06 March, 2013

Latest articles on analysis

14 March 2013 | John Hatton

Why is it that the well-established principles of lean supply have yet to be more broadly embraced? John Hatton takes a look and examines one sector that would particularly benefit from its adoption.

The concept of lean supply isn’t new. Its genesis arguably lies in the industrial revolution of the early 19th century and its more modern form was developed and taught by Professor Deming in the 1950s. His theories were implemented most famously by Toyota in Japan and thereafter in the automotive sector and beyond during the 1980s and 1990s. It is now an accepted methodology in managing inbound supply, internal processing and onward distribution.

Today, high volume manufacturing and retail sectors are the standout champions and beneficiaries of this approach. High-tech companies such as Apple, grocery retailers including Tesco and online distributors such as Amazon have emulated these achievements and become highly respected exemplars of lean supply.

So is it a case of job done? Not quite.

A recent Aberdeen Group report on lean strategies revealed that only two thirds of manufacturers are today using these techniques. More than 90 per cent were still using spreadsheet and paper-based solutions to perform high-value functions.

So why has ‘lean’ not yet become more broadly adopted? It’s partly about priority and partly about awareness. 


Priorities

The past two decades have seen most organisations concentrate on (and invest massively in) information technology. The perceived priority for IT investment is generally finance or sales, often both. Rarely does logistics or procurement feature in the top five reasons listed for making major, enterprise-wide IT investments.

And while IT sophistication is not an absolute prerequisite for implementing lean solutions (Toyota initially did it using basic paper-control systems), it is now highly unlikely that a major overhaul in production and supply processes could be introduced without adequate automation, controls and management information.

The greater priority placed on other functions’ automation – such as within finance – means that all too often, supply matters take a back seat in terms of technology and process improvement. This priority differential may also be reflected in the relative cost (and calibre) of supply professionals employed.

Second, while lean methods have been around for some time, the Aberdeen survey showed they remain grossly under used, with remarkably low awareness ratings. 

There are a large number of expert consulting firms that can advise on (and in some cases, implement) lean supply processes and technology. But perhaps they have only targeted the very largest corporations, or perhaps smaller businesses have decided that, like IT investments, paying consultants for supply-related advice is just too far down the priority list.


Defining lean

The Toyota Production System aimed to eliminate various types of ‘muda’ or waste. They include: overproduction (making items before they’re needed); waiting (goods in stasis while waiting for the next process); excess movement when shifting goods from one process to the next; inappropriate processing (that does not add value to the consumer); unnecessary inventory; excess motion (that can also compromise health and safety); and defects that result in rework, scrap or complaints.

Many of these relate directly to manufacturing processes, while others can be associated with general supply of goods. 

A lean supply chain is one that produces or provides only what is needed, when it is needed and where it is needed. This typically has a number of key advantages over traditional supply chain management, including:

● Supply more tightly linked with demand

● Lower inventory risk

● Processes that focus specifically on activities that add value for the customer

● A greater focus on mistake-proof processes.


This leads to improved availability and customer service at a lower cost. While high-volume manufacturing and retail distribution clearly lend themselves to lean supply processes, what other sectors could benefit from this methodology?


Luxury retail brands

One sector in particular that could benefit from this approach is the luxury retail brands market.

The word ‘fashion’ implies change and unpredictability. It is a frenetic and fast-paced business and shares the problems of the majority of the consumer goods sector in that it requires secure, on-time supply and a product that will sell through. But at the high end, there are some specific challenges:

●    With several fashion campaigns a year, product change is frequent and deadlines immovable

●    Volume is relatively low

●    Quality cannot be compromised and prices are super-premium

●    ‘Uniqueness’ in the marketplace is essential if the product is to retain its premium, luxury status.


These issues have traditionally led to a ‘get it at any cost’ mindset. In these circumstances, the procurement function usually follows rather than leads, with the internal brand designers calling the shots.

The bastion sectors for lean supply have been all about high volume and low unit cost, yet these are not the most important features of the luxury retail brands sector. This dictates a different approach from both procurement and the supply community.

One UK-headquartered luxury shoe retailer is a great example of a fashion brand company with some real challenges in respect of it how it controls its inputs, outputs and inventory. Its key aim is maximum flexibility and responsiveness in terms of production mix and volumes. Yet the word ‘lean’ is not part of its vocabulary.

The firm’s supply chain vice president explains that every year, significant research goes into new products and tanneries to satisfy design requirements. A core set of 30-40 tanneries provides staple and innovative materials, with up to 30 additional tanneries supplying new products. The need for change is greater in the summer season because this involves a more colourful product range.

Keeping input volume aligned with demand is important, since there is significant risk of obsolescence within inventories. This can be tricky with so many new materials introduced each season.

As the company’s supply chain VP explains: “We work continuously to reduce lead times and improve supplier responsiveness.” Nevertheless, up to 95 per cent of the total cycle time is ‘lost’ in waiting/queuing within this process. The smoothing of supply and removal of bottlenecks is therefore, clearly essential.

One added challenge is the fact that this operation is often required to work with raw material technical specifications that are far from comprehensive – they instead rely largely on approved product samples and “a lot of trust” in their suppliers. They are working hard to define more meaningful technical specifications for their materials.

Another issue for this sector is the short lifecycle of the product once it has hit the market.

Take the example of Belstaff, a high-end clothing and accessories brand that traces its roots to Staffordshire in the 1920s. It faces the combined challenge of a 16-18 week concept-to-shelf cycle time. Yet, in line with the rest of the fashion sector, the product may only survive at full price in the marketplace for three months.

Sven Goedecken, supply chain director, confirms: “These challenges, combined with the fact that the market requires new range elements in place at least twice a year, mean that certain risks must be taken upstream and throughout the supply chain. Pre-buying commitments are made at various stages in suppliers’ production processes in order to meet the demands of this marketplace.”

This has required Belstaff to develop ‘premium relationships’ with fewer suppliers while forging closer internal links between the procurement, supply chain, merchandising and retail functions. This can be an uncomfortable marriage of creativity and practicality, which Goedecken describes as “getting the right brain talking to the left brain”.

Getting it wrong is expensive: selling at full price, more than 60 per cent of what is produced is often considered a success in this market. This statistic underlines how the waste elimination benefits of a lean approach could make a huge difference within this sector – yet can also rely on internal relationships.

For the luxury retail brands sector – and many others – the optimum solution lies in an approach that focuses on lean, high-velocity supply that respects the sacred cow of super-premium product quality. The need for on-time, defect-free supply makes the lean approach more essential here.


How to implement lean

The most commonly advised steps are as follows:

1. Specify ‘value’, from the standpoint of the customer.

2. Identify all steps in the value stream, eliminating those steps that do not create value.

3. Run the ‘value steps’ in tight sequence, so the product flows smoothly towards the customer.

4. As flow is introduced, let customers ‘pull’ value from the next upstream activity.

5. Start again. Continue honing the process until a state of perfection is reached in which value is created with no waste.

This is quite a complicated methodology, and it requires a high level of organisational sophistication. Systems and inter-functional processes must be installed and aligned if there is to be any prospect of a truly lean supply chain. Systems solutions can significantly enhance back-end supply efficiency – an example being tools such as manufacturing resource planning (MRPII). Nowadays, it is almost unthinkable for such applications to be absent.

What many organisations fail to grasp, however, is the need for tight, drum-like integration between sales and production – often referred to as sales and operational planning (S&OP). MRPII systems, when properly operated, are particularly effective at linking inbound demand schedules with production volumes. But without an effective S&OP process, those production volumes can deviate massively from actual and forecasted sales, rendering void the good work done by the MRPII system in controlling inventories and obsolescence.

Achieving lean supply isn’t just a case of implementing a supply management systems toolkit. It’s also about developing an ethos in the organisation where the pipeline is integrated, functions are synchronised and ownership for supply is truly shared.

The need for significant organisational scale and maturity may explain why the lean supply sophistication now prevalent in the auto, high-tech and retail sector has yet to be found throughout many other sectors – yet the need is clear to see.

Lean is undoubtedly the healthier option, but many supply chains are decidedly flabby.


Lean supply: Five guiding principles

1. Involve people: engage colleagues to improve continuously through waste elimination and problem solving.

2. Build in quality: engineer processes to make them mistake-proof, thus preventing errors before they happen.

3. Reduce lead times: establish a continuous flow of materials, equipment and process such that products are pulled through the supply chain at the right place, the right time and in the right quantity.

4. Standardise: document the best practices and make sure they are followed.

5. Improve continuously: no matter how good a process seems, there’s always room to improve it. Your competitors are working on it.


☛ John Hatton is a freelance procurement director

Purchasing Supply chain Features analysis features Purchasing supply chain 2013




Add comment