The Principles of Lean Supply Chain Management

1
The Principles of Lean Supply Chain Management

• Dr Andrew Fearne
• Centre for Food Chain Research, Imperial College
  London

2
Presentation outline

• Competitive drivers
• Core Concepts
• Key Challenges
• Conclusions

3
Competitive Drivers
COMPETITIVE ADVANTAGE
(Christopher, 1994)
Consumer/Customer
Value - Seeking benefits at acceptable prices
Service Excellence
Continuous Innovation Excellence
Assets
Assets
Utilisation
Utilisation
Cost
Company
Competitors
Differentials
Operational Excellence
4
Competitive Drivers

• Commoditisation
• Relentless pursuit of standardisation and market
  power
• Exclusive Focus on cost/price/market share
• Commodities are generally perceived as cheap
  products that have had very little effort put
  into them Anna Jenkins, Director of UK Forestry
  Stewardship Council
• Differentiation increasingly difficult
• Product Life Cycles shrinking
• Information and technology transfer reducing
  entry barriers
• Innovation increasingly important
• Reduce costs and add value
• Sole source of sustainable competitive advantage
• Break out of the commodity trap
• What do my customers\consumers value?
• What are they willing to pay for?
• Opportunity for above average margin?

5
Competitive Drivers

• The Profit Pie

Long term
Partnership
Value portion
Planning Horizon
Trading Relationship
Commodity portion
Adversarial
Short term
6
Core Concepts

• Fact No.1 - Cost reduction is the major catalyst
  for supply chain management
• Fact No.2 First move is the (ab)use of power to
  squeeze costs upstream
• Fact No.3 Sooner or later firms discover lean
  manufacturing
• Reduction of total cycle time through the
  elimination of waste
• Focus on products and value streams rather than
  asset management
• Systematic review of value and elimination waste
  within the manufacturing process
• Fact No.4 Leaning the (internal) manufacturing
  process involves major change so leaning the
  supply chain always left to last
• Fact No.5 Leanest manufacturer process is only
  as good as its supply chain
• Fact No.6 Cannot assume supply chain will fall
  in line
• Requires strategic orientation towards the supply
  chain

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Lean Supply Chain Management Integrating and
Managing Processes Across the Supply Chain
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER SERVICE MANAGEMENT
DEMAND MANAGEMENT
ORDER FULFILLMENT
Supply Chain Business Processes
MANUFACTURING FLOW MANAGEMENT
SUPPLIER RELATIONSHIP MANAGEMENT
PRODUCT DEVELOPMENT AND COMMERCIALISATION
RETURNS
Source Adapted from Douglas M Lambert, Martha C
Cooper and Janus D Pagh, Supply Chain
Management Implementation Issues and Research
Opportunities, The International Journal of
Logistics Management, Vol 9, No 2 (1998) p2
8
Core Concepts

• Customer Relationship Management
• Work with key customers to improve processes,
  eliminate demand variability and non-value-added
  activities
• Customer Service Management
• Administration of PSAs
• Demand Management
• Key element in leaning the supply chain as
  customer demand is biggest source of uncertainty,
  variability and supply chain inventory
• Order Fulfillment
• Integration of manufacturing, logistics and
  manufacturing plans
• Manufacturing Flow Management
• Product pulled through the manufacturing process,
  driven by delivery dates (JIT and flexibility to
  respond quickly to demand is critical)
• Supplier Relationship Management
• Mirror image of CRM, with key suppliers
  supporting key accounts
• Product Development and Commercialisation
• Time to market is imperative (joint planning,
  design and launch)
• Returns Management
• Increasingly important route to sustainable
  competitive advantage (CSR and productivity
  improvement opportunities)

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How Customer Relationship Management Affects
Economic Value Added (EVA)
Customer Relationship Managements Impact Retain
and strengthen relationships with profitable
customers Increase sales volume Sell higher
margin products Improve share of
customer Improve mix (align services and cost
to serve) Improve plant productivity Targeted
marketing Reduce services provided to less
profitable customers Improve trade
spending Eliminate or reduce services provided
to low-profit customers Optimise physical
network/facilities Leverage new and/or
alternative distribution channels Reduce general
overhead/management/administrative costs Reduce
order processing costs Reduce human resources
costs/improve effectiveness Improve demand
planning Reduce safety stock Make to order,
mass customisation of inventories Reduce
accounts receivable through faster
payment Improve asset utilisation and
rationalisation Improve product development and
asset investment Improve investment planning and
deployment
Sales
Gross Margin
- Cost of Goods Sold
Net Profit
Net Profit Margin
- Total Expenses
Net Sales
Economic Value Added
Net Profit Net Sales

Inventory
-
Current Assets
Other Current Assets
Cost of Capital
Total Assets
Fixed Assets

x
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Key Challenges

• Strategic (Lambert Pholen, 2001)
• Lack of measures that capture performance across
  the supply chain
• Complexity of supply chain performance/management
• Goal of encouraging co-operative behaviour across
  corporate functions and across firms in the
  supply chain

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Types of Inter-company Business Process Links
Tier 1 Suppliers
Tier 1 Customers
Tier 2 Customers
Tier 3 to Consumers/ End-Customers
Tier 3 to Initial Suppliers
Tier 2 Suppliers
1
1
2
2
n
n
1
1
1
n
1
2
2
Consumer/End-Customers
1
n
2
3
n
Tier 3 to n customers
1
1
3
2
n
n
3
n
1
1
n
n
Focal Company Members of the Focal Companys
Supply Chain Non-Members of the Focal Companys
Supply Chain
Managed Process Links Monitor Process
Links Not-Managed Process Links Non-Member
Process Links
Source Adapted from Douglas M Lambert, Martha C
Cooper and Janus D Pagh, Supply Chain
Management Implementation Issues and Research
Opportunities, The International Journal of
Logistics Management, Vol 9, No 2 (1998) p7
12
Key Challenges

• Strategic (Lambert Pholen, 2001)
• Lack of measures that capture performance across
  the supply chain
• Complexity of supply chain performance/management
• Goal of encouraging co-operative behaviour across
  corporate functions and across firms in the
  supply chain
• Need to
• go beyond internal metrics and take a supply
  chain perspective
• determine interrelationship between corporate and
  supply chain performance
• align activities and share joint performance
  measurement information to implement supply chain
  strategy
• extend the line of sight within the supply
  chain
• allocate benefits and costs resulting from
  functional shifts within the supply chain
• differentiate the supply chain to achieve
  competitive advantage
• Operational
• (Information) Technology is moving faster than
  our ability to exploit it
• Investment in people is as important as
  investment in technology

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Conclusions

• Economics
• Efficient allocation of scarce resources
• Marketing
• Effective allocation of resources
• Operations Management
• Execution of strategic objectives
• Supply chain management
• Effective process integration to secure benefits
  beyond the firm
• Reduce costs
• Reduce time
• Add value
• Improve knowledge throughout the supply chain
• Lean supply chain management
• Optimisation of process integration
• Add more value at lower cost and faster and than
  the competition
• Beware the commodity trap!