Management is feeling the pressure to grow market share or to cut costs within the supply chain operations to remain competitive. There are so many opportunities within the supply chain to reduce costs: lower inventory levels, optimize the supply chain network, use alternative transportation modes and find lower cost suppliers. Cost-cutting, however, often reduces customer service levels, increases risk and strains resources. In addition, management could be leaving untapped opportunities on the table, such as improved lead times, increased productivity and higher quality.
Other companies have undergone mergers and acquisitions and need to rationalize the new organization. There is an overlap of distribution centers, production facilities and operations that need to be consolidated, so management steps in quickly to eliminate costs and to satisfy shareholders. Often this is detrimental to the overall performance of the combined firm, as costs, programs, employees and operations are slashed without thinking strategically and for the long term.
With gaps in enterprise alignment following mergers, questionable data after acquisitions, and escalating global supply chain competition and complexity, business leaders are seeking lean enterprise transformation strategies with built-in analytics to reveal total cost and boost confidence in rapid decision-making. Further, business leaders are seeking robust value creation methodologies that reach outside operational sites to the extended supply chain, merging lean principles with quantifiable supply chain data.
Extending the Lean Journey
Many companies historically have started a lean journey with kaizen events, traditional value stream mapping and tactical tools at the facility level to streamline operations, lower cost, improve quality, enhance productivity and provide better customer service. Many of these organizations have silos within various operations, including HR, manufacturing, finance, customer service, distribution, sales and marketing, and engineering. While there are huge gains from the traditional, narrow-focused lean approach, the value gain is typically in a very small piece of the total supply chain.
The extended lean journey begins with a supply chain network assessment to establish a baseline of current operations. The assessment first looks at a company's business processes from end-to-end. Processes within manufacturing plants, warehouse and distribution facilities, and business operations, such as order-to-cash, are reviewed and data is collected across the enterprise.
As a result of the assessment, clients receive a detailed report on areas of opportunity, and where to focus to move the needles in the right direction based on their strategic goals. Businesses gain insights into where they perform against similar companies in their industry and opportunities for future improvement.
A high-level extended value stream map is drawn to visually depict where these opportunities exist in particular processes along the supply chain. The extended value stream map is overlaid with supply chain analytics, and proactive and predictive strategies emerge. With the end-to-end supply chain in sight—from raw material suppliers to end customers – companies can see the entire value stream backed by data to quickly determine the best sequence of events to correct problems and develop a roadmap to transform the enterprise. The extended value stream map illustrates the importance of a tightly aligned network between all supply chain components.
Value stream mapping (VSM) has served as a strategic lean tool for decades that employs a material and information flow diagram documenting in high detail every step of a process, typically focused on a facility. It is a method of creating a "one-page picture" of all the processes that occur in that company, from the time a customer places an order for a product until the customer has received that product in their facility. VSM is the fundamental tool to identify waste, reduce process cycle times and implement process improvement.
To develop and execute an effective enterprise strategy and make better use of supply chain data, companies must first understand and see the current state of their business. Meshing industry-leading tools from two continuous improvement disciplines helps companies realize where their pain points and bottlenecks exist in high-level processes.
From the analytics, companies can prioritize what issues they need to address first. Extended value stream maps with process flows coupled with data become a visual anchor point for executives to engage in strategic conversation to better align the business. Companies learning about extended value streams are also seeking lean logistics expertise for training and implementation of customized supply chain and technology solutions to meet their unique business needs. With the coupling of lean value stream mapping and supply chain analytics, leaders can develop a highly quantifiable future state for long-term enterprise value creation.
Adding Intelligence to Strategic Thinking
Overlaying analytics on the extended value stream map adds intelligence to strategic thinking, helping businesses to perform what-if scenario analysis to ask questions like:
- What if demand goes up 10%?
- From where should we buy raw materials and in what quantities?
- What is the cost trade-off for having products come into one port versus another?
- In which facility should we make this product?
- How many products should be made?
- How many people and production lines are needed in order to meet customer demand?
- Where should we focus our lean efforts to yield the best results?
- Where should we keep inventory?
- From what distribution center should we ship and which transportation mode should we use?
- What happens if we lose a facility or supplier or transportation mode?
- Should we outsource any operations?
- Where are the vulnerabilities within our supply chain?
What-if scenario analysis allows companies to evaluate the complex business and economic trade-offs within their supply chains. Applying analytical results allows supply chain practitioners to gain deeper insight into how their supply chain is performing.
For example, many companies have inventory problems due to port congestion. They question how much inventory they need on hand and where to locate it. Many have inventory at multiple locations. After reviewing the extended value stream map overlaid with supply chain analytics, it could be suggested that a company centralize their inventory, saving resources, floor space and working capital.
Often companies find multiple savings during their lean journey:
— A manufacturer and distributor of outdoor power equipment parts underwent a lean journey beginning with the creation of a value stream map to visualize all of the company's processes and identify opportunities for improvement. Areas of improvement include achieving the reduction of lead times by 60%, streamlining a major production process, and reducing product rework by catching product defects more quickly. The company is also creating a culture of continuous improvement both inside and outside of the four walls of the organization.
— A major snack foods producer was growing at an exciting pace, but many of its acquired entities were operating in silos with independent supply chains and technology platforms that performed similar functions. Numerous labor-intensive processes added significant dollars and hours to the company's cost to serve customers. Several lean kaizen events were performed along with what-if scenarios; including zone and regional shipping modeling, facility closure costs and redistribution analytics, product launch strategies, and co-pack vs. in-house production analysis. Comprehensive continuous improvement assessments, lean training, and lean events result in order-to-cash, scheduling, and physical material flow improvements; lead time reduction of 30%; logistics cost reductions 26% (less-than-truckload) and 9.8% (truckload); and company revenue growth reaching 289%.
— One of the world's largest textile manufacturers encountered increased competition from overseas. The business needed to develop a long-term survival strategy where the company would not only survive, but also thrive. Utilizing a comprehensive lean methodology that not only focused on removing non-value added activities within the company's four walls, but throughout the supply chain—from raw materials through to end customers—the company shaved time and cost from its daily supply chain processes and those of its supply chain partners. Through collaborative efforts to refine processes with vendors and customers, these companies also maximized the value delivered to customers while capturing a dominant portion of their respective markets. Annual savings were in the millions of dollars, and the company doubled its size.
By using supply chain analytics coupled with lean thinking, companies can assess their true current state, then look at future state solutions and prioritize where and when to implement the plan. All of this occurs while keeping the needs and demands of the end customer at the forefront, true to traditional lean principles.
Extended View of Data-backed Lean
Many companies do not wish to embark on a lean journey, but they want to reap the rewards of utilizing supply chain analytics. Others want results from lean in two years or less. These businesses generally focus on one facility or operation, such as gaining visibility into inbound or outbound transportation or better managing order processing with multiple systems that do not integrate. Businesses can still benefit from lean thinking and improved supply chain efficiencies without going on the traditional, more tactical lean journey. This observation is leading many to experience a paradigm shift and gravitate toward a broader view of lean continuous improvement for the extended supply chain and the enterprise.
By marrying lean and supply chain analytics, companies are developing transformational enterprise growth strategies. With reliable data-driven insight, operations leaders are seeing a marked increase in end-to-end supply chain productivity and direct value creation for the business and their customers.
Eric Lail is vice president of client services and continuous improvement at Transportation Insight (www.t-insight.com), a third-party logistics provider specializing in lean supply chain solutions. He is also a Shingo Prize examiner. John Richardson is director of supply chain analytics at Transportation Insight.