The average supply chain can trace back about 50% of its cost to unmanaged waste, inflexibility and variability. Lean Supply Chain Management represents a way for companies in the industry to claw back significant overhead wastes without any positive effect on their supply chains every day as we continue our discussion with examples on how this is possible today.
Definition of Lean Supply Chain Management
Lean supply chain management is a variant of the lean manufacturing movement that emerged of the best practices implemented by the Toyota Production System (TPS) during the 1980s.
TPS narrowed down its lean philosophy to two concepts, which were:
In Japanese, Muda means the elimination of waste, and TPS identified eight specific forms of waste that Muda targets.
- Defects – Any item that utilizes resources, but can’t be used, is significant waste.
- Overproduction – Waste caused by producing more than is necessary, especially to meet KPIs without necessity.
- Delays – Costs caused by staff waiting for materials they need to work.
- Non-Utilized Talent – Not empowering skilled staff to bring their skills to bear.
- Transportation – Waste caused by transporting products along non-optimal routes.
- Inventory – Excessive inventory holding causes costs to spike without clear benefits.
- Motion – Micro-scale waste in the specific use of workers and tools during the manufacturing process.
- Extra-Processing – Products not desired by the market, causing wastes.
The other concept in the TPS lean manufacturing philosophy was Mura, or eliminating unevenness.
While Muda focuses on eliminating waste at both a micro and macro level, Mura concentrates on removing the peaks and valleys of demand during peak and off-peak demand periods, such as Christmas, which often force companies to take on extra staff.
What Is a Lean Supply Chain?
The same ideas of eliminating waste and unevenness can be transferred to streamlining a business’s supply chain.
The primary focus of a lean supply chain is to extend the principles of lean manufacturing in both upstream and downstream processes.
This allows companies to constantly focus on eliminating waste and non-value-added time in an attempt to reduce lead time.
Modern Lean Supply Chain Management has developed its own philosophies and thinking that can be applied to the four major elements that exist in most supply chains.
Four Major Elements of Supply Chain Management
Each supply chain is made up of four major elements, Integration, Operations, Purchasing & Procurement, and Distribution & Logistics, and lean thinking can be applied to all these elements.
Integration is basically the brain of your supply chain and covers how communications and information between the various key stakeholders in your supply chain are managed.
One of the most important facets of supply chain management handled by integration is the forecasting of demand and the movement of manufactured goods through the supply chain.
In a lean supply chain, demand forecasting is still used for capacity planning and the allocation of resources.
However, the execution is handled by simple, easy-to-understand tools that react to customer demand by having products produced by suppliers and manufacturers who are close to the customer.
Operations are your overall strategic view of your supply chain needs and capacity. Lean supply chain operations don’t rely on the high-level forecasting used in traditional supply chains.
Instead, they use simple visual tools like Kanban cards and First In, First Out (FIFO) inventory control methods to react to customer demand in real-time.
Purchasing & Procurement
Instead of the usual pricing race to the bottom seen in traditional supply chain procurement, lean purchasing & procurement focuses on building productive long-term relationships with the supplier and manufacturers.
These mutually respectful relationships allow all stakeholders in the supply chain to work as a cohesive unit to overcome problems and create efficiencies through open and honest communication.
Distribution & Logistics
Lean Distribution & Logistics mirror the Mura element of TPS’s original lean manufacturing philosophy by focusing on reducing common supply chain inefficiencies such as excessive waiting times, lengthy travel times, and pointless double handling of goods.
The reduced lead times created by applying lean thinking to the rest of the supply chain allow for simpler, shorter distribution networks and smaller inventory holds with less warehousing.
When it comes to supply chain management, inventory control is almost always the most effective measure that a company can take to make significant cost savings.
The less inventory you need to keep in storage, the less you have to spend on warehousing, handling, and transportation.
What Are the Primary Steps of a Lean Supply Chain?
The primary aim of applying lean thinking to your supply chain is to make your supply chain faster and more efficient by taking steps, including:
Developing a Holistic Supply Chain Overview
Individual parts of your supply chain attempting to optimize their own operations in isolation from the rest of your supply chain can only have a limited impact.
Building in key partnerships with the stakeholders in your supply chain and working with them to create overall efficiency is far more effective and impactful.
Constantly looking to find the lowest price generally forces you into an adversarial relationship with your suppliers, making it hard, if not impossible to create the kind of relationships required to institute a lean and effective supply chain.
The increased cost of not pursuing the lowest possible price point can be offset by the cost-saving generated by a more efficient and less waterfall supply chain.
Value Stream Mapping
Comprehensively mapping the value stream of your supply chain allows you to apply the concepts of muda and mura discussed earlier.
Mapping allows you to identify which processes are inefficient and wasteful and then change or eliminate them. It also allows you to identify unevenness in supplier delivery and performance and rectify those situations.
Most supply chains react to volatility in demand by having built-in redundancies, such as large volumes of warehoused stock.
While these redundancies might be effective, they are not efficient because they come with a price tag.
Warehoused stock is a constant and ongoing cost and increasing redundancies create a more bloated and less efficient supply chain.
One of the primary steps of a lean supply chain is putting in place systems and products that are able to quickly adapt to changing customer demand without the need to store products as a buffer.
Metrics can certainly be a useful way to quickly understand the effectiveness of your supply chain.
However, those metrics need to reflect the holistic view of your supply chain developed as the first stage of your inception of Lean Supply Chain Management.
For instance, rewarding your procurement teams for achieving the lowest cost per product might have a negative impact on your ability to build stable, long-term working relationships with your suppliers, which might end up costing you money in the long run.
Putting in place short-sighted metrics can actually have the opposite effect that you were looking for, driving inefficient behaviors and wasteful processes simply to achieve an arbitrary target.
Understanding What the Customer really Values
One of the core steps in proper Lean Supply Chain Management is to fully understand what your customers value.
Often, customers will place less emphasis on cost than on getting access to the product they want as fast as possible and having that product be of the highest quality.
Reorganizing your supply chain to align with customer preferences can help cut down on unnecessary processes or products that do not generate any real value.
Implementing the Theory of Constraints
The Theory of Constraints is a methodological framework which states that all complex systems, such as manufacturing processes or supply chains, have at least one constraint or bottleneck.
In any system composed of interconnected processes, one of those processes will be causing a bottleneck that will affect the others.
First developed by Dr. Eliyahu Goldratt, the Theory of Constraints also contains a five steps methodology for first identifying and then eliminating constraints. The initial steps are:
- Identify : The first step to resolving a bottleneck is to identify which process is preventing the rest of the system from achieving its goal.
- Exploit :The second step is to make use of what resources you have available to you to make quick improvements to the process causing the bottleneck.
- Subordinate : The first step requires you to review all the other processes and make sure they are fully supporting the constraints. If they are not, that support needs to be put in place.
- Elevate : If all other processes are supporting the one causing the bottleneck, then the fourth step is where you take further actions to eliminate the problem by applying other resources to it.
- Repeat : Once one constraint is removed, the system is then analyzed to look for other possible bottlenecks. The fifth step emphasizes the need to continuously and aggressively improve the supply chain to prevent bottlenecks from forming.
Benefits of Lean Supply Chain Management
Implementing Lean Supply Chain Management offers various benefits to a company.
By examining the entire scope of their supply chain, businesses are able to identify any area that is non-productively using resources.
These resources typically include fuel, time, and raw materials, all of which impact your bottom line.
By adopting a lean supply chain, companies can increase their overall competitiveness, profitability, and their customer service, including benefits such as:
One of the key advantages of implementing a lean supply chain is the overall reduction of waste and inefficiencies.
What you are essentially doing is trimming the fat from your supply chain. Every efficient process or unnecessarily warehoused products that you can remove from the supply chain also reduces costs on an ongoing basis.
By creating greater efficiencies and being more responsive to customer demand, your supply chain no longer needs significant amounts of held stock.
This has a ripple effect of reducing the need for transportation, handling, storage, insurance, and numerous other factors that incur costs.
Simply put, a a lean supply chain is more cost-effective.
While applying lean principles helps to reduce wasted resources, it also helps to effectively reduce waste. A recent report by Gartner underlined the financial benefits of incorporating greater sustainability into supply chains.
Waste requires disposal or recycling, which also requires it to be stored and transported, with the associated costs, and requires additional processes and reporting that further add complexity to your supply chain.
Waste reduction and water-efficiency improvements have a clear cost-saving benefit and lean supply chain thinking helps identify areas in the supply chain where waste can be eliminated.
Faster Lead Times
Proactively establishing mutually beneficial relationships with suppliers and manufacturers, rather than attempting to squeeze them for the lowest possible price, allows you to approach the entire supply chain as a unified whole.
Greater communication and visibility lead to improved control over lead times, capacity, and the ability to react faster to customer demand.
It also allows for more effective forecasting, which aligns with the principles of Mura, helps to eliminate spikes in production demand that can add additional costs.
Increased Customer Satisfaction
Removing waste and inefficiencies from your supply chain puts your products in the hands of customers faster. It’s that simple.
The ability to react quickly to customer demand and manufacture the product in their local area significantly cuts down on the delay between order and fulfillment.
No one likes delayed gratification, so getting a customer’s order into their hands as fast as possible makes it far more likely that they will choose to use your company again.
It also increases the likelihood that they will advocate for your brand, referring your services to other customers or trade partners.
Complex global supply chains are inherently inefficient.
As more and more supply chain partners and transportation routes are added to the system, the entire supply chain becomes exponentially more complicated and harder to control or extend visibility over.
Without when visibility and control are lacking, inefficiencies and waste multiply and can be harder to identify and eliminate.
Lean supply chain management cuts down on the complexity of your supply chain, enhancing overall control and visibility.
This, in turn, removes the hidden areas of your supply chain where costly inefficiencies like to hide.
How Could Jiga Help in Creating a Lean Supply Chain?
One of the primary elements in having a lean supply chain is reducing the total points of contact. Ideally, you want to have as few points of contact and processes as possible in all parts of your supply chain.
Jiga streamlines parts purchasing. We streamline the entire process, from sourcing to quoting and payment processing, so you can get your parts at exceptionally fast.
If any issues arise with your order, Jiga Buyer Protection safeguards your order. Escrow holds your money until you receive your order.
Utilizing the Jiga Marketplace consolidates all your manufacturing needs without adding to the complexity of your supply chain, letting you keep things efficient, streamlined, and low-cost.
Our customized marketplace enables you to connect with various additive manufacturing suppliers and get expert feedback before you’ve even placed your order. You don’t need to worry about onboarding a new supplier or manufacturer as, regardless of who you choose to work with, you’ll be placing your order through Jiga.
We vet all of our suppliers. The feedback from other customers on their experience with their chosen manufacturers is held openly and available to examine for you. Jiga makes parts purchasing simple and easy. No matter how many separate parts you purchase from different suppliers, you only ever have one point of contact: us.
We handle it all
When placing an order on the Jiga Marketplace, we handle shipping, payments, legal agreements, and other logistics so you don’t have to worry about adding additional processes to your supply chain.