Expert Insight: Guest Contribution
  By David Lengacher of ICF International  
  November 6, 2008  

Supply Chain Perspective: Adding Lean to Your SCM Strategy


Lean Can Complement Optimization by Relaxing Constraints; Stealing Market Share through Flexibility



Lengacher Says:
Some supply chain managers have difficulty adopting a focus on lead time.  If their customers downstream are not complaining about on-time deliveries, many cannot see any opportunity for improvement.

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Ask most executives how they intend to improve supply chain management (SCM) and they will tell you things like: segment your customer base to serve them better; maximize transparency of the supply chain; and improve your forecasting abilities by leveraging the latest decision support system technologies. This is a sharp contrast to the type of answers you would hear if you asked this same question twenty five years ago. 

Back then it was much more popular to focus on minimizing your holding costs as well as a host of other cost accounting metrics, most of which have fallen by the wayside in recent years. Since then, SCM has expanded both upstream and downstream to include concepts like strategic sourcing, sharing real-time data, and including suppliers in the development of new products and services.

With these changes, the role of SCM professionals has evolved as well. Executives working in SCM today are much more adept at seeing and understanding the complexities within their organizations. They are familiar with the concept of constraints and spend much of their time trying to untie the knots that form between the different functions within their company. With this change, however, has come an increase in responsibility that has fallen squarely on the shoulders of SCM professionals. It is no longer good enough just to focus on solving the problems that appear in the workplace; maintaining a real-time situational awareness though which a strong managerial foresight can be accessed is often necessary. 

These days, most companies are also holding their SCM teams accountable for tracking and quantify risk to the supply chain. Others are tasked with maintaining a risk mitigation plan; ready to implement the very moment that a crisis appears. The few companies that have developed the most effective SCM strategies, however, are going a step further. They are placing additional expectation on the SCM team to dedicate significant resources toward continuous improvement in the form of Lean projects.

Lean is a continuous improvement initiative focused on the elimination of waste.   Although it is gaining acceptance in a wide variety of industries, it is often still thought to apply only to manufacturing. The reason why Lean is slow to catch on in SCM is because most of these wastes cannot be seen with the naked eye.  A process that has been leaned will have very low levels of work in process, short downtimes, and therefore short lead times to complete new orders. All these pieces add up to create a higher level of customer satisfaction. 

Relaxing Supply Chain Constraints Improves Optimization

A look inside the supply chains of most organizations would show a large percentage of their available resources being wasted. Whether it is sea freight, air freight, rail freight, or trucking, there are several opportunities for cost savings. Lean helps to improve material handling, resource allocation, and scheduling.  Those logisticians who are familiar with operations research tools, like linear programming, may find it difficult to see how Lean can affect a process that is already being optimized by solving constrained optimization algorithms. The best way to describe Lean to these types of analysts is to show them how Lean can eventually change, or relax, the constraints present in their current model.

Most Lean practitioners agree that the biggest improvement opportunity in supply chain is receiving and delivering orders more accurately and more quickly. The increase in accuracy affects metrics like the cost of poor quality (common to the Six Sigma crowd) and the increase in speed directly affects lead time.  Some supply chain managers have difficulty adopting a focus on lead time.  If their customers downstream are not complaining about on-time deliveries, many cannot see any opportunity for improvement.  

The benefits of short lead times, however, are less obvious and not necessarily immediate. One of the most valuable, yet most underappreciated, benefits is the potential to win (or steal) new business using your market-leading flexibility, due to Lean, as a selling point.  In essence, lead time is the single most accurate measure of flexibility.

Including Lean in your SCM strategy is not difficult. You  can start by focusing on three key things:

  • Properly train your SCM team in the Lean principles.
  • Focus on the root cause and not the symptoms.
  • Adopt the use of value stream mapping to capture the complete situational awareness of the supply chain.  For each step in the process, you should capture:  cycle time, throughput, work-in-process (WIP), yield, and uptime.

Adding Lean to your SCM strategy is not about solving more problems. It is about identifying and minimizing wasted time, excess inventory, and unnecessary costs across the entire supply chain. This requires a little patience, a lot of dedication, and a strong desire to develop a real competitive advantage.

David Lengacher is a Master Black Belt with ICF International.  He specializes in Lean deployment, strategy development, and modeling and simulation. He holds an MS in Operations Research from the University of Florida and an MBA from Purdue University.

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