FLOW RESPOND TECHNOLOGY CULTURE COLLABORATION

WhatMakes a

Six core attributes characterize the lean supplychain. They range from the ability to capture andcommunicate the demand signal to successfulcollaboration with supply chain partners. Theindustry leaders that have developed these leancompetencies enjoy a competitive edge that ismanifested in smoother operations, lower stocklevels, and greater inventory turns.

ham:By Kate Vitasek, Karl B. Manrodt, and Jeff Abbott

As more and more com|idniL'S ailojit a "hori/onlallyintugralL'd" business mudcl. they arc seeking lo per-form in hoLisf on]\' their eore functions, while out-sourcing the noncore activities. In manufacturing,this means shedding a company's own plants and

turning to domestic and international contract manufacturers.It also means sourcing from far-flung parts of the globe andrelying on third-party providers for the necessar\- logistics sup-port. This contrasts sharply with the old-world "vertically inte-grated" approach in which cvcr\thing from basic raw materials

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Lean Attributes

to end customer sulcs mi^ht be under the control of a sinj lcglobal enterprise.

With ihf ni()\c toward horizontal integration, (he supplychain has lengthened and grown more complex. And withthis heightened complexity comes a new set of challenges.How do you manage a global supply chain while retainingspeed and flexibility? How can you eliminate waste acrossthe supply cbain—not just at one point in the channel? Howcan lirms collahorate in a way that is mutually rewarding?How do you meet the needs of a global customer withoutexcessive work in process or inventories? And, most impt)r-tantly, how do you accomplish all of this in the face ofshrinking niargins?

Some industry leaders are finding the answers in a busi-ness approacb witb roots deep in manufacturing: lean.Specifically, tbey are applying the lean production principlesto the management o\ their global suppK chains.

rhe Lean Supply ChainA number oF sources ha\'e detailed the basic |irinciples oflean manufacturing. I'wo of tbe most autboritati\e are Leanriiiiikiiio and The Machine That (^.haii^ed the WorhL wbichdescribed the famous Toyota Production System, Both ofthese books, which are still widely available, were co-autbored by lean experts James P. Womack aiid Daniel f.Jones. As these autboritics point out, tbe o\erarcbing objec-tives of lean are to eliminate waste in botb materials andprocesses and to create value, ImpurtantK, \alue is definedirom tbe perspecti\e ol tbe customer. If an activity or processdoes not add eust(imer vakie. tben it is considered waste.

Wbile tbe principles oi lean ba\e been applied in tbemanufaeturing space for several decades now, tbe notion ol"lean supply chain management is relatively new. To belp sup-ply chain professionals gain a better Linderstanding ol bowlean can be applied to tbeir operations, we conductedresearch that included e\tensi\'c literature search, case stud-ies, and inteniews with industry experts. We also conducteda survey among members of APICS, an organization of supplychain and resource management professionals, to gaugeprogress toward implementing lean principles. (For more onthe APICS survey, see sidebar above.)

That research effort led to the identification of si.\ attribut-es that companies should cultivate to build a lean supplychain that is creative, fle\ible, and adaptive, Tbrougb tbeAPICS survey results in particLilar, we were also able toquantify' tbe competitive advantages of developing lean stip-ply cbain capabilities.

\'oT tbe purpose of this article, we define a lean sujiplv'chain as a set of organizations directly linked by upstream

Kale \itasek is mufiaging puriner oj Supply Chain Visions. Kurl6. Manrodt is associate pro/essor of logistics in the Department(>/i\Iafiugt'mt.'n(, Murketin}> and Lngislics a( Cteorgia SodlhcrnL'niversilv- Jeff ,\hi)(>ll is senior directnr-siippiy vhiiin applica-tions al Orucle.

Research MethodologyIn August 2004, APICS asked 5,806 of its members to partici-pate in an online survey of lean supply chain practices. Six hiun-dred and eight members participated in the study, representing a10.5 percent response rate. Given that online surveys of this typenormally have a response rate in the single digits, the level ofparticipation exceeded our expectations. The large sampleenabled the research team—the authors of this article —to reachconclusions with a high level of confidence. (A copy of the fullreport, titled "Understanding the Lean Supply Chain: Beginningthe Journey," can be downloaded at no charge at www,man-rodt.com or wvi'w.scvisions.com.)

The survey was based on an extensive literature review, earti-er research we had conducted, and input from subject experts atOracle Inc., another participant in the study. In addition to thee-mail survey, the research team interviewed supply chain profes-sionals from a wide range of industries regarding their efforts toapply lean concepts to their supply chains.

More than 71 percent of the respondents are in manufactur-ing, which places them near the middle of the supply chain. Fromthis position, they had a perspective on both upstream and down-stream supply chain activities. With respect to size of the busi-ness, 30 percent of the respondents had annual sales in excess of$1 billion. The remainder had sales of under $1 billion.

With regard to size and type of the responding companies, wehad early concerns that these demographics could significantlyimpact our results. Yet while we did find some differences inindividual responses, there were no significant differences amongthe groups. No industry group appeared to be leading the race todevelop a lean supply chain, and smaller and larger firms seemto be making equal progress in adopting lean principles.

and downstream flows of products, services. Finances, andinformation tbat collaboratively work to reduce cost andv\aste by efficiently pulling what is needed to meet the needsof the individual customer.' While individual firms canbecome lean by tbemselves, a lean supply cbain requiresmultifile entities to v\ork together. Its important to under-stand up ^ront tbat lean supply cbain management is not anexercise in sbifting inventories or costs to a supplier. Instead,it s a coordinated effort among partners to eliminate wasteacross the supply chain. Tbis can only be done by collaborat-ing across common processes.

S o Why B e I e a n rWby work to develop tbe lean supply cbain attributes in tbefirst place? Doesn t it take a lot of time and effort? And don'twe all bave enough on our plates as is v\itbotit adding anotberproject?

To belp answer tbese c]uestions, tbe researcb team turnedto tbe APICS survey. We segmented the survey sample intotbree groups. On tbe lower end of the scale v\ere tboseresjjondcnts w bo bad not implemented any lean supply cbain

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practices—and h;id no Firm plans to do so. This ^roup con-sisted of appro\iniJtcly 60 pcrcenl ot the sample and will hi.'referred lo as the "nonadopter" group. In the second groupwere ihe lean adopters—the compiinies that had integrtitediheir product Mow iind wci'c working with supply chain part-ners to hecnme leaner. Lean adopters made up around ISpercent iif the sample. The third group (the remaining 25[lercent) was in the middle; they had adopted some lean prin-ei|)les internally and were working lo extend ihem out to sup-pliers and customers.

The most striking comparisons were hetween the adopters.md the nonadopters. In pjrtieuiar. we tounil the Followingstatisiieally signilicant dit'terences between the two groups:

• Lean adopters see exchange of data as a tactical ad\an-tage and are more likely lo work with partners on data stan-dards to enhance inlorrnation integration (40 pereent vs. 1 Ipereent ol nonadopters),

• Lean adopters see employees as a \aluei.lasset and emphasize employee development (77pereent), Nonadopters are less likely (47 per-LL'n!) 1(1 iiro\i(.le support For de\el()pment pro-grams ami. in general, \iew employees as moreexjX'nd.ible,

• Lean adopters are more likeK to ha\e con-linnous impro\ement programs ISO percent), Olihe nonatlopters, 4.- percent indieated that lhe\ha\e no sueh programs,

• Lean adopters are more likeK to eoilahoratewith siip[i|\' chain partners on process standards.Nonadopters are signitieantly less likely to du so.

• Lean adopters are more likeK to entorcecom[ian\ product standards {6^ percent). l\iliyhall i>l the nonatloptiTs inilieated weak enforce-ment of conipan\ standards or had no standardsat all,

• Lean ado|neis [iaitici|5ate in standards hod-ies antl work with partners on standards (48 percent),\onado|iters were less likek to do so; i4 percent either useno intiustry standards or attempt to enForee their own stan-tlards on ttie group,

• I hree-loLirlhs ol the nonadopters either don t share data\\ ilh key parlners heeause they consider it to he proprietary or.il the\ do make data available, oFfer no conversion assistance.

I he research also re\'ea!ed sharp dlHerences in how thetwo groups performed on the key logisties metrics of inventorx'Itirns and the numher of days of sales in inventory'. As shownin Lxhibit I, lean adopters had statistically significantly higheriii\entory turns as well as lower days' sales in in\entor\' onhanti. And because the leaders are not carrying excessive lev-els of in\enior\, their cost of goods sold is lower and they areheUer able lo respond to changes in the supply chain. Inshort, they are enjoying two oF the key benefits oF lean supplychain management.

Our research further suggests that ihe lean adopters com-municate and collaborate more successfully with their supply

chain partners, "They have a higher use of standards inprocesses and materials. The lean adopters also enjoy redueedSKU counts and in\entory le\els and report a general reduc*tion in cost ol goods sold v\hen compared to the nonadopters.Notably, all of these lactors coTitribute to the hottom line.

Attributes tA'a Lean Supply ChainHow do companies develop the lean supply chain capabilitiesthat will lead to the kind oF superior supply chain perFor-mance demonstrated hy the top ado[)ters and the industryleaders? We've identified six attrihutes that companies shouldstri\'e to develop-

1 • Demand Management CapabilityAn LindcrKing tetiet nf tlu' le.m philosoph) is that produetshould be "pulled" by actual customer demand rather than

"pushed" into the market. Ideally, point-of-sale(POS) data is gathered in real-time, or near real-time idailyl. and transmitted u|>slream to all thesupply chain members. Ibis doesn t mean justthe tier one suppliers but the tier two and tierthree suppliers as well, Ihus, suppliers at eachlc\cl ol the proeess would recei\'e the customersdemand signal and eon\ert it into somethingusable Isiicb as part numher antl t|uantity) lortbeir upstream partners. In tbis way, all membersin the channel can understand tbe total \()lumebeing s{)kl, ()\ertime. tbis capability shoultl mini-mize the need For forecasting, since the sii|}plychain is responding to actual demand,

Ibe consumer goods sector |iro\ ides soniegood examples ol effective demand managementin a lean suppK' chain. In particular, the tech-ni(,|ues of collaborative planning, torecasting, andre[ilenisbment (C:PLH) and efficient consumerresponse (LCR) are enabling point-of-sale data

to L!ri\e store deliveries. In eFfect, the retail manufacturer/dis-tributor only deli\ers stock to the store when specified by apull signal for a speeific c|iiantity issued from tbe retailer,

Ciiflelte is one of tbe best practitioners of demand man-

EXHIBITl

Benefits of a Lean Supply Chain

Days' Sales inInventory

Turns

NonadopterAdopter

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agement in the consumer goods space. Gillette receives actu-Lil demand data from POS systems at the retailers tmd usesthat data to create replenishment orders to ship just the rightamount oF a product to each store. The company is evenworking to develop radio-Frcqucncy idenlification (RFID)processes that could ultimately lead to continuous monitoringof backroom and shelf inventory, providing automated nolili-cation when replenishment is required.

The consequences of nut managing the demand signalhave been well documented. The biggest problem is oftenreferred to as the "bulKvhip effect," whereby additional unitsare added to the original demand signal as it moves furtherupstream, lor instanee, an ordermay grow 10 percent at each nodeas it moves From the retailer to thedistributor, then to the manulactur-er. and then to the tier one suppli-ers anil their suppliers, The result ise\cessi\e in\entor\ held hy all {)lthe channel partners, which makesit mueh more ditlicult (or everyoneto respond effectively to change.

Our sur\ey oT APICS membersshowed that while many companiesundcrstanti the importance o[ get-ting demand data Irom eiistomersand to suppliers, they have a longway to go toward achieving thatgoal. The majority ot respondentsare hasing their manulaeturing andsup[)ly ehain planning on usage history or on projected salesbased on usage rather than aetLial demand. Less than 50 per-cent ol the respondents reported any kind ot ongoing dialogwith the downstream siippK chain to impn)\e demand-dataaccuracy and timeliness. Only 33 percent indicated thatproduct was being "pulled" through the downstream ehain hyactual usage. Of those, just I S percent indicated any "real-time" exchange ol actual usage data w ith their eustomers.

There has been much discussion about companies com-peting "suppK ehain \s. supply ehain." If this is to hecome areality, all of the supply chain partners v\ill ha\e to do a het-ter job of managing the demand signal. Ihe lean supply chainruns on knowing what is actually heing sold, at what quanti-ties, and where the sales have taken plaee. Results ol ourstudy suggest that there is significant room for improvementon thjs key attrjhute.

2* Waste and Cost ReductionElimination ol waste is another key tenet ot lean supply chainmanagement, just as it is with lean manufacturing. In thehroadest sense, waste can be time, inventory, process redun-dancy, or even digital waste. Digital waste is especially detri-mental to the supply chain. It refers to redundant or unnec-essary data that is collected, managed, and stored for notactical or strategic reason. The amount of digital waste with-

Lean adopters hadhigher inventory turnsand lower inventory on hand

than the nonadopters.

in an organization is typical!}' great. It increases exponentiallywhen one etjnsiders the data tlows among members in a sup-ply chain.

Note that the emphasis here is on reducing waste, and notcost, riiis is not a matter of semantics but of philosophy.Iheres not always a direct one-to-one correlation betweeneliminating waste and cutting cost.s. Yet waste reductionalmost always results in lower costs. In the supply chain con-text, the elimination of waste yields a significant by-product:a reduction in costs for all members of the supply chain.

A focus on waste, and not cost, also makes the conversa-tion with suppliers and eustomers less threatening, il the goal

is to reduce waste, most parties arcmore willing to discuss theirprocesses with one another. A cost-eutting program, by contrast, isolten seen as just another way nlsqueezing a little more out ot thesuppliers or ser\iee providers.

With a joint goal of reducingwaste, supply chain partners canwork together to modily those poli-cies, procedures, and data-collec-tion practices that produee orencourage waste. Iypically, wasteacross the suppK' chain will mani-test itself in excess inventory.Effective ways to address this arethrough postponement and cus-tomization strategics, which push

the tinal assembly ot a completed iirotiuct Ui the last practicalpoint in the chain.

Deli pr()\'ides an excellent iNustralion ol how to reducewaste in the supply ehain through ettecti\e demand man-agement. The eompanys build-to-order model produces aeomputer only when there is actual customer demand. Dellworks closely with its suppliers on redi.ieing in\entories andimjiroving ]irocesses to achieve a system where in\entoryturns are measured in hours rather than days. Thus, De!l isable to introduee new technologies sueh as taster CPUsmuch more quickty than the competition, ln fact, it canstart shipping computers with the new teehnology the veryday that it becomes available trom, say. Intel—withoutconcern about Hooding the supply chain with excess orobsolete processors. And since Dell does not maintainstocks of unsold tinistied goods, there is no need to con-duct "tire sales" to unload complete computer systems thatarc considered out ot date. The result: Waste has beeneliminated both on the component side and on the finishedgoods side.

Most ol the respondents to our sur\e\ ha\'e yet t(j reachDells le\el ol performance in this attrihute. Less than H) per-cent are working with their supply chain partners to eliminatewaste. Again, this is clearly an area of lean supply chain man-agement with much room for improvement.

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3* Process and Product StandardizationProcess and pioduLl standardi/.ation is llie third attribute oi alean supply chain. It's importiint to develop standardizationacross both jiinecsscs ami produLts for ihc reasons elahoratcdbelow.

I'rocess staiidardi/alion cnahlcs continuous How—tliat is,ihc uninterrupted movcmenl of a produLi or ser\'ice throughihe company s system and to the customer. Major inhibitorsol tlow include work in queue, batch processing, and trans-portation issues. These roadblocks slo\\ ihe lime from prod-uct or ser\iee initiation to deli\ery.-

Continuous tlow needs to be accom|i!ished with a "valuesi ream" pe r spec t i ve , whichm e a n s viewing p rocesse s interms of how tbey add value toihe eiistomer. This |ierspecli\etiemaiids ,i sliill Irom vertical tohori/on(al thinking. Horizontalthinking ret|Liires that managerslook aeross the traditional verti-cal lunetions to integrate aeti\i-ties in a value stream that Howsfrom suppliers, through the orga-nization, and on lo customers.This ellort is taeilitated h\ havingprocesses ihat are standardizedacross the sup|)K ehain to reducecomplexity. In other v\ords. theorganization lirst determines thebest way to manage a process

aiul then standardizes this process aeross the organization,taking into account regional or cultural tiiffcrences.

I lere we think ol the Toyota Production System, the foun-dation lor most lean and lust-in-timc strategies. Toyotasemphasis on standardized processes antl tooling has led lo asigniiieant reduction in the lime ret.|uired to manufaeture anautomobiie. While eaeh new Toyota ear antl truck model ma\appear to be dil lerent from one another, the processesinvolved in bringing these vehieles to market are very similar.This a|iproach allows Toyota to foeus on perfecting both thenew vehicle and ihe underlying processes used, loyota also isv\ell-known for working v\ith its suppliers to help them adoptsimilar lean pr.ictiees. v\hieh extends ihe benefits of stan-tlardization across the supply ehain.

\ thorough understanding of the \alue stream will helpsuji[ilv chain partners standardize ini|ioriant processesand shih work lo the most efticient point in the chain.V't , for many eompanies, this remains a challenging task.Planning and production. lv\o ke\ processes that pertainto most organizations, are examples. l-ev\er than 20 pvr-eenl oi respondents to the AIMCS sur\e\ ' reported thatihese processes were "well understood." I-urther, only 6|)ereent intlicated that these processes have been stan-tlartlized aeross supply chain partners. More tban .- 0 per-eent said tbat tbeir processes were "proprietary" and

Cultural change is oneof the biggest

challenges in getting leanaccepted in the organization.

tberetore not shared w itb tbeir supply cbain partners.In addition to standardizing processes, eompanies can

beneiit irom standardizing produets used in the manufactureor assembly of goods—in other words, sbaring subeompo-nents aeross produet lines. In this way, fev\'er unique eompo-nents are needed, tbereby reducing manutaeturing, ware-housing, and development costs. Component standardizationalso can help promote postponement initiatives that, in turn,can reduee inventory levels of finished goods. Take, for exam-ple, a large original et|uipment manufacturer (OHM) tbatbimdles various soltvvare games v\itb its gaming console fordillerent retailers. Instead ot baving a "Costeo" SKU and

"tU'st Buy" SKU tbal was eustomizedat manufacturing, tbe OLM sbifts tbisvalue-added aelivity downstream toits distribution partners. So v\benC'ostco jiurcbases products, the dis-tribution partner generates the cus-tomer-specitic SKU and does tbebundling and labeling. By performingtbe value add activities downstreamat distribution ratber tban at manu-faeturing, the OEM streamlines ilsinventory witb one generic gamingSKU ratber tban baving a separateSKU lor eacb retailer.

.\s our full report notes, more tban88 percent responded tbat tbey weremaking some efforts to standardizeproduets internally, witb nearly 40

pereent aelively involved in pnjcesses used to establish anduse internal product standardization.

4* Industry Standards AdoptionStandardization also needs lo extend beyond a company's par-ticular supply ebain to the industry' overall. Industry productstandards benefit not only eonsumers but also companies byreducing the complexity of produet variations. Ihe consumerelectronics industry' provides many examples of effeetive useof eross-industry standards—from tbe pin arrangement forvarious eleetronie components, to the size oi a bard disk driveused in a computer, to tbe dimensions oi" tbe racks formounting telepbone sv\itching equipment.

Industry standards help ensure tbat components from vari-ous su|ipliers ean be used interchangeably, thereby redueingdevelopment eosts for tbe original equipment manufaeturersand allowing lor standardized processes in assembly. lo illus-trate, tbe popular USB memory stick produets ha\e become agreat tool ior transterring large amounts of data. Witbout astandardized USB port, bowe\er, a uni\ersal memory stickwould not bave been possible, hlad eacb computer manufac-turer developed its own solution for a USB port conneelion.we would bave needed as many diflerent memory sticks asthere were eomputer models.

loday, tbe majority ot components in a personal eompuler

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niLintifjctiirecl by Dt'l! or HP are the same for any given per-loniiaiicc and c|uality lc\el. The biggest diiterentiators are lliename on the box, the marketing strategy, and ibe after-marketsupport, b vfr wonder bow we can now purcbasc an entirecomputer system of good quality from a leading name vendorfor under $500? lndustr\'-wide standardization is a big reason.

Witb regard to proeess standardization in tbe supply ebainspace, industry' associations like tbe SuppK-Cbain Couneil andAPQC are taking a lead role. APQC, for example, bas devel-oped a Process Classification Framework (PCK) tbat establisb-es a common nomenclature for \'ari<)us activities ranging fromIitiman resources to supply cbain management. Based on tbepremise tbat organizations have similar processes for manyactivities, tbe framework allows companies to "get on tbe samepage" witb respect to process definition. Ibe Supply-CbainCouncil's SCOR (supply chain operations refer-ence) mode! defines eommon supply ebain man-agement proecsses across ibe plan-souree-make-deliver-return spectrum. I rameworks like thoseoffered hy APQC and tbe Supply-CbainCouneil belp companies talk about tbeir stijipKchain |)roecsses in a common language.

lndtistr\' standardization also should extendto inlormation. As companies increase tbeirsupply cbain systems ca|iabi!itics, tliey increasetbe ann)unt of data to organize, understand, andlc\erage. Add in Rril) capabilities, POS data,and eommtmication uitb trading partners, andtbe data increases exponentially. To eltccti\elymanage tbis le\el of data, suppK cbain partnerssboiild adbere to indtistr\ standards torexchanging intormation wherever possible.Ciroups sucb as tbe Hosetta Net, VlCS(Voluntary Interindustry C'ommcrce Standards),and GSl US (kirmerly tbe Unilorni Code Council) are lead-ing the way for companies to impro\e tbeir data eommuniea-tions tbrough standardized data lormats.

On this attribute, our stir\'ey results sb{)w tbat r{)ugbly 70percent of the res|)ondents make use ol industry standardswben de\ eloping new products. But fewer tban 20 percentare using standardized formats to exchange informationbetween supply cbain ]iartners. Twenty percent ol tbe sur\e\'respondents consider tbeir data to be proprietary and makeno attempt to sbarc it w itb tbeir partners. Anotber 42 percentof those sur\eyed simply make tbe data a\ailable witboutiTiaking any eff{)rt to belp tbeir partners tise it,

5 . Cultural Change Competency1 here is one recurring obstacle to successfully a|iplyinglean stipply cbain concepts—resistance from tbe peoplewbo will be asked to embrace and implement tbe cbange.1 bese are tbe same people who ba\e been doing thingstbe old way for a long time—and, in lact, have a vestedinterest in doing things tbe \\a\ tbey bave always beendone. Cultural cbange is one ol tbe biggest cballenges in

getting lean accepted in tbe organization.Successtul cultural change requires a clear roadmap.

During times of ehange or uneertainty, employees want toknov\ where things are beaded. Wbat does tbe future looklike? Wbat will 1 bave to do different^ in order to sueeeedrDone ]iropcrly. a lean supply chain initiative can pro\ide a"roadmap" tbat provides employees witb tbat long-term per-spective. It can clearly communicate tbe objectives and bcne-!its ot going lean. The roadmap then can map bow tbe com-pany will move from tbe "as is" condition to tbe desired state.And as with any major change management initiative, tbelean roadmap must have tbe unconditional support ot topmanagement.

rbe company's view ot its people uitbin the organizationalso is crucial to successful cultural change. In tbis regard,

it s interesting to note how lean adopters view tbeiremployees as compared to nonlean organizations.Tbe adopters tend to view tbeir people as \aluc'dassets and place significant empbasis on employeedexclopment. In contrast, nonadopters are morelikely to see employees as expendable and providelittle support lor development programs.

Nearly 70 percent of the respondents to our sur-vey report baving programs in place to enbaneeemployee deveiopment and reduce tLirno\cr. \\ biletbe sur\ey did not ask speeifically about trainingprograms targeted to lean supply ebain manage-ment initiati\cs. sLicb programs would elearly becentral to de\eloping tbis attribute.

During our inter\iew process, we fourui tbatleaders in lean adoption were empbasizing leanand total quality management (TQM) training aspart of tbe new cmplo\'ec indoctrination. Overtime, tbis tbinking becomes ingrained in tbese

individuals as tbe way they do business. Several o! tbe lead-ers we spoke witb tackled cultural cbange tbrougb tormaltraining programs led by a "lean team ot subject-matterexperts. Tbese experts v\ould work v\ith \arious businessunits witbin tbe company not only to do tbe lormal trainingbut also to take an active role in implementing lean supplycbain initiatives.

O* Cross-enterprise CollaborationThe tinal attribute of tbe lean supply cbain is cross-enterprisecollaboration. I brotigb collaborative practices and processes,supply cbain partners must v\()rk to maximize tbe \aluestream to tbe customer. To do tbis rigbt, of course, it's neces-sary to first understand how tbe customer defines \alue.Added serviees, regardless ot bow tbe supply ebain jiartnersview tbem, are of true \alLie only ii tbe customers understandand desire tbem.

Cross-enterprise teams are a major enabler of SLipply chaincollaboration. In a lean supply cbain, tbese teams are notfuncti{)nalK oriented or internali\' focused. Rather, they are

{Continued on

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oriented [oward the v\hi)le supplychain and work toward solutionstluit benefit all of the members. I'hemost effective teams comprisemembers from all of the end-to-endsupply chain partner companies.The team members should repre-sent A\ of the principal supply chainiunctions of plan, source, make, anddeliver as well as the enabling func-tions of finance and technology.

The best examples of collabora-tion in the supply chain come fromthe retiiii sector. Giants such asWal-Mart and Tesco have imple-mented collaborative processes withsuppliers that allow them to redueellieir backroom stock while improv-ing shelf availability for the con-sumer. Both of these benefits result from close cooperationLind communication between these large retailers and theirsuppliers.

In terms of our survey respondents, nearly 90 percent haveinifilemented some form of cross-functional teams, but lessthan 2T percent have cross-enterprise supply chain teamsin [ilace. Developing the collaboration attribute not onlyimpro\es the working relationships among the supply chainpartners, but also creates a positive atmosphere that con-tributes to the success of luture supply ehuin initiatives.

Where To Start?There's an implietl assumption in articles such as this that all otthe prinei|iles cs|ioused descne equal cnijibasis. Put in terms ofthe lean supply ehain, you ha^e to develop all six attributes atthe same pace and to the same degree. Yet, few things in litework thai uav. Runners have stamina and lower body strength,but don't spend a lot ol time building upper muscle mass.Tennis players i)lten have incredible strength on one side oftheir body, but not the other. In the same way. companies ha\'eto locus on those attributes that match their strategies, theirsu|i|ily chain capabilities, and tbeir competiti\e positioning.

It you cuultl toeus on only one lean attribute—and onlyone improvement—in your supply chain, it should be thedemand management capability, f^ffectively managing thedemand signal across your organization and then communicat-ing that signal to your suppliers will reduee waste, cut costs,and ultimately lead to higher supply chain |>ertormance.

If you could focus on onlyone lean attribute-and only oneimprovement—in your supply chain, itshould be the demand managementcapability.

flow do you begin to focus more intently on the demandsignal? A good starting point is to create a process map thatcharts ail of the steps involved in moving the demand signalfrom the end user into your organization and on to your sup-pliers. Once you understand the key processes, you can thenwork to improve them. Answering a few questions like thesewill point you in the rigbt direction.

• How can the signal's velocity be increased?• What are the benefits of increased velocity? Who benefits?• Who sees the signal now but doesn't use it?• Who doesn't see the signal but could benefit trom it?• What are the roadblocks that hinder the signal?• What support or training is needed?• What metrics need to be put in place to measure and

encourage changes?• What compensation plans are in place that may run

counter to this initiative?Creating a lean supply chain is not an easy assignment.

Lean supply chain management, much like lean manufactur-ing, is not a destination, but a journey. And as with any stren-uous journey, the big question is always, "Is it worth it?" Ourdata—both qualitative and quantitative—confirms that thejourney is worth the time and effort. By working to developthe six attributes described here, companies and their supplychain partners can greatly impro\e their overall [lerformancewhile delivering greater value to the customer.

Beyond this, your competition is likely considering a leanfuture. Can you aftord not to take the lean journey? 0 8 0

Footnotes•*• This definition is based on the work of the Council of Supply

Chain Management Professionals as well as the University ofTennessee Supply Chain Research Group.

^ Dave Nave,"Hov\/ to Compare Six Sigma, Lean and Theory ofConstraints/' Quality Progress, March 2002.

^ Mike Rother, "Wha t Are We Learning Since We StartedLearning to See?" wvi'w.iean.org.

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