Lean supply chain management is about reducing costs and lowering waste as much as possible. It is not exclusively for those companies who manufacture products, but by businesses who want to streamline their processes by eliminating waste and non-value added activities. A Lean supply chain is the epitome of a good supply chain. It delivers supplies to a customer with minimum amounts of waste. Waste is defined as any extra use of resources that need not be used. A Lean supply chain should therefore not have any surplus. It will not need large warehouses to store large quantities of stock and the processes used to manage stock supply will be geared towards Lean thinking where stock will not be surplus and the systems used will be flexible enough to ensure that any sudden increases in demand can be met without undue delay.
Companies have a number of areas in their supply chain where waste can be identified as time, costs, or inventory. To create a leaner supply chain companies must examine each area of the supply chain and determine what can be saved and where. These could include the following:
- Transportation
Lean supply chains need to minimize the transportation and shipping of supplies to avoid unnecessary transport costs. This condition can often result in them being predominantly local to the customer or at least having a local depot so that the supplies can be quickly delivered when needed. One interesting aspect of this is that sometimes it may have to withstand some waste like keeping stock in a local depot so that less waste is generated within the longer term, which in itself makes it a complex framework for the delivery of supplies and stock.
- Lean Manufacturing
Lean supply chain management gained popularity in the manufacturing area, as this is where significant improvement can be achieved. Manufacturing processes can be improved to reduce waste and resources while maintaining operational performance. Quality is an important part of lean manufacturing. Having zero defects in the manufacturing process reduces waste and increases efficiency within the organization as a whole. With greater quality, customers will no longer return goods, which mean fewer resources will be needed for returns and quality issues. Savings are achieved because raw materials are properly utilized and reverse logistics is eliminated. Companies who have adopted lean supply chain practices have examined each of their routings, bill of materials and equipment to identify where improvements can be achieved.
- Warehousing
Warehouse processes should be examined to find areas of eliminating waste of resources and non-value added steps. One area the companies should always be working on is the reduction of unnecessary inventory. The accumulation of inventory requires money and resources to store and maintain it. By reducing unnecessary inventory, a company can minimize warehousing space and handling, in turn reducing overall costs.
- Procurement
Many businesses have complex purchasing operations because they believe that their purchasing needs are complex, but this is not always true. Large companies often have corporate purchasing groups as well as local purchasing, which means that at the headquarters they may have a purchasing department that dictates policy to the local purchasing groups. Quite often the purchasing function at the headquarters is duplicated at the lower level and there is a waste of resources. By having two purchasing departments, central and local, vendors can often be given different information. They can be given multiple contracts, one central and many local contracts that can lead to variations in prices depending on location. This varying information can cause multiple records to be stored on computer systems so that employees do not know which vendor is the one that they should use or be in contact with. Overall multiple purchasing departments can lead to significant waste within the organization. The companies that practice lean supply chain management reduce their procurement function so that each vendor has one point of contact, one contract and offers one price for all locations.
Lean supply chain management requires businesses to examine every process in their supply chain and identify areas that are using unnecessary resources, which can be measured in cash, hours or raw materials. A Lean supply chain is a great foundation for any organization that is embarking on Lean practices. It ensures that the organization can safely transfer over to being Lean, in a manner that is much quicker than if they were using traditional supply chain management. A Lean supply chain means that companies can respond to customer needs in a way that is quick and meets their needs, which in turn helps consolidate the position of their supply chain. Due to there being no wastes within the supply chain it also offers a superior performance in terms of the supply chain. In turn this gives companies a competitive edge over their competitors.