Even smaller home furnishings retailers can cut wasted time, inventory and costs by implementing a “pull” approach to supply chain management.
Lean supply chain management is not just for manufacturers who practice lean manufacturing. Nor is it just for large retailers. It is a practice that can benefit small and mid-size home furnishings retailers, wholesalers, distributors and others.
WHAT IS LEAN SUPPLY CHAIN MANAGEMENT?
Lean is how a properly designed and operated supply chain should function. A lean supply chain process is one that has been streamlined to reduce and eliminate waste or non-value added activities along the supply chain flow associated with the movement of products. Waste can be measured in time, inventory and unnecessary costs. Value-added activities are those that contribute to efficiently placing the final product at the customer’s door. The supply chain and inventory contained in the chain should flow. Any activity that stops the flow or that touches inventory should create value.
WHAT MUST BE DONE TO BE LEAN?
Supply chains tend to accrue waste and non-value added activities for many reasons, both internal to the company and external. Regaining lean supply chain efficiencies may mean addressing many of the same issues that created the problems of extra and unneeded time, inventory and costs.
The ideal approach is to design the perfect supply chain and fit your company’s operation onto it. Supply chain management is meant to reduce excess inventory in the supply chain. It should be demand driven, built on the “pull” approach of customers pulling inventory in a flow as required, not by suppliers pushing inventory. Excess inventory reflects the additional time spent within the supply chain operation. So the perfect supply chain is lean, having removed wasteful time and inventory.
A lean supply chain, with the pull, flows back from the store floor through to purchase orders placed on suppliers. Anything that delays or impedes this flow must be analyzed as a potential non-value added activity.
To develop a lean supply chain, firms should:
- Understand that this is an ongoing, continuous improvement approach as compared to business process reengineering which can be viewed as a one-time change.
- Gain top management’s commitment. Continuous improvement requires ongoing support.
- Build a multi-discipline team for the project—one that understands lean supply chain management.
- Analyze the total supply chain process, not just the outbound part or just the inbound part.
- Map the process.
- Assess for gaps or redundancies in the process that create time, the key waste.
- Avoid cannibalizing the process by just focusing on warehousing or transportation or other activities instead of studying the entire supply chain process.
- Realize cause-effect impacts. High freight cost, for example, can be a problem or a symptom. Excess inventory can be a problem or, more often, a symptom of a problem.
- Drive for root causes, not symptoms.
- Comprehend the complexity of supply chains with multiple suppliers, distribution centers and stores.
- Appreciate the fundamental impact of international sourcing and shipping on time and inventory.
- Grasp the impact of the organization and culture on supply chain process design and operation. This can be overlooked as a factor in achieving or not achieving lean.
- Analyze the effect of continuing external events, such as Homeland Security activities or imports, on lead times and on lean dynamics.
- Calculate the risks of the lean supply chain. Reducing inventory frees up capital; reducing time improves the cash-to-cash cycle. However reducing inventory, without a properly designed process, removes the comfortable feeling that accompanies excess inventory and can expose you to the risk of lost sales.
- Mitigate risks in the process redesign. This is both good business practice and meets requirements with Section 404 of the Sarbanes Oxley Act that was passed after the Enron and other corporate scandals. Sarbanes Oxley requires that management assess internal controls, with a control framework and process. Executives must participate, keeping in mind the objective of boosting the effectiveness and efficiency of supply chain operations as well as the necessity for making documentation available for management review.
- Observe the effect that time has on inventory and on an effective process.
- Assess where standardization is feasible and where customizing to specific customer requirements is needed.
- Collaborate with suppliers. It is a requirement, not an option; and it is a two-way exchange.
- Demand supplier performance. It is vital to a lean supply chain operation.
- Measure the present process as total cycle time, costs and inventory (both in dollars and units) and inventory turns.
- Integrate the supply chain. Breaks in the flow, both internal and external, can be pockets of waste.
- Identify non-value added activities, their effect and their cause.
- Rationalize the process.
- Improve the process to drive change.
- Streamline the process for unnecessary complexity as well as unnecessary suppliers and service providers.
- Incorporate technology, such as supply chain execution technology, as part of the process improvement. It is an enabler. Understand where standard ERP and other software may, or may not, enable a lean supply chain.
- Use technology that includes event management and exception management to enhance management and control. Supply chain complexity increases the need for event and exception management technology and capability. Event management focuses on a key event(s) that must happen for process or transaction success. Exception management focuses on exceptions to what is expected instead of having to look at everything.
- Know that technology cannot overcome process flaws.
- Involve your people—employees, suppliers, service providers—to provide input on present supply chain effectiveness and improvements.
- Make the supply chain visible; recognize that blind spots can be areas of waste.
- Recognize the viability of outsourcing as a driver of needed changes. Proper outsourcing can provide people, process and technology that may otherwise not be readily available.
- Probe for uncertainties that create inventory and other waste. Forecasting accuracy is one area of opportunity.
- Investigate reasons why product does not flow in a more consistent and predictable manner. Order and shipment releases from suppliers, for example, can create inbound flows that mitigate time and inventory buffers.
- Position inventories at the proper stores and distribution centers. The right inventory at the wrong facility can result in inter-facility transfers that add time and extra transport costs and can delay customer order deliveries. This is a non-value added action that generates waste.
- Be open to the changes necessary for the creation of a lean supply chain. From technology, such as WMS, to a completely redesigned process, significant change can be expected.
- Include change management in your lean program requirements.
Lean supply chain management is not about “fixing” what someone else is doing wrong. It is about identifying and eliminating waste as measured in time, inventory and cost across the complete supply chain. This requires continuous effort and improvement.
A lean supply chain can reduce time by 10 to 40%, inventories by 10% to 30% and costs by 10% to 25%. Continuous improvements can take payback to the upper range—and beyond. This is a significant benefit to ROI and to the bottom line.
Tom Craig has 25+ years experience in logistics, both international and domestic. His company LTD Shippers Association leverages the buying power of its members for lower ocean freight rates. LTD also provides logistics/supply chain management consulting. He is the author of numerous articles on supply chain management. Questions can be directed to Tom at firstname.lastname@example.org.