How to create a lean manufacturing supply chain using some tips that work in the real world. By Antony Bourne
Most organisations are looking for ways to streamline their supply chain and create a seamless process – after all, no organisation wants to waste money, time or resources. As part of this, there is move towards creating what is often referred to as a ‘lean’ supply chain, particularly within the enterprise manufacturing sector, where organisations can drastically boost their bottom line.
But what is a lean supply chain and why is it important? Lean in a supply chain context is about a holistic view of procurement, manufacturing distribution and sales order processing. The aim is to simplify the complete supply chain process from production through to the distribution, and everything in between, to create a more effective and unified structure. While some level of enterprise technology is needed, to view the organisation in an integrated context rather than as functional islands, technology alone won’t cut it. Manufacturing executives also need to start thinking in lean supply chain terms. There are entire books and training courses devoted to lean supply chain practices, but there are also a few relatively simple steps that enterprises can take.
1) Unify the business by understanding goals and avoiding silos
At the beginning of your journey towards a lean supply chain, it’s essential to take the time to understand the operations and processes, how they work and why they are needed. Only with this insight can you start to make decisions about what changes and measures need to be implemented to reduce non-value-added work. It’s also important to look at the organisation as one entity, rather than as different silos, as each department will often have a different idea on what is considered lean. For example, it is common for there to be some level of conflict between the need to be efficient in production and the need to be responsive to customers. Manufacturing departments tend to schedule for maximum efficiency by producing very large batches. This is a good way to minimise the cost per produced unit, but it runs the risk of conflicting with the goals of the sales team. While manufacturing is rewarded for efficiency, the sales department is rewarded for serving the customer, which in turn leads to increased revenue and commissions.
With large production runs it can also leave the sales team slightly tied and unable to meet customer demand as their needs often change and fluctuate during the year. In addition, it also means that large amounts of capital are tied up in finished product inventory, long before any revenue can be realised. And if the product is perishable such as food or drink, it places greater pressure on the sales team to ensure goods are not left sitting on the shelf.
However, by unifying the manufacturing and sales teams, enterprises can create a leaner supply chain structure that feeds into the efficiency of both departments. Rather than having a manufacturing department that operates as a silo, making unilateral decisions, production should be linked to sales projection, not only will this help to reduce waste, it will ensure the sales team is supported in its goal. To encourage this, other metrics and KPI’s can also be introduced that are holistic and based on customer service levels and inventory turns, rather than just production output. This will not only create a lean supply chain model, but it will ensure the business operations are unified, customer service is improved and there will be a notable ROI.
2) Resolve any disconnect with external suppliers
One of the greatest bottlenecks to improved supply chain efficiency is often the disconnect between internal scheduling processes and those of external suppliers. To some extent changes and measures around this are limited, as external supplies will have their own protocols in place. But, the disconnect is often around the final stages of shipment, such as the packaging, as suppliers need final numbers and statistics etc. In this case, technology can play a pivotal role in eliminating the constraint. By keeping communication open and creating a supplier portal, teams can prepare in advance, know their own schedule/production plan and make any amends accordingly. This negates the need for a lot of the manual and administrative work.
3) Master the ability to forecast with AI
Forecasting is also an essential element and failing to give it the attention it deserves is often the undoing of even the most aggressive lean supply chain projects. If you think of a demand forecast, the more accurate it is, the better positioned you are to supply to the market. Conversely, basing a lean supply chain effort on an inaccurate demand forecast is like building a house on a foundation of sand.
By using artificial intelligence (AI) businesses can improve forecasting to ensure they have accurate levels of insight that will fundamentally help to improve the supply chain model. This technology is quickly becoming a game changer in the industry as it not only improves business operations, but it can enhance customer service.
If you can increase the demand forecast accuracy, you can decrease inventory and increase the level of customer service at the same time. Although forecasting sounds like a major challenge, and to some may seem impossible to accurately predict, AI has closed this gap.
However, most companies tend to divide responsibility for this among multiple departments, which limits its impact and can mean it falls between different chairs. It is imperative that manufacturing enterprises assign demand forecasting to an independent party within a company that has more of a holistic point of view and a thorough understanding of the technology behind AI.
Simple steps such as these can go a long way in helping to deliver a lean supply chain. There are also technologies available that can also support, but there is no application that will, by itself, solve this. Enterprises that first embed these simple steps will be in a far better place to leverage the benefits.
Antony Bourne is Industries President at IFS, leading a team of global industry experts who cover the IFS focused industries, and support sales, marketing and partner enablement. IFS develops and delivers enterprise software for customers around the world who manufacture and distribute goods, maintain assets, and manage service-focused operations. The industry expertise of its people and solutions, together with commitment to its customers, has made it a recognised leader and the most recommended supplier in its sector.