goal for any supply chain is to deliver maximum value at the lowest cost. One way to achieve this goal is to change the nodes and the links. Perhaps you can lower the costs of your raw materials by sourcing them from a different supplier, which means you’d be changing one of your nodes. Changing a node also means changing the links that connect that node to the rest of your supply chain.
Making changes in the links and nodes is called network optimization. One approach to network optimization is called value-stream mapping (VSM). Figure 4-2 shows a simple example of a VSM. The more of your supply chain that you’re trying to optimize, the larger — and more complex — your VSM becomes.
FIGURE 4-2: Example VSM.
VSM is an important part of a Lean professional’s tool kit, as you see in the next section, but network optimization can be done on a larger scale with sophisticated mathematical analysis. Several supply chain software platforms are available to help with analyzing supply chain flows, starting with spreadsheets and moving up to complex supply chain modeling tools. In addition to factoring in the costs for buying materials and transporting them between nodes, some network optimization tools can factor in variables such as supplier performance and the effects of tariffs and taxes. The sections on supply chain modeling software and business intelligence software in Chapter 12 discuss this topic in more detail.
Improving and Innovating Processes
Supply chains are made up of people, processes, and technologies. All three components need to improve over time for a supply chain to remain competitive. People get better through education, training, and experience. Technology gets better through improvements in hardware and software. Processes get better through innovation and … well, process improvement.
Three approaches to process improvement are particularly useful in supply chain management: Lean, Theory of Constraints, and Six Sigma. These approaches share a goal — process improvement — but achieve it by focusing on different aspects of a process. Table 4-1 highlights the primary focus of each method.
TABLE 4-1 Three Approaches to Process Improvement
| Method | Focus |
|---|---|
| Lean | Reducing waste |
| Six Sigma | Reducing variability |
| Theory of Constraints | Relieving bottlenecks |
Lean
Lean is an approach to supply chain management that originated with Toyota, which is why you may hear it referred to as the Toyota Production System (see Chapter 3). The idea behind Lean is that you use the least amount of time, effort, and resources by maintaining smooth and balanced flow in a supply chain. The best way to accomplish this goal is to have logical, disciplined processes and excellent communications.
Many people make the mistake of thinking about Lean as a training program or a set of tools that a company can buy. But Lean is really a philosophy — a different way of looking at how businesses create value. For Lean to work properly, everyone in the company needs to be working together to eliminate three things that cause inefficiency:
Muda: Waste
Mura: Unevenness or variability in operations
Muri: Overburdening of people and equipment
When someone identifies a need to innovate or improve a process, the key stakeholders are brought together for a kaizen event. (Kaizen is pronounced to rhyme with “Hi Ben.”) During a kaizen, the stakeholders form a team and look at how the process is working, come up with ideas for how to make it better, and then implement changes. That sounds simple, and it should be. But business cultures often make it hard for people to speak up or be heard, so a formal approach like Lean helps get everyone involved.
Under the Lean approach, companies should continually drive eight kinds of muda out of their processes and supply chains:
Transportation: Any time you ship something from one place to another, you’re consuming time and money. The less you need to ship a product, the better.
Inventory: Any time you have products sitting around in inventory, you’re wasting money by tying up space and working capital.
Motion: Any time you move something when it isn’t necessary, or when it isn’t somehow making your product more valuable to a customer, you’re wasting time and money.
Waiting: Any time you have to wait for one thing to happen before you can do something else, you’re wasting time and money.
Overproduction: Any time you make too much of a product, or make a product before you can sell it or use it, you’re wasting time and money.
Overprocessing: Any time you do something that doesn’t add value — that a customer won’t pay for — you’re wasting time and money.
Defects: Any time you make a product that you can’t use or sell (including scrap and rework), you’re wasting time and money.
Untapped skills and employee creativity: Any time you fail to engage and inspire your employees to offer ideas, implement improvements, or identify waste, you’re wasting an asset that you’re already paying for: their brains.
