Lean Supply Chain and Logistics Management Read online

  Myerson discusses the need to apply some of the important techniques for cost reduction in Chapter 7, including “just-in-time inventories” (JIT), and illustrates how beneficial they are for achieving leanness. He provides examples of some of the leading Lean supply chains, including those of Wal-Mart and Dell. He focuses on the visibility and reliability in their supply chains and how “cross-docking” is employed to achieve lean ideals. Chapter 8 details how “Lean Thinking” can be used in operating a warehouse—from the assembling of orders to value stream mapping. Chapter 9 discusses global supply chains and the use of “Value Stream Mapping” to identify waste. Myerson points out the areas of potential waste in global supply chains, and where waste can be reduced. Of course, leanness cannot be achieved without the involvement of the whole organization, through Lean training, management support and the establishment of a Lean operational and organizational structure.

  Teamwork is essential, and integrating the sales force and other operational groups like marketing and production are, as Myerson points out in Chapter 10, important keys for success. Chapter 11 details putting together a Lean plan to get started, comprising Value Stream Mapping and Kaizen events. The use of technology in achieving leanness is discussed in Chapter 12, including ERP, DRP, Advanced Planning and Scheduling systems, Warehouse Management Systems (WMS), the use of RFID, and Transportation Management Systems.

  Chapter 13 emphasizes working together with a firm’s suppliers and customers. The collaboration is clearly achieved through the use of EDI, e-commerce, efficient consumer response, quick response systems, collaborative planning, forecasting, and replenishment. Myerson suggests vendor-managed inventories as a way to achieve integration and leanness in a distribution channel between suppliers and customers. Knowing where Lean is taking place in a supply chain and determining whether the Lean goals have been achieved is discussed in Chapter 14, in his treatment of Metrics and Measurement. Myerson points out the importance of the key logistics metrics, including delivery reliability, responsiveness, flexibility, cost, and asset management. The concept of the balanced scorecard is presented, and the need for dashboards to display and control metrics is emphasized.

  The last two chapters (15 and 16) focus on the need for proper training of employees and managers to achieve a Lean supply chain. Myerson discusses the important methods, tools, and tips to use in training and measuring the success of the training. He points out that identifying the barriers to supply chain integration should be considered, including human resources, organizational structure and relationships, technology, and alignment. The author concludes by discussing the future trends in Lean supply chain systems and the potential obstacles to Lean thinking in the supply chain.

  The book also includes two Appendices that discuss examples of real-world Lean supply chains and extensive references for Lean opportunity assessment.

  RICHARD LANCIONI

  Chair, Marketing & Supply Chain Management

  Fox School of Business, Temple University

  Philadelphia, Pennsylvania

  PREFACE

  Over the past 30 years, we have seen a dramatic growth in the size and complexity of business supply chains, making them much more challenging and difficult to manage.

  At the same time, technology has rapidly improved and is readily available to companies of all sizes to help enable these processes. This, of course, assumes the various supply chain processes are functioning optimally, which is often not the case.

  Part of the reason for many of these suboptimal supply chains is that while we have seen an increased use of Lean tools in manufacturing during this same period, it has only been in the past 5 years or so that both Lean and Six Sigma have made their way into the supply chain and logistics function to help simplify and improve these processes.

  As a result of the relatively short time Lean has been applied in this area, there has not been a lot written on this subject to help supply chain professionals find their way. Most of the books that have been written on the subject tend to be very narrow in scope either by function (e.g., focused on procurement only) or topic (e.g., primarily covering one Lean tool such as 5S-workplace organization or value stream mapping).

  The purpose of this book is to give practitioners the necessary tools, methodology, and real-world examples to successfully implement Lean in their supply chain and logistics function.

  This book is organized so that the reader can first gain some perspective on how the supply chain and Lean have evolved in recent years. This is followed by explanations and examples of both basic and advanced Lean tools, as well as specific implementation opportunities in the supply chain and logistics function. A Lean implementation methodology with critical success factors is then identified and described.

  In addition to real-world examples throughout the book, there are also a number of case studies on the subject to gain insight into how others have successfully implemented Lean in their supply chain.

  Additionally, this book comes with a Lean Opportunity Assessment tool (Appendix B) and training slides (mhprofessional.com/myerson) to help make the transition from understanding to implementing Lean in your company or your client’s company.

  PAUL A. MYERSON

  CHAPTER 1

  Introduction: Using Lean to Energize Your Supply Chain

  The major trend of outsourcing manufacturing and procurement of materials began around 1980 when the term “supply chain” was coined, and with it came added attention to the importance of the supply chain and the logistics management field. This was a result of the added complexity, longer lead times, and increased risk involved in such a major paradigm shift.

  Starting around the same time and with ever-increasing speed, major advances in technology occurred, such as electronic data interchange (EDI), enterprise resource planning (ERP), supply chain management (SCM), and supply chain planning (SCP) systems, along with the creation of the Internet and e-commerce. These advances helped to improve planning and management efficiency. These technologies have also led to what many are calling mass customization, in which product development, life cycle, and delivery times have become compressed. On top of this, the supply chain is at risk of disruption caused by political, financial, environmental, and other unplanned events. These types of disruptions seem to occur at an ever increasing rate.

  Managing the supply chain with all of this change and disruption is challenging; however, there are tremendous opportunities as well. That is what this book is all about. We will discuss in detail what Lean is and how it can be a tool to improve your organization’s supply chain and logistics performance.

  What Is Lean?

  First of all, let us examine what Lean is not. I do not know how many times I have visited a company to discuss Lean and the owner or president said something like, “We’re already lean … we laid off 20 percent of the workforce.”

  Contrary to what some people think, Lean is not some kind of crash diet where a company sheds its fat quickly. While the net result is to do more with the same or less, that should not be the goal. If it is, then your Lean journey is destined to fail.

  Lean, in a nutshell, is a team-based form of continuous improvement that focuses on identifying and eliminating “waste.” Waste, in this case, is non-value-added activity from the viewpoint of the customer. Instead of a diet, Lean should be thought of as a long-term health program for your business. Consider it a way to add energy and vitality to your company in an increasingly competitive, unstable, and generally challenging environment.

  Lean Failure

  Over the many years that I have been helping companies become Lean, I have read (and heard) that well over 50 percent of Lean initiatives (at least in the United States) have failed. From my experience, I tend to think this is accurate. I believe that the primary reason for this is the lack of the proper culture to support the major—and in some cases, radical—changes required.

  Lean initiatives fail for a variety of reasons. In many cases, management is not willing to give up some control to workers, dedicate resource time, or spend money for training and improvements. In other cases, Lean is just looked at as a “fad” that will go away or a short-term program.

  Most U.S. companies seem hesitant to spend time and money on the training required to become leaner, and they lag far behind other countries in the amount of training, in general, provided for employees. While there are a few bright spots, such as General Electric, with its Croton-on-Hudson John F. Welch Leadership Development Center facility, most offer very little in the way of training and support. In general, the average annual training hours per employee in the United States is much less than most other developed countries.

  Implementing Lean

  Lean also requires both a top-down management commitment to change and a bottom-up groundswell of participation and ideas. Otherwise, it is a losing battle. The culture has to encourage and create a team-based continuous improvement mentality.

  In the United States, the more common way to initiate change has been to have consultants come in who “borrow your watch to tell you what time it is” and then leave reams of reports, slide shows, etc. for the client to review and interpret on their own. A myriad of problems can result from this methodology, ranging from no direction for how to implement the improvements to a general lack of enthusiasm and support from the people being asked to change based on suggestions from an outsider.

  A more effective way to implement Lean, I believe, is through a train-do method. In this way, the trainer or consultant is more like a facilitator who teaches the employees the basic concepts and tools, but lets them create and direct the activities (with a little management oversight, of course). That way, after the trainer or consultant is gone (which is always the case eve
ntually), workers can continue on the Lean journey.

  Middle and upper management still does much of the higher-level “out of the box” thinking, using tools described in this book, such as value stream mapping (VSM), which is used to analyze and design the flow of materials and information in order to help identify opportunities; however, input and actual implementation has to include everyone in the organization.

  In many cases, there also seems to be a gap between general Lean concepts training and how to actually begin the improvement process (and to convince management that it can benefit the company’s bottom line, not just help employee participation and morale). That is why doing a Lean opportunity assessment (LOA), discussed in Chap. 11 (and template included in Appendix B), is a great place to start.

  Historically, Lean was applied to the manufacturing industry first (initially assembly line manufacturers, then other types), hence the term Lean Manufacturing, which is still the most common term used. Around 10 years ago, Lean began to be applied to the office for administrative processes (also known as Lean Office) and more recently to the supply chain and logistics function. As a result, today, many tend to refer to it as Lean Enterprise.

  Supply Chain and Logistics Management Defined

  As this book is focused on Lean in supply chain and logistics management, it is necessary to first define the scope of this function. There are many definitions and understandings of supply chain. Technically, supply chain management includes the logistics function, which includes the transportation and distribution areas. However, as some take a very narrow definition that is primarily focused on procurement and purchasing, I think it is important to define what I mean by it and what this book covers.

  In fact, according to a 2011 article in Inbound Logistics entitled “Continuing Education—Making the Right Selection” by Perry A. Trunick, “Some of the most passionate debates in academic circles still center on what constitutes supply chain management and its place in the academic structure. Not surprisingly, that same debate rages in the commercial world.” The article goes on to say that some people use the terms “logistics” and “supply chain” interchangeably; others feel that it is important for logistics to still have its own place [Trunick, 2011].

  It is more effective, especially from a Lean perspective, to take a very broad view similar to what is defined by the Council of Supply Chain Management Professionals (CSCMP): “Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes the crucial components of coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers.”[www.cscmp.org, 2011]

  Another way to look at it is the Supply Chain Operations Reference (SCOR) Model (Fig. 1.1) from the Supply Chain Council [www.supply-chain.org, 2011], which divides the supply chain into five management processes:

  Figure 1.1 SCOR Model.

  1. Plan

  2. Source

  3. Make

  4. Deliver

  5. Return

  All five management processes include management of risk, assets, inventory, metrics, performance against those metrics, business rules, and regulatory requirements. In addition, the processes include the functional responsibilities described below:

  1. Plan—Balancing supply and demand [discussed in detail when describing the sales and operations planning (S&OP) process in Chap. 10]. These plans are communicated throughout the supply chain.

  2. Source—The procurement of goods to meet demand. This includes identifying, selecting, and measuring performance of sources of supply, as well as delivering and receiving materials.

  3. Make—The transformation process, taking raw materials and converting them into finished products.

  4. Deliver—Resources to move materials along the supply chain, from suppliers to manufacturing and then to customers. Includes order management, warehousing, and shipping.

  5. Return—The reverse logistics process for product or material that is returned, including repair, maintenance, and overhaul.

  By taking this broader view of supply chain management, I include a variety of functional areas in my definition (and thus, potential Lean opportunities):

  Information management (including generating and sharing customer, forecasting, and production information)—This includes all of the information required to ensure that supply matches demand throughout the supply chain.

  Procurement—The acquisition of goods or services, which may include incremental functions beyond the purchase, such as expediting, transportation, quality, etc.

  Inventory flow scheduling and control—Responsibility for the accuracy, timeliness, and management of maintenance repairs and operations (MRO), raw material, work-In-process (WIP) and finished goods inventory.

  Transportation systems operation and infrastructure—The efficient movement of material and goods throughout the supply chain.

  Distribution facilities management—Storage of goods until needed by the customer (or manufacturing in the case of raw materials and components).

  Customer service (including order management and fulfillment)—Servicing the customer throughout the order process.

  Why All the Interest in Lean Supply Chain Management?

  Why is there so much attention paid to the supply chain management function? One reason is financial, of course.

  The supply chain is a major cost center ranging from 50 to 80 percent of the cost of sales (varies by industry). As a result, it is typically easier to reduce costs by a relatively small percentage and get the equivalent contribution to profit of increasing sales by a much larger percentage. For example, a company with a 10 percent profit margin and a supply chain cost of 60 percent of sales would need to increase sales by 4 dollars to have the same impact on the profit margin as a 1-dollar supply chain cost reduction, and we all know how hard it is to increase sales in the current economic environment.

  Another reason is operational. There is something called the “bullwhip” or “whiplash” effect (see Fig. 1.2). Basically, it describes the magnified effect (especially on inventory, operational costs, and customer service) that occurs when orders move up the supply chain. This can be caused by a variety of things such as forecast errors, large lot sizes, long setups, panic ordering, variance in lead times, etc.

  Figure 1.2 Bullwhip effect.

  There is now, of course, more of a “need for speed” in the current society in general and specifically in business. The increased use of outsourcing, global supply chains, e-commerce, and shorter product life cycles has been a double-edged sword for supply chain professionals.

  On the one hand, it has given added exposure and importance to the function, but on the other hand, it has put added pressure on the supply chain to be efficient while it has become stretched and more complex (more of a supply “web” than a chain) at the same time.

  Technology (explored in Chap. 12) can be an enabling partner on the Lean transformation journey, without which outsourcing, global supply chains, e-commerce, and shorter product life cycles wouldn’t be fully attainable in the first place.

  An efficient Lean supply chain can not only be used to improve the aforementioned financial and operational aspects of a business, but it can also be used as a competitive tool.

  Kelly Thomas, vice president of manufacturing at JDA Software, Inc., believes that “a leaner, more operationally efficient supply chain translates directly into a company’s financial returns. Companies can drive significantly higher gross margins, allowing them to invest much more in research and development (R&D) and sales and marketing. For example, Cisco typically runs the highest gross margins in the high tech networking equipment space, allowing it to outmaneuver its rivals in both research and development and marketing. This is a virtuous cycle, since this increased R&D spending typically results in better products, allowing the company to further its lead in the market.”[Thomas, 2011]