Supply Chain

In order to make the most of lean principles, at some point your organization will need to implement an effective supply chain management practice. This is perhaps the most sophisticated piece of the lean business model. It requires high level supply and demand analyses and statistical data and without it, your company will never fully reap the benefits of the lean model.

 

As a lean management tool, supply chain theory suggests that the synchronization of both internal and external suppliers is not only possible, but essential. In order to accomplish this synchronization, businesses must not rely solely on forecasting to plan their purchasing trends. This is in part because traditional forecasting techniques are often used by purchasing departments to bulk buy rather than capacity plan with suppliers. By capacity planning, companies can determine their suppliers’ manufacturing capability to deliver JIT (Just in Time), and provide real-time market visibility for the following participants in the supply chain:

 

  • Outside suppliers of raw materials or sub-assembly parts
  • Internal departments supplying inventory to their downstream counterparts
  • Procurement channels

 

Before Supply Chain Management

 

Historically, businesses have used an Annual Operating Plan (AOP) to provide their purchasing departments with forecasts for order quantities. Although the AOP has always lacked the strategy and data needed to accurately determine the levels of inventory and resources that will be needed, it was the best model available for many years. Companies had to have a way to communicate their expectations to their sales teams, and in turn, their scheduling and procurement teams would simply order the amount of inventory they were expected to sell. This inevitably resulted in either stale inventory or stocks outs (or both at different times of the year), because there is no way to accurately predict spikes in demand a year in advance. Now there’s a better way, and it begins with demand planning and demand segmentation.

 

Demand Planning and Segmentation

 

Unlike Annual Operating Plans, demand planning sessions rely on statistical data to predict the amount of inventory and resources that will be necessary per planning period. Ideally, these sessions take place every two to three months (unlike only once a year with AOP) and use the following tools to provide accurate, real-time insight into where and when spikes in demand may occur:

  • Field data
  • Economic analysis
  • Industry data
  • Market plans
  • Sales history

 

Used properly, demand planning helps to create a lean supply chain that saves money for buyers, planners and suppliers alike.

 

Demand segmentation reviews the company’s sales volume and variability together to statistically calculate the proper safety stock and in doing so, helps to eliminate excess inventory and stock outs. In relation to supply chain management, demand segmentation helps answer the question of which products to keep on the shelf as a buffer for spikes in demand. It creates a supply chain that is responsive and based on statistics, not wishful thinking.

 

Lean Management Tools that Work

 

While supply chain management is not the first step in a successful lean business practice, it is a vital one. Without it your organization may never escape the financial burden of carrying too much inventory or even worse, missing orders because of stock outs. LSI can help your company leverage the power of demand planning and demand segmentation in order to accomplish your lean manufacturing goals. To learn more about how LSI can help your organization realize its full potential, contact them for a quote at www.lsiconsultinggroup.com.