Improving the Supply Chain: Continuous Improvement Part 2

This is a series on Supply Chain Basics looking at the discipline from the Society of Operations Management perspective. Supply chain is also essential to project management as PMs are typically trained in world-class contracting. For example, my Master's program had several courses involving contracting and the Defense Acquisition Workforce Improvement Act, DAWIA, certification highlights the combination of project management and supply chain. In this post, we will explore continuous improvement methods adding some additional support as well.

Continuous Improvement Methods Part 2

Lean Supply Chain:  Eliminating waste which has two approaches, at least; Just in Time (JIT) and lean.  Waste adds no value in the eye of the customer and is a by-product of a process or a task requiring special management control.  Waste can be planned and somewhat controlled during a production run.  Scrap is an outcome of the same production run and is not planned. In short, waste is a residual or by-product of adding value in a process. Whereas, scrap is a result of quality failures. JIT and lean are most applied to manufacturing operations and can be applied to broader operations such as supply chain. Smooth running operations result from a smooth running supply chain.

Just In Time: This is a philosophy of manufacturing based on the planned elimination of waste and continuous improvement of productivity.  JIT adapts TQM principles with the intent to diminish time in queues having the right materials arrive at the right times. A lack of quality can result in disruptions of the flow. Three JIT basics attempt to prevent such disruptions: waste reduction, variability reduction, and pulling materials into production. 

• Waste reductions are a step-by-step elimination of non-value added activities that cost money and slow production.
• Variability reductions seek to eliminate variation discovered in any system regardless of the source and not based on the customer's understanding of quality.
• Pulling materials into production means that demand drives production and not preset schedules. This reduces inventories to queues that compensate for planned risk events.  Defects become part of the risk planning and safety stock buffers against disruptions.  Ideally, in JIT there are no buffers. Thus, a defect would disrupt the line and signal an improvement event.

Elements of JIT for Continuous Improvement

JIT is not limited to manufacturing and elements of the supply are subject to continuous improvement in many other operations. For example, 

• The supplier must be willing to incorporate JIT principles into their operations. The objective is to establish long term relationships with a few suppliers. 
• Logistical partners and JIT Layout can reduce waste by minimizing handling, transport, and opportunities for defects while maximizing flexibility.
• Warehousing must consider JIT. Inventory reduction is pinnacle to JIT as inventory is evil and cost money. The goal is to eliminate all forms of inventory and have a system operating near-perfect through continuous improvement practices.
• Scheduling is based on good communications.  JIT schedules are widely communicated when operating in a push system. Pull systems have transparency along the supply chain. There are two types of schedules; level and kanban. Level schedules run in batches equal to the daily demand. Kanbans are pre-expended bins based on lot sizes in which suppliers stock to specified levels. Signals to stock are sent based on pull demand.
• Continuous Job Improvement means that employees closest to the process have the greatest impact and take on supervisory duties. There is cross-training to boost skills and knowledge in order to pace with increasing responsibilities. 

JIT is a variant of quality that begins with the idea that inventory is evil. Then seeks through continuous improvement to eliminate waste and improve quality. JIT is a pull system throughout the supply chain.  The ultimate goal is to have defect-free materials arrive in a timely manner for use or end sales. 

Lean Supply Chain Thinking

Lean seeks to minimize all resources used while eliminating all forms of waste. Thinking lean is not a new idea. The concept dates as far back as the 1450s when the Venetian Arsenal of ships used mass-production methods. The modern notion of lean dates from Henry Ford's concept of flow production or full supply chain integration. Lean supply chain thinking has applications from waste elimination to alignment of supplier processes with delivery schedules. Waste, in lean thinking, is any activity that does not add value in the eyes of the customer.

A lean supply chain would add value throughout the chain to the customer. Win-win in the supply chain puts everything on the table for negotiation and ultimately results in diminishing waste.  One example of reducing waste in creating transparency throughout the chain so that forecasted production diminishes the bullwhip effect. 

Lean initiatives are coupled with other tools, techniques, and methods such as JIT or Six Sigma. Lean Production is a philosophy of production that emphasizes the minimization of resources and activities in order to diminish waste by:

1. Identifying and eliminating non-value added activities in design, production, and supply chain.
2. Employing multi-skilled teams.
3. Using flexible and automated machines.
4. Using JIT production and Six-Sigma quality.
5. Consisting of principles and practices that reduce cost by removal of waste and simplification.

Implementation of lean efforts involve:

1. Mapping the process, finding the value stream.
2. Clean and organizing areas to be changed.
3. Setting up a KanBan pull system from order to delivery.
4. Work through the supply to the suppliers in order to align efforts.
5. Reduce setup times and batch sizes.
6. Reduce defects.
7. Do employee training.

Lean Objectives involve:

1. Eliminate waste in business value streams
2. Meet customer demand
3. Increase velocity
4. Reduce the need for working capital
5. Increase inventory turns
6. Gain market share
7. Increase profitability
8. Develop the workforce:
9. Produce products and services with near-perfect quality

Lean Principles are derived from a book, Lean Thinking by Womack and Jones. They identified five core principles:

1. Create value for the customer
2. Identify all steps across a value stream
3. Create value flow
4. Pull products based on end demand
5. Strive for perfection continuously removing waste

Toyota has been the model for lean implementations using JIT, Jidoka, and culture to achieve continuous improvement operations.  Jidoka is a technique of compartmentalization of a process flow in order to mistake-proof quality.  This is builtin on top of operational stability which is the result of standard work packages, kaizen, and leveling.  Another consideration is 5S which is short for sort, simplify, scrub, standardize, and sustain. 

In conclusion, Supply chain improvement centers on the methods to remove the eight deadly sources of waste:

1. Overproduction
2. Waiting
3. Transportation
4. Inappropriate processing
5. Unnecessary inventories
6. Unnecessary motion
7. Defects
8. Unused people skills

Complex supply chains, especially global ones, create enormous challenges in order to lean them out. When achieved or closely achieved the potential benefits are enormous creating a durable competitive advantage. Part three will look are the theory of constraints. 

Reference:

(2011). APICS Certified Supply Chain Professional Learning System. (2011 ed.). Version 2.2.