September 30, 2013
Lean is not just about production any more—it can generate positive results across the value chain and have a profound effect on the long-term sustainability of any enterprise. In a successful next-generation lean initiative, operational efficiency drives increased productivity and better operating margins, leading to increased revenues. All of which can significantly increase cash flow and working capital, providing a cushion to ensure stability in a tough economy—and pave the way for capitalizing on competitive growth opportunities during both challenging and prosperous times.
1. Commit to lean on an enterprisewide basis
The primary goals of traditional lean manufacturing—drive out inefficiencies, reduce costs and waste, increase value and decrease variability—remain the same today. Only now these goals need to be embraced across the extended enterprise—both internally and externally with supply chain partners.
In today's dynamic business environment, virtually all operation processes are interrelated and disruptions along the extended supply chain need to be responded to quickly and in real-time. Confining lean to a single manufacturing facility or production area is not sufficient. Lean initiatives cannot work if done in isolation because changes made in siloed functional areas, such as manufacturing, distribution or transportation - or even at the local, regional or country level—can have unintended consequences that can lead to problems or increased costs in other areas.
The most effective lean initiatives focus on the extended supply chain. For this reason, companies are deploying advanced modeling tools that can consider all costs and provide optimised strategies across a comprehensive supply chain network of distribution centres, plants, contract manufacturing partners, sourcing options and logistical lanes.
2. Understand what drives your supply chain
Understanding demand and, just as importantly, understanding the variability of demand, is the essential removal of waste—or muda—a Japanese term for wasteful and unproductive activity and a key concept in the Toyota Production System.
Today's variability is very different—it is often powered by economic and market forces outside one's own control. These include consumers opting for more value-priced products, a need for more product innovation, competition on a global scale, seasonal variations and increased promotional activity.
In difficult times it is critically important to reexamine your enterprise's forecasting and demand planning processes and challenge historical assumptions to better understand what is driving demand. Lean manufacturing initiatives have a much better chance of delivering the expected benefits by enterprises that are able to quickly and profitably respond to changing demand patterns. This requires a demand management and shaping process that is statistically sound and collaborative across the planning, sales, marketing, product management and financial organizations.
3. Tie demand signals tightly to manage supply
Once demand drivers are clearly understood, the next step is to use the demand to drive the development of a connected supply chain plan from distribution to production, to raw materials through to optimized sourcing.
An optimized and connected plan can eliminate the significant levels of waste—muda—that exist in most supply chains. Waste comes in many forms, including: high production change over cost and excessive down times due to inefficient scheduling, excessive materials and finished goods inventories that build over time in an attempt to keep service levels high and supply chain risk mitigated, as well as high logistics costs associated with unnecessary expediting and inefficient loads.
With one synchronized view of demand, companies can transition from push-manufacturing to pull-manufacturing driven by consumer demand, customer orders and accurate forecasting. Two critical keys to success are the ability to determine the optimum inventory policies and the ability to continuously optimize sourcing plans based on the most current demand.
4. Leverage the power of IT for global visibility and flexibility
The time, when companies could effectively manage their demand and supply chains using traditional manufacturing resource planning (MRP) principles to drive a site by site production plan based on a simplified view of constraints, are over.
Manual lean methods of the past have also proven to be inconsistent and inadequate. With complex global supply chains, enterprises need solutions that solve complex optimization problems that are simple to use, easy to deploy, and capable of responding to real-time information. They must also provide the collaboration required to drill down into demand drivers at a granular level, as well as integrate and align internal and external supply chain partners.
Today's robust supply chain software solutions integrate industry best practices, which are designed to help users manage even the most complex enterprises at today's rapid speed of business. Global visibility and the flexibility to respond to economic and market changes in real time are among the most strategic initiatives any company can deploy to remain competitive.
5. Align the lean initiative closely to operational plans and corporate financial goals
One of the most critical elements of an effective lean strategy is to tightly align demand and supply chain operations with the enterprise's strategic business plan.
The role of financial performance management is to plan, direct and oversee capital expenditures, monitor and control cash flows and invest as appropriate to ensure profitability and revenue goals are met.
Therefore, it is essential that financial management be an integral participant in the lean initiative and be a key part of the information flow, transparency, visibility and critical decision-making processes. To maximize operational efficiencies, enterprises should incorporate Sales & Operations Planning (S&OP) processes into their lean manufacturing initiatives on an enterprise-wide global scale to enhance supply chain visibility, eliminate performance surprises and achieve more integrated business planning and management.
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