Lean Supply Chains

AcceleratingSupply ChainVelocity A guide to understanding and

pursuing an agile, nimble supply chain

By David Ross

The shoclcwaves sent reverberating through the U.S. economyby Hurricane Katrina dramatically highlighted how dependentthe nation was on the timely and efficient delivery of goods

and services. For a vital few weeks, all sectors of the economy heldtheir breath to see how devastating the impact would be. Supplychain professionals everywhere in the country were quick tomeet the challenge by exploring new ways to bypass the potentialbottlenecks the devastation had seemed to portend for water, railand truck traffic in the very center of the nation. However, thedisaster dramatically illustrated the need to architect supply chainsagile enough to meet the next maior disrtiption, whether it be a

terrorist attack, a catastrophe at a key port or another natural event.Simply, how could supply chains ensure that they could mainiainthe necessary velocity of goods and services not only to meet thepotential of threats posed by disrupting events, but al.so to effectivelymanage the supply network in an era of Lean and .super efficiency?

Understanding Supply Chain VelocityFrom the very beginnings of modern production and distributionmanagement, companies faced the fundamental problem of how tooptimize the dispersion of goods and services to the marketplace.When producers and customers are in close proximity lo each othtT.

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24 Supply & Oemand Chain Executive June/July 2007

Lean Supply Chains

demand signals can bc quickly received bysuppliers, and products and services in tumpromptly delivered to the customer. As thetime and distance separating production andihc point of consumption increase, however,companies must in turn increase the sizeof the supply network and the inventorieswithin it \i customer serviceability is to bemaintained and enhanced. It can be saidthat as the supply channel expands, theimportance of managing the velocity otthe goods and services that flow through itcorrespondingly grows in importance.

The analogy mcst often used to describesupply chain velocity is that of a pipelinethrough which product flows. As a pipelinegrows longer to serve an ever-wideningmarket, the volume of goods flowing throughit correspondingly expands. Several seriousproblems can arise in managing pipelineHows as they grow longer and longer. Tobegin with, as inventory expands, so doesthe costs ot ordering, storing and movingit. As if ballooning pipeline investment andpotential obsolescence were not enough.

the longer the pipeline, the more it becomessubject to disruption stemming from thepossibility of an expanding number of weakpoints as the fabric of the supply chaincontinuum is stretched too thin. Finally,as changes in demand or product/servicevariet)' accelerate, the longer the pipeline,the longer will be the time necessary torespond to those changes. If supply chainsare to become more adaptable to managesuch events, it stands to reason that one ofthe fundamental requirements is that theybe able to increase the velocity of the end-to-end tlow of their products and services.

Unfortunately in today's hyper-competitive environment, verv fewcompanies have a true working knowledgeof the velocity of their supply pipelines.While a small tninority of companies, .suchas Hell, Home Depot and Wal-Mart, basecompetitive advantage on knowing andmanaging the velocity of goods in theirpipelines, most are inwardly focused andhave extremely limited visibility to whatis occurring in their supply chains. In

addition, this lack ot visibility to channelvelocity has been rendered even moreditFicult a challenge as companies increasetheir dependence on outsourcing, producttifecycles continue to shrink, and declitiingcustomer loyalties and increasing serviceleveLs demand even greater supply chainflexibiliry.

As a result of today's fast-paced globalbusiness environtnent, the gap between thevelocity ot supply lead time and customers'order cycles is widening. Most companiesaddress this gap by attempting to increaseforecast accuracy and carrying additionalinventory in the channel pipeline.Unfortunately, despite the u.se of the mostsophisticated of techniques, forecasts willoften be wrong. Even worse, as each node inthe supply network builds buffer inventoriesto manage variability, inventories at eachchannel node become subject to theinfamous "bullwhip" atTect. As lead timescascade down the supply chain, the abilityof supply chains to .serve an increasinglydemanding customer becomes alarmingly

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June/July 2007 www.SDCExec.com 25

Lean Supply Chains

problcmarical. Surely, the solution forincreasing velocities lies in another directionoiher than focusing on forecasting andexpanding channel inventories.

Closing the GapMitigating [he risk of.supply chain disruptionwhile simultaneously increasing productvelocities requires the creation of supplychains that are agile and nimble enough tothrive in today's global marketplace. Such anobjective requires that supply chains possessthe following .utributcs:

1. Knowledge of customer demand- The first rule in managing supplychain velocity is to fully understandcustomers, their needs and the intensityof the experience they expect fromtheir suppliers. A (ull understanding ofcustomers' business requires more thanjust establishing forecasts; it requiresan intimate knowledge of the solutionsand delivery values each customerwants.

2. Increased supplier flexibility - Acri t ic jl driver to impraviiig supply chainvelocity is improvement of supplier

relations. Suppliers that are "seamlessly'integrated into the channel system cancontinuously work on reducing leadtimes, possess knowledge of — and arecapable of quickly responding to —product changes, and are comtnittedto cransparencT and openness.Increased internal flexibility- Driving increased velocity requiresoperations functions that are lean andagile. The application of what hascome to be known as the toolbox ofLean techniques permits managers toattack Wiistes anywhere in the companyor in the supply chain. The goal is theremoval of non-value-added functionsthat simply elongate lead times andincrease supply chain volatility.Tecbnology-enabled - Gainingvisibility through technology toolsinto orders, inventory and shipmentsacross the extended supply chainis critical to effectively managesupply chain velocity. The goal isto deploy technology to improveeverything from on-timc delivery andselt-service order configuration to

JLIUCI) .s\nchroni/.ation and statusvisibility. Technology tools can beseparated into those that improveoperational efficiency and channelvisibility (enterprise resource planning,electronic data interchange. Web;tnd radio frequency identification);those that provide connectivity,information sharing, event tracking,exception management and dynamicoptimization to reduce lead times andwastes, and increase supply chain agility(collaborative planning, forecastingandreplenishment; advanced planning andscheduling; and sales and operationsplanning); and those that focus oncustomer experience enhancement,customerordetandservice managementsolutions, shipment tracking, channeldisruption management, supplychain improvements, ;ind regulatoryfunctions.

How do these four attributes increasesupply chain velocity? To begin with,lean, collaborative and adaptive supplychains are capable of increasing supplychain productivity and profitability by

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Lean Supply Chains

ruthlessly reducing wastes found anywherein the channel network. Lean supply chainsseek to create customer-winning valueat the lowest cost through the real-timesynchronization of product/service needswith the optimum supplier. Achieving suchobjectives requites supply chains to he bothresponsive (capable of meeting changes incustomer needs for requirements such asalternative dehvery quantities and transportmodes) as wdl as flexible (adapting assets,pursuing outsourcing, and deployingdynamic pricing and promotions). Finally,lean supply chains are dedicated to thecontinuous improvement of people andprocesses throughout the extended supplychain.

Competencies of the High-velocity Supply ChainWhile the above four attributes providethe foundations for lean, high-velocitysupply chains, deeper investigation revealsthat they can be better understood whendeconstructed into six competencies.

1. Application of Process Kaizen Tools- "Lean" is about the reduction of

waste found anywhere in the supplychain. Wastes can occur not only ininventory and processes, but also intime and motion, and even in digitalwaste. Understanding "waste" enablesthe pursuit of that which adds value.Supply chains ean add value byremoving redundancies, reducing leadtimes, optimizing the value stream,producing to customer demand andactivating continuous improvement.The toolbox of Lean methods includesthe"5S" system of improvement, singleminute exchangeof dies (SMED)/quickchangeover, process flow analysis, totalproductive maintenance (TPM). andSix Sigma and statistical methods.

2. Process Standardization - Lean, high-velocity supply chains seek to identifyopportunities for the applicationof process kaizens to ensure thecontinuous elimination of waste andthe removal of all barriers to the smoothflow ofgoods and information. Processstandardization should be applied toevery repeatable process, includingproductive processes, product/service

delivery and inventory management.Standardization enables companies toeffectively apply kaizen methods toany process and track, measure anddemonstrate the effects of the kaizeninitiative. Standardization also enablesidentification of all inhibitors of flow,such as batch and queue processing,unnecessary transportation, andproduct storage,

3. Channel Partnership - The effectiveuse of channel suppliers stands atthe core of the lean, high-velocitysupply chain. The role of suppliersis to fill company productivity gapsby providing non-core strategicand operational competencies thatreduce manufacturing, distributionand service costs, improve flexibility,keep companies focused on corecompetencies, provide access to globalnetworks and superior technology,improve quality and service, reducecapital investment and increase cashflow.

4, Demand Management - Iwenty-first century supply chains have found

By Editorial Staff

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28 Supply a Demand Chain Executive June/July 2007

Lean Supply Chains

that "push' systems arc incapable ofoperating in an era of higfi-velocityresponse. Lean supply chains arcresponding to this challenge bydesigning "demand pull" systems thattrigger supply commencing at the pointof sale, and then pulling the requirementfrom upstream delivery nodes point-hy-point all the way back to the producer.The goal is to provide advancedwarning oi demand and the channelscollective ability to respond effectively.Effective demand managemenlincreases velocity by reducing channeluncertainty, variability in fulfillmentprocesses and supply lead time, and bylinking channel partners together intonetworks capable of responding to theemerging marketplace demands.

5. Lean Implementation - ExtendingLean to the entire supply chain requiresa concise implementation plan, Acarefully designed plan begins withvalue stream mapping and proceedsthrough core competency definitionand plan composition. Detailedplanning will ensure effective executionof supplier management, channelvalue stream mapping and the use ofprocess kaizen improvement events.Finally, even after successes are scored,implementets should enable what willbe a perpetual step - continuous Leanvalue chain improvement.

6. Strong Communication - The leansupply chain requires all channelconstituents to work together as a"virtual enterprise" to ensure the highestvalue to the customer. Perhaps the mostimportant driver of the lean supplychain is the ability of the channel'skaizen leaders to integrate into a singlevision the different network partners'perceptions of what constitutes thevalue stream. Unification of purposeand Lean mechanics rests on twoelements: the creation of an effectiveLean supply chain management teamand agreement on toolsets.

Todays best supply chains relentlesslypursue the above six Lean competencies.Effective execution enables companies torealize three essential success factors. Tobegin with, application of kaizen tools andprocess/industry standardization enablelean companies to effectively pursue wastereduction at all supply chain levels. Closely

integrated supply chain partncrship.s andthe development of technology toolsproviding real-time information keep allsupply network nodes focused squarelyon how to continuously build and sustaina high-velocity stream of value to thecustomer. And finally, well-designed leansupply chain implementation projectsand the capability to broaden and enrichcross-channel communications concerningquality, change management, collaborationopportunities and joint metrics will enablesupply chains to maintain a focus oncontinuous improvement as they drive

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About the Author: Dai'iri F. Ross,PhD. C7-7VA/, is senior learuiiig consultant atLawson Learning, part ofLawson Sofitvare. Arecognized ERP and supply chain matiagementindustry expert, David F. Ross has spent thepast 20 years in the enterprise business system(ERP) industry. He ii active in the ChicagoAPICS Chapter certification educationprogram and has taught the CPIM cuniculumfor many years Ross is the author oj three hookson logistics and supply chain management.

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