LEAN SUPPLY CHAIN

WHAT IS A SUPPLY CHAIN

A supply chain is a set of physical structures, transformation processes, and transportation flows that are used to produce and supply the product that a final customer wants to buy.

If we look at a supply chain from the customer's point of view and retrace the process to make available a desired good or service backward, we can see that there are usually the following steps:

• Picking of the product by the customer
• Replenishment of consumed products on the shelf or display.
• Transport of the product from a distribution center to the point of sale.
• Product storage in the distribution center.
• Transport from the supplier to the distribution center.
• Storage of the finished product at the manufacturer
• Production flow.
• Storage of raw materials and components from suppliers
• Transportation of raw materials and components from suppliers to manufacturing plants.

2 - SUPPLY CHAIN - PICKING OF THE PRODUCT BY THE CUSTOMER

Today this can happen in many different ways from the past:

• In an autonomous way directly from a shelf; typical examples are the supermarket, the newsstand, etc.
• From the supports of an equipped surface: stand, exhibitor, hall, parking, etc.
• From hand to hand: express courier, postman, salesman.
• Internet; downloading applications from an app store, or dedicated applications on a mobile phone or a desktop.
• Direct delivery of the purchased goods at the factory, in the installation place, and at home.

Economic trends of the last 50 years

Given the increases in the costs per square meter for the management of retail spaces (especially in urban centers), in recent years there has been a tendency to increase the number of items on display and consequently to lower the stocks of products displayed for sale. The Anglo-Saxon large distribution has made school in this field and has indirectly generated a wave of new parameterizations of the supply chains that have effects all the way back to the raw materials markets.

3 - SUPPLY CHAIN - REPLENISHMENT OF THE CONSUMED PRODUCT ON THE SHELF OR DISPLAY

With the increase in the number of references displayed at the point of sale and the decrease in stocks of products, the need to put the goods sold back on the shelf has increased to such an extent that today in the points sales we have the professionalism of stocking the shelves.

Given the cost of human resources and the need to carry out the operations of refilling the shelves with maximum efficiency and timing, the manufacturer must now take care of the conception of the finished product and its storage packaging also considering the efficiency of shelf stocking.

To improve this part of the supply chain with Lean

For this purpose, the concepts of flow, 7 muda, and just in time are extremely useful to improve the efficiency and working conditions for the task of shelf stocking. An even greater improvement can be achieved by using the Kaizen concept of “think the system globally” by initiating teams with upstream suppliers to find out common points of improvement.

This can have a greater impact if applying the same methodologies for storage in distribution centers; see next point.

4 - SUPPLY CHAIN - TRANSPORT OF THE PRODUCT FROM A DISTRIBUTION CENTER TO THE POINT OF SALE

The product's distribution from the distribution centers (central warehouse) can be oriented towards a point of sale or, as in the case of online commerce, towards a final customer.

Point of sale case

In the case of transport from a distribution center to a point of sale (e.g. supermarket chains), the logistics vehicles used are proprietary (own vehicles) as the type of products transported, the frequency of supply, and the confidentiality of its distribution strategies are fundamental elements of the corporate strategy.

Towards the final customer case

In the case of transport to the final customer, it is more convenient to rely on a logistic network made up of little private owners. This solution is preferable as the quantity and variability of the final delivery points would be so high that the investment in owning the means of transport and the dedicated personnel would not be always sustainable.

The important elements of this mode are:

• The correct choice of the type of transport
• Loading strategy of the means of transport
• Milk-runs
• Deliveries organization
• IT software for the system organization

To improve this part of the supply chain with Lean

It is very important to utilize the 5S methodology for the organization of the loading bays of the distribution center and the unloading bays at the point of sale.

For the organization of the routes, it is important to refer to the Just in Time methodology, enriching it with its logistic integrations such as milk runs.

Another important methodology to consider is that of cross-docking. This methodology is particularly important in order to eliminate storage and the consequent Muda of storage.

5 - SUPPLY CHAIN - PRODUCT STORAGE IN THE DISTRIBUTION CENTER

Product storage is one of the elements of the supply chain that has experienced a real revolution in the last 20 years and this happened as a consequence of the changes in the following parameters:

1. Lowering of the average level of stocks
2. Increase of the distributed products rotations
3. Reduction of delivery times to the customer
4. E-commerce

Due to the variation of these listed parameters, what were once called warehouses are now called distribution centers.

To improve this part of the supply chain with Lean methodologies

If you look at modern distribution centers you can understand how these have been designed and are managed by faithfully adopting Lean concepts.

The methodologies used to design a distribution center are:

• Value Stream Mapping, to identify the main value flows
• Pareto Principle (80/20) applied to Lean to set up storage areas based on product rotations.
• Just in Time organization methodology
• Prevention and elimination of wastes using the 7 Muda grid.
• 5S for the organization of work in receiving, picking, and general workstations
• Electronic and non-electronic Kanban.

Note on automatic warehouses

From a Lean point of view, automatic warehouses are not always the ideal solution because once the automatic warehouse is built it becomes monolithic, not modifiable, not improvable, and a fixed cost forever.

Automatic warehouses can be the optimal choice only in those cases where the dimensions of what is stored are more or less always the same and the incoming and outgoing flows are not subject to significant seasonal or market variations. By varying these parameters, the investment in an automatic warehouse can become an investment that does not generate economic benefits. It’s necessary to point out that from a Lean point of view, a warehouse is a Muda, that it is a waste, may be necessary but in the end, it is and always will be a waste.

The warehouse is not a Muda only if the business consists precisely of selling the services of the warehouse; it’s the case in which the added value that the company invoices to its customers is made of warehouse services.

6 - SUPPLY CHAIN - TRANSPORT FROM THE SUPPLIER TO THE DISTRIBUTION CENTER

Transportation from supplier to distribution center has been subject to radical changes like the rest of the supply chain.

The tendency to have the finished product collected by the customer has been decreasing as the need to make deliveries to customers more frequent and for lower quantities has increased.

Generally, this transport is managed by the logistic means of the manufacturing company, this is because it can integrate the outbound logistics flows with the inbound ones from the suppliers of raw materials and components.

To improve this part of the supply chain with Lean

The reference Lean methodologies that are used to optimize and improve this part of the supply chain are:

• Supermarket concept
• Choice of containers for the finished product functional to the Lean logistic
• 5S
• JIT
• Standardization

These methodologies must lead to obtain the following results:

• The correct choice of the type of container for the finished product and for the container that must carry the finished product: pallets, cages, ad hoc containers.
• The correct choice of the type of means of transport
• Optimization of the loading strategy for the means of transport
• Integration of the outbound milk run (to distribution centers) with inbound milk runs (from suppliers of raw materials and components)
• Organization of scheduled deliveries.
• Visual availability of the logistic organization through IT software networks.

7 - SUPPLY CHAIN - STORAGE OF THE FINISHED PRODUCT AT THE MANUFACTURER

In this segment of the supply chain, the activity is focused on the storage of finished products awaiting shipments to distribution centers.

The finished products in most cases are subjected to special packaging precautions in order to preserve the product in the period that it will pass at the warehouse, during the journey to a point of sale, and during loading and unloading from trucks.

For each type of product, it is necessary to study the type of packaging that respects the criteria of product protection and the cost-effectiveness of storage and transport.

The storage of finished products is an important part of the supply chain for the supply of the added value requested by the customer but for this reason, it can become a problem when for example:

• The sales forecasts are wrong and therefore the warehouse is filled with unsold goods.
• The goods in the warehouse are perishable (for example the food sector)
• The goods in the warehouse can quickly become obsolete (for example of the fashion sector)
• The inventory value is so high that it sucked up financial resources otherwise utilized for other company departments.

To improve this part of the supply chain with Lean methodologies

We must start from the concept that the warehouse is a Muda (waste) and therefore it must either be eliminated or reduced to the lowest possible levels without the risk of running out of stock.

If it is not possible to eliminate it (this does not mean outsourcing it to another third company) then it is necessary to ensure that the entire supply chain within the production plants is parameterized appropriately; in fact, the warehouse structure and its parameters are nothing more than a mirror of the supply chain parameterization.

To achieve this goal, it is necessary to start with the definition of:

• The logistics contract
• Logistic supermarket and its inventory sizes for the finished products

The logistic contract

It is a formal signed agreement between logistics and production that defines the supply chain products needed for the contract period and the agreed capacity level by which the production commits and organizes itself. The contract is revised and renewed periodically.

Logistics Supermarket (building of)

The warehouse must be structurally and physically revised according to the concept of a logistic supermarket.

A logistic supermarket is very different from an ordinary warehouse; we refer to the explanations on another page of this site.

The concepts and methodologies used to design a supply chain supermarket are:

• Takt Time of the market demand
• Value Stream Mapping, to identify the main value flows
• Pareto Principle (80/20) applied to Lean to set up storage areas based on product rotations.
• Just in Time organization methodology
• Prevention and elimination of wastes using the 7 Muda grid.
• 5S for the organization of work in receiving, picking, and general workstations
• Electronic and non-electronic Kanban.

8 - SUPPLY CHAIN - PRODUCTION FLOW

This part of the supply chain flow concerns the core business of the company, i.e. that part of the company that deals with the production of value for the end customer. The flows that are considered are those that go from picking up raw materials, passing through production, and ending with the storage of the finished product.

Labor-intensive industries and capital-intensive industries.

The production of value in a supply chain can be fundamentally delegated to two types of industries; labor-intensive industries or capital-intensive industries.

The difference between the two types of industries lies in the way in which they aggregate the added value that the customer is willing to buy.

In industries with a high use of labor, the added value is aggregated by the work of the hands of operators while in the process industry, the added value is mostly aggregated by automatic and semi-automatic production lines and plants.

Improving the supply chain segment with labor-intensive production lines

In this type of context Lean methodologies help to obtain improvements in the areas of:

• Product cost
• Working capital reduction
• Lead Time Reduction
• Quality
• Customer Service Level improvement
• Safety improvements
• Employee satisfaction

This is achieved by using the JIT model derived from the Toyota Production System and the specific methodologies related to each pillar of the model.

Industry examples: fashion, automotive, electromechanics, household appliances, thermotechnics, etc.

Each of these pillars corresponds to a set of methodologies and tools that will be used according to the needs of the area and the goals that the company must achieve.

Results can be achieved more quickly by applying Just in Time methodologies as part of an Operational Excellence company program.

The utilized methodologies could be the following:

• Takt Time; production line and sub-assemblies aligned to the market demand
• Value Stream Mapping, to identify the main value flows
• Pareto principle (80/20) applied to Lean to parameterize and set up supermarkets of components and intermediate semi-finished products .
• Work organization methodologies; JIT, TWI, etc.
• Line edge logistics integrated with Mizusumashi flows.
• Prevention and elimination of wastes using the 7 Muda grid.
• 5S; for the organization of workstations and sub-assembly cells.
• Electronic and non-electronic Kanban.
• Standardization
• Auto-quality matrix.
• Hoshin Kanri
• Gemba Kanri

Improving the supply chain segment with capital intensive production lines

In this type of context, it is possible to improve the production lines' performances by adopting the Lean methodologies with a TPM approach. Results can be achieved more quickly by applying TPM methodologies as part of an Operational Excellence implementation program.

The improvements that can be obtained are the following:

• Product cost reduction
• Micro-stops reduction
• Quality defects reduction
• Efficiency (OEE) increase
• Production batch reduction
• Improve in safety
• Employee satisfaction
• Customer Service Level improvement

These results are obtained employing the TPM Total Productive Maintenance model developed in Japan in the 1950s (and used ever since) in industries such as Toyota, Nissan, Mazda and their suppliers.

Industries Example: agro-food, chemicals, plastics, cosmetics, construction, pharmaceuticals, etc.

The methodologies used can be the following:

• Kobetsu Kaizen
• 5S
• Maintenance: Autonomous, Preventive, Predictive, Corrective
• SMED
• Losses elimination through the 16 losses grid
• Auto-quality matrix.
• Hoshin Kanri
• Gemba Kanri

9 - SUPPLY CHAIN - STORAGE OF RAW MATERIALS AND COMPONENTS FROM SUPPLIERS

Transportation from suppliers to the manufacturing company's warehouses is another segment of the supply chain that has undergone profound transformations over the last 20 years.

The tendency to have the supplier bring in components and raw materials has been decreasing because of the increased need to have more frequent deliveries for lower quantities.

In terms of storage, here too, as in the former “finished products warehouse” (see above for explanations), there has been a transformation from a classic raw materials warehouse to a raw materials supermarket.

An important change has also occurred with the introduction of the supplier qualification process, this allows a higher speed of withdrawal and availability of raw materials and components through the issuance of "free pass" authorizations that bypass quality and quantity control of the deliveries at the company bays.

The relationship with suppliers now includes in many cases an agreement on inventory stock levels at suppliers facilities regulated by logistics contracts between the manufacturer and supplier.

Stocks are now available in supermarket-type structures that can be monitored remotely, even (through electronic and non-electronic kanban systems) signaling to the suppliers the need to launch back into production what was taken from the supermarket.

To improve this part of the supply chain with Lean Methodologies

The reference Lean methodologies that are used to optimize and improve this part of the supply chain are:

• Takt Time
• Value Stream Mapping
• Supermarket concept, its sizing and structuring for raw materials and components
• 5S
• JIT
• Standardization

These methodologies must lead to obtaining the following results:

• Correct choice of the type of container for raw materials and components: pallets, crates, ad hoc containers, tanks.
• The correct choice of the type of means of transport
• Optimization of the loading strategy of the means of transport
• Integration of the inbound milk runs (towards the manufacturer) with outbound milk runs (from the finished product warehouse to the distribution centers or customers)
• Organization of arrivals in the scheduled unloading bays.
• Withdrawal organization parameters, visible on IT infrastructure.

10 - SUPPLY CHAIN - TRANSPORTATION OF RAW MATERIALS AND COMPONENTS FROM SUPPLIERS TO MANUFACTURING PLANTS

The transport from the supplier to the manufacturing company is now more and more structured in milk-runs mode (i.e. organizing scheduled logistic routes) that try to integrate when possible both outbound and inbound flows.

The tendency to have the raw material and components brought by the supplier has been decreasing as the need to be delivered by suppliers for shorter and more frequent time periods has increased.

Generally, this type of transport is managed by the logistic means of the manufacturing company, because it can integrate the outbound logistics flows with the inbound ones from the suppliers of raw materials and components.

To improve this part of the supply chain with Lean methodologies

The reference Lean methodologies that are used to optimize and improve this part of the supply chain are:

• Supermarket concept
• Milk-runs concept
• 5S
• JIT
• Standardization

These methods must lead to the following results:

• The correct choice of the type of container for raw materials and components considering that the ideal container is the one that can get on a truck and that can be unloaded directly on the production line.
• Correct choice of the type of means of transport.
• Optimization of the loading strategy of the means of transport
• Effective utilization of the company transport means.
• Better control of the logistic organization's parameters.