As companies get better at reducing inventory and adopting just-in-time delivery practices, global supply chains are beginning to look more and more like liabilities. That was the conclusion of an article published nearly three years ago (Bloomberg Businessweek, February 2012).
To the manufacturing professional, such handwringing is nothing new. For years now, supply chain experts have been debating the challenges that are inherent in managing increasingly complicated supply chains — and mitigating the risks that come with them.
What’s the solution? Achieving supply chain success on a global scale is possible once you learn the value in taking an inside-out approach to getting things done.
To get there from here begins with learning how to think differently about operation management and then making a fundamental shift in how your organization views the role of the human component within that process.
A Fundamental Shift
The years that I spent learning and implementing the Toyota Production System/lean changed how I look at all aspects of operation management — not the least of which includes what makes up the true cost of goods.
Common practice is to focus on the cost of goods and figure into it the price of labor, materials, property, equipment (and a myriad of other components involved in the design, manufacturing and distribution of products) when, in fact, all of it is labor.
Machines don’t get paid. Materials don’t get paid. Property doesn’t get paid. But people do. That means if you’re going to create true efficiencies and manage and maintain a successful supply chain, it’s important that you work to eliminate the waste that makes up the true cost of goods and do so without raising risk throughout the entire chain.
This is done not by lowering wages or cutting back on benefits and shipping large batches of uniform goods, (an all-too-typical approach that is anything but optimal), but by looking for opportunities on the shop floor to develop and engage your workforce, from the management level on down.
A 3-Step Process
Once you’ve changed how you look at the role human capital plays in the cost of goods sold, it’s time to begin implementing strategies for maximizing that most valuable asset. The following three-step process will set you on your way:
Step 1: Plan, execute and manage toward a waste-free, lean supply chain operation that begins on the shop floor. As with any endeavor, the goal here is to improve efficiencies by eliminating waste and making it easier for employees to do so as the most essential component of their jobs. While some might consider other kinds of waste, what I’m referring to here has to do with waste related to:
- overproduction (production of goods not based on customer demand);
- waiting (time spent waiting in front of machines);
- conveyance (that is, needless transportation);
- processing (painting, sanding, cleaning, etc. in excess);
- inventory (material stagnating);
- motion (for example, reaching too far for something that’s needed); and
- rework (that is, doing something more than once).
Look for opportunities to eliminate these kinds of waste to raise the percentage of value-added work on the shop floor — the most valuable kind of work that happens when a product is transformed and innovation takes root. Do so, and you will begin to see how, more than just chasing forced lower labor cost, an efficient supply chain is about eliminating waste. If done as a matter of habit, it will help your operation begin to improve processes across the entire supply chain.
Step 2: Wherever possible, opt for continuous, mixed-load of conveyance over large-batches of shipping. With continuous mixed-load of conveyance, you stand a better chance of avoiding queues, stagnation and the long lead time of supply, which requires lots of inventory. To be certain, achieving mixed-load conveyance is no small undertaking. After all, delocalization, distance, language, and cultural differences, along with the traditional competitive nature of supplier-customer relationships, create a segmented environment that favors individual — as opposed to total —efficiency of the supply chain. All too often, this results in large-batch processing and shipping, with longer-than-necessary supply chain lead time—and ultimately, high risk and higher cost. But when it comes to managing complex, global supply chains, mixed-load, frequent conveyance is ideal because it increases the frequency of delivery without lowering conveyance efficiency. It also achieves the shorter lead time necessary to lower inventories and increase flexibility without raising cost, while working hand in hand with eliminating waste on the shop floor.
Step 3: Redefine the role of the manager and the employee. When a manager sees his role as one who teaches others (rather than someone whose job it is to wield control over people, processes and profits), he places himself in the position where he can see exactly what’s working — and what isn’t — and course-correct, as necessary. Even more, in the role of a teacher, a manager can spot and develop the talents of his or her employees who will, in turn, become problem-solving allies who work with management to further reduce risk throughout the supply chain.
More Influence, Better Control
While changing the way you think about operation management and taking an inside out approach to effecting supply chain success may require a bit of trial and error at first, the payoff can be enormous. It begins “at home” (where you have more influence and better control). Start simplifying processes, enabling flow and turning managers into teachers — and employees into allied problem solvers and innovators. That success can then be spread throughout the entire supply chain.
Olivier Larue is the president and founder of Ydatum, Inc., an operations management firm. He has 20 years of experience in the hands-on implementation of Lean/TPS (Toyota Production System). He joined the Toyota Supplier Support Center (TSSC, Inc.) following a successful consulting career in California’s Silicon Valley. He is a guest lecturer at the University of California at Berkeley School of Engineering and has been a presenter for SME. His expertise also includes Six-Sigma and Hoshin