The Lean Supply Chain: A Model for Operations Management - Term Paper Example

? The Lean Supply Chain: A Model for Operations Management BY YOU YOUR SCHOOL INFO HERE HERE The Lean Supply Chain: A Model for Operations Management Introduction Companies attempting to recognize costs, improve flexibility and responsiveness to changing customer demands, and also maintain competitive edge are moving toward establishment of a lean production and supply system. The lean supply chain is developed to remove waste within the operations cycle and also to maximize quality while allowing for allocation of capital investment to be distributed more effectively throughout all areas of business operations. Kumar and Suresh (2009, p.183) define lean supply methodology as setting standards of production that allow for the production of the maximum variety of product using a minimal of tools, materials, labor and systems. Lean supply, however, requires many different considerations in order to maximize total business value and cost reduction in order to create a competent operations model. Evidence suggests that a well-coordinated lean supply system will require technological systems implementation, changing the dynamics of organizational culture from a socio-economic lens, and also by performing qualitative and quantitative quality measures throughout the operations cycle. Not all suppliers are going to be willing to comply with lean needs or maintain the capacity to provide faster response to the customer, which can conflict establishing a lean system for operations. Lean supply methodology, though an excellent method of streamlining and improving business function, is not without its challenges and barriers to implementation. Understanding the Lean Supply System In many different industries ranging from manufacturing to food services, the lean supply system avoids holding costs that continue to strain operational budgets. In most industries, there is a necessity to maintain finished product inventories as well as raw materials inventories in order to meet with customer and manufacturing demand levels. Though these businesses attempt to move inventory based on sales forecast and operational forecasts, forecasting demand is not an exact science. Thus, businesses are forced to pay higher taxation on these inventories, provide for environmental concerns (e.g. refrigeration and temperature controls), pay for lighting and other associated utilities, and manage personnel costs associated with these held inventories. Heizer & Render (2004) identify that holding costs like these are largely unavoidable as the tangible space needed for housing inventory volumes are often fixed costs in the operations budget. Companies that do not have a lean supply philosophy will often piggyback on existing distribution networks to avoid these holding costs or hold stock at a hub warehousing system. This is one of the value-added benefits of selecting a lean supply system, allowing the business to be more flexible without having concerns over working with third party warehousing partners. The lean supply system allows the business to conduct its forecasting on a shorter time cycle, considering the time through the production cycle to the ultimate movement of inventory as delivery to the final customer. The organization will look toward diversified supply options to ensure rapid deliveries of raw materials needed to create a final product or service, thus avoiding the need to house and store volumes of materials not necessarily slotted for immediate movement through the production or shipment system. But, how is the lean supply accomplished? Herein lays the difficulty of lean methodology: Discovering how best to establish operations function and ensure responsiveness of supply partners throughout the value chain. When an organization has not developed a lean supply system, they have much more control over procurement and delivery of raw materials, forecasting weeks or months forward to account for risk contingencies and ensure that production can be increased spontaneously by maintaining high inventories of needed production goods. A lean supply chain means being more coordinated with supply partners, ensuring that suppliers understand both delivery needs and internal processing. Sourcing partnership development requires tangible executive labor investment and considerable environmental scanning to determine the most viable and likely responsive suppliers. Companies that have not adopted leaner supply systems are not using just-in-time philosophy where product is delivered only to satisfy a safety stock volume and delivered as needed throughout the operations cycle. This would, historically, give a business much more control over the operations activities of the business without heavy reliance on third parties. The procurement model in most production facilities are timed and based on quantitative forecasting methods, such as comparing historical sales trends and deliveries to determine how best to procure raw products. Quantitative forecasting is usually a mathematical model of supply that is tested against regressive sales and production trends, thus providing very correlated data to assist in determining adequate stock levels. Adopting a lean supply system, on the other hand, requires more qualitative determinations in order to effectively plan stock arrivals. Qualitative forecasting is conducted using the Delphi Method, as one example, which requires the labor investment of many within the operations cycle, from supervision of production to quality assurance and research and development teams. Rowe & Wright (1999) define qualitative research as a non-statistical review using experience, emotion and intuition in order to provide operations solutions. The Delphi Method is structured in this way, establishing a session of rounds in which members involved in a process brainstorm potential solutions to an identified problem of supply, answering a series of questionnaires. As each round progresses, proposed solutions are removed until consensus has been reached that a particular operations strategy is most viable for business needs (Rowe & Wright, 1999). Forecast adjustments are then made based on the results of consensus identified in the Delphi Method. Why is this relevant to establishing a lean supply chain? Because the business now has a just-in-time product delivery philosophy and no longer has the luxury of relying on statistical, emergent data results for operations, it requires more human intervention and assessment in order to meet production expectations and also avoid holding costs and other costs that often bring waste within the production cycle. The goal of lean supply is to establish a basket of safety stock, a buffer stock, that provides just what is needed for a production effort. When JIT is used, the tenet of production is to maintain “zero inventory” (Christopher & Towill, 2001). Now the operations management leadership must rely on human assessment combined with quantitative data to ensure that the safety stock is maintained at the appropriate minimal level to achieve final production and shipment of finished products while maintaining cost recognition. In highly dynamic and flexible organizations where sales trends fluctuate and where competitive responses dictate new times to market, statistical data is no longer sufficient for a streamlined and efficient production system. This is the dynamic of the lean supply system: Though there are significant expenditures and wasteful cost allocation that can be removed from the operations system, there is much more emphasis on the human equation to ensure that the lean supply system is effective. Lean supply requires a new emphasis on dual sourcing, using a diversified portfolio of suppliers, that requires considerable innovation by both the buyer and the supplier (Lehtinen & Torkko, 2002). Suppliers are no longer seen as commodities and single sources without much supplier power as with a traditional procurement system, instead they are now seen as partners that must be responsive to business needs. Suppliers in a lean supply system are now considered value partners requiring long-term education and relationship development in order to gain their commitment. Many companies, such as Toyota, must promote the internal dynamics of Toyota’s production system in order to train suppliers about business needs and ensure responsiveness to lean supply value and expectations. There are many complicated dynamics of supplier activities, such as whether they are centralized or decentralized organizations, which will determine the level of human capacity that can be provided to a lean supply system. Suppliers are now considered a resource, a means to an operational ends, that must be more directly involved and commit to meeting just-in-time product deliveries. This, then, should be considered a difficulty of the lean supply system as now the business is more reliant on the activities of third party suppliers. Supplier innovation may require a restructuring of the supply production process in order to sustain valuable and profitable relationships with the buyer organization. Many automotive companies, as one example, develop a tiered supply methodology where the business must now invest capital and labor resources to assist in developing priority suppliers (including their production systems, response capacities, and production cycle timeline). Suppliers now have to take a proactive approach, much of which is however dependent on the profit opportunities that the customer provides with a lean supply system. A supplier within the tier that fails to meet obligations can seriously interrupt an organization’s production processes for non-responsiveness, thus monitoring and controlling supplier activity becomes a new management imperative. The lean supply system, in summary, takes away some level of control of the buying organization which adds more risk to the operations model and market responsiveness. There is a general misconception in industry that lean supply methodology is a technological implementation, requiring ERP or BRP systems to ensure a business maintains minimal stock levels and is able to reduce waste within a system (Yang & Yu, 2010). However Taleghani (2010) reminds businesses of the barriers to establishing a lean supply system that are completely unrelated to technology reliance. Cultural issues within the organization, management intervention and activity, and executive failures complicate successful establishment of a lean supply system (Taleghani, 2010). There is a phenomenon in operations management and general business referred to as resistance to change, an occurrence in which diverse attitudes, principles and values of individual workers or teams impact motivation. When change resistance occurs, a business can have performance management issues. Thus, for a centralized organization that is used to controlling employees, under a traditional supply and procurement system, may have to consider cultural development to meet with quality and lean outcomes demanded of a leaner supply system. A business may have to decentralize its executive leadership for a more horizontal problem-solving structure to avoid change resistance and provide more motivation. Cua, McKone & Schroeder (2001) cited that one of the most fundamental benefits of a lean supply system is improved productivity and quality. However, this is only applicable to businesses that now have a cultural competency and also closer relationships with individuals throughout the value chain, including labor and mid-level supervision. Failures occurring due to human capital problems, in a traditional procurement system, can be offset by safety stock levels and the ability to procure multiple raw products. In the lean system, the quality of labor activity and productivity, along with minimized resistance to change, is a crucial dimension of ensuring that this system will work effectively. One failure can lead to stock issues or market responsiveness, thus more investment in human resources and executive visibility throughout the cultural system is required. The complicated dynamics of human behavior can significantly cause errors to occur in a system that is already only buffered by very minimal safety stock. It is clear that the lean supply methodology as it relates to operations management is an inter-dependent system on attitude, motivation, statistical variation analyses, and also qualitative assessment from skilled leaders within the production system. It is an integrated system that requires new quality control and implementation processes (Shah & Ward, 2003; Sanchez & Perez, 2001). Quality, however, is not something that can occur within a proverbial vacuum as it relates to operations management, thus dependency on technological systems is no longer proactive and short-run valuable opportunities. The dimensions of relationship establishment with supplier partners that are now dual and diversified, require management and labor investment for sustainment. Internal dynamics at the organization require more focus on human characteristics. An organization can establish quality control measures and simply assume they will be carried out, however the development of a total quality management system whereby culture and beliefs are reinforced will provide the most effective outcomes of a new leaner procurement system. Work teams are also highly critical within a lean supply network (Shah & Ward, 2007). Establishing a work team requires, as with internal organizational structuring, external partnering, training and collaboration tools. Though this requires more investment and short-run capital to develop effective work teams, the long-term benefits are the cooperative partnerships absolutely required of lean supply methodologies. Rowe & Wright (1999) again describe the qualitative dimensions of operations that are necessary to attain the productivity outcomes expected of lean supply methodology. Under the dualist procurement system that now uses diverse or tiered suppliers, assumptions that once held true based on statistical data are rendered irrelevant or not as dependent. Some activities will require changes to non-production divisions, such as sales and marketing, to adjust to a leaner philosophy. Why is this? Under highly forecasted mathematical models of business, the sales and marketing division dictate the pace of production based on volume of ordering. These shifts in production and delivery are supported by high volumes of raw materials and finished product that can be moved according to external sales dynamics. Now, the sales and marketing team cannot be dependent on such high buffer stocks, working more closely with production about capacity and volume ordering with a variety of B2C and B2B customers. In a sense, the lean supply system now controls sales and marketing support members, thus providing their own qualitative direction to the business under a cooperative team philosophy. Sales and marketing teams may have to be trained on more effective team working within an operations context or be more integral in decision-making throughout a decentralized hierarchy of control. Furthermore, no lean supply system is going to be able to operate independently of control measures, which are actually more critical when safety stocks are dramatically depleted such as with just-in-time philosophy. Quality measures now extend beyond tangible product constructs, with new definitions emerging in the operations system, to include psycho-social and motivational strategies aligned with new objectives for response and waste removals in the operations system. Quality may now be dictated by the dimension of sourcing partner relationships and training or the interdependencies now experienced in procurement staff and marketing staff. There is clearly a need for more human resources and human relations focus within the lean supply system as procurement can no longer function independently of the human factor that was once dictated by quantitative analyses and determinations. This might require the assignment of a quality facilitator to map out the entire processes of the organization, identifying best practice in quality and then championing the vision behind the quality initiative to promote cooperation and minimize resistance to a quality change imperative. In essence, the radical changes to process and market responsiveness occurring within the lean supply system dictates an organization where change is now an imperative and not a supplementary focus. Conclusion Because of the complexity of establishing a lean supply system and the depth of new inter-dependencies created within this change, it was necessary to outline that technical and non-technical barriers and success potentials of adopting a lean supply methodology. It might seem like a simplistic effort to remove high holding costs, establish a leaner inventory system, and also plan according to mathematical models of production and procurement to achieve results. However, the tangible capacity of suppliers as well as the profitability provided by the lean-minded customer will determine the willingness of suppliers to meet with just-in-time expectations and provide for the capacity for faster response rates. Large companies, such as Toyota, have considerable buying power on the market and can therefore raise the switching costs of the supplier. When this occurs, a company such as Toyota can dictate many quality standards and ensure that companies comply with rapid delivery needs. Not all companies have this luxury, therefore they must understand the complexity of relationship development and human dependency in order to make the lean supply system work for a radically different methodology of operations management. This report highlighted the many benefits of lean supply philosophy, the barriers to effective implementation, and the many different considerations that must now be integrated into a quality-focused system of operations and organizational design. Lean supply methodology is far more than technical planning, it provides for more proactive thinking in order to ensure the business has competitive advantage and can still sustain changing market needs. It will streamline and improve productivity, remove waste within the system, and also provide for significant cost savings if it follows the model of best practice identified through this research that blends support, relationship quality, and qualitative assessment with pre-existing operations management processes and systems. References Christopher, M. & Towill, D.R. (2001). An Integrated Model for the Design of Agile Supply Chains, International Journal of Physical Distribution and Logistics Management, 31(4), pp.235-246. Cua, K.O., McKone, K.E. & Schroeder, R.G. (2001). Relationships between implementation of TQM, JIT and TPM and Manufacturing Performance, Journal of Operations Management, 19(2), pp.675-694. Heizer, J. & Render, B. (2004). Operations Management Flexible Version Package, (7th ed). Prentice-Hall. Kumar, S.A. & Suresh, N. (2009). Operations Management. New Age International Publishers. Lehtinen, U. & Torkko, M. (2002). 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