lean supply chain clear path

LEAN SUPPLY CHAIN MANAGEMENT: A CLEAR

PATH TO PROFIT IMPROVEMENT

Dan Marino, CPIMSenior Partner

Marino Associates, LLC

2

One of the most aggressive approaches in achieving excellence in Operations is to develop

and implement a Superior Lean Supply Chain Management

process.

3

Supply Chain Questions

• How many companies in the room have buying leverage over their supply base?

» No leverage» Some leverage by product line» Major leverage

• Companies without leverage, how many have successfully implemented Supply Chain Management?

• How many companies have systems in place and optimized that will support Supply Chain Management?

• How many companies are or have implemented a successful Supply Chain Management program?

• How many companies do business off shore and if so how successful is the supply chain process.?

• How many companies feel that Supply Chain Management is a key strategic goal of senior management?

4

Best In Class Supply Chain Companies Are Realizing Financial

and Operating Advantages over Their

Competition •More Responsive to Customer Needs

•More Responsive to Market Changes

•More effective in controlling Cost

MORE PROFITABLE

5

WHAT IS LEAN SUPPLY CHAIN MANAGEMENT?

Demand Management Sourcing and Procurement Order processing Production scheduling Inventory Management Transportation Warehousing Customer Service Information Systems Concurrent Engineering Quality Target costing

The process of managing the flow of material and information beginning at the lowest raw material level of the supply chain to the ultimate consumption of the finished product.

6

Supply Chain Management

• Companies need to concentrate on acquiring supply processes as well as products.

• Companies need to secure:

» Reliability processes» Robust processes» Stable processes » Capable processes

7

SUPPLY CHAIN MANAGEMENT

RawMaterial 2nd Tier Suppliers

3rd Tier Suppliers

Transportation

Direct Suppliers

Single Plant

Multiple Plants& Warehouses

CustomerWarehouses

Consumer

Retail

Transportation

Distribution

MES

APS

MRP II

ERP

SUPPLY CHAIN MANAGEMENT (SCM)

8

SUPPLY CHAIN MANAGEMENT SUCCESS

• To successfully compete in today's business environment companies need to embrace the concept of developing complex alliances and interdependent partnerships.

9

Supply Chain Management Needs to be Company Specific

• Companies need to develop their own Supply Chain processes, measurements and controls.

» Tools

» Education and Training

» Goals and Expectations

» Product Line specific chains

» Product Line specific goals

» Supplier specific strategy

10

LEAN SUPPLY CHAIN BALANCE TO PROFIT

•Lack of Clarity•Variability•NPI•Information sharing•Decisions making ability•Organization issues•Inadequate systems

•Inventory Reduction•Lead time Reduction•Limit Liability•Rapid Ramp-up•On-time and complete•Cost reduction

11

THE RESULTS OF AN UNBALANCED SUPPLY CHAIN

• Increased cost to expedite Material

• Increased cost of premium freight

• Increased cost of excessive inventory

• Increased cost of excessive set-up charges

• Increased customer dissatisfaction

• Increased profitability decline

12

TO BRING YOUR SUPPLY CHAIN IN BALANCE COMPANIES NEED TO

ASK THESE QUESTIONS

1. Does your company understand the principles of Lean Supply Chain Management?

2. Do you understand your customers’ needs and requirements?

3. Do you understand the roll of Logistics? 4. Do you understand the operational and financial

impact of Lean Supply Chain Management? 5. Does your management team embrace Lean Supply

Chain Management as both a strategy and a process?6. Do you have the systems, organization and expertise

in place to maximize your Lean Supply Chain efforts?

13

PROFIT IMPROVEMENT STRATEGY

Best PriceEvaluation

Global Sourcing

Relationship Restructuring

Joint Process

Improvement

ProductSpec.

Improvement

Volume Concentration

Profit Improvement

Strategy

Cost Optimization Supplier andProduct Development

Consolidate SuppliersPool volume across unitsRedistribute volume among suppliersCombine commodity volume

Compare total costsModel should-costRenegotiate pricesUnbundled pricing

Expand geographic supply baseDevelop new suppliersProfit from global supply/demand imbalances

Product and valueengineeringSubstitute materialsBuying alternativesOptimize life cyclecost

Value MappingShare informationIntegrate logisticsSupport supplier improvements

Establish/develop key suppliersEmploy strategic alliancesExamine make versus buyDevelop integrated supply chain

14

Remove the Barriers with Aggressive Lean Supply Chain

Management

BARRIERS TO PROFIT IMPROVEMENT

Inconsistencies in Business Practices Inconsistencies in the OperationInconsistencies in New Product IntroductionInconsistencies in Systems ApplicationsInconsistencies in the Organization

15

SUPPLY CHAIN TOOLS

• Supply Chain analysis (value mapping)• Consignment• Vendor Managed Inventories• Inplants (JIT II)• Kanban• “Bread Man”• Relocating suppliers• Container control• Transportation control• Safety stock (or safety lead time)• Target costing• Buying capacity

16

SUPPLY CHAIN RULES

• Information Sharing- Costs- Margins- Lead-Times- Open Systems Development- New Product Introduction

• Risk Reduction

• Partnership Management

17

SUPPLY CHAIN MANAGEMENT BUSINESS FORCES

• Cost Management and Reduction

• Demand Management:- Lead Time Reduction- Agility- Competitive Pricing - Global Sourcing- Outsourcing

• Software Sophistication

• Customer Satisfaction

• Risk Management

• Market Share and Margin Improvements

18

CRITICAL ELEMENTS OF LEAN SUPPLY CHAIN

MANAGEMENT

• Procurement

• Manufacturing

• Logistics

• Demand Management

• Information / Technology

19

PROCUREMENT

• Review of all raw material suppliers. The focus should be on:

- Supplier Partnering- Supplier Quality- Supplier Flexibility - Transportation- Value Add

• Outsourcing should be reviewed - this is an excellent alternative for products that cannot be produced effectively internally.

• Global Procurement – this requires a complete set of specific Supply Chain Processes and Business Rules.

20

MANUFACTURING

• What and how many products will be produced?

• What will be produced internally and what will be outsourced?

• What are the customer satisfaction drivers?

- Price- Lead Time- Innovation

• Internal Controls- Inventory Goals- Capacity

Requirements- Quality Requirements- Space Requirements- Transportation

21

MANUFACTURING – Cont'd.

• Selecting product to Global source

• Management of your Global partner

• Information exchange

• Logistics

22

LOGISTICS

• Determine inventory levels by product based on an "A", "B", "C" Analysis of your inventory

• Limit the inventory liability in the entire Supply Chain

• Develop a process for pulling inventory through the suppliers to point of need

• Develop inventory management strategies:

- JIT II- Vendor Managed Inventory- Consignment Inventory- KANBAN (Pull)

23

LOGISTICS – Cont'd.

• Make-to-Stock Strategy (MTS)

• Make-to-Order Strategy (MTO)

• Inventory Reduction Goals

• Inventory Processes to support Repair and Renovation

• Seasonal Demand Patterns

• Line Fill Rate Requirements

• Erratic Demand Requirements

• Many different SKU's

• Safety Stock Requirements

• Space Consideration

• Container Control

• Capacity Constraints

24

LOGISTICS – Cont'd.

• Customer/Supplier Partnering (Virtual Corporation)• Cross Docking (Terminals are connecting points, only no inventory

staged in these locations)• JIT II• Distribution Requirements Planning• Pull Systems• Supplier Certification• KANBAN• Transportation Management

- Backhaul Scheduling- LTL Control- Tariff Management

25

DEMAND MANAGEMENT

The activities that Demand Management supports are:

• Order Entry• Forecasting• Order Promising• Warehouse Requirements• Interplant Orders• Service Parts Requirements

26

DEMAND MANAGEMENT – Cont’d.

The Demand Management Department should also prepare and assist in the management of Capacity Planning in:

•Order Entry

•Configuration

•Engineering

•Data Administration

•Shipping

•Installation

•Distribution

27

DEMAND MANAGEMENT – Cont’d.

The Supply side of the business will consider the following:

• Capacity- Machine- Manpower- Space

• Supplier Support• Transportation Requirement

28

TECHNOLOGY

• Electronic Data Interchange (EDI)

• Internet

• Intranet

• Extranet

• Supplier Portals

• Bar Coding

• Computer ERP Systems with very sophisticated SCM Systems imbedded in the system

29

TECHNOLOGY QUESTIONS

• What is the sophistication level of the company and its suppliers?

• What am I trying to manage?- Standard parts procurement- Global sourcing and logistics- A combination of standard parts procurement and major

value add procurement- Supplier direct ship to your customers

• How far back in the supply chain do I want to manage?• What key measurements need improvement?

- Inventory Reduction- Quality Improvement- Lead-Time Reduction- Cost Reduction

30

KNOWLEDGE CIRCLE

CUSTOMER KNOWLEDGE

SCM

KNOWLEDGE

CIRCLESUPPLIER KNOWLEDGE

INFORMATION KNOWLEDGE

PROCESS KNOWLEDGE

PRODUCT KNOWLEDGE

31

CUSTOMER KNOWLEDGE

• Locations

• Demographics

• Purchasing Potential

• Demand Patterns

• Lead Time Requirements

32

PRODUCT KNOWLEDGE

• How many products?

• What percent of sales does each product represent?

• Where is each product in its product life cycle?

• What is the typical product mix?

• What are your margins per product?

• What are the true costs per product?

33

PROCESS KNOWLEDGE

• Understand the Production Process

• Process Flow

– Linear Flow

– Make-to-Order

– Demand Flow

» Push Process

» Pull Process

– Kanban

– Just In Time

• Delivery

– To Receiving

– To Point of Use

– To the Customer

34

INFORMATION KNOWLEDGE

• What information is required for effective decision-making at each stage in the Supply Chain?

• How will data flow between each part of the Supply Chain?

• Information on dynamics of the Supply Chain must be shared throughout the chain.

35

SUPPLY CHAIN ASSESSMENTEvaluates Performance and Identifies Opportunities For

Improvements in Eight Areas:

1. Organization and structure2. Business systems environment3. Customers4. Suppliers 5. Training and Education6. Performance Measurements7. Product Design and Development8. Quality

36

Organization and Structure

• Does top management have a Supply Chain Vision?

• Have clear objectives been communicated?

• Do company and employees work together and understand the importance of building long-term employee/company relationships?

• Does management aggressively support education for new techniques and technologies?

37

Business Systems Environment

• Are the information networks and communication systems reliable?

• Are there interactive information sharing with customers and suppliers?

• Is there enterprise-wide systems integration?• Is there site systems integration?• Do you utilize electronic commerce?• Have you introduced the internet for customer

communications?

38

Customers

• Is there a reporting system in place to notify upper management of customer issues needing resolutions?

• Are the latest techniques in VMI, Consignment, and Kanban in place for customers?

• Is the total inventory of supplies between suppliers and customers continually being reduced?

• Is frequent proactive communication established with all key customers?

39

Suppliers

• Is there a detailed plan to reduce the overall number of suppliers?

• Is an approved supplier list utilized by purchasing and Engineering?

• Are there clear responsibilities that have been documented between the supplier, schedulers, and buyers?

• Are the latest techniques in VMI, Consignment, and Kanban in place for suppliers?

40

Training and Education

• Does management aggressively support education for new techniques and technologies?

• Have all levels of management been educated on Supply Chain Management?

• Have you effectively trained suppliers and customers?

41

Performance Measurements

• Is the average lead time for all products continuously reduced?

• Is there a systematic effort to reduce the overall number of suppliers?

• Is days on hand inventory measured?

• How much emphasis is placed on the measurement of purchased price variance?

42

Product Design and Development

• Is the concept of concurrent engineering used?

• Are suppliers and customers allowed to participate in the design of new products?

• Is target costing in placed during new product introductions?

43

Quality

• Are records available to substantiate an adequate supplier quality rating system?

• Is production problem data recorded, reviewed daily, and is a process in place to resolve those problems that impact the effectiveness of the operation?

• Is a waste reduction program in place where progress is documented and visible throughout the organization?

44

Managing your company's most expensive asset, material flow, utilizing a supply chain that can rapidly flow information and material can be a significant competitive differentiator.

45

Stay on the Path to Profit with Key Performance Indicators

Customer Service•Line Fill•On-Time and Complete•Percent Time in Stock

Inventory•Days of Inventory•Inventory Turns

Speed•Cash to Cash (Inv+A/R-A/P) in days of supply

Days of working capital-DWC(Working Capital/Annual Revenue x 365)

Days Sales Outstanding-DSO(Accounts Receivable/Annual Revenue x 365)

Days of Inventory- DIO(Inventory Value/COGS x 365)

Days Payable Outstanding- DPO(Accounts Payable/Annual Revenue x 365)

46

FORWARD THINKING MANAGERS ARE

IMPLEMENTING AGGRESSIVE LEAN SCM PROGRAMS AS A PRIMARY STRATEGY TO:

1. Increase market share

2. Reduce cost

3. Reduce Inventories

4. Improve profits

47

MARINO ASSOCIATES, LLC• Thank you for attending our session and enjoy

the rest of your time at the 6 Pack Conference.

Please leave us your Business Card and we will Provide you with:

• Lean Supply Chain Readiness Check List

• Lean Manufacturing Readiness Check List