Lecture 5: Philosophies on Supplier Relationships PDF

PHILOSOPHIES ON SUPPLIER RELATIONSHIPS LECTURE FIVE  LEARNING OBJEVTIVES At the end of this lecture, students should understand; ❑The philosophies on supplier relationships ✓Traditional supply ✓Lean Supply ✓Agile supply  INTRODUCTION ❑ This unit...

PHILOSOPHIES ON SUPPLIER RELATIONSHIPS LECTURE FIVE  LEARNING OBJEVTIVES At the end of this lecture, students should understand; ❑The philosophies on supplier relationships ✓Traditional supply ✓Lean Supply ✓Agile supply  INTRODUCTION ❑ This unit considers different approaches to manufacturing and how they impact upon relationships. ❑ Although these principles could be used in the services and public sector ❑ It is important to know that the basic use of these approaches is within the manufacturing sector.  Manufacturing Types Traditional ❑ This is where resources used to manufacture goods focus on economies of scale. ❑ This is derived from maximizing the output of the physical, material and human resources available to produce at the lowest cost of sale possible. Lean manufacturing ❑ This is where goods are produced to the needs of customer ❑ Also, to a standard where the value perceived by the customer governs quality in terms of the goods and processes.  Manufacturing Types Cont’d ❑ Further, parts of the product that do not add what is perceived as value ( what customers are willing to pay for) are considered waste and eliminated. Agile manufacturing ❑ This is where finished goods are not produced until when orders are placed. ❑ What are produced are subsequently customized to one of the several options when a customer places an order. ❑ Clearly these philosophies are different and using anyone will have an impact upon internal and external stakeholders in purchasing and supply relationships.  Traditional Manufacturing Processes ❑ Machines and facilities are run to produce economically batch quantities in long production runs( machines produce specific number of items). ❑ Stock is seen as an essential part of the production process (Buffer stock held). ❑ Stock held just in case it is needed (JIC) which increases the cost of operations and their supporting processes ❑ Business processes focused on doing everything to reduce production process cost e.g., Taking a small order from a customer is seen as not economical ❑ Production processes planned and run by production teams, with other processes seen as supporting ones ( conflicts arises frequently).  Lean Manufacturing Processes ❑ Focuses on the elimination of waste including stock ❑ Producing only when customers order goods ❑ A focus on customer value ❑ Removing layers within organizations ❑ Continuous improvements is a feature ❑ Batch quantities as low as one ❑ Quality and right first-time approaches  Agile Manufacturing Processes ❑ Customer focus ❑ Meeting customers needs quickly ❑ Repositioning the organization and its products as customer needs develops ❑ The ability to respond to changing volumes and product mix quickly  Lean Supply ❑ It is defined as developing the value stream to eliminate all wastes (including time), promote innovation and enable a level schedule. ❑ According to CIPS there are five key principles to lean thinking. They are to: ✓ specify what creates value as seen from the customer’s perspective ✓ identify all steps across the value stream ✓ make those actions that create the value flow ✓ only make what is pulled by the customer just in time ✓ strive for perfection by continually removing waste  Lean Thinking for the Supply Chain Although lean thinking is typically applied to manufacturing, lean techniques and focus are applicable anywhere there are processes to improve, including the entire supply chain. A lean supply chain is one that produces just ✓what and how much is needed, ✓when it is needed, and ✓where it is needed. The underlying theme in lean thinking is to produce more or do more with fewer resources while giving the end customer exactly what he or she wants. This means focusing on each product and its value stream.  Lean Thinking for the Supply Chain ❑ To do this, organizations must be ready to ask and understand which activities truly create value and which ones are wasteful. ❑ The most important thing to remember is that lean is not simply about eliminating waste—it is about eliminating waste and enhancing value. Lean Principles Focus on Creating Value by ❑ Specifying value as seen from the customer’s perspective ❑ Identifying all steps across the value stream ❑ Making those actions that create the value flow ❑ Only make what is pulled by the customer just in time ❑ Strive for perfection by continually removing waste  Specify value as seen from the customer’s perspective ❑This means talking to customers or even the customer’s customer to understand what they want and how their perception of value might differ from the purchasing organization’s perception. ❑ E.g., Packaging used by the organization may be of the right quality to them, but the customers view may be very different. ❑ It may be difficult opening consignments, may be of too high a standard increasing cost, or may think another packaging would have been better for that item.  Identify All Steps within the Value Stream ❑The value stream consists of the value-adding activities required to; ✓ design, ✓ order, and ✓ provide a product from concept to launch, order to delivery to customers. ❑To develop a value stream map for a product, you select a product family and collect process information. ❑Then, you map the steps in sequence and by information flows; this is called a current-state map.  Identify All Steps within the Value Stream Cont’d ❑The current-state map provides a clear picture of the processing steps and information flow for the process as it exists today. ❑ Next, you search the map for improvement opportunities using the concepts of lean and create a future-state map. ❑ This will portray a vision of the future for the process or supply chain you are creating. ❑This future-state map helps you to visualize the roadmap to get from the current state to the future state.  Identify All Steps within the Value Stream Cont’d ❑ The current-state map includes: ✓product flow, ✓transportation links, ✓defects and delivery time and steps, and information flow. ❑ After creating the current-state map for the supply chain’s value stream, supply chain partners should scrutinize it for bottlenecks, waste, and process improvements. ❑ They should use what they discover to create future-state maps for the supply chain.  Identify All Steps within the Value Stream Cont’d Make those Actions that Create Value Flow ❑ The linkages and the time taken within the process to ensure that the flow is as smooth as possible and eliminates much waste as possible Only Make what is Pulled by the Customer Just in Time ❑ It could be argued that inventory is the greatest waste; hence making products for stock is seen as waste. ❑ Lean philosophy will only make what customers just need. Strive for Perfection by Continually Removing Waste ❑Two concepts are seen here, continuous improvement or kaizen and muda or waste. ❑ Continuous improvement means we strive on an ongoing basis to improve whatever we are doing, and we reduce as much waste as possible.  The Concepts of Value and Waste ❑ Value, in the context of lean, is defined as something that the customer is willing to pay for. ❑ Value-adding activities transform materials and information into something a customer wants. ❑ Non-value-adding activities consume resources and do not directly contribute to the result desired by the customer. ❑ Waste, therefore, is defined as anything that does not add value from the customer’s perspective. ❑ Examples of process wastes are defective products, overproduction, inventories, excess motion, processing steps, transportation, and waiting.  An Example of Process Waste ❑ Consider the non-manufacturing example of a flight to the Bahamas. ❑The value-adding part of that process is the actual flight itself. ❑The non-value-added parts of that process are driving to the airport, parking at the airport, walking to the terminal and then to check-in, waiting in line at check-in, walking to the security check, and so on. ❑ Many times, the non-value-added time far exceeds the value-added time in this type of process. ❑ Where should our improvement efforts be focused—on the non value-added steps or on making the plane fly faster?  An Example of Process Waste Cont’d ❑ Understanding the difference between value and waste and value-added and non-value-added processes is critical to understanding lean ❑ Sometimes it is not easy to discern the difference when looking at an entire supply chain. ❑The best way is to look at the components of the supply chain and apply lean thinking to each one and determine how to link the processes to reduce waste.  Definition of Waste ❑ Waste can be defined as anything that does not contribute to the creation of value for the customer. ❑ Muda is the Japanese term for waste. ❑ Taichi Ohno a Toyota engineer identified seven types of waste which are targets for elimination in the supply chain. ❑ A new one has been added which makes it eight.  The Eight Wastes Over-production: this is manufacturing an item before it is required. Waiting: whenever goods are not moving or being processed the waste of waiting occurs. This can be reduced by linking processes so that one process feeds into the other. Transporting: transporting a product between processes and or organizations could incur damage, and cost. Inappropriate processing: this talk about the usage of the right equipment and the right process for the goods being processed. E.g., advanced equipment may be used to produce simple good and add to set up time and unit cost, or the equipment is not advanced enough causing quality problems. Flexible equipment could be used taking care of all changes  The Eight Wastes Cont’d Stock: stock in the form of work in progress or buffer stock is a waste linked directly to over production and waiting. Lean manufacturing produces batch quantities as low as one. Unnecessary/ excess motion: this is waste seen in instances where human beings bend, stretch, walk, lift and reach. Making defective products: this waste directly impacts profit; defects resulting in the need to rework or scrap items are very costly. Lean supply therefore seek to identify potential problems in products from the design stage.  The Eight Wastes Cont’d Unsafe practices: these are related to mostly health and safety issues. These basically come in the form of working in safe conditions which leads to a motivated staff and more productive days.  “Waste” Reduction The “Waste” reduction process begins with the question “What can we do to improve?” Some answers may include: ✓Stop defective products at their source. ✓Flow processes together or change the physical relationship of components of the process. ✓Eliminate excess material handling or costly handling steps. ✓Eliminate or reduce pointless process steps. ✓Reduce the time spent waiting for parts, orders, other people, or information.  “Waste” Reduction (Benefits) In manufacturing environments, these waste reductions create the benefits of: reduced manufacturing cycle time, reduced labor expenditures, improved product quality, space savings, reduced inventory, and quicker response to the customer.  “Waste” Reduction (Benefits) When waste is reduced or eliminated across the supply chain; ✓overall cycle time is improved, ✓labor and staff costs are reduced, ✓product quality and delivery are improved, ✓inventories are reduced, and ✓ customer lead-times are shortened. The net effect is the entire supply chain is more efficient and responsive to customer needs.  Components of the Lean Supply Chain Lean Suppliers Lean suppliers can respond to changes. Their prices are generally lower due to the efficiencies of lean processes, and their quality can improve to the point that incoming inspection at the next link is not needed. Lean suppliers deliver on time and their culture is one of continuous improvement. To develop lean suppliers, organizations should include suppliers in their value stream.  Components of the Lean Supply Chain They should encourage suppliers to make the lean transformation and involve them in lean activities. This will help them fix problems and share savings. In turn, they can help their suppliers and set continually declining price targets and increasing quality goals.  Components of the Lean Supply Chain Cont’d Lean Procurement Some lean procurement processes are e-procurement and automated procurement. E-procurement conducts transactions, strategic sourcing, bidding, and reverses auctions using Web-based applications. Automated procurement uses software that removes the human element from multiple procurement functions and integrates with financials.  Components of the Lean Supply Chain Cont’d The key to lean procurement is visibility. Suppliers must be able to “see” into their customers’ operations and customers must be able to “see” into their suppliers’ operations. Organizations should map the current value stream, and together create a future value stream in the procurement process. They should create a flow of information while establishing a pull of information and products.  Components of the Lean Supply Chain Cont’d Lean manufacturing systems produce ✓ what the customer wants, ✓ in the quantity the customer wants, ✓when the customer wants it, ✓and with minimum resources. Lean efforts typically start in manufacturing because they free up resources for continuous improvement in other areas and create a pull on the rest of the organization.  Components of the Lean Supply Chain Cont’d Applying lean concepts to manufacturing typically presents the greatest opportunity for cost reduction and quality improvement However, many organizations have received huge benefits from lean concepts in other functions.  Components of the Lean Supply Chain Cont’d Lean Warehousing Lean warehousing means eliminating non-value-added steps and waste in product storage processes. Typical warehousing functions are ✓Receiving ✓Put-away/storing ✓Replenishment ✓Picking ✓Packing ✓Shipping  Components of the Lean Supply Chain Cont’d Warehousing waste can be found throughout the storage process including: ✓Defective products which create returns ✓Overproduction or over shipment of products ✓Excess inventories which require additional space and reduce warehousing efficiency ✓Excess motion and handling ✓Inefficiencies and unnecessary processing steps ✓Transportation steps and distances ✓Waiting for parts, materials and information Each step in the warehousing process should be examined avoid or eliminate unnecessary, repetitive, and non-value-added activities. ✓ Components of the Lean Supply Chain Cont’d Lean Transportation Lean concepts in transportation include: Core carrier programs Improved transportation administrative processes and automated functions Optimized mode selection and pooling orders Combined multi-stop truckloads Cross docking Right sizing equipment Import/export transportation processes Inbound transportation and backhauls  Components of the Lean Supply Chain Cont’d The keys to accomplishing the concepts above include: ✓mapping the value stream, ✓creating flow, ✓reducing waste in processes, ✓eliminating non-value-added activities and ✓using pull processes Lean Customers Lean customers understand their business needs and therefore can specify meaningful requirements. They value speed and flexibility and expect high levels of delivery performance and quality.  Components of the Lean Supply Chain Cont’d Lean customers are interested in establishing effective partnerships They are always seeking methods of continuous improvement in the total supply chain to reduce costs. Lean customers expect value from the products they purchase and provide value to the consumers who they interact with.  Benefits of Lean Systems Speed and Responsiveness to Customers Reduced Inventories Reduced Costs Improved Customer Satisfaction  Impact of Lean Approach on Supply Chain Relationships The practice of the lean approach to supply could have a major impact upon the relationships with stakeholders and supplier Consider how a supplier feels when: ✓They are again advised to cut down cost by x% for the next year ✓The number of acceptable failures is again reduced ✓Their customer seeks a further reduction in lead time ✓Their customer wants to pay for stock when used rather than stock received All these changes will have a cost impact upon suppliers, and they may ask themselves “what is the benefit for me in this relationship? Conclusion THE END OF LECTURE THANK YOU