By following these 5 steps, you can make significant improvements over your current practices and move towards the lean machine you’ve always dreamed of…
Trim the Fat from Your Supply Chain
1. Learn to Differentiate Between Value and Waste
This may seem easy enough, but you’d be surprised by how many people fail to accurately identify waste in their supply chain. Value can be understood as anything that directly contributes to fulfilling the desires of the customer, while waste is anything involved with the process that is inessential.
Value must be viewed through the eyes of the end consumer, since they’re the individuals or businesses willing to transact their money for the perceived value your products or services provide. By identifying exactly what they want and why they are buying it, you are able to focus on the processes and components of your supply chain that actually deliver what the customer identifies as valuable.
Do not take this step lightly. There are many businesses that waste significant resources in delivering products with features that they have assumed the consumer will appreciate, when the reality is something else entirely. Understanding your customer’s actual needs can help notably decrease waste.
If you aren’t positive that something you are doing is delivering value to your customers, then you should pause and consider why it is you’re doing it. Survey your customers, perform market research, read influencer information on where your marketplace is headed to back your decisions.
2. Reduce Waste
Now that you understand that waste is anything nonessential in the creation of the value your customers seek, you can begin to identify and reduce waste in your supply chain. It is easy to mistake some processes as essential when they are not, so you have to take the time to question how each step in your supply chain delivers value. Common areas where waste is found include:
- Excess inventory
- Lead times
- Energy inputs
- Wasted materials
- Procurement costs
Even necessary components of delivering the final value can include waste. Consider the fabric needed to manufacture clothing items. In this example, fabric is instrumental in delivering what the customer wants, but any that goes unused represents wasted material that does not deliver any value to the consumer. Maximizing the amount of individual garments that can be cut from a single piece of fabric is therefore a way to decrease waste while increasing value.
Some things may seem to contribute to the final value, when in reality they are only temporarily necessary based on constraints of the business. Transportation costs often fall into this category. By decreasing the amount of shipping required to get a product from the factory to the final consumer, you can decrease both expenses and lead times.
Remember, this is an ongoing process. A continuous commitment to waste reduction is necessary if you wish to keep your supply chain lean.
3. Limit Risk
Limiting risk is another way to contribute to a lean supply chain. Risk represents a possibility of future waste or expenses. A truly lean supply chain will efficiently deliver value to consumers without a large amount of risk. Risk can never be completely removed, but it should be limited as much as possible.
Over time, risk will translate to increased expenses. By keeping risk manageable, your business can ensure that disruptive events do not lead to unnecessary expenses down the road. Check out a previous blog from us that outlines some risk mitigation strategies.
4. Increase Data Collection and Visibility
Data collection improves your business’s ability to make informed decisions regarding strategy development and implementation. Without it, you cannot truly separate wasteful practices from those that are actually working.
Many businesses make the mistake of allowing individual divisions of their supply chain to manage their own data. A holistic approach is measurably better, as any data that is applicable to one area of your business may have additional value elsewhere. Going one step further, you can begin working toward aligning your S&OP and supply chain metrics, eventually also incorporating financials to make better use of your data.
5. Update Your Technology
Gone are the days when a single person could effectively manage an entire supply chain. Global supply chains continue to increase in complexity, and the ability to identify all possible improvements that can increase efficiency and decrease waste are beyond human capabilities.
There are many options available, ranging from specific software that helps to organize individual facets of the supply chain to full-scale optimization software that will address all components of a business simultaneously.
Remember to approach the decision to update technology with the same methods listed above. Software that offers services that don’t contribute to the overall efficiency and value your business is able to provide is nothing more than an unnecessary expense, and therefore wasteful.
Ineffective software may be even worse. It will give the illusion of successful implementation, despite the fact that better options are available. When making the decision to upgrade the technology your business relies on, be sure to seek out the latest advancements that will help give you a competitive advantage over businesses that rely on outdated technology to do the same job.
Furthermore, be sure to adopt software that is in line with your available date. It’s ok to be a bit more immature with respect to data management — all the best supply chains were there at some point. But don’t invest in software that’s going to require months and months to set up and a boatload of internal resources.
For those seeking to gain the most competitive advantage, this almost certainly means seeking out software that offers prescriptive analytics on top of predictive modeling and statistical analysis. We already know that Unilever, the top-ranked supply chain globally according to Gartner, has already been working with such capabilities for over half a year now.
By following the steps listed above, you can develop a lean supply chain capable of delivering products to your consumers with as little waste as possible. Remember to question your assumptions at each step. When you feel that you have done as much as you can do, consider technology upgrades that will improve the visibility of your supply chain’s efficiency.