Supply Chain and Value Chain – in the eyes of lean manufacturing

Lean manufacturing and supply chain management are terms go hand in hand. Although lean is built on a wider base I feel the backbone of lean, JIT (Just In Time) is about building a better supply chain within the organization. Tools like Kanban are parts of this exercise. Value will flow from one work station to the other within the supply chain. This is sometimes called the value chain (at least that is how I call it). If this flow of value is hindered, it is called a waste.

Nowadays lean is not just about manufacturing. Even within a manufacturing organization lean concepts are applied in offices, service departments and so on. With the emergence of concepts like lean enterprise these concepts have extended beyond the boundaries of the organization and reached the suppliers and customers, in short the entire supply chain. This makes much sense since most of the waste is generated within the supply chain than within your premises. Sony in 2006/2007 lost 2% of its share value due to delays in releasing play station III (PS 3) due to a problem in getting the blue laser used in manufacturing PS3 and recall of problematic batteries which can catch fire on some notebook computers. Both the problems did not take place entirely within Sony, but due to the problems they faced in their supply chain. In another example CISCO is said to had a $2.2 billion write-off mainly due to the problems in their order fulfill system. In simple this suggests even you do your job 100% within your organization, your supply chain can kill your organization.

To be truly lean you need to have a tightly integrated supply chain or a lean supply chain. This would mean having less number of suppliers with long term relationship. This also means having a tight integration with the customers. So you would know what your customer needs quickly. And you would also have means of conveying your requirements to your suppliers quicker and accurately. Although it seems simple enough to read practice is a completely a different game altogether. Tight integration can mean you depend on each other so much even a failure outside your control can bring your organization down. For an example failure of your supplier to deliver goods on time will mean you cannot meet your customer’s requirements.

In the ideal world, your supply chain should not have any wastes involved so your supply chain and value chain would fall in the same line. So value will be identified in every point of supply chain. In this ideal situation you will enjoy the fullest benefits of lean. Your customer will pay only for the true value of the product or the service not for the waste involved in the process.