While the above definitions provide a concise foundation, lean SCM can be better understood when it is deconstructed into six competencies as illustrated in Figure 4.1.
• Six sigma and statistical tools
• Elimination of process
Figure 4.1 Lean SCM competencies. (Adapted from David Frederick Ross, The Intimate Supply Chain, CRC Press, Boca Raton, FL, 2008, p. 116.)
Lean Improvement Tools
Lean SCM is about the reduction of waste found anywhere in the supply chain and the continuous pursuit of process improvement. Waste can occur not only in physi-cal elements such as excess inventory and inefficient processes, but also in time, motion, and even digital waste. According to the TPS, there are potentially “seven wastes” found in any process: overproduction, transportation, unnecessary inventory, inappropriate processing, waiting, excess motion, and defects. Lean advocates have argued that an eighth waste exists: underutilization of employees’ minds and ideas [5]. An understanding of what contributes waste to a supply chain is the starting point for the development of improvement initiates, or what is called a process Kaizen (or “event”).
Lean advocates have identified a toolbox of methods designed to attack wastes anywhere in the company or the supply chain. Among the methods can be found the following:
“5S” System of Improvement.
◾ The 5S’s are lean concepts derived from the Japanese words: seiri (sort), seiton (set in order), seiso (shine or purity), seiketsu (standard-ize), and shitsuke (sustain) [6]. The 5S philosophy focuses on establishing effec-tive work place organization and standardization of work procedures centered on simplifying the work environment, reducing waste and nonvalue activity while improving quality efficiency and safety. The 5S system must be pursued rigor-ously by each supply chain partner if a lean SCM initiative is to succeed.
SMED/Quick Changeover
◾ . While primarily concerned with the reduction of machine set-up times, the concept of quick changeover of processes to reduce operational lead times can be applied to increasing the performance of any process anywhere in the supply chain [7].
Process Flow Analysis.
◾ This tool utilizes value-stream mapping to detail all steps in a process and illuminate barriers to process flow. This tool is critical to lean SCM to identify and remove barriers between channel nodes and delivery points to accelerate the flow of goods to the customer.
Total Productive Maintenance (TPM).
◾ Lean tool is used to ensure the proper
maintenance and availability of all equipment everywhere in the supply chain.
Six Sigma and Statistical Methods.
◾ The reduction of process errors to six
deci-mal points and the availability of mechanisms to ensure total quality across the supply chain constitute the scorecard as to the continuing success of a lean SCM effort.
Process Standardization
A key objective of lean SCM is the ability to pursue the continuous elimination of waste by eliminating error through the rationalization and standardization of all internal and external business processes. Standardization enables companies to
effectively apply Kaizen methods to any process and track, measure, and demon-strate the effects of the Kaizen initiative. Standardization also enables identification of all inhibitors of flow, such as batch and queue processing, unnecessary transpor-tation, and product storage. Industry standards should be used whenever possible, and supply channel partners should participate in confirming the standards to be used by the entire supply chain. Standards should not be limited solely to products and processes, but should be expanded to determine how information is shared across the supply chain.
As the supply chain becomes more complex and outsourcing expands, lean efficien-cies increasingly are coming to depend on collaborative efforts aimed at cross-channel value enhancement and waste reduction. Reducing supply chain wastes by eliminat-ing batch-and-queue thinkeliminat-ing and activateliminat-ing “pull-systems” enables the entire supply chain to reduce costs to the customer. By uncovering channel redundancies, supply chain partners can collaborate to standardize critical processes and shift work to the most efficient node in the supply network. By improving the extended value stream, all channel partners will be strengthened and their individual contribution to the supply network and the customer will be dramatically enhanced.
Lean SCM Technologies
Once a lean SCM initiative begins, the internal and extended value stream mapping processes should precede the acquisition of an EBS solution. An effective mapping exercise will ensure the internal and supply chain practices and business process flows are well understood and can be matched with the capabilities of either an MRP or SCM core solution and the necessary secondary Web-based applications such as customer relationship management (CRM), advanced planning systems (APS), and global trade management (GTM) (Figure 4.2). The configured solu-tion should provide a linked platform that would facilitate the capability of supply chain partners to easily integrate their business systems to form a channel network.
The key is the creation of real-time, channelwide visibility to demand and supply, unplanned channel events, and common performance measurements.
EBS functionality could assist in rolling out a lean program to the supply chain by doing the following:
Operations.
◾ Resources can be freed up by streamlining processes while reduc-ing costs through grater automation, standardization, and consolidation.
Networking Sourcing.
◾ Business-to-business (B2B) applications can network supplier management, sourcing, contract management, and operational procurement processes, thereby eliminating the serial hand-off involved in request for quotation (RFQ) and open PO management.
Optimizing Sales and Marketing.
◾ SaaS, CRM, and business-to-consumer
(B2C) functionality can assist in aligning and integrating account planning, forecasting, price and margin management, available-to-promise (ATP) and
capable-to-promise (CTP) visibility, quotes, order management, and finan-cial settlement. The goal is to remove redundancies and open visibility to the sales and customer management process.
Connect Collaborative Demand and Supply Planning.
◾ Internet tools provide
the ability to link channel partner plans with network events through inte-grated and end-to-end demand and supply planning.
Optimize Inventory Assets.
◾ Integrative information tools enable channel mem-bers to continuously share order, inventory-to-sales, and shipment data chan-nel partners. Network nodes would use real-time analyses of these data to evaluate total orders in the supply chain, balance inventory-to-sales levels in the channel, manage service fill rates, and measure the performance of indi-vidual businesses and the supply chain in general.
Cross-Enterprise Collaboration
The breadth and complexity of a lean SCM undertaking normally mirrors the inten-sity of supply chain collaboration existing between channel partners. According to Treacy and Dobrin [8], the best way to determine the extent and depth of channel collaboration is to divide it into two spheres of ascending intensity. The first sphere is concerned with technical collaboration. Relationships here can range from manual
SAP lean processes are supported by a variety of solutions including these:
• SAP BusinessObjects™ enterprise performance management solutions help com-panies capitalize on the value of their corporate data by providing organizational alignment, visibility, and greater confidence.
• The SAP ERP application offers comprehensive financial management, talent man-agement, and support for end-to-end operational process control for companies across a broad range of industries, including the most complex multinationals.
• The SAP Supplier Relationship Management application automates, simplifies, and accelerates procure-to-pay processes for goods and services.
• The SAP Customer Relationship Management application helps companies use their customer information for optimal customer interactions in sales, marketing, and service.
• The SAP Supply Chain Management application helps transform a linear, sequen-tial supply chain into a responsive supply network.
• The SAP Manufacturing solution provides a powerful set of software that helps manufacturers integrate their operations with the rest of the enterprise.
• The SAP Product Lifecycle Management application provides 360-degree support for all product-related processes – from the first product idea through manufacturing and service.
Figure 4.2 SAP’s lean application suite. (This list is featured in Chakib Bouhdary, Jeff Flammer, and David Strothmann, “Enabling the Lean Enterprise: A Three-Tiered Approach to Improving Your Operations,” SAP White Paper, p.8, 2009.)
connectivity all the way through the use of electronic data interchange (EDI) and Internet tools providing visibility to data across supply networks, server-to-server links, and, finally, process management applications that enable true real-time chan-nel information and transaction synchronization. The second sphere is concerned with business collaboration. On the low end, forms of collaborative practices are minimal and traditional competitive values dominate. From this level the degree of collaboration intensifies beginning with increasing communication to facilitate joint operations, to coordination where companies in the supply chain use the competen-cies of network partners, to cooperation where channel partners work together as if they were a single company.
In a similar vein, Prahalad and Ramaswamy [9] feel that the content of collab-orative relationships exists on several levels. As illustrated in Figure 4.3, it is com-paratively easy to adapt this model to possible lean SCM projects. In the first level, internal focus, can be found companies who intermittently engage in collaborative relationships to reduce local costs and time or enhance customer satisfaction but normally will not pursue a lean/Kaizen outside the four walls of their company.
In addition in such firms technology is not perceived as an enhancer to competi-tive advantage. Companies at level two, transactional/informational collaboration, understand that channel technology enablers can dramatically shrink costs, improve cycle times, and enhance customer satisfaction by linking interchannel processes.
Businesses at this level can launch lean/Kaizen projects that seek to reduce wastes in channel areas such as transportation, warehousing, and inventory.
Technology interfaced
Figure 4.3 Collaborative levels. (Adapted from C. K. Prahalad and Venkatram Ramaswamy, “The Collaboration Continuum,” Optimize Magazine (November 2001), pp. 31–39.)
In level three, shared processes and codevelopment, channel network partners seek to engage technology to more deeply integrate individual resources and competencies in order to synchronize competitive capabilities. Participating firms can initiate lean/Kaizen activities that will improve competitiveness by improving demand management, sales and operations plans (S&OP), and chan-nel visibility. Finally, in the fourth level, linked competitive vision, collaborating partners will utilize lean/Kaizen projects to move into new dimensions of joint strategy and marketplace development, compliance and transparency, perfor-mance and risk management, sustainability, and shared resources. On this level, companies will leverage highly integrated, complex technologies that provide for common applications and infrastructures, unified information access, and rapid knowledge creation and deployment.
Lean SCM Implementation
Companies frequently launch a lean initiative thinking they are now operating in a lean environment. Unfortunately, while a lean/Kaizen can be crisply focused and enforced within an organization, it will only produce short-term, localized results if it is not expanded to encompass the entire supply chain. But while results will be significant, a cross-channel lean project is extremely more difficult to design and implement than an internal one. The dynamics present complex challenges and involve consensus on a plan whose participants reside on mul-tiple levels consisting of independent companies, each pursuing individual and often contradictory objectives. Launching a truly effective lean project requires comprehensive cross-enterprise collaboration if it is to succeed. Achieving this objective requires an approach that can be broken down into three layers as seen in Figure 4.4.
Layer A
Layer B
Layer C Channel
value steam
Channel process improvement
Lean project definition
Lean project consensus Lean project organization Extended process mapping
Kaizen project selection Channel performance metrics
Continuous improvement
Figure 4.4 Lean cross-enterprise implementation layers.
In the first layer consensus needs to be reached among internal and external channel constituents concerning objectives, goals, and the nature of the lean SCM project organization. The overall objective can be defined as ensuring the entire supply chain achieves optimum business benefit from the lean project on a global scale through direct and indirect management of all facets of the project life cycle.
Among the supporting objectives are defining the strategy standards, interface pro-cesses/protocols, cost control, prioritized benefits, and ground rules and guidelines for cross-enterprise project integration. Critical to this stage is extended value-stream mapping. This step will illuminate the actual process flows within the supply chain and pinpointing and quantifying areas for improvement, communication and col-laboration between channel members will actually determine the level of ongoing success. Once this process is completed, agreement on a set of Kaizen tools needs to be reached. This step should detail what lean toolsets are to be used, conduct-ing a Kaizen event, application of new technologies, lean accountconduct-ing techniques, problem-solving, statistical methods charting performance, and team building.
Effective management of the lean initiative requires an effective cross-en-terprise project organization. A lean SCM project organization can germinate from several sources. Poirier, Bauer, and Hauser [10] discuss the establishment of a partnering diagnostic laboratory (PDL) to assist supply chain participants to effectively establish consensus on improvements to existing and potential cross-channel processes. A PDL consists of the cross-channel parties involved and a knowl-edgeable facilitator who can lead a lean/Kaizen encompassing a single or mixture of product development, technical, transactional, procurement, or logistics lean efforts. In a similar fashion Dolcemascolo [11] advocates the formation of supplier associations. A supplier association is a network of supply chain partners orga-nized to share the information and expertise necessary to sustain a lean system across the entire supply channel. The key functions of the association are the establishment of a top management team, utilization of committees targeted at specific supply chain Kaizen objectives, performance of quality audits, and con-sulting and advisory assistance.
The third and final layer of a lean SCM project is establishment of the metrics and performance standards to guide ongoing Kaizen efforts and a mechanism for the identification of continuous improvement. While absolutely critical, consensus about performance are very difficult o achieve. Performance targets pursued by one channel business seldom directly match the objectives occurring elsewhere in the channel. However, the standard metrics employed (such as channel total cost, customer service, inventory turns, purchase days-to-cash) should gauge the performance of supply chain activities necessary to promote profitable growth while seeking to optimize channel functions to pro-mote total supply chain performance. In the end the metrics should enable executives to determine the overall performance and health of their own orga-nizations and that of the supply chain in general and illuminate new areas for continuous improvement.
Demand Management
Of the five principles of a lean thinking determined by Womack and Jones, the two most important revolve around the customer and the management of demand. The first principle states that the only value added to a supply chain is value that is under-stood and valued by the customer. When designing a lean SCM initiative it is essen-tial to ensure it directly provides what customers want and need: otherwise it is waste and should be eliminated. The resulting customer-side benefits can be found improved on-time delivery performance, reduced order-to-shipment turnaround time, improved product quality, reduction in returns, potential lower pricing due to lower operational costs, and ability of customers to increase order volumes.
Principle four of lean thinking states that push supply system should be replaced by the demand-pull. The mechanism of the demand-pull is set in motion at the point of sale, and then the requirement is pulled from upstream delivery channel partners, node-by-node, all the way back to the producer. Enabling the demand-pull requires lean differentiating processes that are
1. Visible and Transparent. Lean supply chains need to be immediately alerted when out-of-bounds events occur and will cause costs and wastes to appear anywhere along the supply channel continuum.
2. Demand-Driven. Demand in the supply channel is no longer driven by fore-casts but only occurs when interchannel or customer demand is present.
3. Instrumented. Information about marketplace conditions needs to be driven by information technology applications that can alert not just the next node but the entire channel simultaneously of impending demand changes.
4. Integrated. Lean supply chains are organized around demand management process teams whose activities are aligned around value streams focused on creating optimum value for the customer.
According to Manrodt, Abott, and Vitasek [12], there are four technology tools to assist companies seeking to enable the flow of the demand signal from the end customer all the way back to the original product supplier.
The first, point-of-sale (POS) systems, enables real-time communication of the customer demand signal at the moment the sales occurs. In turn, the companies can instantaneously respond to the demand-pull by then starting the replenishment pro-cess through the supply network based on actual usage. While only a small fraction of today’s supply chains have operating POS environments, many are looking to the second technology, demand collaboration. This tool is focused on utilizing forms of electronic communication, such as the Internet, to pass real-time sales data to sup-ply chain partners. In addition, supsup-ply chains can also share S&OP that provide a window into expected demand and supply planning. Finally, companies can share the mechanics of their inventory management practices located in their business sys-tem with channel partners. For example, quoted customer delivery lead times and
manufacturing process takt times will provide a detailed knowledge of the pulse of demand and supply cycles from each channel member. The communication of other information, such as costing, engineering change management, new product offer-ings, and individual company target inventories, will assist supply chains to realize individual and SCM lean objectives.
The goal of demand-pull management is to provide advanced warning of demand occurring anywhere in the supply network and enable supply channel nodes to assess their collective ability to respond effectively. This lean SCM compe-tency directly attacks waste created by the bullwhip effect caused when inventory is added to the original demand signal as it moves upstream in the supply channel.
Effective demand management removes wastes by reducing channel uncertainty, variability in fulfillment processes, supply lead time, and linking channel partners together in networks that enable them to respond as a team to the demands emerg-ing in the marketplace.
The Impact of Lean SCM
By relentlessly pursuing the six lean competencies portrayed in Figure 4.1 compa-nies can realize the three success factors shown at the bottom of the figure. To begin with, application of the suite of lean tools enables cross-channel businesses to effec-tively pursue waste reduction at all supply chain levels. The design of lean SCM ini-tiatives focused around customer wants and needs and deployment of technology tools enabling demand to be pulled through the supply chain will keep all supply network nodes focused squarely on how to continuously build and sustain a stream of value to the customer. And finally, well-designed lean supply chain implementa-tion projects and the capability to broaden and enrich cross-channel
By relentlessly pursuing the six lean competencies portrayed in Figure 4.1 compa-nies can realize the three success factors shown at the bottom of the figure. To begin with, application of the suite of lean tools enables cross-channel businesses to effec-tively pursue waste reduction at all supply chain levels. The design of lean SCM ini-tiatives focused around customer wants and needs and deployment of technology tools enabling demand to be pulled through the supply chain will keep all supply network nodes focused squarely on how to continuously build and sustain a stream of value to the customer. And finally, well-designed lean supply chain implementa-tion projects and the capability to broaden and enrich cross-channel