by Euclides Coimbra from Kaizen Institute Western Europe
In our recent webinar, ‘7 Key Capabilities for a Supply Chain Lean Transformation’, (link) we explore lean transformation in supply chains and the fundamental capabilities. We lay out the process to achieve an end-to-end improvement, demand-driven, and lean-efficient supply chain with a focus on a new paradigm for achieving breakthrough results and competitive advantage in customer service and profitability. In this white paper, we present the summary of the webinar insights, from our Senior Partner and Book Author, Euclides Coimbra.
Why do we need to improve the supply chain?
As supply chains are key to operating in a globalised fast-paced market, it is crucial to be aware of the problems, opportunities, and new paradigms that can be applied to make them faster, more effective, and more profitable.
The main reason why supply chains need to be improved is to guarantee customer satisfaction - a major source of innovation and competitiveness. Supply chains need to become customer-focused, agile, and waste-free, quickly anticipating disruption and instability, and responding to the increasing customer expectations in markets with high demand volatility.
The targets for a lean supply chain are to improve OTD and OTIF, shorten delivery times, reduce costs to serve, and, most importantly, achieve a radical inventory reduction. These may be achieved by applying the following seven key capabilities, backed by a strategic value stream analysis, customer-oriented sales and operations planning (S&OP), short and consistent flows, and high resource efficiency.
1. Strategic end-to-end mapping of the supply chain
Mapping the supply chain from E2E allows for a visual identification of the critical operations. When understanding logistics loops in the supply chain, it is relevant to consider the key performance metrics to consequently identify where the flow breakers occur.
The most important KPIs in the supply chain are the ones that are related to the customer, namely OTD, OTIF, and Order–Delivery Lead Time. These happen in the last logistics loop (downstream), where the operations are closer to the customer, for instance, orders delivery and transportation - so, these should be the first metrics to be optimised.
In the previous loop, the distribution replenishment, the KPIs are related to supply chain flow efficiency, such as inventory flow lead time. The second loop regards manufacturing supply and is more difficult to monitor due to the complexity of the production processes. Ultimately, the sourcing and procurement loop refers to the suppliers and material warehouses, and these supply chains which are upstream must also be analysed as they affect the customer KPIs.
On top of these four logistics loops, there must be consistent supply chain strategy and
operations planning, based on an efficient value stream analysis and loop selection, to then
move to the project execution phase through the implementation of Kaizen™ practices.
2. Implement a pull-planning system
The traditional approach to supply chain agility comes from Collaborative Planning Forecasting and Replenishment (CPFR) based on central information systems such as MRP or DRP. However, forecasts may have errors, impacting the delivery to the customer negatively. To solve this challenge, and to achieve improved synchronisation and levelling, arose the pull-planning system – a new paradigm of pull, demand-driven supply chains.
In terms of S&OP, the right approach is a pull capacity planning process that uses aggregated forecasts to set all the capacity needed in the supply chain – the number of trucks, warehouses, lines, etc. However, the actual execution of S&OE is not based on forecasts but on actual orders to replenish or to make to stock/order.
In the distribution centres, on the supply chain loops, the system entails the creation of flow with small-batch agility and the flexibility of capacity. This is attained through the establishment of high-frequency replenishment, transport loops, small batches, and the definition of a stock strategy with supermarkets (demand-replenished stocks) and cross docks.
Hence, the new system works across the whole supply chain to create pull with synchronisation and levelling. This will increase value-added efficiency, and, ultimately, increase OTIF and resource efficiency, reducing delivery delays and increasing working capital.
3. Create material and information flow
The third key capability concerns the creation of physical flow in production, warehouses, and transportation. In this context, there is a new key paradigm - the flow efficiency must be improved for later to improve resource efficiency.
Part of the waste defined by Toyota – excess production, material (or information) waiting, and material (or information) transport – must be eliminated when creating efficient flow and this should be the first step to be taken.
Only then the focus should move to the remaining waste related to resource efficiency – people waiting, movement, overprocessing, errors and defects. This strategy of creating flow will redesign the supply chain to new levels of performance.
4. Increase resource efficiency
Once the flow is created, the attention can move to increase resource efficiency. The aim is to optimise OEE in production, efficiency in warehouses and in transportation routes, as well as innovate with digital and automation technologies. To do so, OEE losses – availability, performance, and quality losses and labour losses – poor organisation or ineffective management and energy & material losses need to be improved.
The key activities to improve OEE are Kobetsu Kaizen, Autonomous Maintenance, Planned Maintenance, Education and Training, Early Equipment Planning, and Safety and Environment.
To improve the labour losses layout and line/warehouse design supported by Daily Kaizen can transform the procedures of the operational teams. For energy & material losses, Kobetsu Kaizen together with green frameworks will deliver substantial results.
While implementing these improvement initiatives, the previously designed pull flow system blueprint must be guaranteed to avoid the automation of waste. It is important to understand which activities in the supply chain are considered waste and which are value-adding to eliminate waste and focus on the value-adding part when investing in improved automated solutions.
5. Reinforce the Kaizen Culture
The reinforcement of the Kaizen Culture is crucial for the supply chain improvement, aligning the effective functioning of the previously presented frameworks. The most important steps to creating a continuous improvement culture are the implementation of Daily Kaizen in teams, Kaizen events, the creation of a strategy deployment process, and education and training, with a Kaizen Lean Academy that teaches these 7 capabilities of a lean supply chain.
The Daily Kaizen System must be adopted by all teams from every level of the organisation, involving all employees in frequent Kaizen actions with a special focus on developing team leaders. This system encompasses a frequent control of key KPIs to support actions on real data, identify wins and losses, and act quickly with countermeasures when there are problems or disruptions.
6. Manage change, instability and risk
Senior management must be engaged in the end-to-end supply chain transformation,
participating in strategic mapping workshops, taking leadership in execution, participating in
training programmes, implementing daily Kaizen in their own teams, and learning the strategy deployment process. This way, they will improve their capability of answering to eventual instabilities and risks and achieve a competitive position in the market.
To react quickly to instability, a management system named ‘Tiered Help Chain’ must be applied. This will allow the classification of how the critical information should reach senior management, aligning information across the tiers, and identifying the necessity of cross-functional meetings.
7. Pilot, assess, benchmark and scale
The last key capability to implement an effective lean supply chain transformation is the
necessity of developing good pilots and assessment maturity models, performing internal and external benchmarking, and moving rapidly with deployment and scale progression.
The strategic end-to-end pilot value stream analysis workshop goals are to set a vision and business case, define a steady progress roadmap with three to six-month sprint cycles, create a war room for visual project management, and show double-digit business results.
After a successful sprint – the pilot - deploying the new processes within a large organisation can be difficult. To facilitate this process, the team development programme lays out the scaling of the new process in five steps:
Team development programme (TDP)
For additional insights on supply chain transformation, you can read the book KAIZEN™ in Logistics & Supply Chains or email the author at ecoimbra@kaizen.com
Euclides Coimbra is a worldwide Thought Leader in Continuous Improvement.
He has an extensive experience in cultural change and Kaizen Lean transformation.
With international experience in several sectors, he has been mainly focused on the coordination and development of new areas as well as the management of large global projects.
Author of the books "Kaizen in Logistics and Supply Chains" and "Kaizen: A Strategy for Improvement, Growth and Profitability".