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Extending Lean to Your Supply Chain

By Dave Grubb

I know of no companies that have adopted lean principles in their manufacturing that are not encouraged by their results and are further committed to continuous improvement programs. Many of those companies have seen the value of pushing those same lean principles into nonmanufacturing areas and are being rewarded by improved productivity there as well.

Many of those same companies, however, are failing to tap into the tremendous opportunity they have by extending lean into their supply chain. For the purpose of this discussion, we will consider the supply chain as both suppliers and the logistic links that bring those goods to your point of use.
Prior to approaching any of your suppliers with your thoughts of lean, I recommend that you value stream map the entire process beginning with your vendor and ending at your point of use.

Decide how you want the process to work to best reduce waste. This will allow you to present a comprehensive plan to your vendors rather than simply having a philosophical discussion. Keep in mind that this is an ongoing process and it might not be practical to suggest moving immediately to what you see as the “final” state. Be prepared to discuss the progressive steps and don’t lose touch with the understanding, that to be successful, this must be a cooperative and mutually beneficial plan.

Be prepared to discuss with them every aspect of your business relationship, including: exactly when and where they supply their product; how that product is packaged; the details of tracking, invoicing and payment. Accept nothing in the current process as given or fixed.

Here is a simple example to demonstrate this process: Components that you buy as assemblies, and are shipped to you as assemblies, but which you don’t use as assemblies. In your operation you take them apart to attach at different locations on your assembly line and then eventually put them back together prior to shipping. Why not receive them unassembled and deliver the separate components to their particular point of use? Your vendor (and you) saves the cost of their assembly and you save the cost of taking them back apart — plus each part can be delivered directly to its point of use.

Now, let’s take that one step further and introduce the logistic link of the supply chain. What if those parts were not delivered to your receiving dock and placed in your warehouse prior to being distributed to your production area? Instead those parts are delivered directly to the point of use by your supply chain on a just-in-time basis.

Obviously to make this process work effectively, your supply chain must be tightly linked to your operations — and be comprised of dependable partners. The information transfer portion of the process becomes extremely important and to minimize cost must be integrated into the data system linking all elements of the supply chain — and that includes your accounts payable department. Keep in mind that this does not have to be in place to start but should be part of your “final state” plan.

Figures 1 and 2 show process maps for the current state (Figure. 1) and future state (Figure 2) for the supply of small parts to assembly lines. These are “real case” maps and Figure 2 represents only the first step in the lean process of supply to these assembly lines. Since most of these parts are nonbill of material items, the replenishment at the line is triggered by visual signals. Lines are replenished on a shift basis with a maximum of two shifts of inventory on the lines.

The final state of this process will include electronically linking all of the current paper links and automatic releases from vendors. Parts will arrive prekitted to conform to how they are used at the line, all presented in returnable totes with no scrap packaging created at the line.

As you move through the value stream mapping, you will quickly be confronted with the reality that warehouse functions are huge waste centers. What happens in a warehouse that any customer would be willing to pay for? To compound that waste, your suppliers are most often pulling your orders from their warehouse and shipping them to your warehouse where you repeat the entire valueless process of moving, storing and moving again.

Imagine for a scenario where your supplier is producing your parts at high-quality levels on a just-in-time basis, placing those parts in returnable totes in exactly the position you want them presented to your people, loading directly onto delivery trucks and delivering those goods directly to your point of use.

Some of the benefits in this process:

1. No internal warehouse space is needed.

2. The internal handling and rehandling is avoided and you can concentrate on what you do best, which is not hardware distribution.

3. The entire supply chain is shortened, inventories are reduced and your cash flow improves.

I have to insert a qualifier here; transferring similar functions to a third party or a Tier 1 supplier only has value if it results in reduced cost and/or improved performance. If not you are simply making yourself feel good by hiding the pea under a different shell. Keep in mind that the purpose is the reduction of waste in the entire process — not simply moving it out of sight.

These programs do not happen over night, and they don’t happen on their own — nor are your suppliers likely to come to you and suggest them. It will be up to you to implement these programs and manage their (and your) success.
There are two very basic ways you can begin this implementation:

1. Seek out and develop new vendors that have truly adopted lean principles.

2. Convince valued existing vendors who have not implemented lean principles to begin the process.
What I have defined above with a just-in-time point-of-use delivery is approaching the “final state” and that isn’t where you will begin. But begin you must! Not everyone is large enough to leverage their suppliers into this “final” state, but without a doubt every one of your supply channels can be improved through waste reduction of some type.
The initial focus must be on “Tier 1 Suppliers.” These are suppliers that deliver materials directly to you. As we look further into the supply chain, we need the same commitment from Tier 2 and lower suppliers also, but in most cases we are dependent on the Tier 1 suppliers to manage those lower levels.

At first glance this all seems both logical and manageable. In reality it is not quite that simple. “Leverage” can be a wonderful ally in helping your vendors “see” the wisdom of your plan — but in reality your Tier 1 suppliers can be larger than you are and your “lever” is disappointingly short. When armed with a small stick, there can be great value in mastering the art of pushing a rope.

Those vendors who have not implemented lean programs may well be best encouraged to do so by being invited into your operation and shown what you are doing. Showing them documented results that you have realized can be a potent incentive for them to get onboard. It is to your benefit to offer to help them begin the process by going into their operation and helping them identify waste and possible solutions. This provides an additional benefit: Your people get to know their suppliers better, improving understanding and communication.
In the event a vendor shows limited interest in embracing lean, look for new vendors who already have adopted lean and are pushing those principles out to their suppliers. To survive in a competitive market, this decision is not optional.

Ed. note: Dave Grubb is a manufacturing consultant. David C. Grubb Associates, LLC offers a broad range of engineering and management support for the design and operation of cabinet, flat panel and furniture plants. He can be reached at (215) 397-8236 or via e-mail at dcg@grubbassoc.com.