What is a Lean Supply Chain?
The concept of lean supply chain is designed to help solve the areas in the supply chain where waste can occur. In this context, “waste” refers to non-value added activities in the supply chain. Therefore, a lean supply chain requires minimizing costs at all levels. This way, companies can improve their competitiveness and their overall profitability.
In order to accomplish a lean supply chain, businesses need to examine every process and identify areas that are using unnecessary resources. These unnecessary resources can be measured in time, money, or raw materials.
A lean supply chain is basically a team-based approach to constant improvement focused on eliminating waste from a customer’s viewpoint. The “lean” approach has been around for many years, in many forms, especially in manufacturing. Companies have recently started to apply it to the logistics and supply chain management areas.
Brief history of the lean supply chain concept
The concept of lean dates back to the industrial revolution of the early nineteenth century. It was developed into a more modern form in the 1950s by Professor W. Edwards Deming who taught top management and engineers about quality management methods.
Deming’s theories were best implemented after World War II at the Toyota Motor Company in Japan. During the 1980s and 1990s, his theories were implemented more widely in the automotive sector, as well as other sectors.
Today, the lean supply chain methodology is accepted in inbound supply management, internal processing and onward distribution. Some high volume manufacturing and retail sectors are champions and beneficiaries of this approach.
The Toyota Production System was focused on eliminating various types of waste:
How companies can implement the lean approach in their supply chain today
In today’s international supply chain environment, it can be somewhat difficult to implement the lean approach. It requires the entire organization to focus on implementing changes to remove waste and add value. Parts of those changes require everyone involved to look beyond the boundaries of the company, to relationships with customers and suppliers at all levels.
Lean supply chain principles
The lean concept has some straightforward principles. Following these principles can help an organization form the foundation for a new approach to its supply chain.
1. Specify value from the standpoint of the customer.
Product value needs to be defined from the customer’s point of view, not the company’s viewpoint. This principle is the key to eliminating waste caused by things like making the wrong product, making too much or too little of it, delivering it too slowly, or through the wrong channel.
2. Identify all steps in the value stream, eliminating the steps that do not create value.
The supply chain should flow continuously, and so should the information that supports it. The ‘value steps’ should run in tight sequence, so the product flows smoothly towards the customer.
Delays and discontinuities in the supply chain process are usually caused by starting and stopping processes. They can be also caused by information streams that could smooth things out if they were operated continuously.
3. Let customers ‘pull’ value from the next upstream activity.
A product should be pulled by the customer, not pushed by the company. Each part of the supply chain process should be started with a complete understanding of the final product destination.
4. Start again.
The entire organization needs to continue polishing the process until it reaches a state of perfection. The organization should concentrate on the elimination of waste and the addition of value, in all of its supply chain processes. It’s a continuous process that starts with the launch of a lean supply chain management strategy, and it never ends.
Advantages of a lean supply chain
A lean supply chain produces or provides only what is needed, where it is needed, and when it is needed. This approach has four key advantages over traditional supply chain management.
- Supply is more tightly linked with demand
- Inventory risk is reduced
- Processes focus on activities that add value for the customer
- Employees are greatly focused on creating mistake-proof processes
Implementing a lean supply chain
Since it’s quite a complicated methodology, a lean supply chain requires a high level of organizational sophistication. Organizations need to install and align systems and inter-functional processes in order to achieve a truly lean supply chain.
One of the essential actions in this process is to involve all the people in the company. Employees need to be engaged to improve continuously through waste elimination and problem solving. Companies need to engineer processes to make them mistake-proof. This way, they can prevent errors before they even occur.
A lean supply chain requires reducing lead times by establishing a continuous flow of materials, equipment and processes. Products need to be pulled through the supply chain at the right place, the right time and in the right quantity.
Another good practice is to standardize the processes – to document the best solutions and make sure they are followed. In order to keep the lean supply chain, organizations need to improve continuously. No matter how good a process seems, there’s always room for improvement.
Achieving lean supply is not a one-time activity where you just implement a supply management system. It’s about developing an organizational ethos to synchronize functions. Collaboration within the company, as well as collaboration with suppliers and customers, is critical to enable a lean supply chain.
Establishing a lean organizational culture is key to eliminating waste and delivering long-term customer value. Lean practices improve quality and productivity by taking cost and waste out of all facets of an operation. They enable outstanding business performance, from the procurement of raw materials to the shipment of finished goods.
Every participant in the supply chain process should concentrate on the reduction of waste. This should become a new way of functioning, not just a single goal to be achieved as part of a new company initiative. Reduction of waste should be the goal of every task undertaken by every participant in supply chain management.