2004, M.

Srinivasan
Building and Managing
the Lean Supply Chain
2004, M. Srinivasan
The Supply Chain

1
st
Tier,
2
nd
Tier, ,
Suppliers


Enterprise


Distribution
Channels


Customers





The Supply Chain
2004, M. Srinivasan
Develop Systems Thinking
Lean supply chain principle 1:
Improving the performance of every subsystem
does not necessarily improve system
performance. The sum of local optima does not
equate to the global optimum. Improvements in
subsystem performance must be gauged only
through its impact on the whole system.
2004, M. Srinivasan
Systems Thinking and the
Theory of Constraints
Find the essence of each situation, like a logger
clearing a log jam. The pro climbs a tall tree,
locates the key log, blows it, and lets the stream
do the rest. An amateur would start at the edge of
the jam and move all the logs, eventually moving
the key log. Both approaches work, but the
essence concept saves time and effort. Almost all
problems have a key log if we learn to find it.
-- Fred Smith
2004, M. Srinivasan
The Business Ecosystem

Regulating
Agencies

1
st
Tier,
2
nd
Tier, ,
Suppliers

Competitors

Complementors

Stakeholders


Enterprise


Distribution
Channels


Customers





The Supply Chain
2004, M. Srinivasan
Dells Business Ecosystem

Customers:
o Home & Home Office
o Small Business (up to 400
employees)
o Medium & Large Business
(over 400 employees)
o State & Local Government
o Federal Government
o Education
o Healthcare
o ...........
Suppliers:
o Phillips, Nokia,
Samsung, Sony,
Acer
o SCI, Celestica
o Seagate,
Maxtor,
Western
Digital, IBM
o Barcelona, HP
o Hon Hai/Foxteq
o Quanta,
Compal, Acer
o ...........
Competitors: Compaq, IBM,
HP, Gateway, Toshiba, ..........
Regulating agencies: US Government, state governments,
Malaysian government, Chinese government, local governments.......
Complementors: Microsoft, digital device makers, Internet service
providers, computer skills trainers, PC game developers ..........
Stakeholders: NASDAQ,
Investors
Telephone service companies, financial institutes, third-party technical supporters, AD companies, ..........
Third-party logistics providers such as UPS, Caliber, transportation companies, ..........
Technology
development
Status of the
Economy
Culture ............
Other industries such as airline, automobile, energy, ..........










Dell
DELL:
o Enterprise
systems
(servers)
o Notebook
computers
o Desktop
computers
o ............

Direct sale
Close
proximity to
suppliers
2004, M. Srinivasan
The Business Ecosystem
Lean supply chain principle 2:
Focus on improving the performance of the lean
supply chain. However, do not ignore the supply
chains business ecosystem.
2004, M. Srinivasan
Steps to Build Lean Supply Chains
Develop a systems perspective
Understand customers and their expectations
Map the supply chain
Benchmark best practices
Design products and processes to manage
demand volatility
Create flow across the supply chain
Develop supply chain metrics
2004, M. Srinivasan
Develop a Systems Perspective
For any decision you take consider the
following. Does the decision:
Help you sell more products?
Help reduce investments in resources?
Help reduce payments/expenses?
2004, M. Srinivasan
Understand Customer Value
Critical step: provide what the customer wants
Providing the wrong product or service in an efficient
way is muda. Eg. Air travel
An opportunity for kaikaku (dramatic change):
Rethink the delivery system on a product line basis
with strong dedicated product teams
2004, M. Srinivasan
Understanding Customer Value
Document the following:
Customer values in each segment
(order qualifiers and order winners)
Delivery cycle/time expectations of
customers in each segment
Identify market segments
2004, M. Srinivasan
Market Segments: Example
0%
20%
40%
60%
%
a
g
e


O
r
d
e
r
s

Staple
Stock
Direct
Freight
Seasonal
Product Type
Market Segmentation Graph
Market Segment
2004, M. Srinivasan
Customer Values in Each Segment
Staple stock (e.g., Stationery)
Availability (qualifier), cost (winner)
Direct freight (e.g., Sony DSC-S30)
Product design (qualifier), quality (winner)
Seasonal
Convenience (qualifier), availability (winner)
2004, M. Srinivasan
Map the Supply Chain
The set of all actions required to deliver the
finished product or service to the customer
Seeing the Whole (Systems Thinking)
Systematic study of the value stream often
reveals a staggering amount of muda
Need to map the whole process, and identify
value-added and non-value added activities across
the value stream
2004, M. Srinivasan
Supply Chain Map: As-Is
Patient Telemonitoring System monitored by Office based Nurse
Physicians
Office



Admission RN
or Therapist

Transcription


Medical Records

Outside Supplier

Clinical Staff

Materials
Management

Intake
Coordinator

Hospital
Discharge Staff
Billing and
Collections
Clinical
Supervisor
Visit Scheduler

Courier
Information flow
Paper flow
Data flow

Supply delivery
Adds Value
Source of Waste
2004, M. Srinivasan
Supply Chain Map: To-Be
Patient Telemonitoring System
monitored by Office based Nurse
Outside Supplier

Clinical Staff

Materials
Management

Hospital
Discharge Staff
Billing and
Collections
Clinical
Supervisor
/Case
Manager
Intake
Coordinator/
Scheduler

Physician or
Physicians Office



Information flow

Data flow

Supply delivery
Adds Value
Source of Waste
Medical
Records

2004, M. Srinivasan
Customer
Supplier
30 Days
Firm
Schedule
Production
Planning
Central
Supplies
Monthly Fax
of Weekly
Schedules
Weekly Calls
with Daily
Schedules
Inventory
Management
System
CAPS
System
Blend Compound
Pre-
Form
Pre-
Cure
Press-
Curing slab
Finish-
ing
Pack
1.33
Days
900
seconds
0
Days
0.26
Days
0.09
Days
0.09
Days
0.68
Days
0.54
Days
12
Days
18
seconds
5700
seconds
18810
seconds
4500
seconds
45
seconds
0.07
seconds
Bi-Weekly
Schedule
Press-
Curing
DFM
FIFO
Sales
Warehouse
Customer Demand: 4,560 units/day
Record
Receipt
Value Added Time: 0.35 days; Production Lead Time 3.34 days; Value Added Ratio: 10.5%
Supply Chain Map: As-Is
2004, M. Srinivasan
Customer
Supplier
30 Days
Firm
Schedule
Production
Planning
Central
Supplies
Monthly Fax
of Weekly
Schedules
Weekly Calls
with Daily
Schedules
Inventory
Management
System
CAPS
System
Blend Compound
Pre-
Form
Pre-
Cure
Press-
Curing slab
Finish-
ing
0.03
Days
900
seconds
0
Days
0.11
Days
0
Days
0.03
Days
0.13
Days
6
Days
18
seconds
1800
seconds
18810
seconds
4500
seconds
45
seconds
Bi-Weekly
Schedule
Press-
Curing
DFM
FIFO
Sales
Warehouse
Value Added Time: 0.30 days; Production Lead Time 0.60 days; Value Added Ratio: 50%
Daily
Orders
Record
Receipt
Mixed-Model
Build Schedule

Customer Demand: 6,200 units/day
Supply Chain Map: To-Be
2004, M. Srinivasan
UNDERWRITING 1
Team 1
FLOW Available Minutes= 450
Arrivals/Day ServiceTime= Load
1.4 43.60 61.04
6.3 38.00 239.40
1.6 22.60 36.16
5.3 18.70 99.11
14.6 435.71
Utilization 0.97
DISTRIBUTION UNDERWRITING 2
Number of Clerks= 4.00 Team 1
FLOW Available Minutes= 1800.00 FLOW Available Minutes= 450
Arrivals/Day ServiceTime Load Arrivals/Day ServiceTime= Load
From Agent RUNS 2.9 68.5 198.65 0.8 43.60 34.88
RAPS 15 50 750 4.3 38.00 163.40
RAINS 3.8 43.5 165.3 1.1 22.60 24.86
From Computer RERUNS 17.3 28 484.4 7 18.70 130.90
Total 39 1598.35 13.2 354.04
Utilization 0.89 Utilization 0.79
UNDERWRITING 3
Team 1
FLOW Available Minutes= 450
Arrivals/Day ServiceTime= Load
0.7 43.60 30.52
4.4 38.00 167.20
1.1 22.60 24.86
5 18.70 93.50
11.2 316.08
Utilization 0.70
Released 1
day prior to
due date
Another kind of
Supply Chain Map
2004, M. Srinivasan
Benchmark Best Practices
Develop
performance
metrics
Identify world class
organizations; study
their operations
strategies and tactics
2004, M. Srinivasan
Benchmark Best Practices
Lean supply chain principle 3:
Focus on customer needs and process considerations
when designing the product delivery system.
Enterprises can gain tremendous competitive
advantage through best-in-class practices that cut
across industries.
2004, M. Srinivasan
Designing Products and Processes:
Coping With Demand Volatility
Can you smooth demand volatility?
Key observation: Much of the demand volatility is self-
induced
Sales promotions and rebates
End-of-the-month syndrome (Channel Stuffing)
Batching
New product introductions

2004, M. Srinivasan
How Can We Reduce Demand
Volatility?
Have no promotions
Reduce lead times and produce in small lots
Exploit product structures
Postponement strategies
Exploit commonality and delay commitment
Aggregation
2004, M. Srinivasan
How to Manage Demand Volatility:
The RAP Principle
Raw
Material
Before
After
Sub-Assembly Final Assembly
Finished
Goods
Fabrication
2004, M. Srinivasan
How to Manage Demand Volatility:
The RAP Principle
Lean supply chain principle 4:
Maximize external variety with minimal internal
variety. It is desirable to maintain inventories in
an undifferentiated form for as long as it is
economically feasible to do so
2004, M. Srinivasan
Managing Demand Variation
Lean supply chain principle 5:
Buffer the variation in demand with capacity,
not inventory
As far as possible, avoid using inventory
to buffer variation
Less chances of misallocation
Inventory seriously impedes flow
2004, M. Srinivasan
At-Once
Customers
At-Lead-Time
Customers
Beyond-Lead-Time
Customers
P
e
r
c
e
n
t
a
g
e

o
f

O
r
d
e
r
s

Lead Time
= 3 to 5 weeks
Replenishment Lead Time
Wk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 8
The Customer Time-Based Demand Profile
Product Delivery Strategies
2004, M. Srinivasan
Build to stock (BTS)
Finished goods made in anticipation of demand.
Customers orders are met from inventory
Assemble to order (ATO)
Subassemblies produced according to forecast.
Required items are drawn from wip and
assembled when orders are received. Very little
finished goods inventory carried
Product Delivery Strategies:
Product Structures
2004, M. Srinivasan
Build to order (BTO)
Products built in response to actual customer
orders. Usually these are standard products with a
few options
Engineer to order (ETO)
New product designed and produced in response
to specific customer needs. Lead times include
relevant elements of engineering design and
manufacturing
Product Delivery Strategies:
Product Structures
2004, M. Srinivasan
FG
Build to Stock
Customer LT
Assembly
Assemble-to-Order
Customer LT
Build-to-Order
Assembly
RM
Customer LT
Product Structures:
Resulting Lead Times
2004, M. Srinivasan
Create Flow
Customers Facility
Suppliers
Creating flow requires a systems perspective
Lack of flow results in inventory or work
imbalance somewhere in the supply chain
Improved flow reduced lead times
To create flow, all processes should row the boat
at the same pace the concept of flow balance
2004, M. Srinivasan
Creating Flow
Lean supply chain principle 6:
Use forecasts to plan and pull to execute. A
system that reacts to pull signals will have less
variation than a comparable system that adopts a
push mode of operation.
To enhance flow, use pull signals for
execution where possible
2004, M. Srinivasan
Tell me how you will measure me and I will tell
you how I will behave.
Does the metric:
Help you sell more products?
Help reduce investments in resources?
Help reduce payments/expenses?
Develop Metrics Using a Systems
Perspective