In order to become more competitive, many companies implement their own solutions to improve their performances in terms of quality, costs and delays. At the same time, the industry trend is to increasingly call on suppliers by delegating more and more responsibilities. The tendency is that companies are asking suppliers to design and manufacture gradually more complex sub-assemblies and finished products. As a consequence, it is becoming crucial for companies’ competitiveness to also develop the flexibility and agility of their supply chain.
Gone are the days when companies were manufacturing their products from A to Z. For years now, the trend has been the opposite; companies are increasingly calling on suppliers by giving them more and more parts to manufacture, more and more complete systems or sub-assemblies far upstream in the programs.
The company no longer waits for products to be considered "mature" before giving them to suppliers for manufacturing, delegating also that way the risks associated to the program. Today, the company focuses on the very high value-added stages of the product, i.e. close to delivery to customers, in most cases integration, final assembly, inspection, testing and shipping or delivery to the end customer.
The main reason for the company to focus on the final operations is indeed related to the fact that the cost of the products for the company increases as the product is processed and moves closer to the final stages of production, up to final inspection and delivery.
This increasingly supplier-driven approach has multiple interests for the company:
- Through a concentration of know-how and technology, suppliers develop expertise and are at the cutting edge of technology in their core business.
- Managerial skills; the managerial difficulty increases with the number of employees, the number and variety of the different jobs to be managed. The company delegates responsibilities to its suppliers thus limiting the number of its direct employees.
- Financial; on some heavy investment programs, some suppliers become partners by sharing investments, dividends and risks related to the program.
This industrial strategy, on the other hand, requires a change in the customer-supplier relationship to consider the Supply Chain as part of the Enterprise (Extended Enterprise). This relationship must, in order to create a key Customer Value for competitiveness, move towards a mutually beneficial, win-win approach.
The implementation of the key principles of Lean Management supporting this industrial strategy can quickly and efficiently ensure the development of an efficient, flexible and agile Supply Chain.
Lean principles for developing an efficient, flexible and agile Supply Chain:
- Focus on supplier network value flow
- Synchronize flows
- Eliminate waste and non-value added
- Build collaborative relationships while balancing cooperation and competition
- Minimize transaction and production costs
- Develop rapid response capability
- Ensure visibility and transparency
- Align core and complementary skills
- Manage uncertainty and risk
- Drive innovation and knowledge sharing
Roadmap for implementation of Lean Supply Chain:
1.Design the suppliers network architecture:
- Design of a suppliers network in relation to the industrial strategy
- Reduction of the supplier base; “control” and management by groupings
- Supplier selection based on Quality, Costs, Delays and Total Cost of Ownership
2.Create flows and pull systems throughout the supplier network:
- Link support processes to IT systems
- Two-way exchange of information and visibility
- Just-in-Time production and delivery
3.Develop complementary capabilities of suppliers:
- Put in place a system of assurance (certification) of critical process capabilities
- Development of targeted suppliers, improved performance and support in their growth (ISO 9001, Lean Management)
- Delegate more responsibilities to suppliers and partners.
3.Maximize flexibility and responsiveness:
- Seamless and uninterrupted information flow
- Implementation of flexible contracts
- Rapid response capability development
4.Establish effective cooperative relationships and coordination mechanisms:
- Joint problem solving; mutual assistance systems
- Partnerships and strategic alliances
- Regular and transparent communications
- Develop a culture of interdependence and “shared destiny”
5.Optimize product development through early supplier integration:
- Upstream integration of suppliers in the design and integrated new product development teams
- Develop collaborative design and architecture to drive innovation
- Transparent communication and information sharing
- Implementation of target cost design and value management
6.Integrating knowledge and fostering innovation:
- Develop knowledge sharing in customer-supplier and supplier-supplier relationships; promote active technology transfer
- Synchronize development plans for new technologies
Key elements of success for building a flexible and agile supply chain:
- Production and deliveries are synchronized to Customer request (Takt time)
- Ensures early integration of suppliers into design and integrated development teams
- Partnership development and strategic alliances
Examples of benefits of a flexible and agile Lean supply chain:
- Delivery schedules as well as supplier’s lead-time are known, managed and integrated into planning.Supplier deliveries flows are “pulled” by customer demand (using takt principles, load levelling, production line balancing, one-piece flow).
- Stocks and inventories are minimized at all levels of the supply chain, at suppliers, logistics warehouses, etc...
- Supplier deliveries are assured in Just-in-Time at the delivery points on the production (point-of-use) and customer assembly lines.
- Entry inspections of parts, components and sub-assemblies from suppliers are reduced to the bare minimum by the introduction of Lean Management zero-defect principles at suppliers.
- Two-way communication is highly effective and linked to the coordination of production and delivery schedules.
- There is a continual improvement in quality levels in the supply chain through the implementation of principles and methodologies to achieve zero defects.
The implementation of Lean Management principles across the entire supply chain enables rapid and concrete results in flexibility and agility. This will make operations more efficient and greatly improve the overall profitability of the supplier network.
Many companies around the world have implemented such an approach to their supply chain. Compared to traditional supply chain management approaches, the profits realized by these companies show, for the same results, decreases of:
- Reduction down to 50% of the engineering hours
- Reduction down to 50% of product development time and time-to-market of new products
- Reduction down to 50 % of defects of finished products
- Reduction down to 50 % of the factory space required for production
- Reduction down to 50 % of investments in tools and equipments
- Reduction down to 50 % of the labor manhours in factories
- Reduction by 10 % or more of the work-in-progress inventories