Creating a profitable business requires striking a delicate balance between managing customers and the supply chain. A lean product supply chain improves efficiency in production, reducing unnecessary waste of money and resources.
Properly managing the supply chain can lead to benefits ranging from increased productivity to happier customers. We’ll walk you through what is a lean supply chain, some key elements, how they work, and their impact.
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How Does Lean Supply Chain Work?
When executed well, lean supply chains promote increased productivity and a reduction in operating costs. Before exploring the critical attributes of a lean supply chain, we must understand the main elements.
Lean Supply Chain Definition
Lean supply chain management applies streamlined approaches aimed at increasing efficiency to supply chain management. Ultimately, lean supply chains focus on improving production and quality control with minimal waste so that fewer defects occur.
From manufacturing all the way to inventory control and delivery of finished goods, lean supply chains tweak upstream and downstream processes, eliminating non value added activities and reducing expenses.
What Is the Cost of Lean Supply Chain Implementation?
Lean supply chain implementation can carry implicit costs. For example, the procurement team of a company may become obsessed with low-cost sourcing and end up buying from suppliers that do not align with company goals. In this case, trying to get the lowest unit cost may come at the expense of other goals like quality, for example if inferior raw materials are purchased.
Implementing lean supply chains may also require tremendous cultural and managerial shifts. Applying a new approach may catch teams in crosshairs, and making the change will require top level buy-in and broad support.
How Does Lean Supply Chain Reduce Costs?
60% of the activities in an average manufacturing facility are waste, in that they provide no value to the customer. A lean supply chain attempts to identify non value-added elements that exist in labor, raw materials, technology, partnerships, and systems.
Lean supply chain helps you identify small changes that can positively affect your company and improve cash flow. Changes like cutting bureaucratic barriers in your communication systems, outsourcing logistics to a reputable firm, and adopting marketing strategies that actually yield a high ROI, are some of the strategic lean supply chain example improvements a company can perform.
Cost reductions come from tactics like enhancing production efficiency, cutting transportation distance, and eliminating redundancy.
How Do You Measure Lean Supply Chain Success?
To measure the success of any strategic business action, you must first define the metrics upon which you will compare performance. For example, many companies adopting lean supply chain are concerned about the profit margin for every sale and product delivery time. While these metrics are essential, they may not effectively measure the success of a lean supply chain.
A holistic approach would consider the company’s values, past performance, long-term profitability and sustenance, improvement in leadership quality, and overall financial improvement when building metrics to determine the success of supply management.
Can a Supply Chain Be Too Lean?
The sign of being overly lean is when disruption in one of the supplier chain links breaks the entire supply chain system. For example, a company might decide to use only one supplier and cut out others, or work via direct-order-inventory, where the manufacturer only makes products based on consumer demand forecasts. Delivery is then tied to the performance of a single supplier.
In this case, if the supplier runs into a problem, the manufacturer will not have raw materials for production. What’s worse? The manufacturer does not have inventory in warehouses, resulting in backlogs of customers that have not received their products.
Example of Lean Supply Chain
Evaluating your supply chain requires looking at all upstream and downstream opportunities for cost savings. For example a manager may be tasked with keeping raw materials costs low, and decide to only replenish parts on a bi-weekly basis. This might save 5-10% in consolidated raw materials ordering costs.
Key Elements of a Lean Supply Chain
A lean supply chain is composed of multiple elements.
Procurement
Lean procurement involves sourcing cheaper alternatives for supply. While cheap procurement may mean increased profit, if it doesn’t come at the same quality your previous supplier offers you, you risk product quality. Lean procurement may also mean reducing the transportation cost between your supplier and your factory.
Manufacturing
Lean manufacturing refers to streamlining manufacturing processes to eliminate waste. It could mean automating the manufacturing process and cutting labor costs or putting by-products to use by selling them instead of disposing them.
Warehousing
Warehousing, as it relates to lean supply chain, involves creating inventory on-demand rather than stockpiling. Controlling inventory management can be a quick way to cut costs, since inventory requires resources to store it.
Transportation
Lean transportation strategies include sourcing cheaper fuel alternatives, creating multiple deliveries on a single trip, or automating orders and cutting paper waste. Tracking vehicles can help to ensure the productive use of company property. Centrally organized data also helps avoid redundancy and repeat transportations.
Informed (Repeat) Customers
Lean enterprises enhance customer satisfaction because their supply process is streamlined to automate orders from repeat customers. Repeat customers allows the creation of robust systems.
Advantages of Lean Supply Chain
Lean supply chain management comes with a host of benefits including:
- Reduced cost of production.
- Increased production efficiency.
- Removal of non value-added activities and manufacturing waste.
- Increased profit margin.
- Responsiveness to new technology that enhances production capacity.
- Removal of labor redundancy and automation of processes within the supply chain.
Lean Supply Chain vs. Agile Supply Chain
While lean supply chains focus on removing waste and improving production efficiency, an agile supply chain focuses on responsiveness to market demands. Whether you should adopt a lean supply or agile supply chain depends on the model of your business and the industry within which you operate.
If you operate in the fashion industry where demands change due to trends, your production processes must be flexible enough to adapt to new trends; hence, your products must be easily customizable.
If you operate within an industry where you can, to an extent, make long-term forecasts on consumer behavior, then you can focus on establishing a more efficient production system, hence, a lean supply chain.
Lean In to Lean Supply Chain Management
Smart supply chain management is critical to your business and can be implemented through lean supply chains. To remain competitive in the marketplace, companies must continually tweak their supply chain, trim fat, and establish cutting-edge production and distribution systems. By delivering less waste, shortening lead times, and improving product quality, you can reduce costs and achieve greater efficiency.
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