and drivers that can influence the performance of a supply chain. Factors that influence a supply chain include quality, technology, logistics, information technology, consumers, organisation structure, and globalisation. Strategic, tactical, and operational decisions also affect supply chain performance. Supply costs involve all of the people, facility, and equipment costs associated with the Buy, Make, Move, and Sell elements.
Typical supply costs include processing, procurement, production, inventory holding, as well as warehousing, transport and distribution.
A successful supply chain ensures that an organisation is efficient, effective, and retains a competitive advantage. As the supply chain is not one dimensional, there are several building blocks to achieving a supply chain competitive advantage. The key drivers for improving supply chains are Competitiveness, Cost, Quality, Service and Environment.
The ultimate aim in "leaning" is to add more value to a product at a lower cost, at a faster rate than the competition. There are different ways to add value and help a supply chain gain a competitive advantage. These are outlined below, related to each of the key drivers:
Competitiveness (commoditisation): Relentless pursuit of standardisation and market power; Having products or services that are innovative; Breaking out of the commodity trap.
Cost: Goods must be low-cost to survive; Costs must be low to support necessary R&D; Costs must deliver year-on-year reductions. Quality: Products must not disappoint on the premium quality promise.
Compliance with increasing Good Manufacturing Process (GMP) regulatory requirements. Service: Manufacturing processes must respond to the needs of the customer; Supply chains must be capable of responding to sudden demand peaks.
Environment: Increase focus on reusing and recycling goods; Increase awareness of the effect of industrial work practices; Pressure to adopt environmentally friendly practices and minimise environmental impact.
In the future, it will be supply chains and not organisations that will compete. Companies embracing this challenge will gain a significant competitive advantage over their rivals. A method to enhance the performance of the supply chain can be leaning through integration.
"Lean" in the broadest sense looks at the elimination of wasteful activities across a supply chain. It focuses on this from the perspective of the customer and establishes what can add value to the product or service and what cannot.
Typically, leanness is achieved by enabling the flow of a product or service at the pull (demand) of the customer in the pursuit of perfection. Next week, we will look at Lean Thinking and its key elements while demonstrating the influences on production systems and the wider supply chain management process.