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Getting to grips with a lean supply chain
The economic crisis has forced companies to look at ways to better control their costs and renew their capabilities across their global supply chains.
Globalisation has led many firms to restructure their procurement, manufacturing, transportation, and warehousing/distribution functions, and the economic slowdown has impacted almost all industries. This pressures firms to continue cost reductions and increase penetration into developed and emerging markets.According to Anthony Ross, co-director of the new Global Supply Chain Management course at the University of Cape Town Graduate School of Business, and an associate professor of Supply Chain Management in the Eli Broad College of Business at Michigan State University, in summary there are five key challenges now facing supply chain managers:
• Lack of internal supply chain competency to manage partners;
• Managing product quality and safety as corporate supply chains span multiple countries;
• Improving operational performance in the supply chain (procurement, manufacturing, distribution, and post-sales customer support) while remaining flexible enough to respond to market changes;
• Environmental and social sustainability initiatives; and
• Linking the income statement and balance sheet to supply chain performance, since this is the best view between strategy and operational execution of that strategy.
In order to tackle these challenges and realise the opportunities of a global supply chain, many businesses are taking a fresh look at their supply chains and, in particular, tracing how logistical activities directly impact financial performance.
“It is vital for supply chain managers to come to grips with a strategic profit view of their firm’s supply chain in the context of globalising operations – one that can map how benefits can result from logistical improvements that reduce cost on the bottom line, and also generate revenues on the top line,” says Ross.
A growing body of evidence globally is pointing to Lean tools – techniques that stem from the manufacturing sector, most notably the Toyota Production System – as a possible aid in the battle for greater efficiency and cost-saving.
Lean logistics has its roots in the just-in-time philosophy (JIT) philosophy – which has its roots in Japan at Toyota, and is often referred to as the Toyota Production System (TPS).
A key element of Lean is the elimination of waste and uncertainty. In the context of logistics and supply chain management, excess inventory has been identified as a major waste. It is used by firms as a buffer against uncertainty, which is viewed as a wasteful practice.
Thus, critical in Lean logistics is the elimination or reduction of inventory throughout the supply chain, as pointed out by Handfield, Monczka, Guinipero and Patterson in Purchasing and Supply Chain Management (2009).
Excess inventory ties up stock and capital and hides problems within a supply chain. Examples of some of the kinds of problems that can often remain hidden to firms are high levels of irregularity in delivery times, bad quality of product, or frequent breakdown of equipment or trucks.
A first step in making a supply chain Lean would be the removal of excess inventory between points in the chain, and would entail moving from the situation shown below in Figure 1 (below) to the situation in Figure 2 (opposite, top).
In the supply chain, inventory can be compared to water in a dam, and problems or wasteful business practices can be thought of as rocks on the dam floor (Figure 3 below). It is very difficult to see or clear away these rocks while the water level is high, but as the water is drained from the dam, the rocks gradually become visible and can be dealt with.
Without draining the water (reducing inventory within the supply chain), these problems would remain hidden and unresolved.
In an attempt to eliminate waste and make the supply chain Lean, three key areas are often targeted: purchasing, transportation, and the use of kanban systems.
Handfield, Monczka, Guinipero and Patterson (2009) discuss the elements that characterise a Lean purchasing system, a Lean transportation system and how the concept of a kanban system facilitates Lean logistics.
A Lean purchasing system is characterised by:
-• A serious attempt by both buyers and suppliers within a supply chain to eliminate any quality defects;
-• Collaborative buyer-supplier relationships; and
-• Interchange of information between supply chain members.
A Lean transportation system is characterised by stability and delivery according to a predictable schedule, of smaller, more frequent loads of goods rather than large, infrequent loads.
A kanban system involves the use of simple signalling devices to trigger the production and transportation of goods through the supply chain. These signalling devices can be simple manual cues, such as the arrival of an empty container at a manufacturer, to the use of more sophisticated bar-coding systems that show the flow of goods through the supply chain in a visible way.
Beyond the business world, Lean logistics is increasingly being used to bring relief to areas hit by disasters. “The most important thing in a sudden disaster is logistics,” says Adrian van der Knaap, co-ordinator for emergency relief operations for the United Nations. He explains that although the UN often receives much aid in donations, it struggles to get the aid to disaster victims, and that the principles underlying Lean logistics can be leveraged in getting aid to victims rapidly.
Lean logistics therefore is widely applicable, and not only results in the faster and more efficient movement of goods through the supply chain, but also in a significant reduction in costs (associated with inventory and transportation) – consequently increased profits are accrued to firms within the supply chain.
This experience has been documented by firms as diverse as Amazon.com, Lockheed Martin Energy Systems and numerous hospitals.
Hamieda Parker
Parker is senior lecturer at the UCT Graduate School of Business. Parker lectures on the Operations Management core course, and on the supply chain elective course on the UCT MBA programme; as well as on the postgraduate diploma in Operations and Innovation course. She further co-hosts the Global Supply Chain Management short course at the UCT GSB. E-mail
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for details. The 2009 course runs in October.
