Don’t waste your lean aspirations

Posted on 12 Aug 2008 by The Manufacturer

Debbie Giggle finds that many of the primary improvements required for lean inbound logistics can be tackled from within your own organisation

With lean improvements now well under way on many factory floors, the attention is moving progressively to the supply chain. “We’re now seeing industry segments such as engineering and building supplies, with the same waste reduction aspirations as the automotive sector,” explained Phil Roe of DHL’s industrial division. “Even for SMEs, supply chains are becoming longer and more complex as components and raw materials are sourced from low cost economies. Manufacturers of all sizes are needing to reduce wasted transportation costs, prevent unnecessary double-handling of supplies, and cut out duplication of inventory and tasks.”

With many inbound logistics factors lying outside the direct control of the manufacturer, it would be reasonable to assume that problems can only be solved by working with suppliers. But, in fact, many manufacturers have achieved beneficial improvements by getting their own houses in order first.

Roe commented: “A problem for many manufacturers is a lack of real-time visibility of inventory. There may be a mechanism for logging the fact that an order has been placed and a delivery has turned up. And a company may be able to track products through the production process. But often there’s a grey area in between. Reducing wastage and moving to more sophisticated approaches such as JIT demands visibility in this area.”

Brynn Woods, of supply chain specialists Brammer, commented: “Much low hanging fruit can come simply from managing internal supply chains more effectively. Consolidation of the supply base is a major step forward and creating visibility for inventory will bring immediate benefits. It’s human nature for people to squirrel things away in different places across the site. Without some central view of inventory, items will hang around until the point of obsolescence while identical products are ordered in the meantime by other members of staff.”

So what can we learn from skilled exponents in the area of lean supply chain?

“We’re still learning ourselves,” said Jon Bridges, pre-production logistics manager for Jaguar and Land Rover. “We’re not too proud to adopt best practice wherever we find it. Lean tools and techniques are established across the company.
We know that tools like six sigma work, and we understand how to use them. The challenge for us when it comes to the supply chain is that we have a combination of volume and complexity. We serve 147 markets and our base of first, second and third tier suppliers is global. All components have to arrive lineside at the right time ready for build but, more than that, we need to be highly flexible. We need the agility to respond to change, in addition to working continually towards increased efficiency and minimized inventory.

“Major advances for us in recent years have come from changing the ways in which we communicate with suppliers. The way we work now recognises the wide diversity of our supply base – from businesses larger than ourselves, down to very small, highly specialist businesses. A range of communication techniques have now been developed which enable us to interact with suppliers at the most appropriate level.”

This recognition that one size of communication does not ‘fit all’ brings benefits in terms of efficiency and, by matching method of communication to actual requirement, the administrative framework needed to support inbound logistics has been optimised.

“When working with a seat supplier, for example, there will be a high variety of colours and stitching designs,” explained Bridges. “The methods of communication will be highly integrated from an IT viewpoint to support the flexibility and complexity of daily, or sub-daily call-off.

“At the other end of the scale, a supplier of veneers for the finishing of high end models of Jaguar will need an entirely different form of communication, geared around understanding and responding to global availability of specific materials.

“By matching our methods of communication to the supplier we have built a good level of trust and accountability. At the same time, developments in IT have enabled us to share production planning information more effectively. The end result has been greater consistency and stability in our production schedules with increased agility.”

Having already achieved much of what it set out to achieve in its inbound logistics operation for normal production, the focus at Land Rover and Jaguar for some time now has been on streamlining the supply chain throughout the new product development process.

“Investing in getting the inbound logistics right, up front, is the key to creating a lean supply chain for the whole life of the product,” said Bridges. “This is the starting point for understanding how all the processes and systems fit together and measuring the related costs. Only when you understand things in this level of detail can you identify the high hurts and assess the current state, in order to work towards the future state.”

Bridges believes there is no big secret to how you move from the current to the future state. He asserts that the company makes step changes by running six sigma exercises and keeps going round the loop that every manufacturer will know: plan, do, check, act.

There are key decisions, however, that will shape any lean supply chain strategy. Firstly, should activities relating to the lean supply chain be an extension of the company’s existing continuous improvement programme, or treated as a standalone project?

Bridges said: “The lean activities need to run from end-to-end and drive every part of the business. If one part of the business pushes the boundaries and moves forward, it can cause a disconnect as other parts of the process fall behind. So improvements need to progress in lockstep.”

There is a growing trend, however, for companies to outsource non-core aspects of the supply chain process, and Land Rover and Jaguar are no exception.

Bridges commented: “We’re not specialists in freight procurement – a third party logistics company manages this on our behalf. There is a bigger opportunity open to us if our logistics are optimised as part of a wider network. We issue details of our requirements and our lead logistics supplier then optimises vehicle usage. Provided we obtain the required levels of precision and quality of service we are happy to share freight loads. This improves the efficiency of our freight operation in a way that we could notachieve individually.”

There is, of course, the potential to contract out the entire inbound logistics operation. Alcoa, the world’s leading producer of aluminium, is completing the installation of its first new greenfield primary aluminium smelting facility in 20 years in Reydarfjordur in eastern Iceland. The plant capacity is 322,000 metric tonnes per year in a site approximately 2.5 kilometres from end-to-end.

Already in partnership with Brammer in the UK, Alcoa awarded the company a contract in 2006 for the provision of maintenance, repair and overhaul (MRO) products and services for the new plant. A tea of six Brammer staff have been located in Iceland for the past year to set up the project. In that time Brammer has established a supply chain for Alcoa of 120 new global suppliers with 5,380 individual line items ordered, significantly reducing Alcoa’s transactional costs.

Oskar Borg of Alcoa explained: “It is possible for us to get parts from Wolverhampton to Iceland in nine hours if urgent, but our work with Alcoa is about creating a sustainable and cost-efficient source of supply.

“We are in a remote location and adverse weather has the potential of blocking out deliveries for days at a time. The new smelter is capable of creating 930 tonnes of aluminium a day. We can’t let the unavailability of a spare part get in the way of that. But at the same time, we operate in a competitive market and cannot afford to be holding inventory unnecessarily.”

Brammer key account director Mike England explained: “Typically we will help companies to reduce working capital tied up in inventory, to improve their production efficiency, and to cut total acquisition costs. This can involve anything from a local supply chain specialist assisting an SME, to a major contract such as that for Alcoa.”

Brammer key account manager Nick Day added:
“Our advantage is that we’re focused on supply chain. We don’t allow ourselves to be distracted from that.”

A final word, however, needs to be said on the subject of metrics. Borg explained: “Our metrics are now being redefined as we have moved from the setting up stage to fully operational. The new set of KPIs will include inventory size and the number of stock unit moves annually.”

Bridges commented: “We have three types of metrics which combine together to give a rounded view. Firstly there is a range of supplier related metrics which suppliers can access online to check their performance. Secondly there are metrics around quality, and thirdly we have a set of higher level business measures for the purchasing function. Over time we expect these to change. By investing in supply chain improvements during NPD (new product development) we will be able to make a step-change. This will, in turn, dictate new, more challenging metrics.”