A ‘Lean’ Supply Chain Presents Risks and Rewards

Ash from a volcanic eruption in Iceland blankets Europe and closes major airports. In no time, the Boston flower market runs out of tulips, and factories in California shut down for lack of parts. Most people are aware of the supply chain (SC) only when a disruption of this sort brings it into the headlines, but SC professionals deal every day with suppliers, transportation providers, customs brokers, warehouses and schedules that keep the worlds of manufacturing and distribution running smoothly.

The supply chain has been called “logistics taken to a higher level.” It is the science (and the art) of scheduling and coordinating all of the resources that produce, store and transport goods and services throughout the world.

There are five primary activities defined by an industry group called the Supply Chain Council – plan, source, make, deliver and return. The supply chain extends from the mine to the landfill, meaning multiple levels from raw materials suppliers through components and assemblies on to products, distributors, warehouses, retailers to the end consumer.

For food products, it spans the range from the farmer, rancher or fisherman to the restaurant or dinner table. Plus, SC management is now concerned with return, re-use, recycling, reprocessing of recoverable materials and responsible disposal. Include traceability as demonstrated by the discovery of lead paint on toys manufactured in China (which specific toys, how they were distributed, and where they ended up), and you can see how complex and important supply chain management can be.

Modern SC management is based on cooperation and collaboration. Historically, buyers would often have an adversarial relationship with suppliers – aimed primarily at getting the best price for parts and materials. We now realize that price is not the most important factor in purchasing; the supplier must be able to make enough to be able to provide high quality products and reliable delivery, and to stay in business. The supply chain view of supplier relationships is focused on this bigger picture and is oriented to what is best for the entire chain, not any individual link in the chain. And that goal is delivering real value to the end customer.

Today’s supply chains are “lean,” meaning that great effort is made to speed up the flow of goods and reduce the amount of inventory needed to satisfy customer demand and operate efficiently. Lean supply chains depend on technology to provide visibility and control. Those bar code labels you see on most consumer goods are one of the technologies that allow companies to trace products and inventories to better manage production and replenishment. The checkout scanner logs the sale of that product, deducts from the inventory records at the store, and might even alert the factory or warehouse to make or ship more of the product so the store doesn’t run out. Radio Frequency ID tags, electronic stickers that can identify themselves from a modest distance, along with cellular communications and GPS location tracking allow modern supply chains to know where shipments are and whether they will arrive on time.

Lean processes contribute to keeping costs and prices down, but they also present more risk, since there is less slack in the chain. A disruption like the volcano or a strike at a component plant can quickly ripple down the chain and stop production or cause stock-outs at the store. Supply chain management is the science of dealing with all of these factors.

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