Supplier Networks and Support

Integral to a Lean enterprise is its supplier networks or supply chains. Creation of a Lean supply chain requires its participants to work together to enhance productivity. Lean, Six Sigma, and similar operational initiatives need to be deployed by the participants. A Lean supply chain should also be integrated in a way to take advantage of participant unique operational competencies through well-designed contracts. Supply chains that promote effective asset utilization and higher value content will be more competitive. A situation to avoid is having a supply chain dominated by one or a few large participants that force others to compensate for inefficiencies. In this situation, a dominant participant will not have an incentive to improve operational efficiency because higher costs are passed on to suppliers and customers through price concessions or higher prices. This results in deterioration of a supply chains ability to invest in infrastructure, people, and equipment. In the final phases of deterioration, more efficient competitive supply chains dominate. These have either higher productivity or deploy disruptive technology to gain market share. Examples include major competitive disruption in consumer electronics, automobiles, and more recently financial services.

A key performance measure of a Lean enterprise is asset utilization efficiency. High asset utilization efficiencies require that a supply chains assets be positioned across its participants only where capacity is needed to satisfy demand at that part of the supply chain. Other supply chain assets, such as people, facilities, and equipment, are similarly allocated. In summary, a supply chain should be designed to increase its asset utilization efficiencies and position work where it contributes the highest VA content.

Implement Visual Control and Pull Systems – Kanban

A key component of a Lean system is deployment of a “pull” scheduling system to move work through a process based on the takt time. This approach contrasts with processes where work is scheduled in anticipation of future customer demand using statistically based forecasts that “push” work through a process regardless of changes in demand. This wastes capacity because actual demand is higher or lower than the original forecast. In manufacturing, pull scheduling systems use visual or electronic signals called Kanban cards. These are used to notify upstream workstations when work is needed by downstream workstations.

In the most effective pull systems, external customer demand varies by approximately ± 10% and the production processes are highly simplified, standardized, and mistake-proofed through years of process improvements. In these processes, visual and manual controls are used to efficiently schedule work by integrated upstream and downstream operations. The efficiency of pull systems varies by industry and can be difficult to implement. As an example, in some industries external demand is highly seasonal and fluctuates by more than ± 25% for a single product.

How does the concept of pulling demand through a process also apply to services and offices in particular? Whereas in manufacturing it makes sense to move baskets or containers of materials from one workstation to another using Kanban cards, modified systems are necessary to deploy pull systems in services and offices. In these systems, workflow software is used to move work between operations. When an upstream operation completes a work task the work object is automatically sent to an incoming queue to the next downstream operation being pulled from the end of the process. Customer facing service processes have modified manufacturing this method with a high degree of success. In fast food restaurants that advertise fast and standardized services (and products) buffer inventories are utilized to increase capacity that reduces customer waiting time. In processes that focus on customized meals, i.e„ less standardized (products are made to order), customers expect to wait longer. In these systems, orders are “pulled” or moved through the process using a workflow management tool that alerts servers of actual order demand and order status using electronic signals showing the order meals are to be assembled.

In newer customer facing systems, customers initiate a job or order and do the work. This is supported by automation. Capacity is expanded by self-service through software and only utilized when needed by a customer. An example is customer self-ordering on the internet as opposed to asking a person to write an order with the workflow software coordinating order completion. Another example is a patient setting up a doctors visit online rather than calling the office and working with a receptionist to create the appointment. The introduction of customer self-service operations, e.g., making an appointment, calling the office, calling to change an appointment, and updating paperwork creates a forecast for the patient. It is a pull system if the appointment is near term and the doctors office can dynamically respond to the request. If the appointment is too far into the future and changed without visibility to capacity, i.e., a doctor, nurse, or testing, then it becomes a push system.

As another example, an accounts receivable process initiated when an invoice is sent to a customer. This is the pull signal that initiates the accounts receivable process to begin a sequence of work tasks. In contrast, an accounts receivable process using a push scheduling system would prepare customer invoices in anticipation of providing a product or service. In this situation, if customer demand changes, then invoices will need to be reworked or discarded. Figure 3.11 shows an office example of a pull scheduling system. In this example, 800 invoices arrive each shift of 8 hours (assume no breaks). The takt time is 100 invoices processed each hour. These are divided into groups of 20. Each invoice has 36 seconds to be processed by each workstation.

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