Lean Suppliers: Thinking Out of the Box (of inventory)

 A lean supply chain is a dynamic ecosystem comprised of processes, products and firms that work together smoothly to deliver products and services and add value to the entire network as they meet customer requirements in a cost-effective manner. Given that most firms have limited resources and limited bandwidth, what basic steps can firms take to develop a lean supply chain?  A lean supply chain needs to be developed, as it will not evolve into leanness by itself or by doing just one thing well. Firms who are able to develop a lean supply chain can leverage their own lean processes far beyond what they can do alone. However, lean is all too often viewed as the domain of the manufacturing floor and the other functions in the firm are often “off the hook” when it comes to lean. While executives have become aware that lean principles and practices can be applied beyond the factory to the rest of the firm’s processes as well as extended to the supply chain, all but best-in-class firms have achieved success in lean supply chain development.  It requires a proactive approach, a balancing act and importantly, communications and collaboration within and among customer and supplier firms. These inter-firm communications require relationships. And relationships require development, care and feeding. Firms need to look at the causes of waste and non-value added activities and processes, rather than attack the symptoms.

Too much focus in one area can sub-optimize another part of the supply chain and creates hidden costs and wastes. For example, practitioners of lean know that working to reduce inventory alone without identifying the root causes of it can cause it to increase somewhere else in the supply chain ecosystem or even elsewhere in your own firm. This is a classic case of sacrificing efficiency and total supply chain costs on the altar of short-term benefits. For example, asking suppliers to carry inventory as a way of reducing customer inventory increases cost and waste in their firms. This cost impacts a supplier’s cost of doing business and also internal operating efficiencies (i.e., extending the payment cycle for this idle inventory until it is consumed, occupying and expending resources with a longer payback time) and ultimately gets passed along to customers.

Of course, adopting lean processes and practices helps suppliers mitigate poor and damaging customer business practices. But even so, think about how much more flexible, efficient and cost-effective suppliers and customers can be with a more collaborative supply chain approach.

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