Why Involve Suppliers In Your Lean Journey

According to Lean Thinking by Womack and Jones, the five principles of lean are:

1. Specify Value
2. Identify the Value Stream
3. Flow
4. Pull
5. Perfection

I thought it would be worthwhile examining these five principles in the context of supplier involvement in a lean program. In most analyses, supplier involvement falls only into #5. That is, involving suppliers is part of "seeking perfection." In actuality, however, working with suppliers to improve the value stream is critical to success. Let's examine each principle:

1. Specify value. Value is defined by the customer. The end customer defines value as does each customer in the process. If you are on a lean journey and involve suppliers, you are the customer to your tier 1 suppliers, tier 1 suppliers are customers of tier 2 suppliers, etc. Looking at the entire value stream helps determine what creates value for each customer in the process (as well as the end customer). For manufacturers whose products consist of many purchased components (or whose material cost far outweighs labor cost), understanding the entire value stream and the what customers need at each point is critical. Leaning the internal operations of such an organization is good; however, stopping at that point would be a mistake.

2. Identify the value stream. The value stream includes all of the information and material flow steps necessary to bring a product to the end customer. This obviously involves suppliers. In many cases, both the information and material flows going in and out of each player in the value stream are full of wastes that would go unseen without mapping the value stream.

3. Flow. Flow means moving material or information from one value-added step to the next with as little delay as possible. In many cases, it is associated with internal manufacturing only. However, it is applicable to both information and material flows within an extended value stream. Having information flow through the value stream without delays or errors can result in dramatic improvements in customer service and reductions in lead times and inventory. Better material flow within supplier plants and between plants can result in improvements as well.

4. Pull. This has a very obvious implication for suppliers. Most organizations do not pull from suppliers, and many of those that do have "pull" systems in place are pulling from a supplier that is operating in "mass production" mode. This means that additional costs, in the form of inventory, defects, and other wastes are inside the supplier's four walls. Any customer that assumes that those costs are not being passed on to them is naive. Thus, it is important to setup true pull systems with suppliers, who have bought in to the philosophies of lean.

5. Perfection. For the extended value stream, seeking perfection simply means continuing to remove wastes in the entire value stream by working closely with suppliers on programs such as product design for manufacturability, supplier associations, and other programs that aim at leaning the value streams out.

What is Supplier Development?

Most medium to large size companies have supplier development programs in place; many of these programs are programs in word only. Most of these programs are nothing more than "Supplier Quality Award" programs, in which suppliers receive an award for a certain level of quality and on-time delivery. While there is nothing wrong with doing this, it falls short of what is truly needed in a successful supplier development program.

Let's start by asking "What is the purpose of a supplier development program?" At a minimum, a supplier development program should be aimed at achieving the following:

• Lower supply chain total cost
• Increased profitability for all supply chain participants
• Increased product quality
• Near-perfect on-time-delivery at each point in the supply chain

Most supplier development programs do not do enough to meet these goals. Auditing suppliers once per year to determine if they've met certain on-time-delivery and quality goals will not actually fulfill the purpose of a supplier development program. One could call this type of work "supplier checking and verification" rather than "supplier development." Supplier development requires much more work than auditing and checking does.

Supplier development is actually developing suppliers in much the same way employees are developed. How should an organization develop its employees? Well, this question might open an entirely different can of worms in that many organization don't do a very good job of developing employees either. However, those companies that do well in this area provide the training, tools, and incentives that will make them successful. In short, they invest in their employees because they know that great employees are what make companies great. It should come as no surprise, then, that great suppliers make supply chains great.

Thus, a supplier development program must be aimed at improving suppliers performance, not browbeating them into charging less or simply auditing and rewarding them. Instead, supplier development is all about providing suppliers with what they need to be successful in the supply chain. Two of the most important functions of a supplier development program are:

• Providing information about products, expected sales growth, etc. Poor communication is one of the biggest wastes with a lean supply chain. Lack of information translates into additional costs (usually in the form of just-in-case inventory). Suppliers need to become extensions of their customers.
• Training in the application of lean and quality tools. Asking suppliers to drop their price without giving them the know-how to lower their costs through lean implementation is not sustainable long-term. In other words, this will drive suppliers out of business, which goes against the purpose of supplier development.

If suppliers had more information about the entire supply chain and had a true lean transformation underway, they would become more profitable and provide a better quality ane lower-cost product on-time.

Lean Supply Chain Manifesto - Supply and Demand Chain Executive

A few months back Andy Reese of Supply and Demand Chain Executive interviewed me (and several others) for an article that helps define what "Lean Supply Chain" means. The article is in the August-September edition of Supply and Demand Chain Executive. To read the article, visit http://www.sdcexec.com/article_arch.asp?article_id=9040.

Kaizen and the Supply Chain

Kaizen is a Japanese term which means "change for the better." A company that practices kaizen is making small changes for the better on an ongoing basis- this is commonly called continuous improvement. Over the past 15 to 20 years, kaizen has become synonymous with the kaizen event, a focused improvement "blitz" in which a team works to improve (i.e., kaizen) a process. These are actually quite different. While the kaizen event is a still a very useful tool for improving points in a value stream, the term "kaizen" refers to a way of thinking, not a single tool.

Practicing kaizen means eliminating waste. Toyota's Taichi Ohno identified the "seven wastes" of manufacturing as:

• Overproduction
• Waiting
• Processing
• Motion
• Inventory
• Transportation
• Defects

If a company is truly practicing kaizen, every employee from the shop floor worker to the CEO is working to eliminate waste on a daily basis.

But how do we approach kaizen for an entire supply chain? If within a single organization, we are asking each employee to think lean and to eliminate waste, then within the supply chain we must ask each organization to do the same. However, simply performing kaizen within the individual companies comprising a supply chain is not sufficient. Not only must we ask them to begin practicing kaizen within their four walls, we must work on supply chain improvement as a whole. This is because there are often wastes within a supply chain that we can only see when we consider the entire supply chain rather than simply one organization or process within it.

So, we've determined that we need to kaizen both the supply chain as a whole as well as the individual organizations and processes within it. What are the tools that help us accomplish this?

1. Value Stream Mapping. Value stream mapping helps us to see the entire picture and identify changes (kaizen) that will improve the supply chain as a whole. Through VSM, we understand the sources of waste created within material and information flows.

2. Supplier Associations. Supplier associations help improve communication and knowledge across a supply chain, thus enabling kaizen throughout the supply chain.

3. Kaizen Events. Kaizen events can help us implement improvements to particular points within the value stream.

4. Other Kaizen/Lean Tools. All of the traditional lean tools such as Standardized Work, One Piece Flow Cells, Kanban/Pull, Visual Controls, Quick Changeover/Single Minute Exchange of Die (SMED), 5S, Total Productive Maintenance, and others can help improve a supply chain.

Each of the above works together to kaizen an entire supply chain.

Lean Critical Success Factors

I am often asked why some companies are so successful at implementing lean while others struggle and often give up. While there is no magic bullet, I will attempt to lay out a few critical success factors to lean implementation.

1. Focus on the goal. The ultimate goal is to increase long term profitability and cash flow. Many people think that the ultimate goal is customer or employee satisfaction. While both of these are important to successfully implementing lean, you can have happy employees and customers while not making profits. Thus, to implement lean, you must understand one of the most fundamental equations: Profit = Price - Cost. You must understand that the market determines price (for the most part); cost is the controllable aspect. So, while its true that lean is not a cost-cutting program per se, it is true that costs will decrease if lean is implemented successfully.

2. Focus on the long term. Management has the tendency to focus on short term profitability. "Making the numbers" for the quarter is what matters most. The main reason for this is that incentive programs drive them to do this. To be successful, the long term must be the focus. Much lip service is paid to "long term planning;" however, in practice, most managers will sacrifice the long term for short term success. In order to change the focus to the long term, metrics and incentives must change.

3. Involve and value employees at all levels of the organization. How many times have you heard this before? Every company claims to value its employees at all levels, but few actually do it. Many lean efforts are industrial engineering initiatives driven from the supervisor and engineer level with little employee input and involvement. Lean requires a fundamental change in culture. Each employee must be given the tools/training and must be given the opportunity to provide input as to how his/her job should be done.

4. Involve customers and suppliers in the process. Most successful companies recognize that they are one piece of a value chain. Suppliers and customers must be involved in the implementation effort. Lean requires a change in the way supplies are bought and final product is sold. More frequent deliveries, less inventory, and less lead time cannot be had without supplier and customer involvement.

What does success look like? If you have been implementing lean successfully, you should have more profits and better cash flow as a result of shorter lead times, less inventory, better quality, and more productivity.

Please share your thoughts and experiences with successful and unsuccessful lean transformations.

Operational Stability and the Supply Chain

Operational stability is being touted as the missing ingredient in many attempts to implement lean and one piece flow production systems- and rightfully so. In general, operational stability equates to capable and reliable processes and equipment. Many organizations blindly attempt to create one piece flow cells and pull systems in their own factories without having achieved operational stability. This is often a recipe for failure.

What about creating a lean supply chain? Where does operational stability fit in? In fact, it is even more relevant to the supply chain. The supply chain often includes several manufacturing entities. When each of these entities does not have stability, the result is often waste in the form of:

• Parts shortages
• Poor quality
• Over-ordering
• Excess Inventory
• Long lead time

Part of implementing lean within a factory is to achieve a reasonable level of reliability and capability in processes and equipment. When implementing a lean supply chain, you must:

1. Use extended value stream mapping to identify areas where unreliable processes and equipment negatively effect the efficiency of the value stream.
2. Find suppliers with capable and reliable processes using a sound supplier evaluation process.
3. Work with existing suppliers to achieve capable and reliable processes using the tools of process kaizen such as standardized work, total productive maintenance, 5S, and quick changeover.
4. Use a supplier association (as described in Improving the Extended Value Stream) to maintain operational stability within your supply chain.

Please feel free to share your thoughts and experiences with operational stability both within your own factory environment and those of your suppliers/customers.

Value Stream Mapping - Getting it Right

Value stream mapping is a tool Toyota developed for identifying improvement opportunities to the overall flow. Toyota actually calls the tool "Material and Information Flow Mapping," which is a more accurate (but less exciting) description. Before I begin a value stream mapping workshop, I often ask how many people have used value stream mapping before. In most cases, the majority of the class believes that they have used the tool. However, by the time the class has ended, 90% of those who had believed that they had used "value stream mapping" realize that they had actually used process mapping, which is a quite different but useful tool. What makes value stream mapping different? It is the fact that there are two flows on a value stream map- the material flow and the information flow. Value stream mapping helps us understand the relationship between the information flow and the material flow; ultimately, this helps us understand what the sources of our waste are. For example, the reason for overproduction is often rooted in the information communicated to the factory floor. When we understand our sources of waste, we can create a picture of a future state with less waste and develop an implementation plan to achieve the future state. Value stream mapping can be used to map the material and information flows within an organization or throughout an entire supply chain.

The first time a team creates a current state value stream map, they will likely get caught up in getting the methodology itself just perfect: using the right icons, including all of the data that "the book" says they should include, etc. Unfortunately, teams often give up because they don't have everything "the book" says they should have. Those mapping value streams need to keep in mind that the tool is not an end in itself. It is not as though a completed value stream map will actually increase cash flow and profitability! Value stream mapping is a means to an end. It is a flexible tool that should be used to identify those improvement activities that will result in an overall improvement to the value stream.

Let's take an example of a company that makes complex assemblies. Such products might have bills of material with hundreds of parts on them. Following the value stream methodology strictly, the value stream map might have hundreds of process boxes (and/or supplier boxes). This is impractical and unnecessary. The team needs to instead focus on only a few key items and ignore (for now) the rest. Key items might be long lead items, high cost items, or items causing the biggest delays/problems.

A job shop is another example of a company that might have a problem following a textbook case. Job shops often run many diverse products through the same pieces of equipment, making it difficult to identify "value streams" or "product families." However, they can still use the value stream mapping tool by redefining what a value stream is. Can their products be categorized in some way? Perhaps there are levels of difficulty, types of material used, or types of customers by which value streams can be defined. Once the value stream is defined, it can be mapped. Metrics for job shops will also be a little different. The classic approach of calculating takt time first may not make much sense. Instead the value stream map will reveal the overall capacity for various categories of products.

When you map a value stream, you should always understand that VSM is a flexible tool that should be customized to fit your company's needs. As long as your organization uses a consistent methodology and set of icons, they can differ from a textbook and still achieve their goals. The mapping activity needs to result in an actionable plan that will achieve less waste and ultimately more profits for the organization. This is the bottom line.

Please share your thoughts and experiences with VSM.