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Lean Supply Chain: What is it and Why Does it Matter?

Lean supply chain management has become a hot buzzword in the business world lately. Indeed, lean principles are being taught everywhere from books for start-ups to Fortune-100 companies. It’s no surprise to find that lean principles are now applied to the complex world of supply chain management.

What Does “Lean” Mean?

First, let’s start with the definition of lean principles.  Once you understand the five basic lean principles, you can begin to understand how they can be applied to supply chain management, and thus, your business.

  1. Define Value. Essentially, figure out what is important to your customer, including needs that have previously been unmet or even unmentioned.
  2. Map the Value Stream. Figure out how each activity your business performs contributes – or doesn’t contribute – to delivering value to the customer.
  3. Create Flow. Determine which activities are needed to deliver value and do them as efficiently as possible.
  4. Establish Pull. Basically, eliminate wasteful inventory practices.
  5. Pursue Perfection. Always improve.

What Does Lean Supply Chain Mean?

As you can see from the principles above, the Lean Way is all about streamlining processes, eliminating waste, and reducing non-value added activities. It’s a business philosophy that is extremely relevant in complicated industries.

Supply chain management is nothing if not complicated! You can find waste and inefficiency at nearly any step of the supply chain if you try hard enough.

In procurement, it’s common for different departments to do the same thing. Manufacturing is a hotbed for material waste if done wrong. Warehousing costs can quickly spiral out of control without good inventory practices. And transportation? As anyone who’s ever moved across town with a U-Haul knows, it’s not easy to pack efficiently!

On the flip side, a lean supply chain is a laser-targeted mechanism for delivering value to the customer. Very little is wasted, whether time or material. Expenses go down and often revenues go up. The benefits are myriad!

10 Benefits of Lean Supply Chain Management

The benefits of lean supply chain management can seem a little abstract, so let’s break it down into actual benefits.

  1. Eliminating waste, simply put, is good for the bottom line. Profit is nothing more than revenue minus expenses. Lean processes cut expenses and can often lead to efficiency gains that increase revenue as well.
  2. Lean supply chain management’s raison d’etre is to reduce waste. Waste costs money, looks bad, and puts a subconscious psychological strain on workers. This results in poorer customer service.
  3. Speaking of customer service, you can improve that. Less wasteful practices allow your company to create better products and provide better services, making customers happier.
  4. Complex processes are overwhelming. Vague processes force workers to make too many decisions, which results in poorer decision making. Lean supply chain management is a great way to remove complexity.
  5. One of the five main points of lean supply chain management is to reduce excessive inventory. This is fantastic for businesses since inventory is expensive!
  6. Along the same line, it’s a lot easier to roll with changes in demand with lower inventory levels. This can save a ton of money, leaving valuable company resources available for more promising projects.
  7. With simpler processes, it’s easier to eliminate time-consuming parts of the supply chain. That can reduce excessive lead times in the supply chain, giving your company a much better chance at responding to changes in the market.
  8. With more carefully crafted processes in place, your business will likely have fewer damaged items.
  9. If you eliminate useless or low-value processes, that also reduces labor costs.
  10. Lastly, with the simplicity provided by lean supply chain principles, it’s a lot easier to generally understand what’s going on in your business. You can set more relevant goals!

How Can You Implement Lean Supply Chain Management?

It’s one thing to talk about the benefits of a lean supply chain. Yet it’s another thing entirely to implement one.

When you pursue lean principles, you are likely to encounter a number of issues. Employees may not provide complete visibility into the nature of their jobs. There will probably be a political element if your company is large enough to have different departments with conflicting objectives. A large part of implementing lean principles is change management.

With that in mind, we recommend starting small and making incremental changes. If you’re able to effectively make a large number of changes to your organization all at once, all the better!

1: Look for Waste to Eliminate

The truth here is simple. Waste is bad and any amount that you can eliminate is great! Here are seven wastes commonly found in the supply chain, as said by Cerasis.

  1. System complexity – additional, unnecessary steps and confusing processes
  2. Lead time – excessive wait times
  3. Transport – unnecessary movement of product
  4. Space – holding places for unnecessary inventory
  5. Inventory – inactive raw, work-in-process, or finished goods
  6. Human effort – activity that does not add value
  7. Packaging – containers that transport air or allow damage
2: Increase Visibility

Identifying and eliminating waste on your own is a great place to start. Yet even better is getting others to help you.

People don’t like waste or inefficiency in their work. The possible exception being when someone’s job depends on inefficiency as a form of job security. Otherwise, when people see waste and feel empowered to make a change, they’ll make it.

Increasing visibility into opaque processes is a great way to uncover inefficiency so people can collectively come up with ways to improve. This can be done by cross-training, gathering data, or simply holding meetings where everybody shares what they are working on.

Little changes in visibility of work can make a big difference!

3: Use Technology to Your Advantage

Technology is a great way to reduce inefficiency in processes. Properly implemented, systems can force users to be organized and collect data which increases visibility. These factors and more contribute to more lean processes.

We’ll borrow from Cerasis again here and list out some technologies that can help you make your business’s supply chain leaner.

  • RFID – an excellent way to track inventory in places such as retail stores
  • Supply chain management (SCM) systems with electronic data interface (EDI)
  • Customer order management systems
  • Customer relationship management (CRM) systems such as Salesforce
  • GPS tracking
  • Transportation management systems (TMS)

Technology is abundant and its uses incredibly diverse. Before implementing any complex technology, though, be sure to do careful analysis. You need to understand existing business processes and how they relate to the delivery of customer value. Technology done well makes life much easier. Done poorly, technology is just another hurdle to doing great work.

4: Focus on Total Cost of Fulfillment

Always keep the end goal in mind. Lean management is all about finding easier ways to give customers something they care about. In lean supply chain management, this is the only thing that matters.

With this in mind, look out for political infighting that cause people or departments to act in ways that are contrary to the customer’s best interest. A lot of times, people are simply doing what is in their best interest. Sometimes the business needs to change so that everyone’s best interests are aligned!

5: Outsource Activities When It Makes Sense

Often, it doesn’t make sense for a business to perform every function of the supply chain. That is why businesses rely on manufacturers, freight forwarders, and indeed, fulfillment companies like our own.

To put it more simply, if you’re doing something in-house that isn’t a part of your business’s core activities, stop! Acting as your own customs broker often doesn’t make sense. Neither does fulfilling packages on your own either. Ask for help!

Final Thoughts

Lean supply chain management is a powerful philosophy that’s gained a foothold in the business world. This is for good reason too. The principles are sound and can be applied beautifully to supply chain management, where waste often abounds at great expense.

With simple principles and a keen eye for process improvements, your business can earn a competitive edge. And who doesn’t want that?

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