LEAN INTERNATIONAL SUPPLY CHAIN, ACHIEVING CRITICAL VELOCITY FOR MANUFACTURERS AND RETAILERS

lean INTERNATIONAL SUPPLY CHAIN MANAGEMENT

--Achieving velocity Beyond the Four Walls--

End-to-end supply chain management (SCM) for manufacturers and retailers is the most extensive company activity.  It is the complex, crosses many departments, goes outside the organization, both upstream and downstream, and has length and reach.  With e-commerce omnichannel, it has become strategic.

SCM is the driver to meeting customer expectations with order delivery velocity.  That demand for faster service is crossing markets, industries, and the world.  And the delivery requirements are becoming faster.

Achieving supply chain velocity that includes inventory velocity and order delivery velocity requires transformation from traditional supply chains that were designed on node-line/stop-and-start.  An excellent way to gaining that needed speed with lean.

Lean and supply chain management has much in common--

• emphasizing pull, not push, for product flow
• recognizing the wastes of excess time and inventory
• highlighting there are two flows-product and information/data
• elevating the importance of supplier performance on success

Lean logistics, like lean manufacturing, focuses on the four walls of a structure and within a domestic organization--the distribution center, instead of a factory. The biggest waste issue with distribution centers is the excess inventory.  But that is where the inventory resides; it is not what caused it.

What the four-walls approach misses that the greatest amount of time, activity, and waste occurs beyond the warehouses, outside the four walls.  Extending beyond the warehouse, where control is easier and there are fewer, different parties are involved, is the most important need.

Sometimes the challenges are not addressed or appreciated with lean supply chain management. These include -

• International sourcing.  Procuring finished goods or raw materials outside of North America creates a significant obstacle to lean. The order-to-delivery time is long.  Unnecessary time is a waste, and it compounds the inventory waste issue by making firms buffer and carry more inventory than is needed to compensate for the time. Being lean with a 20-50-day door-to-door transit time brings a unique test to developing lean SCM
• Accounting.  Standard cost accounting and generally accepted accounting do not recognize waste as lean does. Not having financial support to waste and value identification makes lean difficult to implement and sustain. Inventory and time are not regarded as lean does. Too much inventory is not an asset for lean. Accounting systems do not recognize time.
• Organization silos.  Supply chain management and lean are processes that cross organization boundaries. Implementing a process that goes horizontal on a vertical and functionally defined organization creates gaps in both processes. These gaps create areas where waste can develop and where removing it can be difficult.

Add to it that supply chains are not linear.  There are supply chains within supply chains.  There are many suppliers and many logistics service providers in a supply chain. Some of these are visible; some are less visible.  Numerous suppliers or logistics service firms do not practice lean. Taking lean outside the four walls of the company into other firms brings more global complexity into the challenge of gaining critical velocity.

So the challenge of lean is compounded when it comes to international. Many parties and trade partners are involved which challenges the abilities to remove waste from a supply chain that extends thousands of miles. For example, with an international transaction there are -

*Different groups within the company buying the product who have a role in the movement of information and product

*Different groups within the company selling the product who have a role in the movement of information and product

*Different outside organizations involved, including:

• Suppliers
• Banks
• Cross border movement of inventory at origin
• Railroad or water transport at origin
• Trucking company(ies) at supply origin to export port
• Port at origin
• Freight forwarder at origin
• 3PLs at origin
• Customs at origin
• Other government agencies at origin
• Ocean carrier, including possible multiple ones with movement of cargo
• Port at destination
• Freight forwarder at destination
• Customs at destination
• 3PLs at destination
• Other government agencies at destination
• Cross border movement of inventory at destination
• Railroad or water transport at destination
• Trucking company(ies) at destination port to delivery
• More

Add in the interchange of information between and among these various parties. The challenge is that each of these parties has a different role and responsibility. Each is working on the internal efficiency of their operation and not on the macro, efficient movement, with no waste, of your order/shipment.

The reality of business is that it is global with suppliers, plants and customers worldwide. These trillions of dollars international operating arena is a challenge for lean.

Lean Benefits

The benefits of lean for international supply chain management can be significant with managing the flow of products and information:

1. Compressed cycle times
2. Decreased days of inventory, better turns and sales yield maximization
3. Reduced working capital for safety stock
4. Improved demand planning
5. Advanced supplier and supply chain performance
6. Enhanced customer service
7. Increased profits

Time compression creates opportunities to reduce inventory levels and logistics costs. However firms that do offshore sourcing are, by definition, adding time and, in turn, inventory.

The supply of supply chain management begins upstream.  Import cycle time also affects the utility, value and placement of inventory. And these affect customer service, sales revenues, inventory-to-cash cycle time and profits.  Inventory improvements come from the need for less safety stock and faster movement through the supply chain. 

Lean Determination

To be lean, companies should assess their present operation. They must know how effective their practices are. The import supply chain must be analyzed. Firms should define what is expected and then how well the present operation functions.

With the issue of velocity, emphasis should include the offshore supply chain process. This means making sure that the operation uses a method, both internal and external. Firms can confuse transactions with process.   A cautionary note do not force your inefficient practices on external suppliers and logistics firms.  This can compound the inability to be lean.

Two performance metrics should be used to assess the operation. One is the perfect order, namely that each purchase order is received complete, accurate and on time. This is clear as to what it means.

The other is deconstructing inventory turns, especially for the total purchase order to delivery cycle time. There are three parts to the offshore supply chain--the internal purchase order preparation, supplier performance, and logistics performance. The measure should include actions that trigger the purchase order and determine the need. Firms can waste time with the order activity. That lost time has an impact then on the suppliers' abilities and logistics service providers' capabilities to provide the perfect order.

Be aware of another time factor when orders are placed with firms who use offshore suppliers, contract manufacturing, and factories. Each additional link in this information and product exchange can add inefficiency to the cycle time and to the required lean result.

Visual Description

An excellent way to understand the international supply chain is to "see" it. The current supply chain can be described visually using "value stream mapping". The value stream comprises all the steps necessary to bring a product from its raw materials through production to delivery to the customer. With value stream mapping, all the steps in the supply chain process are identified and assessed as to whether they add value or create waste.

Mapping is a tool to visualize what goes on. This picture is a way to see the non-value, waste-creating actions for both the product and the information flows. 

With value stream mapping, start with key product(s) that have high volume, critical importance, and/or high profit margins. The activities for each product is plotted, analyzed.  Waste is identified and a new process for the future is defined and implemented.

A current state can look like--

Some company people involved in global supply chain activities can push much of the waste they cause onto the outside parties. They may not understand the complexity and operations of the international aspect, or they have forced the outside activities to adjust to their lack of process and their waste practices. Demanding others to adapt to your waste activities is not collaboration, which is a two-way effort to reduce waste.

Independent Eye

Analyze the map. It helps to have someone independent here. Someone who is too close to the activity may not be able, in identifying internal waste to "see the forest for the trees". Remember, supply chain management is a process, a cross-functional one.

With analyses, waste can be identified.  Removing waste improves velocity and gains its benefits.

The upstream supply chain is seen as one event, not as two separate events of sourcing and of logistics. The dichotomy can show on both the product map and the information map. This affects the handoff from supplier to logistics service providers.

Then, after identifying areas of waste, the future supply chain can be mapped.

More than 25% of purchase orders are not shipped as planned or are not delivered as planned. This significant statistic presents a real opportunity to reduce waste. Supplier performance and supplier lead times are important areas for potential waste reduction and process improvement.

Also, the distribution network may be outdated. It may have been built years before with different store or customer configurations, different products, and other topics. It may have been built when the focus was on storing inventory in warehouses, unlike now when inventory velocity is emphasized. Touching the product to store it often adds only time - a waste result, not value.

Continue mapping more products and more activity, including between company factories.  Even better, redesign your supply chain around removing the waste of excess time and inventory.  This is important.  The demand for velocity will increase.  Start thinking velocity squared, V².

ADDITIONAL Lean Practices

There is much to become lean to assess and change practices and operations. Some points for international include:

• Use technology to manage supplier performance and to integrate the movement of information among and between all parties.
• Design a process that is lean and includes all parties and that differentiates among different commodities and products and among different customers.
• Collaborate with key suppliers and logistics providers.
• Link demand and demand planning with replenishment and buying.
• Reduce the number of suppliers and logistics service providers to streamline the supply chain, without sacrificing results.
• Focus on supplier performance; control the supply chain at the international source. The offshore supply chain begins with the purchase order; transportation is a derivative of the purchase order and of supplier performance.
• Understand transport differences and options such as ocean carriers offering different transit times, different sailing schedules, different destination ports and different canals to the East Coast (Panama Canal versus Suez Canal).
• Align your financial supply chain with your trade supply chain. These two chains involve different sets of players with differing objectives and practices.

conclusion

Identifying non-value-added activities is especially important for supply chain management. Any activity that adds unnecessary time and inventory and cost to the already complex activities can obstruct supply chain effectiveness. Value stream mapping is a tool for seeing and identifying waste, both internal and external. Seeing the current activities and the waste can form the basis of plans to improve the supply chain. This procedure is especially critical for high-volume and high-margin products where the impact on the company bottom line is significant.

Collaboration and co-operation within the company organization and between and among trading partners is important for truly removing waste across the entire supply chain. Accelerating cycle time, increasing inventory velocity and reducing costs for the high-volume and high-margin products can affect return on investment and drive the benefit of lean for everyone to see.

Lean logistics for international business offers significant potential to identify and reduce time, inventory and cost (see map above). And given the size of the international supply chain, both for importing and exporting, the approach merits the effort for bottom-line results. Value stream mapping provides an important tool for understanding the present supply chain and designing a new one.