Tuesday, February 19, 2013

From Lean Manufacturing to Lean Supply Chain

This week’s reading introduces us lean principles, which originated from Toyota’s car manufacturing and now largely practiced in different industries. The basic idea of lean principles is to eliminate waste through the workflow. Originally, the workflow indicates the processes happening inside the organization. However, the side effect is starting to impact the outsider. Eliminating waste requires reducing inventory to streamline the workflow. As we can see from Dell’s case, Dell is taking lean principles to extreme and the upstream players in Dell’s supply chain is influenced.

However, if we understand lean principles and think from a different angle. Lean principles can not only be applied into industries other than car manufacturing, but also the whole supply chain. Compared to manufacturing, the main task of lean supply chain is to optimize the value stream of the supply chain. It will put more efforts on optimizing the workflow of procurement, transportation and storage. The same as lean manufacturing, lean supply chain should activate the demand pull.

Robert McKee and Dr. David Ross from Lawson released three papers in the “Lean is Fashionable” series­­[1]. They defined lean SCM as “a supply chain operational and strategic management philosophy that utilizes Internet-enabling technologies to effect the continuous regeneration of supplier and service partner networks”.

The reason why Lawson[2] (acquired by Infor in 2011), an ERP software and services providers are doing this study is because in Lawson’s eyes, the lean supply chain is enabled by Internet and IT technologies. Interestingly, Herman Miller, as one example of innovating in product design to improve its supply chain is now using services from Infor to improve the visibility of operations and increase productivity[3].

The paper defines six mechanisms that the entire supply chain ecosystem must continuously adapt and adopt to succeed and lead. The first one is e-information, which means information to be accumulated, tracked, monitored and harnessed over the Internet. Dell’s business model is a typical example of using e-information. They receive their orders from customers online, collect and analyze date and build predicting models. In this case, why Dell is benefiting from this modern business modern but its suppliers are still suffering from the bullwhip effect? One reason is Dell has transformed its business information to e-information as necessary since it deals with customers directly. However, most of the suppliers in the upstream still remain the traditional business model. Some of them are starting using ERP, but simply for recording and accounting, but not predicting. It takes time when e-information fuse into lean supply chain’s ecosystem.

The other reasons impeding the lean principles to be applied into supply chain is the lack of synchronization and collaboration. When one organization decides to use lean principles, it accept the principles as one culture, all the employees realize this and contribute to improve the work process. This is because in one organization, standard, information and value are shared. While in the supply chain, benefits are the major concern. When there are conflicts, business relationships count little. Dell is considered as bully when it kicks off its partners. If business partners can collaborate and let information flow through the supply chain, it will be easier for suppliers to control their inventory and meet the demand. In a business relationship, companies need to think about how much information they are going to share and based on the depth of collaboration, or in another word, trust. Nowadays, the Supply Chain Council’s Supply Chain Operations Reference (SCOR)[4] is gaining popularity. The SCOR model includes a cross-functional framework, standard terminology, common metrics and best practices that can be applied to entire supply chains. It is provides a standard for originations to follow, which will fasten the process of synchronization and collaboration.

As the authors defined in their paper, lean SCM is the new stage of supply chain, and now it only starts. We will see more and more companies going to use lean principles, not only for improving its workflow, but also integrate it into their supply chains. The main question is, how can lean principles overcome the conflicts between different chains? The papers give us several theoretical solutions, but how many of them and how effectively can they be practiced?


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