Lean in a supply chain context is about a holistic view of procurement, manufacturing distribution, and sales order processing. This means that some level of enterprise technology is necessary to view the organization in an integrated context instead of as functional islands. However, before technology can facilitate the lean supply chain, manufacturing executives need to start thinking in lean supply chain terms. We will be reviewing those terms and sharing the key concepts that are the foundation for the lean effort. In short, we will discuss:
* Four tips to help you bring lean supply chain improvements to your manufacturing operation.
* Five technology tools that help automate these lean supply chain practices.
We'll use a few practical examples along the way to illustrate these concepts, but our main goal will be to define the specific things manufacturing executives can do to make their supply chain lean.
Tip One: Resolve Conflict Between Manufacturing Efficiency and Customer Service
One company that I have been involved with from a lean supply chain perspective, is a manufacturer of paints and coatings. After implementing their new enterprise application, they wanted to use the new-found visibility of their operations to implement a lean supply chain program. They found that before you can lean an organization, you have to have a good idea of what your current operations and processes really are. Then, once you know what you are doing, you can decide on process changes and then measure to what extent those changes have reduced non-value-added work.
What became immediately apparent is that like most manufacturers, this company faced the same conflict between the need to be efficient in production and the need to be responsive to customers. The manufacturing department tended to schedule for maximum efficiency by producing very large batches. This enabled efficient purchase or raw materials , maximum return on machine set-up time, manufacturing personnel, and other costs. Large batches are simply a good way to minimize the cost per produced unit. Low cost-per-unit is attractive, but it is in conflict with the goals of the sales organization. While manufacturing is rewarded for efficiency, the sales department is rewarded for serving the customer, which in turn leads to increased revenue and commissions. If manufacturing commits production capacity to large runs that are not immediately tied to customer demand, it might be difficult to meet the needs of customers as those needs change and fluctuate during the year. An item that is requested might not be in stock and may not be scheduled for production at a time when immediate capacity is committed due to the high-volume production schedule. Moreover, these large production runs mean that large amounts of capital are tied up in finished product inventory long before any revenue can be realized.
In the case of food and beverage and some other process industries, these large production runs can also result in spoilage as the effective life of raw materials and finished goods is spent sitting on the shelf.
The paint manufacturer did the obvious thing—decrease its batch sizes. Going forward, manufacturing would not be making unilateral decisions about batch sizes and production schedules, circumventing their natural tendency to focus on manufacturing efficiency. Instead, they would now be obliged to produce only enough to cover a certain period of time based on the sales projection. That means that every product will now be produced more frequently and in smaller batches. To encourage this behavior, other metrics and key performance indicators (KPIs) can be introduced that are more holistic and based on customer service levels and inventory turns, rather than just production output.
There are any number of formal disciplines designed to tie production in with sales forecasts. Sales and operations planning is one such method. By tying manufacturing schedules to sales projections that typically look a short distance into the future, you will be manufacturing what customers are actually asking for, improving customer service, and allowing greater responsiveness. Your inventory levels will decrease in proportion to your inventory turns. The higher the speed through the supply chain, the faster the inventory turns, and the less capital that will tied up in inventory at any given time. At the same time, the faster raw materials move through the supply chain, the less obsolescence you have and the less expired materials you have.
* Four tips to help you bring lean supply chain improvements to your manufacturing operation.
* Five technology tools that help automate these lean supply chain practices.
We'll use a few practical examples along the way to illustrate these concepts, but our main goal will be to define the specific things manufacturing executives can do to make their supply chain lean.
Tip One: Resolve Conflict Between Manufacturing Efficiency and Customer Service
One company that I have been involved with from a lean supply chain perspective, is a manufacturer of paints and coatings. After implementing their new enterprise application, they wanted to use the new-found visibility of their operations to implement a lean supply chain program. They found that before you can lean an organization, you have to have a good idea of what your current operations and processes really are. Then, once you know what you are doing, you can decide on process changes and then measure to what extent those changes have reduced non-value-added work.
What became immediately apparent is that like most manufacturers, this company faced the same conflict between the need to be efficient in production and the need to be responsive to customers. The manufacturing department tended to schedule for maximum efficiency by producing very large batches. This enabled efficient purchase or raw materials , maximum return on machine set-up time, manufacturing personnel, and other costs. Large batches are simply a good way to minimize the cost per produced unit. Low cost-per-unit is attractive, but it is in conflict with the goals of the sales organization. While manufacturing is rewarded for efficiency, the sales department is rewarded for serving the customer, which in turn leads to increased revenue and commissions. If manufacturing commits production capacity to large runs that are not immediately tied to customer demand, it might be difficult to meet the needs of customers as those needs change and fluctuate during the year. An item that is requested might not be in stock and may not be scheduled for production at a time when immediate capacity is committed due to the high-volume production schedule. Moreover, these large production runs mean that large amounts of capital are tied up in finished product inventory long before any revenue can be realized.
In the case of food and beverage and some other process industries, these large production runs can also result in spoilage as the effective life of raw materials and finished goods is spent sitting on the shelf.
The paint manufacturer did the obvious thing—decrease its batch sizes. Going forward, manufacturing would not be making unilateral decisions about batch sizes and production schedules, circumventing their natural tendency to focus on manufacturing efficiency. Instead, they would now be obliged to produce only enough to cover a certain period of time based on the sales projection. That means that every product will now be produced more frequently and in smaller batches. To encourage this behavior, other metrics and key performance indicators (KPIs) can be introduced that are more holistic and based on customer service levels and inventory turns, rather than just production output.
There are any number of formal disciplines designed to tie production in with sales forecasts. Sales and operations planning is one such method. By tying manufacturing schedules to sales projections that typically look a short distance into the future, you will be manufacturing what customers are actually asking for, improving customer service, and allowing greater responsiveness. Your inventory levels will decrease in proportion to your inventory turns. The higher the speed through the supply chain, the faster the inventory turns, and the less capital that will tied up in inventory at any given time. At the same time, the faster raw materials move through the supply chain, the less obsolescence you have and the less expired materials you have.
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