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Lean in the Supply Chain

Principles of Lean in the Supply Chain

Focus on the supplier network value stream Eliminate waste (multi-level) Synchronise flow (multi-level) Minimize both transaction and production costs (multi-level) Establish collaborative relationships while balancing cooperation and competition Ensure visibility and transparency (inter-organisation) Develop quick response capability (?????) Manage uncertainty and risk (?????) Align core competencies and complementary capabilities Foster innovation and knowledge-sharing

How can this be achieved?

A lean supply chain requires a different type of supplier relationship strategy.

Number & structure Procurement personnel Outsourcing Nature of interactions Relationship focus Selection criteria Contract length Pricing practices Price changes Quality Delivery Inventory buffers Communication Information flow Role in development Production flexibility Technology sharing Dedicated investments Mutual commitment Govemance Future expectations



Many; vertical Large Cost-based Adversarial; zero-sum Transaction-focused Lowest price Short-term Competitive bids Upward Inspection-intensive Large quantities Large Limited; task-related Directive; one-way Limited; build-to-print Low Very limited; nonexistent Minimal-to-some Very limited; nonexistent Market-driven No Guarantee

Fewer; clustered Limited Strategic Cooperative, positive-sum Mutually-beneficial Perfomance Long-term Target costing Downward Designed-in Smaller quantities (JIT) Minimized, eliminated Extensive; multi-level Collaborative; two-way Substantial High Extensive Substantial High Self-governing Considerable

How can this be achieved?

Synchronised production and delivery (JIT) Partnerships and strategic alliances (???) Early supplier integration into design and development Integrated Product Teams

Synchronised Production and Delivery

Integrated supplier lead times and delivery schedules Flows from suppliers pulled by customer demand (using takt time, load leveling, line balancing, single piece flow) Minimized inventory through all tiers of the supply chain On-time supplier delivery to point of use Minimal source or incoming inspection Effective two-way communication links to coordinate production & delivery schedules Striving for zero quality defects essential to success Greater efficiency and profitability throughout the supplier network

Demand/Schedule Variance Causes

Planning/Scheduling System Mechanics: Push Scheduling


All production operations receive same schedule

Supplier Machining Assembly

Customer Customer

Production Scheduling

Reaction to Changes Occurs Only Weekly

Typical Demand/Scheduling Model



Tier #1

Tier #2

Actual Demand

Traditional Scheduling Systems 1. Demand and schedule are usually different 2. Noise increases moving down stream 3. Affected most by changes in order quantity, delivery time and lead time

Lean Supply Chain - Pull Production System

Ship Ship Ship

Raw Material

Machining Assembly
Leveled Production Plan

Pull Schedule

Pull Schedule

Assembly Schedule

OEMs Lead Supply Chain Management Process

Process: Smoothing Production to Reduce Supply Chain Cost


Tier 1 Tier 2

Leveled Sequenced Pull Leveled Sequenced Pull Signal Signal Production Production Action Steps-All Customers

1. 2. 3. 4. 5.

Smooth production build and communicate plan to suppliers Maintain daily production levels as planned (maintains smooth flow) Minimise parameter changes in system (lot size, quantity, & lead time) Convert from push scheduling to pull scheduling Maintain open communications with supplier - Provide Supplier access or view of actual demand

Other requirements for synchronised flow

Total productive maintenance (TPM) Quality control Process certification Mistake proofing Setup reduction (SMED) Standard work Kaizen


Partnerships and Strategic Alliances

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost information Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing, cost-sharing, benefit-sharing arrangements Trust-building practices -- one team mindset; co-location of technical staff; Progressively increasing mutual dependence -- shared fate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvement

Mutual Benefits
Reduced transaction costs (cost of information gathering, negotiation, contracting, billing) Improved resource planning & investment decisions Greater production predictability & efficiency Improved deployment of complementary capabilities Greater knowledge integration and R&D effectiveness Incentives for increased innovation (through cost- sharing, risk-sharing, knowledge-sharing) Increased mutual commitment to improving joint long- term competitive performance

Old Approach

Current Lean

Emerging Lean

Arms length; interfaces totally defined and controlled

Collaborative; but constrained by prior workshare arrangements

Collaborative and seamlessly integrated, enabling innovation