White Paper - NEW Supply Chain Management Paradigm for Consumer Product Goods (CPG) Companies

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Abstract
In recent years supply chain management (SCM) requirements have changed significantly in the CPG
sector. The buzzword nowadays when managing global supply chains is adaptation to increasing
global complexity and volatility. Growing pressure from financial markets and the difficulty of
increasing operating margins and working capital in this environment require efficient planning and
execution of global production processes.

More and more companies are relying therefore on LEAN SCM—a planning concept for harmonized
production and replenishment planning across the entire supply chain with close linkages to
organizational processes and IT infrastructure. It is designed expressly to simplify existing planning
processes and to improve the synchronization and variability management of global supply chains.

This a ti le shall gi e i te ested p ofessio als a d a age s a o e ie a out Ca elot s LEAN “CM
concept and its key elements, its theoretical fundament, as well as proven recommendations for
successful realization. LEAN SCM as you will learn from this paper is fundamentally about how to get
rid of the need for certainty in operational planning in a highly volatile, uncertain, complex and
dynamic business environment.

1. A Paradigm Shift in SCM is needed

1.1. Increased Supply Chain Volatility and Complexity
Global supply chain managers impressively emphasize the urgent need to adapt existing SCM
concepts to the new reality. Market volatility is considered to be the biggest challenge to supply
chains, followed by supply chain complexity. Many companies have chosen to adapt their business
processes to the "VUCA" world—an acronym of the words "Volatility", "Uncertainty", "Complexity"
and "Ambiguity"—as a major strategic target.

To ensure optimal responsiveness and efficiency in supply chain processes, CPG companies have in
recent decades established global planning departments and invested heavily in their planning
s ste s. The halle ges of toda s VUCA o ld sho o e a d o e the ajo fla of Ad a ed
Planning and Scheduling (APS) and Enterprise Resource Planning (ERP) systems that form the
planning backbone of their global value chain: They work effectively only when extremely reliable
forecasts are available, preferably as detailed and accurate as possible at SKU level. In such a
forecast based SCM approach the supply chain performance heavily depends on the forecast quality.
Consequently companies have been undertaking significant efforts to improve forecast accuracy
with the result that forecast are better but still mostly wrong. How can sales be expected to know
what the future holds in volatile marketplaces at a very detailed level of granularity?

LEAN SCM has been developed by Camelot Management Consultants in close collaboration with
leading universities and supply chain experts from global key industry players. In this article, we
introduce LEAN SCM as a concept that enables firms in the CPG sector to overcome the flaws of
traditional ERP and APS planning approaches.

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1.2. The Concept of LEAN SCM

1.2.1. Definition
LEAN SCM is designed to enable production and replenishment planning across the entire supply
chain in a synchronized way. LEAN SCM is influenced by two main developments: first, traditional
supply chain planning and, second, the rise of lean operations. On the one hand, LEAN SCM aims to
overcome the well-known drawbacks of (traditional) ERP, material requirement planning (MRP), or
APS—dependency on forecasts and their inherent complexity. On the other hand, it also aims to
translate lean manufacturing principles such as production leveling, takts, and pull production into
supply chain planning in order to allow for more simplified and consumption-driven processes. Here
it is important to emphasize that LEAN SCM is designed as a holistic business concept, also
incorporating guidelines for alignment with organizational processes and integration into IT
infrastructure.

1.2.2. Key Elements

Three planning and management concepts are particularly emphasized in order to effectively align
planning processes in CPG companies with the requirements of the VUCA world. They also form the
key elements of LEAN SCM.

Cyclic Planning with Rhythm Wheels: Many companies have achieved great success incorporating
lean manufacturing principles when designing their manufacturing operations to achieve greater
efficiency. With cyclic planning and control of entire supply chains is it now possible to transfer these
ideas to global end-to-end value-added processes. In CPG supply chains it is especially important to
devote attention to the optimal design of set-up procedures and campaign sizes, as well as to orient
them in accordance with rapidly changing market demand. Without optimal set-up sequences
companies risk substantial production losses, cost increases, and a general loss of agility in the end-
to-end supply chain. To reduce inventory and increase the utilization of capital-intensive equipment,
more and more companies rely on "Rhythm Wheels." These planning models make it possible to
efficiently plan a variety of products at a plant or production asset while at the same time smoothing
capacity load to avoid costly production peaks.

Figure 1: Real consumption should trigger production to avoid use of unreliable forecasts

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Fig. 1 illustrates the nature of Rhythm Wheels: A Rhythm Wheel continuously repeats a given
production sequence. Each spoke of the wheel symbolizes the production of a certain product. The
Rhythm Wheel arranges the products in an optimal order to utilize assets and operate more cost
effectively. When planned according to Rhythm Wheels, production processes can even be perfectly
aligned with fluctuating market demand. The lengths of the wheel s spokes—and thus production
volumes—are continuously synchronized based on a pull-logic according to existing stocks and
customer orders, also increasing the agility of operations.

A key milestone in LEAN SCM was Ca elot s development of so-called "High-Mix Rhythm Wheels,"
which enable cyclic planning in packaging plants that produce a variety of SKUs. Besides reducing
dependency on accurate forecasts and providing more efficiency for high-mix manufacturing, they
are also recognized as a highly intuitive planning tool for operations managers.

End-to-end synchronization along the supply chain: In nowadays globalized business world value
chains comprise often several production stages spread over several plants around the world. In
order to ensure cost effectiveness and alignment with markets, supply chain synchronization is of
utmost importance. Only effective synchronization can relegate production delays or even failures to
the past. In this context Rhythm Wheels can achieve significant improvement; they not only optimize
processes in order to determine the load on a production machine, they also help to achieve
effective global timing mechanisms for production processes along all parts of an international
supply chain.

Two dimensions are important for end-to-end synchronization: first, the alignment of cycle times
across different Rhythm Wheels in order to avoid starvation or idle times; second, the alignment of
production and inventory planning along the supply chain. In the context of Rhythm Wheels, such
synchronization is achieved by aligning the cycle times of the various Rhythm Wheels across the
supply chain. Furthermore, to achieve stable synchronization inventory buffers are always aligned
with the cycle times in production in the LEAN SCM concept.

Variability management on the capacity and inventory side: It has been traditionally common
practice to counteract demand fluctuation primarily through adjustments of production plans.
However, (safety) stocks—although the name suggests they are meant to absorb the impact of
market volatility—were previously thought of only for planning a red line such that tapping into such
(safety) stocks would spread panic through planning departments. The consequences of such one-
sided variability management, however, are no longer acceptable in the VUCA world. While stocks
and thus capital costs continue to rise, production peaks can be met only by maintaining costly
excess capacity and incurring overtime costs in the workforce. In addition, the resulting high
inventory levels are a burden for balance sheets and exposed to obsolescence due to shelf-life
constraints.

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Figure 2: Market demand variability is managed on two sides

LEAN Supply Chain Planning helps companies to manage variability efficiently. By adjusting cycle
times in production, capacity can be utilized consistently to actively counteract production peaks. If
actual demand is significantly above expectations, stocks are actively used in planning. Indeed, it is
among the great advantages of LEAN Supply Chain Planning that planning cyclically with Rhythm
Wheels makes it possible to match production capacity with stocks more efficiently (see Fig. 2).

1.2.3. Industry Results

Companies that have implemented LEAN Supply Chain Planning report consistently positive
experiences with the new approach. Through better variability management (addressing a major
challenge of the VUCA world) it is possible to significantly improve the management of stocks,
service levels, and lead times. The results shown in Fig. 3 are based on our project experiences. Due
to concerns with confidentiality the results are averaged.

Figure 3: A step-change in variability management improves key supply chain metrics

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2. LEAN SCM Production Planning

2.1. Rethinking current Production Planning Concepts
Toda s suppl hai s, ofte astl diffe e tiated th ough increased product portfolios, must
manage highly challenging market conditions. Increased volatility and uncertainty have been
repeatedly cited as major pain points for supply chain managers and local production planners.
Hence, managing those factors is a key challenge for planning, the backbone of any supply chain.
Traditional planning concepts such as Enterprise Resource Planning (ERP) or Advance Planning
Systems (APS) struggle, however, in this effort due to their strong dependency on forecasted
demand and on unrealistically high levels of forecast data accuracy. Furthermore, traditional
planning approaches lack efficiency due to their one-sided approach to variability management.
Inventories such as safety stocks are not used actively in planning as a means of dampening
variability. Instead, all variability is buffered by asset capacity. The true heroes of the supply chain
are often the local production planners who are continuously firefighting on the shop floor.
Nonetheless, perpetual re-planning and frequent re-scheduling activities lead to ineffective usage of
both capacity and inventory. This results in low overall equipment effectiveness (OEE), high
inventory costs, and poor customer service levels.

Many CPG companies have undertaken o e o less i te si e lea a ufa tu i g i itiati es over
the past few years and have thereby benefited from applying such lean principles as waste
reduction, simplification and shop floor transparency. Encouraged by their first significant
performance improvements, they have also tried to apply production planning and scheduling
methods from lean manufacturing champions of discrete manufacturing: simple Kanbans and
Heijunka boards. However, those methods were quickly found to be limited for process
manufacturing (food, bottling, personal care, etc.) because it was still difficult to cope with product
sequence–dependent changeover times and they lacked visibility into corporate information
systems for global end-to-end supply chain synchronization.

2.2. How Cyclic Scheduling provides Major Benefits

In the CPG sector, planning must address a variety of manufacturing factors. Efficient changeover
operations are essential success factors. They do not add value and represent downtime for
production assets. Hence, effective planning of changeover operations is crucial for maximizing OEE.
Cyclic scheduling methods, such as the product wheel concept, address this issue. As shown in Fig. 5,
a product wheel is a visual metaphor for a structured, regularly repeating sequence of all products to
be made on a certain asset or piece of equipment. It is designed to make it possible to manufacture
products in a repetitive, changeover optimal sequence, producing every product in every cycle in
constant production quantities.

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Figure 4: The idea behind product wheels

The major benefits of the product wheel concept are the following:

 Optimal production changeover sequences lead to the shortest possible changeover times
and consequently to increased available capacity
 Repetitive production sequences enable learning effects, constant capacity utilization and
visible production schedules
 Leveled capacity utilization and visible schedules allow for improved planning of upstream
processes and reduced inventories

In spite of these benefits, the product wheel concept is limited in some respects. First, traditional
product wheels call for scheduling every product in every cycle with constant production quantities.
This limits their application to comparatively stable and fast-moving product portfolios. This is a
major constraint in a production environment that increasingly includes volatile products. Second,
the product wheel concept is not embedded in ERP or APS. Product wheels that have been
introduced into industry practice are often locally managed and are mostly applied manually or with
simple Excel-based solutions that run outside of existing corporate information systems. Site-specific
product wheels do not foresee real-time sharing of detailed information as an ERP or APS would.
Poor visibility of demand, planned production, and inventory levels along the entire supply chain
reduces the flexibility needed to react to unforeseen changes. This makes global end-to-end
synchronization virtually impossible. Lack of support by corporate planning systems combined with a
lack of tailored business concepts impedes the realization of the full benefits of the product wheel
concept, especially when it comes to end-to-end supply chain planning

2.3. From the Product Wheel to the Rhythm Wheel Concept

The conceptual foundation for managing variability and leveling capacity utilization at local
manufacturing sites is cyclic scheduling with product wheels. Industry experts have already been
connecting general lean (manufacturing) concepts and the underlining elements of simplicity, flow
and pull with physical restrictions that are typical in process industries, such as CPG companies.
However, traditional product wheels do not incorporate concepts designed to mitigate short-term
volatility or adjust to changing conditions. They quickly lose effectiveness when exposed to highly

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dynamic business environments. Consequently, the concept needs to be extended to be able to cope
with such challenges. The Breathing and High-Mix Rhythm Wheel concepts of LEAN SCM Production
Planning have been designed for this purpose.

Figure 5: Breathing and High-Mix Rhythm Wheels enable cyclic planning while responding to variability

The idea behind the Breathing Rhythm Wheel is that production quantities are not constant in every
cycle, but are determined dynamically according to actual demand. This allows for greater flexibility
in cases of medium-to-high demand variability. The High-Mix Rhythm Wheel goes a step further:
besides enabling flexible production quantities, it also facilitates the manufacturing of products that
are scheduled not in every cycle but instead only in every second or third cycle. This benefits the
manufacturing of low-volume, lower-f e ue p odu ts a d falls e u h i li e ith campaign
planning’ principles.

2.4. Managing Variability with LEAN SCM Production Planning

Both the Breathing and the High-Mix Rhythm Wheels account for increased market variability by
enabling flexible production quantities. However, when adjusting production quantities to meet
customer demand, the duration of a Rhythm Wheel cycle will vary over time. As demand variability
increases, the Rhythm Wheel cycle time may start to fluctuate more than desired. To address this
issue, two fundamental parameters of the Rhythm Wheel exist: the minimum and maximum cycle
time boundaries. Minimum and maximum cycle time boundaries maintain the cycle time within a
lower and upper limit and prevent the cycle from fluctuating too widely. These conceptual elements
provide appropriate flexibility in manufacturing to enable companies to manage increasing market
volatility, but also enable smoothing of variability and volatility propagation upstream along the
supply chain.

In addition to cycle time boundaries, dynamic safety buffers play a major role in LEAN SCM
Production Planning. By limiting production flexibility with cycle time boundaries, demand outliers
need to be adjusted, as illustrated in Fig. 6. This moves the buffering of variability from production to
inventories and allows for smoothing of capacity utilization. Rush orders or short-term adjustments
of a production plan are allowed only to a limited extent, namely until the cycle time boundaries are
reached. Demand peaks outside these limits are satisfied by safety stock, which is refilled in
upcoming production cycles with lower overall demand. Thus, cycle times and capacity utilization

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are smoothed and stabilized and the potential efficiency of repetitive production patterns can be
leveraged more effectively.

Figure 6: Cutting-off of demand outliers and active use of safety stock

To keep the cycle length within the defined range of the cycle time boundaries, upper and lower
factoring methods come into play. Upper factoring involves shortening the Rhythm Wheel cycle in
response to violations of the maximum cycle time boundary. Lower factoring is applied if the actual
cycle time falls below the minimum cycle time boundary. In this case idle time is added in order to
lengthen the production cycle as required. The idle time can be used for maintenance, training,
continuous improvement or other frequently required activities.

Although a suboptimal setting can lead to backlogs and poor service levels, cycle time boundaries
are a highly powerful means of controlling and stabilizing production. If used appropriately, cycle
time boundaries help to reduce the variability of capacity and stock requirements. Furthermore,
they make production more predictable and as a consequence prepare the ground for end-to-end
synchronization of the supply chain.

2.5. Benefits of LEAN SCM Production Planning

Altogether, LEAN SCM Production Planning aims to overcome the shortcomings of both traditional
production planning and lean manufacturing. The positive impact can be summarized as follows:

 Minimization of changeover times and leveling of production planning leads to improved

OEE
 Reduced supply chain variability and active usage of inventories allows reduction of total
inventory stocks
 Leveled production flows and reduced supply chain and production planning nervousness
improve customer service level
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 Active buffer management and two-sided variability management reduces the bullwhip
effect
 Integrating Rhythm Wheel planning into corporate supply chain planning platforms creates
staying power for globally harmonized planning processes and local visibility for end-to-end,
global supply chain synchronization

3. LEAN Inventory and Replenishment Management

3.1. Insufficient current Practice
In an increasingly uncertain world, continuing to struggle with the unrealistic prerequisite of high
forecast data accuracy when planning with Enterprise Resource Planning (ERP) systems or Advance
Planning Systems (APS)and perpetually seeking better demand forecasts is unwise. Moreover, even
at their best these systems are unable to manage variability effectively, simply passing incoming
demand variability along the entire supply chain. Variability is not buffered actively, but passed on to
production sites, which then need to reschedule operations and increase shifts on short notice,
jeopardizing cost targets, timely order completion, and customer service. Under current supply chain
practices and the ERP or APS systems that support them, target and safety stock levels are used as
fi ed pla i g pa a ete s ith o uffe i g of a ia ilit , si e the a e e e tou hed f o a
planning perspective. In this way the traditional planning approaches represent a conceptual dead-
end fo sol i g toda s a ia ilit a age e t p o le s. To effectively address the challenge of
rising variability and its propagation along the supply chain, companies should adopt two-sided
variability management by systematically buffering variability in capacities as well as (planned)
inventories. This can be achieved through dynamic target stock-level setting in supply chain
planning.

3.2. LEAN Inventory Management – Dynamic Parameter Adaptation to

Actively Buffer Variability
Demand variability management changes significantly under the LEAN SCM planning paradigm,
which entails a two-sided approach that applies LEAN planning principles to both manufacturing
capacities and inventories. To be more precise, the safety stock elements in all SKU-based
inventories are now actively used in planning runs, as they have been designed for, to level
replenishment signals and keep as much market noise as possible out of manufacturing (Fig. 7).

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Figure 7: Market demand variability is managed on two sides

The active use of safety buffers—particularly safety stocks to hedge against variability—represents a
major improvement in LEAN SCM Planning. In most companies this alone would be a paradigm
change in supply chain planning, because in traditional supply chain and tactical production planning
processes safety stocks are never touched in the planning horizon ahead of typical order lead times
(Fig. 10), even though they have been created to buffer variability. Consequently, high levels of
pla ed dead sto k remain in overall inventory profiles, which only increase further as variability
increases. To overcome this conceptual dead end, LEAN SCM pursues a disciplined approach to the
dynamic adaptation of inventory target levels to changing conditions along the supply chain. This
allows SCM to keep a key component of demand variability—demand peaks—out of manufacturing,
smoothing capacity utilization and reducing time spent resolving production planning and schedule
problems. This might sound intuitive, but it rep ese ts a pa adig shift i toda s pla i g p o esses
and systems.

Figure 8: Safety stocks in the fulfillment and the tactical planning time horizon

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Inventory management, in which a dynamic inventory target-setting process supports active

variability management, is a key conceptual lever for LEAN SCM. Since safety stocks play a very
important part in buffering variability, it is important to hold the right levels at any given position
along the supply chain. Therefore, systematic placement of stocks must be addressed from a global
end-to-end perspective; this is best achieved through multi-stage inventory allocation and
optimization.

3.3. LEAN Replenishment Planning

Searching for new ways to approach planning and forecasting is on many supply chai pla e s
agendas. But how can companies cope with the forecasting dilemma? We strongly suggest to accept
uncertainty and eliminate the need for certainty in operations. This means, no longer using
forecasts to trigger manufacturing orders—but responding to real consumption instead, implicating
pull replenishment. I pull ode , eple ish e t is t igge ed eal usto e de a d, ot
doubtful forecasts in push mode. In other words, production processes are initiated in response to
actual customer orders, not in uncertain anticipation of those orders. Again, this is a shift in mindset:
ake hat ou sell, do t sell hat ou ade! Yet, to adopt pull ode effe ti el ou ust
prepare your strategic supply chain footprint and pre-configure your tactical capacity and inventory
buffers for increased supply chain agility and velocity.

3.4. LEAN Replenishment Synchronization – Linking Replenishment-Demand with Flexible

Production-Campaign Planning
Successful SCM requires effective synchronization of demand and supply. Depending on the
underlying replenishment mode (push/pull) and organizational responsibility (VM), supply chain
processes differ significantly. Typically, in SCM, replenishment signals from a distribution center (DC)
are passed on to a ufa tu i g i e tai ti e u kets , usuall o ths o eeks. Lo al ope atio s
then have to schedule production in some way to more or less meet replenishment demand within
the given time buckets. At the DC, however, there is no real visibility into which products are going
to arrive at what times until a short-term delivery note is posted.

Under LEAN SCM, this approach is changed fundamentally, since it follows a capacity-constrained
VMI concept with pull replenishment. Unrestricted replenishment demand is now managed
through pre-defined campaign planning at the production site (see first and second points in Fig. 9).
From the network perspective, production dates are now known due to the se ue ed apa it
ie , hi h is fa o e a u ate tha planning from the classic bucket perspective

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Figure 9: Linking replenishment-demand with flexible production-campaign planning

Local operations at the production site in turn need flexible campaign planning, linking
replenishment signals with the right campaign size and sequence. The Rhythm Wheel concept
accounts for exactly this market variability by enabling flexible campaign-building. Rhythm Wheels
schedule campaigns in optimized sequences and adjust campaign sizes dynamically in response to
unrestricted demand signals. This procedure leverages the full benefits of flexibility within the VMI
concept, since it gives local operations the freedom to optimize and adjust schedules while
maintaining full transparency for global planning.

The dynamic productio a paig s a e the i o ed f o the lo al site ie to the se ue ed

apa it ie i suppl et o k pla i g. The esulti g eple ish e t pla is adapted a o di gl
(see third point) and capacity-checked supply network confirmations provide a realistic picture of
i e to le els a d de elop e ts see the fou th poi t . “till, e a a e that ithi a apa it -
o st ai ed VMI o ept the use of safet sto ks i the DC is e pli itl allo ed, si e thei le els
have been to actively buffer variability.

3.5. Benefits of LEAN Inventory Management and Replenishment Planning

Realized sustainable performance improvements by means of LEAN inventory management and
replenishment planning:

 Dynamic safety stock-setting reduces blocked stock in planning and overall inventories along
the supply chain; the potential benefit is in the range of 30–40%.
 Pull strategies and VMI for replenishment planning in volatile markets improve customer
service levels by 3–8%.

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 Linking replenishment planning with flexible campaign building in local operations reduces
COGS by 3–5%.

4. LEAN SCM Organizational Design

4.1. The Need for a LEAN End-to-End Supply Chain Organization
Volatile global demand and increasingly shifting markets are putting pressure on SCM to a degree
rarely seen before. CPG companies must manage globally dispersed production processes and
supply networks in the face of hitherto unknown challenges. SCM therefore has become a serious
issue for top management. To master the rapidly increasing volatility and complexity of their global
supply chain networks, companies are acknowledging the need to organize SCM in a more
integrative and collaborative end-to-end fashion.

Ultimately, however, the success of LEAN SCM depends on people and the organizational set-up in
which they work. In order to ensure that LEAN principles are implemented effectively and yield
sustainable benefits over the long run, it is vital that companies develop effective SCM organizations
and establish understanding, acceptance, and commitment to LEAN SCM throughout their
organizations.

4.2. Tailoring the LEAN SCM Organization

Today, a SCM organization must guarantee high supply chain performance and bring greater agility
and resilience to the overall supply chain. LEAN SCM fully supports these objectives with efficient
and responsive planning processes along the entire supply chain. To establish an end-to-end supply
chain organization that is fully compliant with LEAN SCM principles, it is vitally important to create
and sustain tailored organizational processes and policies.

The LEAN SCM Planning Process Landscape

LEAN SCM employs the regular renewal of LEAN parameters for supply chain planning as well as
systematic review of production and replenishment modes. Renewal is performed in response to
changes in internal or external business requirements. When supply chain planning works in this
way, daily planning and scheduling run smoothly, reducing complexity and costs. As shown in Fig. 10,
the strategic and tactical renewal process lies at the heart of the LEAN Supply Chain Planning
landscape, ensuring alignment and coordination at all planning levels in an organization.

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Figure 10: Renewal processes form the core of the LEAN SCM planning process landscape

The strategic renewal process is designed to provide regular reviews of the production and
replenishment modes used along the supply chain. We recommend establishing a regular review
le that fits ou o pa s suppl hai odes a d p odu t seg e ts to assess the eed fo
improvements or changes due to altered strategic conditions. The frequency of this process should
reflect the dynamics of the o pa s usi ess e i o e t. T pi all it should take pla e at least
yearly to ensure that it fits into the planning process for the annual budget cycle.

Tactical renewal is a regular, routine process that aligns operational and tactical supply chain
planning along the supply chain. Its core responsibility is to confirm and, if necessary, adjust tactical
production planning parameters (e.g., production sequences, Rhythm Wheel cycle times) and
replenishment parameters (inventory replenishment components such as cycle, safety, and policy
stocks), and to ensure synchronization of parameters along the entire supply chain. Tactical renewal
will typically be set in motion every 1 to 3 months. A clearly defined interface to monthly or
quarterly S&OP (or similar processes that conduct the respective tasks) ensures that the latest
information about demand and supply profiles is used for planning purposes.

Empowering New Roles for LEAN SCM

Companies implementing LEAN SCM are well advised to assign accountabilities and responsibilities
to new harmonized global, regional, and local roles.

The organizational roles for LEAN Supply Chain Planning should combine three dimensions: the local
view of assets, the global view along the supply chain as a whole, and the view from the market. All
three views must be taken into account by planning organizations to properly align operations with
products and customer needs. The three key dimensions can be addressed through the roles of the
local planner, the supply chain planner, and the market planner, as shown in Fig. 11.

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Figure 11: Key roles for LEAN Supply Chain Planning and their responsibilities in a global organization

The suppl hai pla e s ie e o passes the entire supply chain and value stream, and focuses
on optimizing the end-to-end supply chain. The local planner ensures that predetermined planning
parameters meet local requirements and is responsible for their implementation. To balance supply
with market and demand requirements, the market planner acts as an interface between operations
and sales & marketing.

4.3. Management of a LEAN SCM Organization

If a company wants to manage volatility effectively and establish a synchronized and consumption-
driven supply chain, it should also adapt its performance management to LEAN SCM principles.
Performance management for LEAN SCM ensures that all planning processes are tightly
synchronized and intermeshed along the entire supply chain. Effective set-up and execution of
planning lie very much at the heart of LEAN SCM, which must be supported by appropriate
performance management practices. The good news first: if a company already has an effective
performance management system in place, it does not need to change much. It just needs to extend
its framework in accordance with tailored LEAN SCM metrics and corresponding design principles.

Translating LEAN SCM Objectives into Supply Chain Operations

As summarized in Fig. 12, performance management must translate the central LEAN SCM objectives
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into manageable and measurable targets. The parameter-driven concept behind LEAN SCM requires
the use of meaningful metrics to effectively plan cycle times, inventory levels, and production
sequences. An important novel idea here involves dividing planning operations into the
configuration of parameters and the execution of those configurations in daily operations. This
improves variability management and considerably reduces the need for short-term firefighting in
operational execution. By efficiently evaluating past performance as well as projecting future supply
chain performance, performance management for LEAN SCM is a key enabler for rapid renewal of
global planning processes. By linking operational and strategic planning processes, LEAM SCM also
provides a strong platform for strategic decision-making along the supply chain.

Figure 12: Performance management for LEAN SCM

Enabling End-to-End Performance Management

To fi l a ho LEAN “CM i a o pa s pe fo a e a age e t processes, it is essential to
identify those elements that require special attention when transforming the supply chain:

 Integration into renewal processes: Performance management should be linked to strategic and
tactical renewal processes. This requires measuring and analyzing KPIs that support LEAN SCM
objectives. Effective renewal processes will ensure that LEAN SCM KPIs are used to set targets and
evaluate performance on a regular basis.

 Focus on organizational behavior: LEAN SCM emphasizes sound organizational behavior along the
supply chain. To ensure adherence to predesigned Rhythm Wheel sequences and avoid unwanted re-
scheduling, for example, the newly implemented behavioral norms should be measured and
e a ded ou o pa s pe fo a e a age e t s ste .

 Establish a prospective performance view: Traditional supply chain performance management has
typically taken a strongly retrospective view by focusing on past performance. LEAN SCM
performance indicators in contrast provide a prospective view of supply chain behavior. This allows a
supply chain organization to focus on preventing fires instead of fighting them.

 Management of end-to-end variability: Mastering variability is a key imperative in the VUCA world.
Tailoring performance management to this central objective of LEAN SCM requires the use of
appropriate metrics as well as their systematic use in planning.
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 Integration of LEAN SCM KPIs: Traditional KPIs such as customer service level and inventory turnover
a e still alid a d p o ide i sight i to ou suppl hai s pe fo a e. To full e a le pe fo a e
management for LEAN SCM and conduct the required changes, however, we recommend the use of
several new and very effective metrics such as cycle time for planning.

5. IT Integration of LEAN SCM

5.1. The Need to adjust IT System Architectures
Companies have invested heavily in IT system infrastructure in recent decades. Extensive
investments in ERP and advanced planning systems have already greatly improved the efficiency and
agility of supply chain planning processes. However, there remains significant room for
i p o e e t. As toda s pla i g s ste s a e desig ed, the ust i e ita l depend on the quality
and accuracy of forecasts to create production plans. Forecasts are used not only for long- and mid-
term planning but also to trigger production in the short-term. This approach has been treated as a
fundamental axiom and has never been questioned, which is astonishing considering that supply
chain managers have always faced severe challenges due to poor forecasting accuracy for most of
the produ ts i a o pa s po tfolio. High inventory levels and poor customer service often result,
because due to inaccurate forecasts the wrong products are in stock.

I toda s VUCA o ld, the depe de of IT s ste s o elia le fo e asts ep ese ts a th eat to
companies, as the increasing variability and volatility of the global business environment makes it
hard to create accurate forecasts, which in many cases leads to meaningless planning results. It is,
however, possible to move past this obstacle of forecast-dependency by incorporating LEAN Supply
Chai Pla i g p i iples i toda s IT pla i g systems. LEAN Supply Chain Planning accepts low-
quality forecasts as a given condition. Following LEAN Supply Chain Planning principles, only real
consumption signals—not forecasts—are used to trigger production. This pull-based approach
reduces dependency on forecasts while yielding much better results. As pull replenishment is not
suffi ie tl suppo ted toda s ERP/APS system architectures, there is in fact a need to adjust
current IT system landscapes.

5.2. Closing the Gap with CAMELOT’s LEAN SCM Suite

We have argued that toda s o e tio al E‘P/AP“ s ste a hite tu es a e ot suffi ie t for
implementing LEAN Supply Chain Planning within an organization. Does this mean that your
company will need to replace its existing planning system platforms to implement the new LEAN
Supply Chain Planning approach? Do past investments in IT system architecture mean wasted
money? No, ot at all! It is athe the opposite that is the ase. The ele e ts of toda s o e tio al
ERP/APS system architectures provide an important backbone on which to implement LEAN SCM. To
allow for an effective transition to LEAN SCM, only a few additional software add-ons are required to
enhance existing planning systems.

Fig. 5 shows the IT add-ons fo CAMELOT s “AP-certified LEAN Suite and its integration into a SAP
based system architecture.

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Figure 13: Integration of Camelot´s LEAN Suite

These LEAN enhancements of the existing IT infrastructure address both of the key layers of supply
chain planning—global and local planning:

1. End-to-End (global) LEAN SCM Planning Add-on

2. Site-level (local) LEAN SCM Planning Add-ons

5.3. End-to-End (global) LEAN Supply Chain Planning Add-on

The key challenge regarding end-to-end tactical supply chain planning is achieving real-time visibility
into capacity and inventory. Companies already using integrated global supply network planning
(SNP) on top of their ERP systems are well-prepared for the next step: adapting the new LEAN Supply
Chain Planning approach to global planning. To provide the right system support, CAMELOT s LEAN
Suite contains an IT-enabled planning decision support component for regular tactical supply chain
parameter (re-)configurations on top of SNP. This so-called tactical renewal cockpit embeds a range
of functionalities that support the decision on the right buffer size for capacity and inventory
according to the identified variability, lead times, and assigned service levels in the individual
customer supply channels.

The inventory target-setting component (Stock Parameter Optimizer) is a core element of the
tactical renewal cockpit, making dynamic inventory replenishment level (IRL) calculations possible.
This is further supported by optimization capabilities for multi-echelon inventory target-setting. In
addition, the optimal inventory levels depend directly on the Rhythm Wheel–managed cycle times.
Both cycle time and inventory targets must align with the global takt to achieve end-to-end product
flow synchronization. Finally, simulation and what-if analysis features have been embedded into the
IT add-on to make optimal evaluation of scenarios possible and to provide options regarding supply
chain performance.

5.4. Site-level (local) LEAN Supply Chain Planning Add-ons

At the local plant level, the Rhythm Wheel Designer has been added to existing tools such as the
SAP PP/DS application, hi h is “AP s detailed pla i g a d s heduli g odule. The Rhythm Wheel
Designer supports planners effectively when identifying and configuring the best production
sequence, production quantities, and cycle times for their Rhythm Wheels. For such Rhythm Wheel
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optimization, the latest findings from operations research have been considered and translated into
appropriate algorithms.

Following Fig. depicts a screenshot of the Rhythm Wheel Designer when fully integrated into the SAP
APO solution. State-of-the-art technology has been incorporated to maximize user-friendliness. Such
features as an advanced graphic interface and drag-and-drop functionality ensure effective and
convenient use for planners.

Figure 14: CAMELOT’s Rhyth Wheel Desig er

Once specific Rhythm Wheels have been pre-configured, they are combined with actual pull
replenishment signals during local planning runs to generate only consumption-based production
orders. In the LEAN Suite, this task falls to the LEAN Planning Heuristic, which creates the LEAN
Rhythm Wheel–based production schedule. If the designed cycle time boundaries are violated
during execution, this heuristic also enables planners to apply short-term Factoring to move
production back within the designed boundaries. The Factoring functionality provides the required
fle i ilit fo ea ti g to olatilit aused sho t-term supply disruptions or unforeseen market
events.

Deviations of the executed, consumption-based Rhythm Wheel schedule from the forecast-based
Rhythm Wheel design parameters will always remain i toda s VUCA o ld. To monitor such
deviations and overall performance, the Rhythm Wheel Monitor has been developed as one of the
core components of the LEAN Suite. Here cycle times, run-to-target results, capacity utilization, and
IRL developments are monitored. With this IT component planners can continuously evaluate the
adherence of executed plans to the optimal pre-configured Rhythm Wheel set-up. The same locally

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monitored data—indicating cycle time variation and inventory developments—are passed on to the
global supply chain level to allow for end-to-end supply chain synchronization and re-adjustments.

In the next Fig., a s ee shot of CAMELOT s ‘h th Wheel Mo ito is depi ted. By applying the in-
memory technology of SAP HANA, outstanding system performance is achieved, making it possible
to run sophisticated real-time analysis. Corresponding results are plotted on an advanced graphical
interface.

Figure 15: Cycle ie i CAMELOT’s SAP-integrated Rhythm Wheel Monitor

6. Outlook
Leading companies are increasingly adapting LEAN principles and concepts in their supply chains.
They realized that the efficient management of variability results in sustainable performance
improvement. By reducing variability in the supply chain, both customer satisfaction and cost
efficiency increased to a large extent. However promising the results are, bear in mind that LEAN
SCM is an ongoing journey. The idea of continuous improvement is embedded in many LEAN SCM
processes (e.g. in the renewal processes) and represents a major part of the LEAN philosophy. If you
are willing and committed to embark, welcome aboard and have a safe
LEAN journey.

LEAN SCM Publication

For more details, see also Josef Packowski´s skillful and reader-friendly
publication, containing dozens of self-explaining tables, charts, figures, case
studies, etc. (available at Amazon).

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Additional Resources
 www.camelot-mc.com
 www.leansupplychainplanning.com
 www.rhythm-wheel.com

About Camelot Management Consultants

Camelot Management Consultants is an international consulting firm specialized in Value- and

Supply Chain Management in core industries Chemicals, Pharmaceuticals/Life Sciences and
Consumer Product Goods. The company was founded 1996. 320 consultants work directly for
Ca elot Ma age e t Co sulta ts a d a ou d 4 o sulta ts o k i Ca elot´s pa t e
organizations in eight branch offices (Americas, APA, Europe).

IT-related consulting services are provided via Camelot ITLab: ERP, APS, Master Data, BI, CRM.
Since 1996 SAP Logo Partner and since 2007 exclusive Partner of the SAP Center of Excellence and
Development Partner for Chemicals, Pharmaceuticals and Consumer Product Goods.

Dr. Josef Packowski (jp@camelot-mc.com) is co-founder and CEO of the Camelot Consulting Group.
He received his doctoral degree in business and information technology from Saarland University,
and in addition to his professional work he is today a lecturer on advanced planning systems and
supply chain management at the University of Mannheim, one of the leading business schools in
Germany. He is a respected industry consultant with over 25 years of experience, and a visionary
leader in operations management and strategy in process industries.

Peter Harder (phar@camelot-mc.com) is Partner for Consumer Product Goods Companies at

Camelot Management Consultants. He received his MBA from the University of St.Gallen. He has
more than 20 years of international consulting and industry experience with focus on complex
Supply Chain Transformations, which require the combination of changes in processes, organizations
and enabling technologies, combined with the human and behavioural success factors to achieve
sustainable change.

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