Download White Paper: What’s New in Lean
The Toyota Production System was created almost 70 years ago by Taiichi Ohno. (There is no exact date but it happened sometime between the end of WW2 and the mid 1950’s.) And 70 years later it is still a very active operations management practice. We teach it at the University and people are using Lean tools and adhering to the Lean philosophy across the globe. (Note this happened as many other operations management method burned out including Six Sigma, Quality Circles, Reengineering and others.)
There are many definitions of Lean. After 21 years as a Lean Consultant and 10 as an Operations Management Professor, my definition is, “the identification and elimination of non-value added steps in a process.” The non-value added steps are often called the 8 wastes. Lean is implemented by the use of process improvement tools such as 5S, process flow mapping, value stream analysis, time studies, spaghetti maps and quickchangeover.
So after 70 years, what is new? How can Lean evolve? I propose that the extension of Lean to the Supply Chain is the answer. We have a name for this… it is called Supply Chain Management; which is the flow of information, material and financial resources (money) from suppliers (and their suppliers), through your company to your customers (and their customers) for the purpose of serving the end-consumer in the most effective way possible to balance costs and service.
Here is how you can extend the concept of identifying and eliminating non-value added steps to your supply chain.
Supplier and Customer Collaboration
The foundation of supply chain management is collaborating with your supply chain partners. Examples of collaboration can include:
- Collaborative forecasting, planning and replenishment (CFPR)
- Joint product development
- Vendor managed inventory
- Business process outsourcing
Collaborative forecasting and planning is the process of supply chain partners agreeing on the demand forecast of the consumer or other key point in the supply chain and jointly creating their purchasing and production plans. By agreeing on one forecast supply chain partners all have the right inventory to meet this forecast and, perhaps more importantly, don’t blame each other when the forecast is wrong… as all forecasts are, to some extent. CFPR is an effective way to fight The Bullwhip Effect.
Joint product development is the classic way that suppliers and customers collaborate. Instead of a company developing all aspects of its new product, it works with suppliers to get ideas on what they do best and integrates their designs into its product to either increase functionality, reduce cost or enable faster-delivery strategies, such as modular design.
Vendor managed inventory (VMI) is a system where suppliers handle the replenishment of their parts at a customer’s facility. The big advantage for the supplier is the visibility they receive into real demand at their customer. This allows them to create better forecasts because they are using demand not shipments.
Business Process Outsourcing: The ultimate in collaboration is to allow a service supplier to take over one of your processes, where they are specialists and can apply economies of scale and technical expertise. This was very common in the information-technology industry, where IT outsourcing firms took over large portions of their clients’ computers systems. It has also been implemented in supply chain functions such as sourcing and transportation. A very popular way to outsource transportation is by using third party logistics providers (3PLs) that will arrange your freight shipments, consolidating shipments from multiple customers to fill up trucks.
When Does Collaboration Not Make Sense?
Collaboration seems like a great win-win for supply chain partners but it often fails. Here are ways suppliers and customers can make it work:
- 80/20 suppliers or customers
- Strong information technology organization
- A long and trusting relationship
Working with suppliers on forecasting may seem great but in reality you will be dealing with many different data-streams coming into your company. In today’s business environment, even with open data availability, it is unrealistic to expect that you can pull in forecasts from all customers or send this information to all suppliers. Instead, you should focus your efforts on the very few vital customers or suppliers that control a large volume of your sales or spend.
Supply chain management is driven by technology. If your supply chain partner does not have a great information technology organization, it is unlikely you will be able to effectively share data.
The last requirement of effective supply chain collaboration is trust. When you work with a company in a close, collaborative relationship, you must be willing to share sensitive data. This includes sales forecasts, product development plans and perhaps most importantly, your weaknesses and vulnerabilities, or your gaps, which your supply chain partners should be filling in. Therefore, working closely with suppliers or customers who work with your competitors, is risky and probably not sustainable.
Quantitative Supply Chain Decisions
There are quantitative supply chain decisions that work very well within a Lean framework because they are based on optimization models that seek to maximize sales/profit or minimize cost. These are:
- Inventory
- Facility location
- Vehicle routing
In the Toyota Production System, inventory is one of the 8 wastes. Yet there is inventory throughout all supply chains. Large appliance and vehicle manufacturers have minimized the inventory in their factories, but largely by pushing inventory carrying requirements upstream to suppliers or downstream to dealers / wholesalers / retail stores. So, if you have to carry inventory, you should optimize it, which is the balance of having inventory in-stock for your customers so you don’t lose sales, but not so much that the cost of carrying is greater than the profit you will earn from that last additional sale. This is the familiar diminishing return curve.
If you have multiple factories or warehouses, you should ask yourself if they are in the right location. Warehouses, in particular, should be located to minimize the total cost of owning/renting/operating the facility, the inventory held in the facility and the distance travelled from suppliers and to customers. In supply chain speak, we call this “network optimization.” By optimizing your network you can be close to customers while minimizing your supply chain costs.
One of the 8 wastes in the Toyota Production System is “transportation.” In Lean Operations this is focused on transportation within the factory. However, much greater costs exist outside of the factory. In fact, about half of the total cost of a product sold to an end-customer is the cost of transportation. Therefore, it would be wise to make sure your transportation network is optimized. This can be done with “rules of thumb” such as the teardrop route design or transportation management software (TMS) that creates optimal routes.
In summary, supply chain management has created multiple methods to reduce waste in your supply chain. Therefore, even if you have been working on being Lean for decades, you have a lot of improvement opportunities still ahead. The journey continues!
"*" indicates required fields
“Our experience with Supply Velocity was one of the best values we have ever had from a consulting project. Cyril Narishkin brought a structured lean methodology, invaluable experience and engaging facilitation skills to help us streamline a very complex and disjointed sales order process. Just as importantly, our team now has the knowledge and process competencies to address other business improvement opportunities going forward.”
“The role of the Erie Insurance Marketing Department has been evolving over the past several years – from a support role to a more critical role of driving growth in our organization. Because of our increased workload and desire to prioritize the most critical projects, we hired Supply Velocity to teach us the skills of Lean Six Sigma.Participants included the Promotions, Market Research and Agency Licensing sections of the Marketing Department.
We learned valuable tools to help us to prioritize based on the voice of the customer.
I firmly believe these skills made a difference in how we work every day. We are moving new projects forward, eliminating or changing ineffective processes, and we are a much stronger department. We continue to use the tools to help us with our highly-complex and time-consuming projects. Supply Velocity helped us to accomplish our goals.”
“Anheuser-Busch Precision Printing had been implementing Lean Operations on our own for the past two years. We needed to move faster and partnered with Supply Velocity, Inc. Through Supply Velocity, Inc.’s mathematical workflow balancing and visual management tools, dramatic improvements were achieved. The entire converting operation was rearranged based on Lean principles. The result is a 20.6% productivity improvement, enabling us to operate with 23 fewer people in production.”
“We used Supply Velocity to rethink our sales process. By analyzing the entire process we found wasted time in our Sales, Admin and Operations departments. Streamlining this process created extra time for each Sales Rep, allowing them to spend more time with Customers and increase the value we add. Gross profit margins are up 40%!We are now using Supply Velocity to help us rethink our entire Strategic Plan.”
“In the spring of 2003, the St. Louis Area Chapter of the American Red Cross engaged Supply Velocity, Inc. to perform a study and make recommendations to streamline office processes, maximize cash flow in purchasing and warehousing and restructure and enhance our maintenance department. Supply Velocity, Inc.’s process was methodical, flexible, staff-oriented, inclusive and, above all, trackable.In the last six months, our Chapter has realized expense savings of over $380,000 annually, and significant improvement in intra-company service levels has been attained. Supply Velocity, Inc. will return to the Chapter periodically throughout the next 18 months to audit our newly implemented processes. We have been pleased with our results and Supply Velocity, Inc.’s professionalism.”
“Supply Velocity has provided the technical expertise and political capital to move our project forward. They have just the right amount of push and the right amount of support. Supply Velocity has helped us make real changes to improve efficiencies in logistics without jeopardizing our performance. We’re happy and our customers are happy.”
“Supply Velocity has helped Clean succeed in a number of ways. First, they provided the education that kicked off our Lean Process Improvement journey. They also facilitated a number of large supply chain and process improvement projects including: 1) building quality into our direct-labor productivity incentive program, 2) designing the layout of our garment warehouse, and 3) streamlining our route service process.We have integrated the methods that Supply Velocity taught us into our management and strategic planning. In the process our quality measurement has improved 22% from 2013 to 2015, we have reduced required annual labor by 2200 hours from the garment facility layout project and we’ve seen 50% decrease in error rate. Obviously the numbers speak for themselves, but just as important, Supply Velocity has been fun to work and have become true partners. They have “taught us how to fish” so our internal teams are able to implement change on their own, with the skills we learned from Supply Velocity. This relationship has been invaluable.”
“We used Supply Velocity on our Warehouse optimization project. One of the key characteristics of Supply Velocity is that they listened to our requirements and provided a clear path for our Warehouse processes using lean tools and our future sales growth as objectives.”
“Isolating a problem, finding short, and long term solutions with measurable results is what was promised and results is what was delivered by Supply Velocity. Upon launch of the Lean Six Sigma Selling System, we knew more about our customers, our products, and were able to create a solid plan to increase sales of our most profitable products. Within months of implementation, our booked sales jumped 60% and our most valued customers were getting direct, active, and calculable attention.”
“Supply Velocity gave us the tools to analyze our business and processes based on the facts and numbers versus our perceptions. Our common quote was “Let the numbers lead us”. The key for our organization was how quickly we moved from classroom to actual project initiation. We were able to jump in, start using the tools and see a difference right away.
The get-into-action approach was good for our culture.”
“For several years we have worked with Supply Velocity to support us with their expertise on Lean Operations and Supply Chain Management. Supply Velocity has helped us implement Lean, improve our inventory systems, and educate our people. They are professionals who are always available to help us as needed.”
“We are pleased that Essex selected Supply Velocity, Inc. as our Lean Implementation Partner. At one facility, we have saved over $350,000 in work-in-process inventory, reduced throughput time from 2 weeks to minutes and increased inventory turns 3 to 8 times per year. All these results are in just 6 months. Our return of investment is very high.”
“Closure Medical recently completed a major reorganization in order to enhance our ability to rapidly create innovative medical devices. We hired Supply Velocity to help us map out the process and service flows of the new organization that would maximize our product development process (PDP). In four weeks, Supply Velocity helped us envision a new PDP structure, develop measures and accountability for each step, and gain consensus within the organization. Supply Velocity’s focus on speed and accountability helped us complete a critical project in a timely fashion.”
“In thirty years of hiring consultants, Supply Velocity, Inc. was the first to tell me what they were going to do, set a price they stuck to and substantially exceed my expectations. I have recommended them to friends and acquaintances. They were true partners in assisting with the turnaround of an acquisition we had been struggling with for two years.Their math-based technology, solid down-to-earth facilitation skills, and positive, patient and enthusiastic attitude combined to make our implementation of Lean a very rewarding experience.
We increased our production by 50% in the first month of implementation and continue to see improvements. Improvements have not only been realized in productivity, but also in quality and morale. We have increased profitability by $2M on flat sales of $10M.
Based on Supply Velocity, Inc.’s integrity and our results, I will continue to refer them to others and utilize them in the future as we expand our company through acquisitions.”
“Your process encourages this group to work together, better communicate and have fun doing it.”
“We engaged with Supply Velocity to help us embed process improvement at all levels of the business. Our team learned from Mitch to let the data drive decisions, to use Lean tools to help us see our processes critically and objectively, and to create a control plan to manage all of the tasks that were the outcome of the data study.The project turned out to be very significant to the company and most importantly, our customers. We reduced our customer wait times by 40%, and cut in half the labor cost to fulfill customer orders.
Some results are not able to be measured. However, as a result of this project, we have started to build a Lean mindset and culture, which is part of our strategic mission to save our customers money. Supply Velocity has been a valued partner in this mission.”
“Many thanks to all three Supply Velocity presenters. I think you guys took a very difficult time for learning and capitalized on everyone’s time and training needs. I truly hope this helps your business as this was a considerable undertaking on the part of Supply Velocity. Outstanding!!”
“Mitch Millstein and his team helped guide our shop fabrication division in the re-layout of our custom pipe and steel fabrication facility when we moved into a new building. It is not only the results but how he helped. We were involved in every step. I personally did time studies and was able to see the non-value added steps required to manufacture in our old layout. When we created our new layout, everyone was involved, from the executive team to our direct labor force. With Mitch’s help we increased our throughput by a 3x multiple, while providing more competitive prices to our clients as a result of the efficiency improvements.This has enabled us to not only make more money but also to expand our commercial reach and serve more, and larger customers. I would recommend Supply Velocity to any company that wants to make improvement in supply chain and operations.”
“Supply Velocity’s Lean Six Sigma System has given us new tools to help improve our sales performance. We have learned new ways to analyze our business which makes problem solving more accurate and has made us better leaders.”
“We are using Supply Velocity’s Lean Six Sigma methods to analyze a variety of processes including rationalizing SKUs (stock-keeping-units). By using math to evaluate SKUs we took some of the emotion out of our decisions. We expect significant increases in sales and productivity from reducing poor performing SKUs.”
“Supply Velocity is driving instrumental change in our inventory management processes. This is critical for us to be competitive in a supply chain environment with numerous disruptions. They are making change happen, which can be challenging in a 182 year old organization.”
“C&R was struggling with labor productivity. The construction crews were often missing materials that they needed to do their work. This caused significant idle time. Supply Velocity, Inc. and C&R used value stream mapping and visual management tools to make dramatic improvements in operations. Most importantly, two years later C&R is sustaining and improving on the implementation. C&R’s return on investment was 11:1. C&R had a record year last year in both sales and profits and would not have been able to pull it off without the changes Supply Velocity, Inc. helped us make.”
“In a time of volatile supply chain disruption, Supply Velocity is helping us develop Demand and Supply Planning processes to proactively tackle these new challenges. They are genuine partners, working with our team, facilitating and teaching.”
“Myerson engaged Supply Velocity, specifically Ray Davis to visit our plant in Trinidad to conduct a two day assessment of our production procedures and provide us feedback on areas for improvement and where applicable, areas for future analysis.Put simply, we got everything we paid for and in addition to more in depth analysis, we got specific tasks that were immediately actionable. Our local management team found Ray to be engaging, highly credible and insightful based on his wide experience. In other words the cultural differences and lack of specific industry knowledge weren’t impediments to things we could implement immediately and on our own. In a nutshell it was money well spent and will pay itself back many times over.”
“In 2015 we began working with Dr. Mitch Millstein to optimize our inventory locations supporting e-commerce and in-store inventory needs. From this work we developed a new omni-channel warehousing and inventory plan that entirely redefined our approach to warehousing, inventory management, store distribution and fulfillment. As a result of the analyses by Dr. Millstein we have begun the move to an improved omni-channel design by reassigning MSAs to new warehouses, greater leveraging of in-store inventories to satisfy e-commerce demands, and exploring acquisitions of new warehousing space in strategic locations. We have already seen an improvement of $300,000 from both more efficient shipping strategies due to better inventory management.”
“Supply Velocity created visibility within our Assurance Services Group… visibility of performance, Client-service, employee satisfaction and processing time. Using the Supply Velocity System, Audit Report Cycle time is down over 50%. We are using his strategies to create greater Client loyalty.”
“I am thrilled to provide this testimonial for Supply Velocity and their outstanding work in implementing Lean Warehouses and processes at Crescent Parts & Equipment through the COVID pandemic. With their data-first focus and Mitch’s exceptional coaching and experience, they transformed our business into a more supply chain-oriented organization, enabling us to grow while prioritizing employee safety and creating a better work environment. Supply Velocity’s expertise in Lean methodologies and their comprehensive evaluation of our customers have been instrumental in optimizing our operations and increasing customer satisfaction. We highly recommend Supply Velocity to any company seeking to implement Lean processes and enhance their supply chain efficiency.”