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Third-Party Logistics: Lean Needs to Extend Beyond the Four Walls For Success

Many companies unintentionally have created departmental silos within their organizations. Information and products go back and forth between the different functional areas, but the customer is often missing from the process. When lean supply chain strategies, which focus on eliminating waste, are implemented, once again the customer is often times left out. Instead of focusing on the client, the company focuses internally to improve processes. Research shows that undertaking a lean supply chain journey that extends outside the four walls of the organization significantly improves the customer experience, company productivity and the bottom line. – Eric Lail, VP, Continuous Improvement and Client Services, Transportation Insight

Third-Party Logistics: Lean Needs to Extend Beyond the Four Walls For Success

Creating a lean supply chain is a journey that companies undertake to eliminate waste within their organization. Traditional approaches to lean focus on how to make a person, machine or operation work more efficiently by concentrating on the steps associated with the process that appear as “non-value added” from a customer’s perspective. Traditional approaches rarely extend across the enterprise or outside of the four walls of the organization. By taking an Extended Lean approach, organizations embark on a continuous improvement journey that will improve enterprise systems and processes, along with the business’s culture. The Extended Lean approach delivers results such as:

Capital Savings: 50 percent reduction in square footage requirements, eliminating the need for leasing warehouse space; improving inventory turns by 500 percent or more.

• Cost Savings: Increased productivity by 40 to 75 percent.

• Delivery Improvements: Decreased production lead times by 90 percent; reduced product development cycle times by 50 percent; implemented pull systems reducing part inventories from 42 percent to 90 percent.

• Safety: Shop-floor accidents decreased by average of 65 percent; worker’s compensation costs reduced by up to 50 percent after 5 years.

• Quality Improvements: Cost of quality complaints reduced by 32 percent; returns and allowances reduced by up to 50 percent.

It is estimated that fully 75 percent of the actual waste in the supply chain lies outside the boundaries of operations controlled by any single “enterprise.” Companies would receive more benefits by implementing lean strategies across the entire supply chain. This approach would incorporate not only a business’s own facilities, but those of their trading partners and customers.

With Extended Lean, the focus is on value-added activity throughout the entire supply chain. Instead of focusing on one plant or manufacturing line, the approach is to connect the entire value stream. This connection aligns all the sites within the supply chain from raw materials to manufacturing to distribution to delivery to the end customer.  Ultimately, linking supply chain value streams across trading partners, customers, and a business creates industry-wide value networks, which is where true competitive advantage is realized. Process improvement and value streams stretch from each vendor and supplier to every customer.

By value stream mapping the flow of information and materials, businesses see and eliminate the waste in upstream and downstream processes—from the originating supplier to the end customer. By visualizing the current state of the entire supply chain, businesses are able to create a robust future state. The Extended Lean road map reduces costs, saves time and creates long-term enterprise value.

Efficiency gains can be realized through mapping the value streams of concept to market, raw materials to finished goods and order to cash. Logistics-related process improvements in the order-to-cash value stream are applied to achieve rapid results through enhanced carrier sourcing, freight invoice audit and payment services, transportation management systems technology and business intelligence, including interactive web-based analytics.

Successful lean programs foster an ongoing effort of continuous improvement that lead to delivering long-term value to customers through improved quality and productivity and increased business performance.

                                                     The Outlook

An increasing number of businesses are beginning to understand that while they may have implemented lean within their four walls, they are not reaping the benefits they expected. By reaching across the enterprise and incorporating suppliers and customers within an Extended Lean approach, businesses will see significant value. The Extended Lean methodology takes supply chain continuous improvement from tactical to transformational and takes companies from surviving to thriving.

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