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 overheads wasted 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 evolved out of the best practices put in place by the Toyota Production System (TPS) during the 1980s.
TPS narrowed its lean philosophy to two concepts, which were:
Muda
In Japanese, Muda means the elimination of waste, and TPS identified eight specific forms of waste that Muda would target.
- Defects – Any item that uses any kind of resources, but can’t be used, is significant waste.
- Overproduction – Waste caused by producing more than is necessary, especially in an effort simply to meet KPIs.
- Delays – Costs caused by staff waiting for the materials they need to work.
- Non-Utilized Talent – Not empowering talented staff to bring their skills to bear.
- Transportation – Waste caused by transporting products along non-optimal routes.
- Inventory – Overholding of inventory causes costs to spike without clear benefits.
- Motion – Waste on a micro-scale in the specific use of workers and tools during the manufacturing process.
- Extra-Processing – Market not desiring produced products, causing wastes.
Mura
The other concept in the TPS lean manufacturing philosophy was Mura, or the elimination of unevenness.
While Muda focuses on eliminating waste at both a micro and macro level, Mura concentrates on removing the peaks and valleys of demand around traditional high and low demand times, 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 both up and downstream.
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 of these elements.
Integration
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 the planning of capacity 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
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 focusses 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 mirrors 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 that include:
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.
Volatility Management
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 adding in more and more redundancies creates 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.
Re-examining Metrics
Metrics can certainly be a useful way to quickly understand the effectiveness of your supply chain.
However, those metrics need to reflect the same 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 so that an arbitrary target can be hit.
Understanding What the Customer really Values
One of the core steps in proper lean supply chain management is to fully understand what your customer values.
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 fit exactly what the customer wants can help cut down on unnecessary processes or products that don’t 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 linked 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. These first 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 a range of benefits to a company.
By examining the full scope of their supply chain, businesses are able to identify any area that is non-productively using resources.
Those resources are inevitably fuel, time, and raw materials, which all translate into capital taken off your bottom line.
By adopting a lean supply chain, companies can increase their overall competitiveness, profitability, and their customer service, as well as benefits such as:
Reduced Cost
One of the primary benefits 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 pointlessly warehoused product 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 the knock-on effect of reducing the need for transportation, handling, storage, insurance, and a dozen other considerations that all come with a price tag.
Simply put, a lean supply chain is a cheaper supply chain.
Reduced Waste
While applying lean principles helps to reduce wasted resources, it also literally helps to reduce waste. A recent report by Gartner underlined the financial benefits of incorporating greater sustainability into supply chains.
Waste needs to be disposed of or recycled, which also requires it to be stored and transported, with the associated costs, and requires additional processes and reporting that further bloats your supply chain.
Waste reduction and water-efficiency improvements have a clear cost-saving benefit and lean supply chain thinking is an excellent way to identify areas in the supply chain where waste can be eliminated.
Faster Lead Times
Actively building mutually beneficial relationships with your 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 better control over lead times, capacity, and the ability to react faster to customer demand.
It also allows for more effective forecasting, which, following the ideals 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 chances that they will choose to evangelize for you, recommending your services to other customers or trade partners.
Streamlined Processes
Complicated 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 visibility and control, 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, increasing both your overall control and visibility.
This, in turn, removes the shadowed corners 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 makes parts purchasing seamless. We streamline the whole process, from sourcing to quoting and payment, so you can get your parts at unprecedented speeds.
In case anything goes wrong with your order, our Jiga Buyer Protection covers you. Escrow holds your money until you receive your order.
Using the Jiga Marketplace puts all your manufacturing needs under one roof without adding to the complexity of your supply chain, letting you keep things efficient, streamlined, and low-cost.
Custom marketplace
Our custom marketplace allows you to contact a range of 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.
Parts purchasing
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 you place an order on the Jiga Marketplace we take care of the shipping, payments, legal agreements, and more so you don’t have to worry about adding additional processes to your supply chain.
