Lean Supply Chain Management (LSCM)

The supply chain is defined as a network of organizations involved, through linkages with
suppliers and customers in a variety of processes and activities that create value in the form of
products and services supplied to the final consumers.

Lean management is a concept aimed at improving processes in the organization through a

gradual and continuous improvement. Lean methodology is based on reducing costs while
increasing throughput and efficiency of the production process.

Lean supply chain management represents a new way of thinking about supplier networks.
Lean principles require cooperative supplier relationships while balancing cooperation and
competition.Cooperation involves a spectrum of collaborative relationships & coordination
mechanisms.Supplier partnerships & strategic alliances represent a key feature of lean supply
chain management .In the past, manufacturing businesses relied on purchasing large amounts
of supplies in order to get better prices on material. The process involved buying bulk material
at a lower price and then warehousing the material until it was needed. Many companies have
now eliminated the concept of bulk ordering and have moved to lean supply chain practices,
due to large amounts of money that can be tied up in inventory.

Lean supply chain management is about removing waste or unwanted components from a
process. Most often this process is applied to manufacturing, where supplies can be ordered as
they are needed rather than back-stocking a lot of inventory. With a lean approach, it is
important for organizational leadership to identify the value and non-value parts of the supply
chain. By identifying what is of value in the supply chain, a determination can be made on how
to focus the business on those valued parts. Equally, non-valued parts can be eliminated to
keep cost and inefficiency at a minimum. Non-valued parts are those parts in the process that
have zero or negative return on investment. The elimination of non-valued parts has positive or
no impact on thpe outcome of the process.

A lean approach occurs in business, but there are also reflections of it in our daily lives. For
example, you wouldn't buy a year's worth of groceries and store them all at home, right? The
produce would go bad, you wouldn't know exactly how much you would need of each item, and
you may not know what your family will like to eat nine months from now. Not to mention all
the money that could potentially be wasted with this system! With a lean approach, you get
what you need more often to reduce waste.The use of lean concept means that the process is
organized in a way to be able to achieve an optimal flow of materials and information at
minimal.

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  Key elements of a lean supply chain managment
 warehousing
 transportation
 lean customers

Warehousing

Warehousing from a lean perspective includes inventory on demand, which means only
the inventory currently needed is ordered and stored. Lean warehousing enables
organizations to save cash flow for other urgent needs.

Transportation

Lean transportation can include multiple stops on delivery routes, lower fuel costs,
better customer service for on-time delivery, and larger payloads for efficient
distribution. Automated functions for drivers would ensure more timely use of vehicles
by eliminated paper waste and more organized information.

Lean Customers

It is an advantage for a customer to know what they want and have a shared interest in
the efficiency of the process. When a customer understands their needs and can relay
that to the business, both sides benefit. A good example of this phenomenon is when a
customer is a repeat wholesale customer and an order can be made for exactly what is
needed. When the supplier can order for the customer the exact supplies needed rather
than having to choose from items on hand, the costs are driven down, which benefits
both the business and the consumer.

Tools for Success in lean supply chain management

For companies to be successful in lean supply chain management there has to be:
 Open communication and collaboration between the company and the supplier. Open
communication allows the needs of both parties to be met and reduces waste from the
supplier and the company. Getting supplies at the right time is critical for success in lean
supply chain management or there is a risk of ordering what is not needed, causing
added costs.
 Management occurring at a high level so as to have visibility on the entire process from
the beginning to the end. Management at the top of the busines s process can see and
communicate, reduce redundancy, see deficiencies, and increase quality.

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  An elimination of redundancy in procurment,so simple parties are not paying higher prices due
to duffernt purchasing sources.For example on local level l, supplies could be bought at
discounted prices that corporate level maynot be aware of. Having designated purchasing agent
for certain items ensures the bedt price is obtained.

Lean Supply Chain Management Principles

 Focus on the supplier network value stream

 Eliminate waste
 Synchronize flow
 Minimize both transaction and production costs
 Establish collaborative relationships while balancing cooperation and competition Ensure
visibility and transparency
 Develop quick response capability
 Manage uncertainty and risk
 Align core competencies and complementary capabilities
 Foster innovation and knowledge-sharing

Supply chain management according to the concept of lean management consists of the following
stages

1.The choice of the supply chain, which will be optimized

2.Assessment of the current state of the supply chain

3.Creation of the future state map

4.Creation of an action plan needed to achieve the desired future state

5.Implementation of changes, documentation of the results, verification of measures

The Agile Supply Chain Management(ASCM)

The concept of agility was given by “readiness to change”, from business perspective, agility is defined
as a strategy that is more responsive in a volatile market place, where this strategy is totally demand
driven. As consumers buying patterns are changing on a very rapid pace, so does the whole supply chain
management changes.

The fundamental drivers of agile supply chain are :

 Speed
 Cost and

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  Efficeny

Agile supply chain framework is based on four major constituents that are as follows:

1.virtual integeration

information is shared among concerned departments for the real demand from market or end
consumers. As demand information is gathered than it is collaborative planning among the various
concerned departments that how to cater the demand from this particular market, and every
department responds according to their capability and capacity to fulfill the demand. Virtually being
integrated would result in end to end visibility, this is how this would be easy to identify the bottlenecks
in the network and any other problem that creates hindrance in the network.

2. Process Alignment

In process alignment, three things are mainly concerned, that are Co-managed inventory, in present
time mostly chains are managed through the VMI (vendor managed inventory) this is one of the best
solution, as a co-managed inventory. Collaborative product design by the concerned departments, this is
how the team works to shape the consumer need or want. The ultimate result is synchronous supply
chain.

3.Network Based

Every individual actor in the chain has to put their efforts to make it the success of the chain. This will
reduce the burden on individual actors and the task is divided among the actors as per their core
competencies where they are best at. All actors in the chain are orchestrators of the chain, therefore,
they equally own the chain and their performance level matters from each end.

4.Market Sensitive

Today’s chains are market sensitive where demand is sensed from the market.Therefore, daily feedback
from market or sales terminal feedback is taken to meet the future demand. In present time companies
are focusing on future, therefore, their efforts are to make it from today, by executing best practices to
capture the emerging trends. The one of the best practice would be to listen your customer. It is said
that success of supply chain is based on the end consumer’s feedback. therefore, voice of consumer is
the actual demand that drives the supply chain.

Agile supply chain is not the option available in market but a necessity for the success of the company.
Agile supply chain is the solution to the many problems that exist in today’s supply chain management
networks. This concept has been recognized, as a solution to increase the responsiveness of a supply

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chain in a more changing environment. Today’s supply chain compete on various strategies, but the
most commonly used one is agile strategy. Because this strategy anticipates demand fluctuations in a
volatile market demand patterns. Also this solution has facilitated the suppliers to manage their own
data through self-service functionality.

Key Parameters of Agile Supply Chain Management:

 It focuses on the inventory management

 best at getting more accurate and up to date demand
 quickly respond to market demand and satisfy their end customer
 it is more responsive and cost efficient

Agile supply chain management consists in carrying out the activities connected to strategy of the
diversification, to deliver the product, the consumers cannot find elsewhere. The quick response to
changes in the demand is most important. This activity in logistic operations involves the use of flexible
and agile operations to provide an excellent service level of final customer.

Measuring factors of ASCM

 the ratio of products delivered to ordered

 the quantity of mistakes made during the sorting process
 the ability to "cancel" the orders
 the percentage of orders fulfilled in 100% in accordance with requirements
 the size of damage
 price reduction due to failure to meet delivery times

This strategy allows reacting to unforeseen events such as short delivery delays, changes in demands as
well as natural disasters. It should be pointed out. That from the perspective of the supply chain, each
problem related to logistic indicators, could be due to various reasons. For example, the delayed
delivery to the customer may be a result of an improperly functioning logistics but also of wrong
demand forecasts, production problems, road works, traffic jams, strikes of the carriers and many other
reasons. Usually the logistics providers are blamed for errors in various parts of the system .

Advantage of ASCM

 To make product life sycle shorter

 Rapid responsiveness for market demands change and
 To make the demand becomes more sensitive
 To have lower risk unsatisfying of the customers
 To have lower risk of lost orders and slow responses

Dis advantages of ASCM

 It needs the free spaces to secure the flexibility of the operations and
 it causes the reduction of the productivity

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pillars of Agile Supply Chain managment

1) Advanced sensing
2) Flexibility
3) Co-ordination
4) Velocity

"Advanced Sensing + Flexibility + Co-ordination + Velocity = Agility"

LSCM AND ASCM

Lean and agile management are simultaneously opposing and complementary and therefore recently
the hybrid concept of supply chain is adopted to use. This hybrid concept is called "leagile".It can be
concluded that development of further types of supply chain strategies is the effect of changes occurring
in their environment. The lean supply chains were sufficient until the cost reduction process was
sufficient but in the further steps the market requirements started to increase as well as the
competitors started to adapt this strategy too and therefore the agile management began to be a
desirable one. However, it turned out, that the same criteria (like delivery speed or low cost) are not
important at the same level for every product and the supply chain must be adopted accordingly. In
some cases the lean management is the better solution, in others the agile management is the best one
and hence the use of hybrid strategies. The various attributes that should be considered in each case are
shown in the table.

Traditional Lean Agile Leagile

demand unpredictable Predictable Unstable Unstable and

unprdictable

products Standard Functional Personalized Persoanlized

the major share Physicalcost and Physical costs Markrtability costs Marketability and
inthe total supply marketability cost physical costs
chain costs

eliminationof Low priority Basic Desirable Arbitrary

waste

quality Market winners Market qualifiers Market qualifiers Marekt qualifiers

cost Market winners Market winners Market qualifiers Market winners

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 regarding cost

measures of The percentage The percentage of Customer Customer

quality ofdefective defective products satisfaction satisfaction
products

product’s concept Producer's Producer's Producer and Producer and

customers customer

Differnce between supply chain and value chain

The Value Chain concept was developed and popularized in 1985 by Michael Porter, in “Competitive
Advantage,” a seminal work on the implementation of competitive strategy to achieve superior
business performance.

Defination: "value is the amount buyers are willing to pay for what a firm provides" and he conceived
the “value chain” as the combination of nine generic value added activities operating within a firm –
activities that work together to provide value to customers. Porter linked up the value chains between
firms to form what he called a Value System; however, in the present era of greater outsourcing and
collaboration the linkage between multiple firms’ value creating processes has more commonly become
called the “value chain.”

Focus areas of value chain

 Benefits that accrue to customers,

 the interdependent processes that generate value, and
 the resulting demand and funds flows that are created.

Effective value chains generate profits. To bring the concept of value into focus, consider for a moment a
person walking in the desert, a person who is dying of thirst. As that person walks they have one thing
on their mind, and that is water. At that moment there is little consideration for the form of the water,
the container, or who will be providing it. Water has a unique value to that person. When they find
water, or they are offered some, money would be of little concern. What is the point of this example?
First is that value is a subjective experience that is dependent on context . In the context of a busboy
clearing a table, a glass of water sitting there has no value, or even negative value – it’s just more work
for him. But for the man dying of thirst, that same glass of water is extremely valuable. Second, value
occurs when needs are met through the provision of products, resources, or services – usually during
some form of transaction or exchange. Finally, value is an experience , and it flows from the person (or
institution) that is the recipient of resources – it flows from the customer. This is a key difference
between a value chain and a supply chain – they flow in opposite directions. Many views of Value
Chains can be created. Examples of Value Chains are One that takes an order from a customer One that

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fulfills a customer requirement One that defines a product or service And many others We depict the
Order Fulfillment Value Chain in Figure

Supply Chain Management (SCM) emerged in the 1980s as a new, integrative philosophy to manage the
total flow of goods from suppliers to the ultimate user and evolved to consider a broad integration of
business processes along the chain of supply . Keith Oliver coined the term “supply chain management”
in 1982 . Oliver, a vice president in Booz Allen Hamilton’s London office, developed an integrated
inventory management process to balance trade-offs between his clients' desired inventory and
customer service goals. The original focus was the “management of a chain of supply as though it were
a single entity, not a group of disparate functions,” with the primary objective of fixing the suboptimal
deployment of inventory and capacity caused by conflicts between functional groups within the
company. SCM evolved quickly in the 1990s with the advent of rapid response initiatives in textile and
grocery industries, and was refined by large retailer Wal-Mart who used point-of-sale data to enable
continuous replenishment. Supply chain is a term “now commonly used internationally – to encompass
every effort involved in producing and delivering a final product or service, from the supplier’s supplier
to the customer’s customer”.

Focus of supply chain

o costs and efficiencies of supply,

o The flow of materials from their various sources to their final destinations.
o Reduction of costs.

Similarities of value chain and supply chains

 Both enablesthe flows of products and services in one direction, and of value as represented by
demand and cash flow in the other .
 Both chains overlay the same network of companies.
 Both are made up of companies that interact to provide goods and services.

Differnces of supply chain and value chain

When we talk about supply chains, however, we usually talk about a downstream flow of goods and
supplies from the source to the customer. Value flows the other way. The customer is the source of
value, and value flows from the customer, in the form of demand, to the supplier. That flow of demand,
sometimes referred to as a “demand chain” , is manifested in the flows of orders and cash that parallel
the flow of value, and flow in the opposite direction to the flow of supply. Thus, the primary difference
between a supply chain and a value chain is a fundamental shift in focus from the supply base to the
customer.

Supply chains focus upstream on integrating supplier and producer processes, improving efficiency and
reducing waste, while value chains focus downstream, on creating value in the eyes of the customer.

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