A Lean Supply Chain Manifesto

In an age of extended global supply chains, when companies must be demand-driven and agile, what does Lean really mean?


It's really a matter of which metrics matter most to any given player in the supply chain, Latham says. "For example, if you're in charge of materials at the plant, your key metric is that you have inventory available for your production schedule, and a secondary focus would be not having too much or too little inventory. If you're the person in charge of the inbound and outbound yard at the plant, you're worried about managing all the inbound trailers, having high asset utilization and velocity in the shipping yard, and high productivity in the work force. If you're a shipper, you want to make sure that a trailer shows up on time to pick up your materials and gets it to your customer on time so that you don't get penalized, and that your materials get there undamaged."

A common theme does run through these different perspectives, however: the elimination of waste. As in Lean Manufacturing, practitioners of Lean Supply Chain focus on eliminating physical waste (in the form of inventory) and process waste (which could be, for example, unnecessary steps in a value chain or time during which assets or goods are unnecessarily idle). But unlike the internally focused Lean Manufacturing, Lean Supply Chain focuses on driving waste out of the entire value chain for a product. "To have a truly Lean supply chain, you have to go outside your four walls," says Dominick Corigliano, vice president of sales and marketing with Supply Chain Consultants, a Wilmington, Del., provider of software and services for supply chain planning and forecasting. "You have to reach out to your suppliers because there are going to be constraints present at both your suppliers and your customers."

The Relationship Challenge

Corigliano says that a truly Lean supply chain is one that is fully optimized for profitability. His colleague, Sujit Singh, chief operating officer at Supply Chain Consultants, adds that "fully optimized" means that all the parties in the supply chain not only are implementing Lean principles, they also are reaping the rewards. "When a big company directs the terms of its relationships with smaller suppliers to its own benefit, that is not a truly collaborative relationship," Singh says, "but Lean Supply Chain requires a true relationship where there actually is benefit for both sides from operating Lean." Singh is pointing to the principal challenge in implementing Lean Supply Chain: Building the right kinds of relationships with all the right partners to support Lean requires both a great deal of coordination within the supply chain and a highly collaborative attitude toward one's suppliers.

Relationship-building is necessary in Lean Supply Chain because of the data-gathering and -sharing requirements necessary to do Lean. Companies need significant amounts of data to understand the current state of supply chain processes between them and their partners; to build "as is" and "to be" models of the supply chain; to uncover gaps or redundancies that create waste; to track progress toward implementing Lean and to ensure that they are optimizing fully across the supply chain rather than isolated segments; and to monitor re-engineered processes for continuous improvement. Coordinating the collection of all that information alone represents a significant hurdle to doing Lean. "Companies are struggling with how they can coordinate with hundreds of trading partners to aggregate all that data together — it's just an enormous task," agrees Management Dynamics' Miles. She recommends breaking a Lean initiative into incremental projects with separate sets of partners, rolling the initiative out over time rather than taking a "Big Bang" approach, as a way of handling the coordination issue.

A second aspect of the data challenge is simply agreeing on the metrics that partners are going to measure and share. Picking the right metrics is critical to ensure that one company is not optimizing to its own benefit and to the detriment of its suppliers or customers, explains Sridhar Tayur, CEO of Pittsburgh-based SmartOps Corp., a provider of supply chain and inventory optimization solutions. "There are many partners involved, and their metrics are different than yours," Tayur says. "Your metric might be inventory turns, but that could be a secondary metric to a dealer that focuses on on-time service for his customers. If your focus on inventory turns forces him to jack up his inventory, in the end the whole supply chain becomes 'fat.'" To address this issue, Tayur urges companies to work collaboratively with partners at the outset of a Lean initiative to establish a set of metrics that will truly reflect the efficiency of the supply chain as a whole.

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