Strategic SCM

LEAN PHILOSOPHY IN SCM

Submitted By: Akanksha Saxena 10020242002 Pratham Parekh 10020242019 Priyanka 10020242021 Supriya Rai 10020242028 MBA AB (2010-2012)

LEAN PHILOSOPHY IN SCM

What is Lean Supply Chain Management?

A Lean Supply Chain is defined as a set of organizations directly linked by upstream and downstream flows of products, services, finances and information that collaboratively work to reduce cost and waste by efficiently and effectively pulling what is needed to meet the needs of the individual customer. This strategic decision to implement the lean production system is a managerial approach. A lean supply chain includes a value stream through the customers and the suppliers have to play a strategic role to achieve a lean production system. For example, when the lean system set between Tesco and its cola supplier; in 1996 the level of service was 98.5% compared with the level of service 99.5% in 2005 after the lean solution. There was also five storage locations between bottler and customer in 1996, and after lean supply chain solution there were two storage locations in 2005. The result of Tesco case was the highest availability, lowest stock levels and the smoothest order signals. The main objective of Lean SCM is to eliminate waste by concurrently reducing or minimizing supplier, customer and internal variability. These principles were identified in the 90s first for the automobiles and then for all industries.

Origin of Lean SCM in Toyota Implementation & Impact

Lean production in an assembly-line methodology was developed originally for Toyota and the manufacturing of automobiles. It is also known as the Toyota Production System or just-in-time production. Engineer Taiichi Ohno is credited with developing the principles of lean production after World War II. His philosophy, which focused on eliminating waste and empowering workers, reduced inventory and improved productivity. Instead of maintaining resources in anticipation of what might be required for future manufacturing, as Henry Ford did with his production line, the management team at Toyota built partnerships with suppliers. In effect, under the direction of Engineer Ohno, Toyota automobiles became made-to-order. By maximizing the use of multi-skilled employees, the company was able to flatten their management structure and focus resources in a flexible manner. Because the company was able make changes quickly, they were often able to respond faster to market demands than their competitors could. Toyota invested significant resources into activities for creating and supporting the supplier network, including developing supplier networks like Bluegrass Automotive Manufacturers Association in the US and providing senior management support to suppliers to help them solve production problems through Toyotas Operations Management Consulting Division. The result is a network of suppliers that provides more value to the supply chain than the suppliers of Toyotas competitors, allowing Toyota to capture more value from its product and develop a competitive advantage. This corporate mindset also applied to Toyotas downstream relationship-building through dealers to purchasers.

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LEAN PHILOSOPHY IN SCM

Lean SCM in TESCO

TESCO is a global grocery and general merchandise retailer headquartered in Cheshunt, United Kingdom. It is the third-largest retailer in the world measured by revenues (after Wal-Mart and Carrefour) and the second-largest measured by profits (after Wal-Mart). Graham Booth, Tescos supply-chain director approached Cardiff Business School in Wales, asking how Tesco could benefit from Toyotas supplier logistics methods to reduce time and effort. Cardiff Business suggested taking a walkexamining a typical provision stream, in this case the one for cola. He urged Graham to invite the other functional directors at Tescoretail, purchasing, distribution, and financealong with the operations and supply-chain directors of Britvic, the company supplying the cola. On a cold day in January 1997 this group set out, walking back through the provision stream for cola from the checkout counter of the grocery store through Tescos regional distribution center (RDC). The walk was an eye-opener. When Tesco and Britvic analyzed the map they drew of the process as they walked, they could see waste at every step, along with huge opportunities for saving costs while increasing the satisfaction of the end customer.

Implementation of Lean SCM

As Booth looked at the situation, the steps he took towards the implementation of Lean SCM were as follows: The first step was to hook the point-of-sale data in the store directly to a shipping decision in Tescos RDC. This made the end customer at the checkout point the pacemaker regulating the provision stream. Tesco then increased the frequency of deliveries to the retail stores. After several years of experimentation, Tescos trucks now leave the RDCs for each store every few hours around the clock, carrying an amount of cola proportional to what was sold in the last few hours. At the RDC, cola is now received directly from the suppliers bottling plant in wheeled dollies. They are rolled directly from the supplier into the delivery truck to the stores. And once at the stores, the dollies are rolled directly to the point of sale, where they take the place of the usual sales racks. This innovation eliminates several touches, in which employees moved cola from large pallets to roll cages. At the cola supplier, larger changes took place. Britvic improved the flexibility of its filling lines so it can now make what the customer has just requested in small batches with very high reliability. Thus there were practically no finished goods awaiting shipment in Britvics filling plant.

The impact of the implementation of the Lean SCM principles

Total touches on the product (each of which involves costly human effort) have been reduced from 150 to 50. The total throughput time, from the filling line at the supplier to the customer leaving the store with the cola, declined from 20 days to five days. The number of inventory stocking points reduced from five to two (the small buffer in the RDC and the roller racks in the store),and the suppliers distribution center for the items disappeared.
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MBA-AB 2010-12

LEAN PHILOSOPHY IN SCM

References:
http://www.dtu.dk/English/Service/Phonebook.aspx?lg=showcommon&id=187342 http://www.scmnews.com/scmnews-66-20060526LeanSCMTheEssentials.html http://www.coriolisresearch.com/pdfs/coriolis_tesco_study_in_excellence.pdf www.brandingasia.com/cases/tesco.htm www.tesco.com teachingtheBigBoxNewTricks.pdf www.toyota.com

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