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Lean Supply Chain Management

Instructor: Jason Matyus
When you plan your day, you likely plan it in the most efficient way you can, so as not to waste time or resources. Businesses do that as well, applying a concept called lean supply chain management. In this lesson, we will discuss lean supply chain management and show how it applies to today's business environment.

Lean Supply Chain Management

In the past, manufacturing businesses relied on purchasing large amounts of supplies in order to get better prices on material. The process involved buying bulk material at a lower price and then warehousing the material until it was needed. Many companies have now eliminated the concept of bulk ordering and have moved to lean supply chain practices, due to large amounts of money that can be tied up in inventory.

Lean supply chain management is about removing waste or unwanted components from a process. Most often this process is applied to manufacturing, where supplies can be ordered as they are needed rather than back-stocking a lot of inventory. With a lean approach, it is important for organizational leadership to identify the value and non-value parts of the supply chain. By identifying what is of value in the supply chain, a determination can be made on how to focus the business on those valued parts. Equally, non-valued parts can be eliminated to keep cost and inefficiency at a minimum. Non-valued parts are those parts in the process that have zero or negative return on investment. The elimination of non-valued parts has positive or no impact on the outcome of the process.

A lean approach occurs in business, but there are also reflections of it in our daily lives. For example, you wouldn't buy a year's worth of groceries and store them all at home, right? The produce would go bad, you wouldn't know exactly how much you would need of each item, and you may not know what your family will like to eat nine months from now. Not to mention all the money that could potentially be wasted with this system! With a lean approach, you get what you need more often to reduce waste.

Supply Chain Breakdown

Key elements of a lean supply chain include warehousing, transportation, and lean customers.

Warehousing

Warehousing from a lean perspective includes inventory on demand, which means only the inventory currently needed is ordered and stored. Lean warehousing enables organizations to save cash flow for other urgent needs.

Transportation

Lean transportation can include multiple stops on delivery routes, lower fuel costs, better customer service for on-time delivery, and larger payloads for efficient distribution. Automated functions for drivers would ensure more timely use of vehicles by eliminated paper waste and more organized information.

Lean Customers

It is an advantage for a customer to know what they want and have a shared interest in the efficiency of the process. When a customer understands their needs and can relay that to the business, both sides benefit. A good example of this phenomenon is when a customer is a repeat wholesale customer and an order can be made for exactly what is needed. When the supplier can order for the customer the exact supplies needed rather than having to choose from items on hand, the costs are driven down, which benefits both the business and the consumer.

Tools for Success

For companies to be successful in lean supply chain management there has to be:

• Open communication and collaboration between the company and the supplier. Open communication allows the needs of both parties to be met and reduces waste from the supplier and the company. Getting supplies at the right time is critical for success in lean supply chain management or there is a risk of ordering what is not needed, causing added costs.

• Management occurring at a high level so as to have visibility on the entire process from the beginning to the end. Management at the top of the business process can see and communicate, reduce redundancy, see deficiencies, and increase quality.

• An elimination of redundancy in procurement, so multiple parties are not paying higher prices due to different purchasing sources. For example, on a local level, supplies could be bought at discounted prices that the corporate level may not be aware of. Having designated purchasing agents for certain items ensures the best price is obtained.

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