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

Lean manufacturing and supply chain

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.

US auto industry, bailout, Toyota and lean manufacturing

US auto industry is going thru very tough times, especially with the rejection of $14 billion bailout package. Ford, GM and Chrysler, US auto manufacturing giants are among tremendous pressure. But the hit on Toyota is comparatively smaller, probably due to their lean manufacturing practices.

As usual tough times bring the best out of anything. There were some interesting topics coming up in the bailout negotiations. Lawmakers want the assurance this will not take place again in future and they want big three to consider building vehicles with higher fuel economy and environmentally friendly. This is ultimately good news for consumers and entire world. I think we are little too late even today.

If these giants fail and stop production, ripple effect will be massive. Job losses are among the most important effects. But how will Toyota respond to this? They have cleaner cars, less manufacturing wastes and they produce cars with higher fuel economy. Ideally they should be able to increase their market share further and become more and more profitable. Isn’t that simple economics. But some have other ideas.

Remember Toyota is mainly an automobile assembler. That is their main business. Parts for their vehicles are manufactured by various vendors all over the globe. Some of these vendors are suppliers for the big three US auto manufacturers as well. So if the big three fail, these vendors will have less orders and they will have to either downsize or probably closedown their operations. Meaning, Toyota will loose their reliable vendors (or partners in lean environment). Toyota need these vendors to operate in their just in time model. Supply chain is the main strength when it comes to operate in a JIT model. Any new comer will have to be adapted in to the lean culture over the time. This might directly impact their production.
It is interesting to see how Toyota, the legendary manufacturer is going to respond to this scenario. Their philosophy of working with few, reliable vendors are under a threat now. Will they change their concepts or will they look at this as learning and prepare for the future. Toyota and their lean manufacturing system (Toyota Production System) love challenges. We have to wait and see.

RFID to support your supply chain

Lean manufacturing is directly dependent on a very tightly coupled supply chain both integral and external. Coordinating supply chain and elimination of problems in it is very important for the smooth lean operation. There are number of techniques making this possible. Barcode is one of the very old such systems. RFID (Radio Frequency Identification) is among the emerging technologies in this era.

Basically RFID functions as a barcode. It has a unique identifier embedded into that. This is read through radio frequencies in different stages of the supply chain to get the exact stage of the product in its supply chain. Since it is using radio frequency to read the information there is no requirement to have a clear visibility of the tag to read. It makes it easier to read the tags. So makes the technology very versatile.

I found below video interesting on this topic.

In the age of computer technology this can be used in Kanban, to monitor the WIP and to identify the areas of bottlenecks. But always obey the basics of lean manufacturing. Technology is the supporter not the driver of lean.

Lean and green manufacturing

We have discussed the relationship between lean manufacturing and green initiatives earlier in this blog. For the past few weeks there were some news items popping up in my inbox about lean and green initiatives. It is very interesting to see people looking at lean for help in protecting environment apart from the productivity improvement and related advantages.

By its very concept of eliminating waste lean provides the best platform for any manufacturer who is looking to be green in their manufacturing. No waste means less consumption of resources and less waste as output. So it is very handy not only in limiting the usage of natural resources but also in less pollution due to low waste outputs.

In one of the posts on environmentalleader.com, they discus about the concept of “lean and green purchasing strategy”, its opportunities, challenges and benefits. There are some staggering figures in savings for those who participated in the exercise. But more than anything else I found it is interesting to see that most of the manufacturers using their efforts and results as a marketing initiative. This goes to show the need for green manufactured product in the market and the marketing opportunities comes with it. This will help long term sustainability of the system.

In much more specific case, one of the retail giants “M&S” and one of the state of the art apparel manufacturer MAS holdings in Sri Lanka opened a green manufacturing facility in Sri Lanka. In their website MAS Holdings say “MAS Intimates Thurulie will also become the world’s first lean and green manufacturing facility, designed for MAS’ lean manufacturing standard. Based on the renowned Toyota Production System, the MAS Operating System (MOS) is geared towards the elimination of waste both in material and process in order to achieve higher efficiencies. MAS Chairman Deshamanya Mahesh Amalean declared that “We have always excelled in ethical business practices and MAS Intimates Thurulie brings in the environmental focus to complement our excellent work in social sustainability. Today MAS has set a tough global benchmark to show what the future of manufacturing will be – ethical, efficient and sustainable.”

I am very pleased to see words like sustainability, ethics and efficiency are related with lean (or Toyota Production System) apart from common goal of elimination of waste.

With these initiatives I believe lean is achieving new heights. It has evolved from manufacturing, to the entire supply chain to the environment and community. As it has always been this goes to show that lean concepts are universal.

Lean manufacturing and lean supply chain

Lean manufacturing is a very popular concept. But words like lean enterprise and lean supply chain are capturing the industry by storm. What is the reason for this shift from manufacturing focus to a wider focus? 

As a lean manufacturer you are good as the weakest of your suppliers in becoming truly lean. For an example if you have hundred items going in assembling one finished product, you are only good as the weakest supplier who is not supplying you on time as per the required quality standards. Most of the wastes are generated in the interfaces between supplier to manufacturer and manufacturer to the customer and so on. 

Suppliers, manufacturers and customers and even other influential bodies like government agencies are links of a single supply chain. The total strength of the chain will be as good as its weakest links strength. Best performance can be achieved only if we optimize the strength of this chain. 

While it is important to understand the ideal lean supply chain scenario and the advantages it can bring, it may be impossible to make all the suppliers and customers and others involved in the process lean over night. So do not fall in to the trap of waiting till all the others become lean to start your lean journey. You should not plan the ideal JIT system based on assumption. The system must be optimized to get the best outcome from the lean implementation with the resources available. Unless you start using lean to its fullest effect, trying to convincing your suppliers and customers to follow lean will off tack your efforts. Once your system is matured, you can extend your lean efforts through the supply chain. 

Continuous change is a basic lean concept. A lean supply chain can be achieved with small, step by step approach over a period of time. Simply although it is very important to extend your lean efforts throughout the supply chain, it is a step by step process which starts from you with lean manufacturing.

VMI (Vendor Managed Inventory) and lean manufacturing

Lean manufacturing treats work in progress (WIP) as a waste. In fact every imperfection in the system creates the requirement to build work in progress in the system. So the WIP is also known as the mirror of wastes in the system.

On the other hand, most of the brand owners and buyers are moving towards a concept called VMI or vendor managed inventory. Basic principle of VMI is managing inventory by the vendor on the behalf of the buyer. By doing this customers can focus on their core business of selling. Most of the times buyers are prepared to pay some extra money to the vendors for managing their stocks on their behalf.

Why the vendor wants to manage an inventory? Why there is an inventory at all? First reason is the higher lead-times and large batch manufacturing of the vendors. This makes it difficult to deliver goods in small batches as an when requirement comes up. On the other hand it is also the inability of buyers to capture the requirements fasts and transmit that information down the line. This leads to managing of inventories either with the buyer as finished products or with the vendor as goods to be shipped.

Inventory in finish goods form is harder to manage. But when the inventory is managed by vendors they can manage it in other forms for an example as raw materials and as semi finish goods. Vendors will happy to have a VMI type of orders than a normal order. But the reality is in whatever form inventory is a waste. So in the ideal scenario vendors would manufacture goods as and when the buyer wants it and then will dispatch to the vendor instead of pulling goods from the inventory and sending it to the buyer.

Although VMI or vendor managed inventory have the term “managing the inventory” it does not necessarily mean that vendor should have a huge inventory. A lean manufacturer would be able to get the best advantage of this concept than a traditional manufacturer if managed carefully. Having a front end working in VMI model and the back end of the business working with lean manufacturing makes a powerful combination. Vendors order goods when they want it in small frequent batches. Manufacturers do their manufacturing when they receive the order in small batches with a very short lead-time. Isn’t this the ultimate lean manufacturing system?

Lean manufacturing and Chinese manufacturers

As you know I keep this blog dedicated for lean manufactures and lean lovers. Lean manufacturers achieve high quality on time deliveries at lower costs. They also comply with higher labor, social and environmental standards. Lean manufacturing started in Japan spread to US and European manufacturers in 1980 onwards. All the manufacturers worldwide are looking to achieve the advantages mentioned above with their lean initiatives.

But especially when it comes to the cost factor the winner is China without any doubt. I am not sure whether they follow lean principles to achieve these results. But certainly they have become very low cost manufacturers usually in the expense in other areas. They are so very low in their costs; people are willing to compromise on other areas for the price. Big brand owners are not an exception. They are making huge profits with these products. I am sure your organization is working with at least few Chinese manufacturers regardless of the industry you are in.

China trade directory one of the sites I had a look lately, suggests China has exported US$ 450 billion worth of manufactured goods to US in 2006. Interestingly it goes to show the substantial amounts of profits marketers has made with these products, which is almost US $ 850 billion according to this website (If you want to read the full story Click Here). Although I am not sure of the source of this information the reality might not be far away from this.

What do you think? Have Chinese found an alternative to lean manufacturing? You are welcome to add your comments on this.

What is a lean supply chain?

Lean has evolved from just in time manufacturing to lean manufacturing and to a lean enterprise. In each of these stages there was an addition to the scope of lean manufacturing. For an example from the early manufacturing focus, lean manufacturers started looking at their full organization in the process of value creation. Then the lean manufacturers extend their boundaries to their customers and suppliers in order to create value.

Lean manufacturing is all about eliminating wastes form the system. A system contains many components in it. Any components when taken isolated from other components, has wastes which are born within those components. But there are many other wastes generated in the interaction points of these components. For an example in the manufacturing context, manufacturers themselves generate wastes. Over manufacturing, waiting for bulk manufacturing are some of them. On the other hand wastes are generated in the supply chain itself. For an example if the suppliers of the manufacturer is supplying only in bulks and if the lead times are longer, then the time of the manufacturer is wasted. The end result would be lengthening the lead time of the customer who sits in the other end of the supply chain and may be the cost of the products. Even the customers can contribute to the wastes in supply chain. For an example if the necessary information to the manufacturers is not passed on time, manufacturers and the suppliers to them will have to suffer consequences of to and ultimately will affect the customer himself apart from the other members in the chain. You can refer to my previous articles on lean manufacturing customers and suppliers for more thoughts on this topic.

So it is clear that a single unit in the supply chain can do very little in eliminating the wastes in the system. To effectively remove wastes from the system and gain value everyone throughout the supply chain must contribute. Everyone must be aligned to the needs of each other and must accept other as their partners. This will help all the parties including suppliers, manufacturers and the customers to achieve low costs, higher quality standards and lower lead times. Apart from these main business indicators reduction of wastes is an absolute requirement in today’s world. There are no resources to be wasted. Environmentally a lean supply chain is a blessing.