Lean In to Supply Chain Improvement

arrow 394145 640There is so little margin for error in the market place that companies are increasingly turning to improvement methods like Lean to help them lower costs and reduce lead times throughout their supply chain. In the eagerness to achieve these gains, however, they often rush into the effort without laying the right foundation, and the initiative crumbles within a year or two.

With proper attention, however, you can build a foundation for Lean efforts that will consistently deliver the results you need. There are three elements to this foundation: leadership, alignment, and metrics. But just because we can name them separately doesn’t mean you can treat them separately. Think of them more like the interwoven strands of a braid than three legs on a stool.

What does that mean? In shorthand, that the leaders up-and-down all levels of the supply chain must be aligned around goals and priorities, and that they must all be measuring progress with metrics that are aligned to drive those shared goals.

To illustrate this concept, imagine a company that is plagued with complaints about poor on-time delivery. Someone at the leadership level—operations, manufacturing, inventory management and replenishment—would be monitoring overall lead time. However, particularly in larger organizations, there may be silos and misalignment of metrics in supporting areas. It is essential to monitor the key metrics at the lower levels, across the chain, in addition to the high level metrics, and to have the people at all levels on board. In the example of poor on-time delivery, there is often significant time pressure at the end of the supply chain, for example in assembly or pick, pack, and ship, because these operations at the end are the closest to the customer. However, the root cause of the delay may be much earlier, possibly in manufacturing or vendor quality.

In successful Lean deployments, owners of the processes within the overall system monitor the lead times for their own parts of the process—but when the whole system is aligned, they should also be monitoring metrics related to factors that could affect lead time in other parts of the system as well.

It is essential to have alignment around metrics across the entire process, in order to have the information needed to truly identify root cause. It is also essential that the project be large enough in scope that it includes the root cause area. If that alignment around both goals and metrics doesn’t happen, then the Lean efforts will never produce the desired results.

Linked Metrics

If you have or are thinking about implementing Lean in your Supply Chain, you probably know that you need to have leaders at all levels, across all links in the chain, engaged in the effort. But don’t stop there. Take that extra step to make sure that there is a system of metrics that collectively helps drive progress towards the overall goal. The specific metrics will vary depending on the primary purpose of the initiative, such as reducing inventory, lowering costs, or improving on-time delivery, but at the VP level, they typically include:

1. Customer satisfaction

2. Received goods (on-time-delivery)

3. Cost of poor quality

4. Inventory days on hand

5. Production lead times by product line

6. Delivered goods (on-time-delivery)

Additionally, the executive leadership must authorize, delegate and empower the process owners to use these performance metrics for their day to day processes. Without the alignment both at the high level and in the sub-processes, it will be difficult for process owners to have the appropriate focus on improvement opportunities that will strengthen the entire chain. Having interlinked metrics allows supply chain leadership to monitor short- and long-term stability of the chain segments. It also allows them to make decisions about resource allocation and improvement projects based on actual gains or losses in measured performance. They’ll be able to understand what kind of improvements will lead to biggest payoff, such as:

• Improvement projects at specific suppliers

• WIP management projects focused within specific internal or external production lines to stabilize and/or reduce production lead times

• Pull system establishment to right-size raw material levels for improved received goods on-time-deliveries

• Finished goods trigger pull systems to streamline production response to demand changes Remember, too, that it’s not just the ability to select the target areas and frame the right projects within a process that’s important. Having interlinked metrics means the process owners are paying attention to what is happening between processes as well. They are no longer making their choices in isolation.

Leaders Aligned with Metrics

Many organizations begin their Lean efforts with engaged leaders. They probably have agreement on overall priorities. And they likely know what they want to measure to track overall performance. But often times those three elements are not interwoven in a way that ensures they can stay aligned over time. When leaders spend time discussing not only the overall improvement goals, but goals and metrics for each link in the chain, they will understand the ripple effects of each improvement on each metric up and down the supply chain. And that’s the best way to Lean In to supply chain improvement.

Kimberly Watson-Hemphill is the CEO and Rene Ffrench is a Principal at Firefly Consulting in Austin, TX. Check out their new book, Innovating Lean Six Sigma (McGraw-Hill, 2016). www.innovatingleansixsigma.com

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