Lean Supply Chains – Optimizing cost with increase in value delivered

In the current world and till a few months back, we heard about material shortage, manufacturing delays due to raw material unavailability and closure of manufacturing facilities across the world. So, the term that came up is have we stacked ourselves with sufficient inventory i.e. inventory that can sustain this big a pandemic or disruption in the world. Most companies did not do that and that resulted in the shortage. But the question is how regular is such disruptions and do we always have to have a backup for such? The answer is no because if we stack up our inventories to such levels, there is a risk of non-utilization and finally waste. So, in normal scenarios, there need to be balance between the inventory stock levels with their production, utilization thus reducing waste. This is where lean supply chain comes in. It is a business model which creates value for the customers with the reduction or elimination of non-value-added activities minimizing waste.

There are various areas in supply chain where optimization to reduce waste is addressed i.e. manufacturing, transportation and informed, repeated customers. There are mainly seven wastes identified – overproduction, inventory, motion, defects, over-processing, waiting and transport. Overproduction causes wastes in terms of scrap or excess inventory. Unprocessed inventory, storage waste, waste on transportation and containers used are some of the inventory related wastes. Wasteful motion in terms of person or machine movement, Defects due to product standards and design leads to an increase in waste. Overprocessing leads to waste of raw materials, human labor. Waste also happens due to time wasted on waiting for slow or halted production processes. Transportation also adds to wastage to time and money with no value add. So the objective of lean supply chain is to get these wastes minimized as that would mean reduced costs, improved communication & coordination, increased efficiency and improved customer satisfaction.

But there are several considerations that the organization should considered before plunging forward.

a.      Lean as a Growth Strategy i.e. reduce waste, increase productivity to lower cost of goods sold and increase profitability.

b.      Lean Leadership – Coach & align teams for a common goal enabling them with tools and decision making.

c.       Supplier Relationship – Ability to receive material from supplier as and when needed without the necessity of additional storage.

d.      Process Excellence – Align manufacturing, warehousing & transportation processes with minimal waste and rework.

e.      Integration – Involve various departments across the organization to work towards a common goal.

f.        Information Systems – Ability to look at data and identify areas of pain and resolve them.

With all these considerations in place, lean supply chain mainly focusses on four main elements:

i.                    Lean Production – Align manufacturing processes in such a way that there is minimal waste, defects and waiting between different steps.

ii.                   Lean Procurement – Align with suppliers to obtain raw materials or semi-finished products as and when needed.

iii.                 Lean Inventory – Ability to maintain minimal stock levels with minimal storage requirements and wastages.

iv.                 Lean Logistics – Ability to align factories and warehouses to avoid minimal movement of material or personnel.

Out of the above elements, lean production has the most impact and there are various techniques that are in place –

a.      Leveled production – Smoothing out the quantity or type of production over a period.

b.      Continuous improvements – Incremental process improvements and effective documentation

c.       Efficiency through a customer-first approach – Understanding customer expectations & needs and bring in efficiency to reduce waste

d.      Total Productive maintenance (TPM) – Focus of equipment maintenance

e.      Streamlining processes – Deliver products on time

f.        Respect for Humanity – Aligning employees with company goals

g.       Develop error free processes and quality procedures

There are various tools for lean supply chain. But before I go there, we would like to talk about the five principles for lean:

1.      Define value: Customer value alignment through surveys, interviews, and analytics.

2.      Map the value stream: Identify areas that contribute to the values.

3.      Create flow: Operational alignment to reduce waste and run smoothly.

4.      Establish Pull: Manufacture products based on demand.

5.      Pursuit of perfection: Make lean as a part of organization culture.

The various tools levers that can help here –

a.      Value stream mapping – Tool to identify the flow and point areas of waste

b.      Increased quality using Six Sigma & TQM

c.       Elimination of redundancy

d.      JIT Inventory

e.      Vendor management

Not only these tool levers, but also there is a need for technology investments in terms of

–          Workforce management across supply chain

–          RFID and GPS devices

–          Omnichannel ordering & fulfillment.

–          Trading partners with EDI and customer interfacing

–          Transportation management systems to manage material movement and track freight.

And many more.

With the lean supply chain in place, there is a direct impact on accounting. Accurate, timely information are provided for decision making thus impacting cash flows, profitability, customer value and growth. Eliminate waste in accounting processes with financial controls. Lean culture is supported by motivating investment in people providing actionable and continuous improvement in all levels of the organization.

With so many benefits in supply chain and even accounting, why is that all organizations do not traverse the path of lean supply chains. There are multiple reasons for which this initiative in an organization gets held back.

a.      Lack of Leadership Buy-in

b.      Poor Foundation in terms of mistakes, mistiming and inconsistency.

c.       Too many moving parts – dependence on multiple third parties

d.      Lack of knowledge

e.      Fear

f.        Absence of Benchmarks

g.       Blindly Copying Others

So, what is the thought process in your organization? Have you implemented the lean principles? If yes, what is the difference that you see in your organization? This document discusses on the details of lean supply chain, the advantages of going on the path and challenges that it brings in.


Please feel free to share your feedback/questions in the comments section or via email.

Author Details

Arijit Pramanik

Arijit has 20+ years of consulting, project management, and pre-sales experience. His expertise includes Oracle Cloud as well as applications for supply chain management and procurement. He has vast implementation experience with global clients in North America, Europe, and Asia. He is the product owner and anchor for the Infosys Oracle Cloud’s Stratos Hi-tech solution. He is also an Oracle Panelist & Presenter for B-school and Lateral recruitments. He is a Thought leader in Oracle space having published multiple whitepapers in various forums.

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