Executive Briefings

'Leaning' the Supply Chain: Like a Diet, It Never Ends

The notion of lean supply chains remains relevant even though the concept has been around for years. Like individuals in their battles of the bulge, enterprises face a never-ending fight against bloated processes and excessive inventory.

Putting an enterprise on a lean regimen has parallels with putting yourself on a diet. Every diet book and guru says pretty much the same thing: Watch what you eat, examine your behavior, be positive in attitude - and stay the course. Achieving a lean supply chain is very much the same. "Lean" may be a broad term, but everyone seems to agree that if it has any meaning at all, it is the elimination of fat and waste in a company. That requires a thorough examination of internal processes, behavior modification from management on down, and a can-do attitude.

Like personal diets, lean carries with it a number of benchmarks and metrics to gauge progress. As with calorie- and carbohydrate-counting programs for the individual, lean supply-chain initiatives can even have their own snappy phrases and memory jogging devices. The components of the House of Lean, for instance, include continuous improvement, flexibility, agility, just-in-time methodology and managed capacity.

As anyone who has tried and failed to lose weight on a diet (or diets) knows, it might be easier to drop pounds if you have someone to diet with; such collaboration provides positive feedback and support. Ideally, enterprises and their trading partners would act together to lean out redundancies, poor communications and myriad other things that lead to waste. Indeed, enterprises can hire outside consultants, and their technology providers may offer training programs. But ultimately, any company that seriously wants the efficiencies that lean supply chains bring must evince on its own the discipline needed to change. No one can lose weight for you; no outsider can force a company to be lean.

The notion of a lean operation seems, like diets, to have been around for forever. But it has hardly lost its relevance. People can bloat up and so can any company. Excessive lead times and work-in-process inventory, for example, have serious consequences for any enterprise's financial health.

Finally, any successful dieter knows that you can never reach your goal. Dropped pounds are soon reacquired if a rigorous weight-loss discipline isn't maintained. Similarly, lean is often called a continuous improvement program for companies, no matter what their vertical or focus is. Self-improvement, both on the personal or enterprise levels, never ends. Manish Modi, Oracle Corporation's senior director of applications development - discrete manufacturing, refers to implementing a strategy for a lean supply chain as a journey without destination.

"If you go back to the roots of lean, it was basically the elimination of waste," he says. "But the important thing to remember is that it is a continuous improvement process. Which means it is not a destination, it's the journey, and you never get there because there are all these opportunities for improvement."

To be sure, Oracle, Redwood Shores, Calif., has something for the trip, at least for manufacturers. It's called Flow Manufacturing, and it is designed to enable release "of a product of the highest possible quality at the lowest possible cost in the shortest possible time," says Richard Rodgers, Oracle's director of product management - manufacturing applications. The product can graphically represent the process flow for a product or product family, record all work activities and specify whether they are value-added or not, then create balanced line operations based on demand. That seems a tall order, but Rodgers says that customers typically see a reduction in cycle time of 80 to 90 percent.

Overprocessing is reduced or eliminated, he says, because sales orders are directly scheduled and sequenced as they come in. "We simply take sales orders and create flow schedules from them. To support component material, we implement kanban planning and execution so that you have a minimal amount of component inventory on hand to support build and know with confidence that you can replenish with new components when needed."

Modi says that the fundamental principles of lean can be applied virtually throughout an enterprise's business, from design to manufacturing and from warehousing to distribution. Wherever, good visibility is required to monitor progress in such areas as reduction in cycle counts, work in process, finished goods and component inventory holding, and improvement in on-time shipments.

Clearly, the more frequent the status reports are in these areas, the better.

Most companies seem to understand that today. Rodgers says he has seen reports that perhaps as many as 75 percent of companies have some sort of lean initiatives under way. How far along they may be and just what they understand lean to be is difficult to know. It isn't at all uncommon, he says, to visit potential customers who claim to have a head start on lean but whose facilities are bulging with inventory.

The solution has multiple phases, Rodgers says, with waste elimination being first. Once the basics have been implemented, operational kaizens have to be implemented and metrics have to be established. Moreover, change is not solely for the shop floor. "Start looking at the business policies and procedures in the front office." Then, the process has to be extended to the rest of the supply chain, particularly to suppliers. Once they understand these concepts, they can reduce their lead times and costs to you.
Curiously, most software developers say that software alone will not make a supply chain lean. The availability of information (made possible through software) enables a lean supply chain, but adopting the appropriate business practices is what brings about the desired change.

Jan Young, product manager at Milwaukee-based Catalyst International, can easily list the technology for the warehousing industry that has come along since his book Modern Inventory Operations was published in 1990. However, he also feels that software is only part of the lean equation. "Lean warehousing is not software, at least the major emphasis is not software. It's management, it's practice, it's engineering. Software contributes, but you can't buy a piece of software and put it in your warehouse and become lean as a result of that."

Lean is similar to an attitude, yet it's more, Young says. "It is a detailed examination of processes and careful consideration of procedures and ways to do things that are less inefficient. It is management planning."

A lack of tension is a characteristic of a lean warehouse, he says. People work hard, but they are not panicked. Years ago, the opposite often was the norm. Sales calls were difficult because management often was tied up with a crisis. "You could walk up to the door for a scheduled meeting and be told, 'Sorry, we can't meet with you today. We had this go wrong and that go wrong and all these orders that we didn't expect.'"

While not ubiquitous, lean operations are spreading, Young says. And they enable the connective tissue of the supply chain as well. "Can a warehouse be effective without collaborating?" Young asks. "Relative to other things, yes. Relative to the ultimate ideal, no. In other words, I go take over a warehouse, I can make the place more effective without collaboration. But I can make it still more effective if I add collaboration to that. Effectiveness is a matter of degree with my external partners."

While different types of companies have different needs - an assembly plant vs. a distributor, for example - the waste elimination and cost reduction promised by lean operations is attractive to all. The so-called 5S subset probably sums up goals most companies have:

1) Sort: Get rid of what you don't need
2) Shine: Polish your operation, make everything more visible
3) Standardize: To avoid redundant processes, standardize similar ones
4) Set in order: Implement those standardized processes
5) Sustain: There must be sustained monitoring of the entire lean process.

However, knowing that efficiencies are needed is not the same thing as knowing how to go about bringing change, says Jeff Bise, solutions development manager for Jacksonville, Fla.-based TNT Logistics.

"It's hard to embrace something if they don't know what it is. A lot of times we see that people want to be lean but have no experience with it. Often they want to be lean because it's their new corporate directive or they have suppliers who are lean."

Third parties, such as TNT, Catalyst, Oracle and others, visit facilities to get a feel for what is the norm in terms of the non-value-added steps that should be stripped away. Some customers want guarantees that a lean operation will save them, say, 5 to 7 percent on operational costs. Bise notes that developers, consultants and providers simply can't say anything until an assessment has been done.

"If you walk into my operation and I'm building ahead for tomorrow, in theory, I'm not just-in-time - I'm involved in overproduction. Yeah, I may use it in the long run, but I may not need it."

Not infrequently, detailed proposals to lean out operations are rejected by customers. All third parties have encountered such customer resistance, usually over the cost of the initiative.

"You know, sometimes being lean has a cost associated with it," Bise says. "But what's the benefit overall?" To illustrate, he says proposals to implement a line side delivery system at a customer's production facility have been rebuffed to date because of the initial costs of the solution. He says the assembly operator would benefit if the current double and triple handling at line side were eliminated. The line operator could do more operations and floor space would be freed.

"There are cases where we want to be lean, but the customer can't get over the initial shock of the piece price or over the price of a penny or two per activity versus the nickels and dimes you could be saving at line side."

Cascade Designs, a $100m manufacturer of outdoor gear, including Therm-a-rest inflatable mattresses, knew it had some processes that were a bit inflated as well, says CIO Ken Meidell. It didn't have armies of consultants, but instinctively, management knew it had to wring non-value-added processes from its operations. So 40 to 50 "management layer" types went to a two-day seminar on lean supply chains. The lessons they learned traveled like a "virus" throughout the company. Cascade, a full-line manufacturer, does its own engineering, design and product development. Lean operations that started on the shop floor have spread into other areas of the business.

"We've sort of abstracted the concept and said how can it apply to most facets of our business," Meidell says. "It applies to some more than others. It's very applicable for us in product development." He describes the former process as predictable, formalized and documented. But when Cascade analyzed it, some steps simply weren't meaningful. "We basically reorganized the entire product development process around the principles of lean. Some of the things we were doing just didn't add any value to the creation of the product."

Cascade and its CIO seem to be keenly aware of the role that technology can play in making supply chains lean, and what it can't do. As an example, he says purchase orders from REI, the large outdoor gear retailer and Cascade Designs' biggest customer, were "all over the map with a high degree of variability." The solution: simply to spend a couple days with REI to understand how its internal processes worked, and how it viewed Cascade. Technology wasn't the solution.

Having said that, Meidell is keenly aware that technology enables necessary changes. "You know, 30 years ago when MRP systems were written nobody understood web services and the quality of an integrated ERP system or extension into an advanced planning and scheduling system. So technology, and the big vendors, have enabled solutions that simply didn't exist years ago. If you look at what PeopleSoft is doing with Demand-Driven Manufacturing - we're incredibly interested in that because it's a tool that may enable us to change how we do things."

Cascade Designs is a PeopleSoft customer, and has used the Pleasanton, Calif.-based developer's EnterpriseOne product for years. The EnterpriseOne suite includes modules for asset lifecycle management, CRM, project management, SCM and supplier relationship management. PeopleSoft recently has heavily promoted its concept of Demand-Driven Manufacturing, a pull-based manufacturing reportedly based on real-time customer demand. It features what the developer calls Demand Flow technology.

"Technology is a key enabler of what we're doing," Meidell says. "But a lot of what we're finding about lean is simple communication. If you can get a hold of the supply-chain guru at REI, you can go a long way toward making your interaction with them as lean as possible. That has tremendous upside lift for us. It reduces our handling fees, and the number of touches we make on their goods. If you get all the key players in design and manufacturing talking, you find ways to wring out those non-value add steps. Communication is a sort of bread-and-butter thing for companies. What it doesn't do is give you those quantum leaps forward, and that's what technology does."

For one thing, cost structure analysis is improved immeasurably by the data that such technology provides. As a result, decisions about non-value-added processes can be made on real numbers, not estimates or gut feel.

Succinctly put, the numbers that seem to interest anyone implementing a lean strategy are those that reflect savings in supply-chain and production costs. But other figures should be of equal interest, says Charlie Allieri, vice president of marketing at Lilly Software, Hampton, N.H.

"Yes, you must identify opportunities to reduce the cost associated with bringing your product to the customer, but it's not just cutting cost. I wish I could think of the person to attribute this to, but they said, 'You can't shrink to greatness.' The end goal must be to capitalize on your operational excellence that you have achieved to be able to capture more revenue."

Slicing lead times is a prime example. Allieri says that a Lilly customer cut its lead time from 45 days to five. In doing so it boosted quality levels by default: there was less rework and fewer defects. "He is able to go to market with great pricing and quality, but he also can say, 'Look, my competition delivers in four weeks.' He knows he can guarantee that he can deliver in just two weeks. And by doing that, he's able to maintain his price point - a premium price - as well as capture long-term contracts."

Excess work in process and lead time are two of the worst inefficiencies a plant can face. The two are related, Allieri says, and tackling one helps alleviate the other. "If you reduce the amount of WIP, what you'll find almost in direct proportion, is you start to cut your lead time due to reduction in confusion on the floor."

That linkage is, in part, what Lilly's VISUAL Easy Lean product is designed to address. Easy Lean is Lilly's scheduling method that works with its flagship VISUAL Enterprise business management process solution. The Easy Lean module uses what Lilly calls Simplified Market Pull scheduling. It helps a customer implement a pull mechanism that won't release material into the supply chain or plant until it is "absolutely necessary," Allieri says. "You begin to lower the amount of inventory you have across your plant and start to reduce the amount of confusion in the plant and reduce time it takes for raw material to enter the process and finished goods to leave the plant. I would say the single biggest thing we do with this solution is moving from push to that pull mechanism."

Allieri agrees that software is only part of the lean-supply chain prescription, but an important one. "We don't ever try to paint the picture that software alone is going to get them to where they need to be. There has to be some change in business processes that will deliver that value. But software is the critical component that makes that process change systemic over time."

Supply chains are made lean only over time, never overnight. But as with any diet, you can't stop working toward the goal. Improvement, on the personal or enterprise level, is a never-ending process, a journey without destination.

Putting an enterprise on a lean regimen has parallels with putting yourself on a diet. Every diet book and guru says pretty much the same thing: Watch what you eat, examine your behavior, be positive in attitude - and stay the course. Achieving a lean supply chain is very much the same. "Lean" may be a broad term, but everyone seems to agree that if it has any meaning at all, it is the elimination of fat and waste in a company. That requires a thorough examination of internal processes, behavior modification from management on down, and a can-do attitude.

Like personal diets, lean carries with it a number of benchmarks and metrics to gauge progress. As with calorie- and carbohydrate-counting programs for the individual, lean supply-chain initiatives can even have their own snappy phrases and memory jogging devices. The components of the House of Lean, for instance, include continuous improvement, flexibility, agility, just-in-time methodology and managed capacity.

As anyone who has tried and failed to lose weight on a diet (or diets) knows, it might be easier to drop pounds if you have someone to diet with; such collaboration provides positive feedback and support. Ideally, enterprises and their trading partners would act together to lean out redundancies, poor communications and myriad other things that lead to waste. Indeed, enterprises can hire outside consultants, and their technology providers may offer training programs. But ultimately, any company that seriously wants the efficiencies that lean supply chains bring must evince on its own the discipline needed to change. No one can lose weight for you; no outsider can force a company to be lean.

The notion of a lean operation seems, like diets, to have been around for forever. But it has hardly lost its relevance. People can bloat up and so can any company. Excessive lead times and work-in-process inventory, for example, have serious consequences for any enterprise's financial health.

Finally, any successful dieter knows that you can never reach your goal. Dropped pounds are soon reacquired if a rigorous weight-loss discipline isn't maintained. Similarly, lean is often called a continuous improvement program for companies, no matter what their vertical or focus is. Self-improvement, both on the personal or enterprise levels, never ends. Manish Modi, Oracle Corporation's senior director of applications development - discrete manufacturing, refers to implementing a strategy for a lean supply chain as a journey without destination.

"If you go back to the roots of lean, it was basically the elimination of waste," he says. "But the important thing to remember is that it is a continuous improvement process. Which means it is not a destination, it's the journey, and you never get there because there are all these opportunities for improvement."

To be sure, Oracle, Redwood Shores, Calif., has something for the trip, at least for manufacturers. It's called Flow Manufacturing, and it is designed to enable release "of a product of the highest possible quality at the lowest possible cost in the shortest possible time," says Richard Rodgers, Oracle's director of product management - manufacturing applications. The product can graphically represent the process flow for a product or product family, record all work activities and specify whether they are value-added or not, then create balanced line operations based on demand. That seems a tall order, but Rodgers says that customers typically see a reduction in cycle time of 80 to 90 percent.

Overprocessing is reduced or eliminated, he says, because sales orders are directly scheduled and sequenced as they come in. "We simply take sales orders and create flow schedules from them. To support component material, we implement kanban planning and execution so that you have a minimal amount of component inventory on hand to support build and know with confidence that you can replenish with new components when needed."

Modi says that the fundamental principles of lean can be applied virtually throughout an enterprise's business, from design to manufacturing and from warehousing to distribution. Wherever, good visibility is required to monitor progress in such areas as reduction in cycle counts, work in process, finished goods and component inventory holding, and improvement in on-time shipments.

Clearly, the more frequent the status reports are in these areas, the better.

Most companies seem to understand that today. Rodgers says he has seen reports that perhaps as many as 75 percent of companies have some sort of lean initiatives under way. How far along they may be and just what they understand lean to be is difficult to know. It isn't at all uncommon, he says, to visit potential customers who claim to have a head start on lean but whose facilities are bulging with inventory.

The solution has multiple phases, Rodgers says, with waste elimination being first. Once the basics have been implemented, operational kaizens have to be implemented and metrics have to be established. Moreover, change is not solely for the shop floor. "Start looking at the business policies and procedures in the front office." Then, the process has to be extended to the rest of the supply chain, particularly to suppliers. Once they understand these concepts, they can reduce their lead times and costs to you.
Curiously, most software developers say that software alone will not make a supply chain lean. The availability of information (made possible through software) enables a lean supply chain, but adopting the appropriate business practices is what brings about the desired change.

Jan Young, product manager at Milwaukee-based Catalyst International, can easily list the technology for the warehousing industry that has come along since his book Modern Inventory Operations was published in 1990. However, he also feels that software is only part of the lean equation. "Lean warehousing is not software, at least the major emphasis is not software. It's management, it's practice, it's engineering. Software contributes, but you can't buy a piece of software and put it in your warehouse and become lean as a result of that."

Lean is similar to an attitude, yet it's more, Young says. "It is a detailed examination of processes and careful consideration of procedures and ways to do things that are less inefficient. It is management planning."

A lack of tension is a characteristic of a lean warehouse, he says. People work hard, but they are not panicked. Years ago, the opposite often was the norm. Sales calls were difficult because management often was tied up with a crisis. "You could walk up to the door for a scheduled meeting and be told, 'Sorry, we can't meet with you today. We had this go wrong and that go wrong and all these orders that we didn't expect.'"

While not ubiquitous, lean operations are spreading, Young says. And they enable the connective tissue of the supply chain as well. "Can a warehouse be effective without collaborating?" Young asks. "Relative to other things, yes. Relative to the ultimate ideal, no. In other words, I go take over a warehouse, I can make the place more effective without collaboration. But I can make it still more effective if I add collaboration to that. Effectiveness is a matter of degree with my external partners."

While different types of companies have different needs - an assembly plant vs. a distributor, for example - the waste elimination and cost reduction promised by lean operations is attractive to all. The so-called 5S subset probably sums up goals most companies have:

1) Sort: Get rid of what you don't need
2) Shine: Polish your operation, make everything more visible
3) Standardize: To avoid redundant processes, standardize similar ones
4) Set in order: Implement those standardized processes
5) Sustain: There must be sustained monitoring of the entire lean process.

However, knowing that efficiencies are needed is not the same thing as knowing how to go about bringing change, says Jeff Bise, solutions development manager for Jacksonville, Fla.-based TNT Logistics.

"It's hard to embrace something if they don't know what it is. A lot of times we see that people want to be lean but have no experience with it. Often they want to be lean because it's their new corporate directive or they have suppliers who are lean."

Third parties, such as TNT, Catalyst, Oracle and others, visit facilities to get a feel for what is the norm in terms of the non-value-added steps that should be stripped away. Some customers want guarantees that a lean operation will save them, say, 5 to 7 percent on operational costs. Bise notes that developers, consultants and providers simply can't say anything until an assessment has been done.

"If you walk into my operation and I'm building ahead for tomorrow, in theory, I'm not just-in-time - I'm involved in overproduction. Yeah, I may use it in the long run, but I may not need it."

Not infrequently, detailed proposals to lean out operations are rejected by customers. All third parties have encountered such customer resistance, usually over the cost of the initiative.

"You know, sometimes being lean has a cost associated with it," Bise says. "But what's the benefit overall?" To illustrate, he says proposals to implement a line side delivery system at a customer's production facility have been rebuffed to date because of the initial costs of the solution. He says the assembly operator would benefit if the current double and triple handling at line side were eliminated. The line operator could do more operations and floor space would be freed.

"There are cases where we want to be lean, but the customer can't get over the initial shock of the piece price or over the price of a penny or two per activity versus the nickels and dimes you could be saving at line side."

Cascade Designs, a $100m manufacturer of outdoor gear, including Therm-a-rest inflatable mattresses, knew it had some processes that were a bit inflated as well, says CIO Ken Meidell. It didn't have armies of consultants, but instinctively, management knew it had to wring non-value-added processes from its operations. So 40 to 50 "management layer" types went to a two-day seminar on lean supply chains. The lessons they learned traveled like a "virus" throughout the company. Cascade, a full-line manufacturer, does its own engineering, design and product development. Lean operations that started on the shop floor have spread into other areas of the business.

"We've sort of abstracted the concept and said how can it apply to most facets of our business," Meidell says. "It applies to some more than others. It's very applicable for us in product development." He describes the former process as predictable, formalized and documented. But when Cascade analyzed it, some steps simply weren't meaningful. "We basically reorganized the entire product development process around the principles of lean. Some of the things we were doing just didn't add any value to the creation of the product."

Cascade and its CIO seem to be keenly aware of the role that technology can play in making supply chains lean, and what it can't do. As an example, he says purchase orders from REI, the large outdoor gear retailer and Cascade Designs' biggest customer, were "all over the map with a high degree of variability." The solution: simply to spend a couple days with REI to understand how its internal processes worked, and how it viewed Cascade. Technology wasn't the solution.

Having said that, Meidell is keenly aware that technology enables necessary changes. "You know, 30 years ago when MRP systems were written nobody understood web services and the quality of an integrated ERP system or extension into an advanced planning and scheduling system. So technology, and the big vendors, have enabled solutions that simply didn't exist years ago. If you look at what PeopleSoft is doing with Demand-Driven Manufacturing - we're incredibly interested in that because it's a tool that may enable us to change how we do things."

Cascade Designs is a PeopleSoft customer, and has used the Pleasanton, Calif.-based developer's EnterpriseOne product for years. The EnterpriseOne suite includes modules for asset lifecycle management, CRM, project management, SCM and supplier relationship management. PeopleSoft recently has heavily promoted its concept of Demand-Driven Manufacturing, a pull-based manufacturing reportedly based on real-time customer demand. It features what the developer calls Demand Flow technology.

"Technology is a key enabler of what we're doing," Meidell says. "But a lot of what we're finding about lean is simple communication. If you can get a hold of the supply-chain guru at REI, you can go a long way toward making your interaction with them as lean as possible. That has tremendous upside lift for us. It reduces our handling fees, and the number of touches we make on their goods. If you get all the key players in design and manufacturing talking, you find ways to wring out those non-value add steps. Communication is a sort of bread-and-butter thing for companies. What it doesn't do is give you those quantum leaps forward, and that's what technology does."

For one thing, cost structure analysis is improved immeasurably by the data that such technology provides. As a result, decisions about non-value-added processes can be made on real numbers, not estimates or gut feel.

Succinctly put, the numbers that seem to interest anyone implementing a lean strategy are those that reflect savings in supply-chain and production costs. But other figures should be of equal interest, says Charlie Allieri, vice president of marketing at Lilly Software, Hampton, N.H.

"Yes, you must identify opportunities to reduce the cost associated with bringing your product to the customer, but it's not just cutting cost. I wish I could think of the person to attribute this to, but they said, 'You can't shrink to greatness.' The end goal must be to capitalize on your operational excellence that you have achieved to be able to capture more revenue."

Slicing lead times is a prime example. Allieri says that a Lilly customer cut its lead time from 45 days to five. In doing so it boosted quality levels by default: there was less rework and fewer defects. "He is able to go to market with great pricing and quality, but he also can say, 'Look, my competition delivers in four weeks.' He knows he can guarantee that he can deliver in just two weeks. And by doing that, he's able to maintain his price point - a premium price - as well as capture long-term contracts."

Excess work in process and lead time are two of the worst inefficiencies a plant can face. The two are related, Allieri says, and tackling one helps alleviate the other. "If you reduce the amount of WIP, what you'll find almost in direct proportion, is you start to cut your lead time due to reduction in confusion on the floor."

That linkage is, in part, what Lilly's VISUAL Easy Lean product is designed to address. Easy Lean is Lilly's scheduling method that works with its flagship VISUAL Enterprise business management process solution. The Easy Lean module uses what Lilly calls Simplified Market Pull scheduling. It helps a customer implement a pull mechanism that won't release material into the supply chain or plant until it is "absolutely necessary," Allieri says. "You begin to lower the amount of inventory you have across your plant and start to reduce the amount of confusion in the plant and reduce time it takes for raw material to enter the process and finished goods to leave the plant. I would say the single biggest thing we do with this solution is moving from push to that pull mechanism."

Allieri agrees that software is only part of the lean-supply chain prescription, but an important one. "We don't ever try to paint the picture that software alone is going to get them to where they need to be. There has to be some change in business processes that will deliver that value. But software is the critical component that makes that process change systemic over time."

Supply chains are made lean only over time, never overnight. But as with any diet, you can't stop working toward the goal. Improvement, on the personal or enterprise level, is a never-ending process, a journey without destination.