Building and Managing the Lean Supply Chain
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Building and Managing the Lean Supply Chain. The Supply Chain. Distribution Channels. 1 st Tier, 2 nd Tier, …, Suppliers. Enterprise. Customers. The Supply Chain. Develop Systems Thinking. Lean supply chain principle 1:

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Building and managing the lean supply chain

Building and Managing the Lean Supply Chain


The supply chain

The Supply Chain

Distribution Channels

1st Tier,

2nd Tier, …, Suppliers

Enterprise

Customers

The Supply Chain


Develop systems thinking

Develop Systems Thinking

Lean supply chain principle 1:

Improving the performance of every subsystem does not necessarily improve system performance. The sum of local optima does not equate to the global optimum. Improvements in subsystem performance must be gauged only through its impact on the whole system.


Systems thinking and the theory of constraints

Systems Thinking and the Theory of Constraints

“Find the essence of each situation, like a logger clearing a log jam. The pro climbs a tall tree, locates the key log, blows it, and lets the stream do the rest. An amateur would start at the edge of the jam and move all the logs, eventually moving the key log. Both approaches work, but the essence concept saves time and effort. Almost all problems have a key log if we learn to find it.”

-- Fred Smith


The business ecosystem

Competitors

Regulating Agencies

Distribution Channels

1st Tier,

2nd Tier, …, Suppliers

Enterprise

Customers

The Supply Chain

Stakeholders

Complementors

The Business Ecosystem


Building and managing the lean supply chain

Dell’s Business Ecosystem


The business ecosystem1

The Business Ecosystem

Lean supply chain principle 2:

Focus on improving the performance of the lean supply chain. However, do not ignore the supply chain’s business ecosystem.


Steps to build lean supply chains

Steps to Build Lean Supply Chains

  • Develop a systems perspective

  • Understand customers and their expectations

  • Map the supply chain

  • Benchmark best practices

  • Design products and processes to manage demand volatility

  • Create flow across the supply chain

  • Develop supply chain metrics


Develop a systems perspective

Develop a Systems Perspective

  • For any decision you take consider the following. Does the decision:

    • Help you sell more products?

    • Help reduce investments in resources?

    • Help reduce payments/expenses?


Understand customer value

Understand Customer Value

  • Critical step: provide what the customer wants

    • Providing the wrong product or service in an efficient way is muda. Eg. Air travel

  • An opportunity for kaikaku (dramatic change):

    • Rethink the delivery system on a product line basis with strong dedicated product teams


Understanding customer value

Understanding Customer Value

  • Document the following:

    • Customer values in each segment (order qualifiers and order winners)

    • Delivery cycle/time expectations of customers in each segment

  • Identify market segments


Market segments example

Market Segmentation Graph

60%

40%

%age

Orders

20%

Market Segment

0%

Staple

Direct

Seasonal

Stock

Freight

Product Type

Market Segments: Example


Customer values in each segment

Customer Values in Each Segment

  • Staple stock (e.g., Stationery)

    • Availability (qualifier), cost (winner)

  • Direct freight (e.g., Sony DSC-S30)

    • Product design (qualifier), quality (winner)

  • Seasonal

    • Convenience (qualifier), availability (winner)


Map the supply chain

Map the Supply Chain

  • The set of all actions required to deliver the finished product or service to the customer

  • “Seeing the Whole” (Systems Thinking)

  • Systematic study of the value stream often reveals a staggering amount of muda

    • Need to “map” the whole process, and identify value-added and non-value added activities across the value stream


Building and managing the lean supply chain

Medical Records

Physician’s Office

Admission RN or Therapist

Outside Supplier

Transcription

Intake Coordinator

Visit Scheduler

Clinical Staff

Materials Management

Hospital Discharge Staff

Clinical Supervisor

Billing and Collections

Supply Chain Map: “As-Is”

Courier

Patient Telemonitoring System monitored by Office based Nurse

Information flow

Paper flow

Data flow

Supply delivery

Adds Value

Source of Waste


Building and managing the lean supply chain

Physician or Physician’s Office

Patient Telemonitoring System monitored by Office based Nurse

Outside Supplier

Clinical Supervisor

/Case Manager

Intake Coordinator/ Scheduler

Medical Records

Clinical Staff

Hospital Discharge Staff

Billing and Collections

Materials Management

Supply Chain Map: “To-Be”

Information flow

Data flow

Supply delivery

Adds Value

Source of Waste


Building and managing the lean supply chain

Monthly Fax

of Weekly

Schedules

Central

Supplies

Production

Planning

30 Days

Firm

Schedule

Customer

Supplier

Weekly Calls

with Daily

Schedules

InventoryManagement

System

CAPS

System

Bi-Weekly

Schedule

Record

Receipt

To Raw Material

Supermarket

Press-

Curing

DFM

Sales

Warehouse

Press-

Curing slab

Blend

Compound

Pre-

Form

Pre-

Cure

Finish-

ing

Pack

FIFO

900

seconds

5700

seconds

18

seconds

4500

seconds

18810

seconds

45

seconds

0.07

seconds

0

Days

0.26

Days

0.09

Days

0.09

Days

0.68

Days

0.54

Days

12

Days

1.33

Days

Value Added Time: 0.35 days; Production Lead Time 3.34 days; Value Added Ratio: 10.5%

Customer Demand: 4,560 units/day

Supply Chain Map: “As-Is”


Building and managing the lean supply chain

Mixed-Model

Build Schedule

Monthly Fax

of Weekly

Schedules

Central

Supplies

Production

Planning

30 Days

Firm

Schedule

Customer

Supplier

Weekly Calls

with Daily

Schedules

InventoryManagement

System

CAPS

System

Daily

Orders

Bi-Weekly

Schedule

Record

Receipt

To Raw Material

Supermarket

Press-

Curing

DFM

Sales

Warehouse

Press-

Curing slab

Blend

Compound

Pre-

Form

Pre-

Cure

Finish-

ing

FIFO

900

seconds

1800

seconds

18

seconds

4500

seconds

18810

seconds

45

seconds

0

Days

0.11

Days

0

Days

0.03

Days

0.13

Days

6

Days

0.03

Days

Value Added Time: 0.30 days; Production Lead Time 0.60 days; Value Added Ratio: 50%

Customer Demand: 6,200 units/day

Supply Chain Map: “To-Be”


Building and managing the lean supply chain

Another kind of Supply Chain Map


Benchmark best practices

Benchmark Best Practices

Develop performance metrics

Identify world class organizations; study their operations strategies and tactics


Benchmark best practices1

Benchmark Best Practices

Lean supply chain principle 3:

Focus on customer needs and process considerations when designing the product delivery system. Enterprises can gain tremendous competitive advantage through best-in-class practices that cut across industries.


Designing products and processes coping with demand volatility

Designing Products and Processes: Coping With Demand Volatility

  • Can you smooth demand volatility?

    • Key observation: Much of the demand volatility is self-induced

      • Sales promotions and rebates

      • End-of-the-month syndrome (“Channel Stuffing”)

      • Batching

      • New product introductions


How can we reduce demand volatility

How Can We Reduce Demand Volatility?

  • Have no promotions

  • Reduce lead times and produce in small lots

    • Exploit product structures

  • Postponement strategies

    • Exploit commonality and delay commitment

  • Aggregation


How to manage demand volatility the rap principle

How to Manage Demand Volatility: The RAP Principle

Raw

Material

Before

Finished

Goods

Fabrication

Sub-Assembly

Final Assembly

After


How to manage demand volatility the rap principle1

How to Manage Demand Volatility: The RAP Principle

Lean supply chain principle 4:

Maximize external variety with minimal internal variety. It is desirable to maintain inventories in an undifferentiated form for as long as it is economically feasible to do so


Managing demand variation

Managing Demand Variation

  • As far as possible, avoid using inventory to buffer variation

    • Less chances of misallocation

    • Inventory seriously impedes flow

Lean supply chain principle 5:

Buffer the variation in demand with capacity, not inventory


Product delivery strategies

Product Delivery Strategies

“At-Lead-Time”

Customers

“Beyond-Lead-Time”

Customers

“At-Once”

Customers

Percentage of Orders

Wk 1

Wk 2

Wk 3

Wk 4

Wk 5

Wk 6

Wk 7

Wk 8

Replenishment Lead Time

Lead Time

= 3 to 5 weeks

The Customer Time-Based Demand Profile


Product delivery strategies product structures

Product Delivery Strategies: Product Structures

  • Build to stock (BTS)

    • Finished goods made in anticipation of demand. Customers’ orders are met from inventory

  • Assemble to order (ATO)

    • Subassemblies produced according to forecast. Required items are drawn from wip and assembled when orders are received. Very little finished goods inventory carried


Product delivery strategies product structures1

Product Delivery Strategies: Product Structures

  • Build to order (BTO)

    • Products built in response to actual customer orders. Usually these are standard products with a few options

  • Engineer to order (ETO)

    • New product designed and produced in response to specific customer needs. Lead times include relevant elements of engineering design and manufacturing


Product structures resulting lead times

Customer LT

Product Structures: Resulting Lead Times

FG

Build to Stock

Assemble-to-Order

Assembly

Customer LT

Build-to-Order

RM

Assembly

Customer LT


Create flow

Create Flow

  • Creating flow requires a systems perspective

  • Lack of flow results in inventory or work imbalance somewhere in the supply chain

  • Improved flow reduced lead times

  • To create flow, all processes should “row the boat” at the same pace – the concept of flow balance

Facility

Customers

Suppliers


Creating flow

Creating Flow

  • To enhance flow, use pull signals for execution where possible

Lean supply chain principle 6:

Use forecasts to plan and pull to execute. A system that reacts to pull signals will have less variation than a comparable system that adopts a push mode of operation.


Develop metrics using a systems perspective

Develop Metrics Using a Systems Perspective

  • “Tell me how you will measure me and I will tell you how I will behave.”

  • Does the metric:

    • Help you sell more products?

    • Help reduce investments in resources?

    • Help reduce payments/expenses?


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