UEP Getting Ahead Through Six Practices, Practice 4 Lean And Agile Supply Chain


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UEP Getting Ahead Through Six Practices, Practice 4 Lean And Agile Supply Chain

  1. 1. Getting ahead through Six Practices Practice 4Supply Chain Consultancy Implementing the principles of the lean value chain McKinsey & Co, with Georgia Tech respond to changes in customer demand or College of Management, have identified six supply interruptions. In reality, the removal ‘leading practices’ that drive supply chain of waste and wasteful activity usually results performance and that allow companies in a more capable and thus agile supply chain. which excel in these areas to dominate in Hence at Unipart we disagree with McKinseys terms of service, cost and inventory. Here, on the need for a purely ‘lean’ supply chain and Derek Thomason, Martin Green and Martin we use the term ‘supply chain capability’ to Haynes of Unipart Expert Practices (UEP) describe the amalgamation of Lean and Agile. look at how the fourth of these practices However, this is semantics and the key issue is –the lean, end to end value chain – can be how to develop a supply chain that is truly fit implemented. for purpose. In its simplest form ‘Lean’ is the systematic removal of waste. On the other-hand ‘Agile’ is usually interpreted as the ability to rapidly 1 of 5
  2. 2. Designing for supply chain capability brings together characteristics of both Lean and Agile and helps to ensure that the appropriate approach is used at the right time. There are generally regarded as being five principles of Lean, usually listed as:  Focus on Customer Value, i.e. what the customer is willing to pay for  Understand your processes and standardise them  Smooth the flow of work  Pull work through, don’t push  Strive for perfection by eliminating waste (anything that doesn’t add value) through continuous improvement. The characteristics of Agile supply chains include:  Virtuality - using information as a substitute for inventory  Process integration - collaborative working using common processes and systems. (This is a key feature of Unipart’s lean operating system)  Networks - confederations of partners linked together as a network  Market sensitivity - capturing and responding to real ‘native’ demandFigure 1. Lean Vs Agile in different environments  Postponement - configure ‘close’ to the customer. In general the Lean principles apply equally to ‘Agile’, albeit with some modification. For example, where demand is exceptionally volatile or unpredictable. In any business, Make to Order Make to Stock it is possible to take the best from both philosophies to met customer needs. Indeed, Volatility / difficulty Hi it is possible that within a single business, there may be a need to accommodate both Agile Agile approaches. Figure 1. shows where these different philosophies many be employed. Most businesses will have products in more than one segment. Indeed, a single product may move between segments if (for example) it is placed on promotion for a short period. The most capable supply chains are those that are able to adopt different processes or Make to Order Make to Stock philosophies to meet different circumstances, which themselves may change with time. Low Lean Lean At Unipart, Lean and Agile have been combined, enabling the company to help clients to determine how best to meet customer demand and prioritise where resources for delivering improvement should be directed – creating a Capable Value Chain. Low Hi Tools for Implementing a Capable Value Chain Service levels / Importance Value Stream Mapping Not all activity in the supply chain adds value, in fact, the amount of value adding time is frequently less than one per cent (from a customer perspective). Value stream mapping is an important tool in understanding how the supply chain operates, where resources are used and how value builds up through the chain. At Toyota this is known as “Material and Information Flow Mapping”, and they teach three flows, material, information and people/process. Value Stream Mapping is important because it:  Enables people to visualize more than just the process, it helps you see the flow  Helps to identify waste  Forms the basis for an implementation plan  Identifies the link between the information flow and the material flow The true benefit of developing a Value Stream Map is that it is a major tool for engaging the management team. It provides the opportunity to identify bottle necks and problems. It provides the tool to suggest improvements to the process. It also quantifies the key performance characteristics of the process, including the proportion of Value Added to Non Value Added time.2 of 5
  3. 3. Supply Chain Diagnostics Most companies structure their data flows and management reports either to plan the supply chain or monitor execution, but there is a third dimension which is equally, if not more, important; this is improving the supply chain. Improving the supply chain starts with characterisation. By this we mean getting a basic understanding of the infrastructure, routes to market, dynamics and business partners involved in the supply chain. It may seem strange that organisations can not readily characterise their supply chains but consider how difficult it is for you to determine the total number of SKU’s on a global basis, the number of customers, how many suppliers you have, order lines per year, total time in system, etc. More importantly, few businesses have identified where and when the need to apply ‘Lean’ and where and when they need to be ‘Agile’. We have developed a set of data based supply chain diagnostic tools that help companies understand where opportunities exist in their supply chain and what can be done to realise benefit. These tools include:  Simple infrastructure mapping and material flow techniques  Cost / activity driver identification, i.e. the primary, secondary and in some cases tertiary sources of work  Stock profiling - what is active, obsolete and excess  Schedule adherence  Demand analysis  Service type definition and measurement The output of this analysis is often revealing. For example, some businesses sell as much as 70 per cent of their products ‘on promotion’ (and therefore require agile processes), but have systems and processes designed to support Lean. End-to-End Supply Chain Optimisation Supply Chains consist of a complex array of interdependent entities. Making improvements at a local level in a particular operational ‘silo’ may be beneficial but it will probably have unintended consequences elsewhere in the chain. Companies must take a more holistic view of the end-to- end supply chain to deliver benefits, identify where the largest opportunities exist, realise cash savings that are not available at the functional level, and to ensure that improvements in one area do not result in costs elsewhere. End-to-end optimisation should also include business partners. For example, Unipart uses its ‘Hearts and Minds’ programme to work with customers in the same way that its Ten(d) To Zero Supplier Relation Management encourages benefits delivery across inter-company boundaries. End-to-end optimisation considers all aspects of the value delivery chain and therefore includes inventory deployment (where, how much and in what form stock should be held), production strategy (should products be made to stock (MTS), make to order (MTO), etc), how process steps should be balanced, capacities required, systems functionality, data availability, and where outsourcing would be a viable option, to optimise the delivered cost per unit. The ‘Lean tool-box’ There are many tools developed to support a Lean environment, and the majority of these are equally appropriate to an Agile environment and are therefore essential for developing a ‘capable supply chain’. Key tools include Creative Problem Solving, ‘5 S’, Standard work, Communications cells, Visual management, and several others. In our experience, the deployment of these tools depends more on the culture and capability of the management teams, than on the ability of the workforce. It therefore follows that changing cultures (mindsets and behaviours) is a key element of implementing capable supply chains.3 of 5
  4. 4. Capable Supply Chain Analysis We saw in article 1 of this series how important it is for a supply chain to support the strategic goals of the business. (link to article1). Therefore, the supply management system should enable the development of plans which support business goals, monitor the viability and execution of plans and schedules at all levels and simultaneously capture the data required to drive continuous improvement. In addition, we need to track performance against targets and react when performance is outside control limit rules. This latter point is a key element of Six Sigma. Process Capability Indices (Cpk’s) can be developed that show how likely or capable the process is of delivering results within prescribed customer limits. For example, a capability index of 1.0 means that the process mean is three standard deviations from the nearest customer specification limit. This concept can be applied to the entire supply chain. If your Cpk is 1.0 then your process may need attention. If it is 1.5 you are on the path to excellence. And if it is approaching 2, then you have an outstanding process. Determining capability is appealing as it means that we know when a process is running well or when some work is required. We are gathering data to help us, and this means that we can design a process that is capable for the task – removing the potential for crises! Even so, we need to relate performance back to the end-customer. The key questions are: Can everyone in the supply chain see the effect of their performance on customer service? Do they understand whether they have done enough to fix a problem? What is the overall process capability (assessed by comparing the process variability to customer needs)? Supply Chain Excellence Framework Unipart has developed a Supply Chain Excellence Framework which has been deployed to help companies identify best practice, determine their current state through the use of internal and external audits, and develop a road map for improvements. The framework typically consists of 5 core elements, (although, it can be up to 10) each containing a number of sub-categories. Core elements include:  Strategy development and deployment  End-to-end supply chain management  Competence and people development  Systems and technology  Continuous improvement and sustainability Within each element is a set of specific topics. Each topic has six range statements which indicate the typical characteristics and features of companies at Strategy development each level of development. These statements also include suggested Key Performance Indicators (KPI’s) 4 and attainment targets. A typical output is shown in Figure 2 and helps identify the areas requiring the most attention. In our experience this is often in the area of competence and people development. 0 It is worth pointing out, finally, that the ‘capable supply chain’ techniques we have been discussingContinuous Improvement and sustainability E 2 E SC management -4 Figure 2. The areas of strength and weakness in a companies supply chain Systems and technology Competance and People development4 of 5
  5. 5. in a manufacturing environment can be applied with great success to administrative and clerical environments, and to support services such as accounts, HR and even IT. Conclusions There are many tools and techniques available for implementing capable supply chains. These are well documented, and supported by many consultancies. However, in our experience, the major issue in implementing these processes in any business is the culture in which the change is being attempted. Some businesses have a culture of support and collaboration, and will adopt new techniques and philosophies quickly. Other organisations operate in silos and are less able to cooperate constructively with other parts of the supply chain. A recent report by Cranfield School of Management confirms this by concluding that “people barriers are much higher then technical barriers. (1) End-to-end thinking has a powerful affect on supply chain cost. Companies that use this approach can capture savings that are simply not accessible to those that only optimise within functional or regional silos. The challenge is to ensure that managers can see the potential benefits and are energised to implementing the necessary changes – often in the face of contrary attitudes and behaviours. Unipart Expert Practices As the consultancy arm of Unipart Logistics, Unipart Expert Practices (UEP) provides supply chain consulting services. UEP has particular areas of expertise in process re-design, sustainable employee engagement, supply chain strategy, design and operation. UEP’s clients include Shell, Home Delivery, ESAB, Network Rail & Sky. The next articles in this series, together with any other publications from our quarterly publication Living Logistics are available from the Thought Leadership section of our web site. www.unipartlogistics.com/consulting For more information contact: Unipart Expert Practices Unipart House, Garsington Road Cowley, Oxford OX4 2PG Tel: +44 (0) 1865 384690 uep.enquiries@unipart.co.uk or visit our website: www.unipartlogistics.com/consulting (1) Supply Chain Strategy in the Boardroom. 2010. Cranfield University5 of 5