Lean SCM Journey PDF

11 The LEAN SCM Journey Early on in this book, we noted that process industries face huge challenges in a business environment marked by VUCA (variability, uncertainty, complexity, ambiguity). To meet those challenges top management must draw up and systematically attend to a daunting agenda that in...

11 The LEAN SCM Journey Early on in this book, we noted that process industries face huge challenges in a business environment marked by VUCA (variability, uncertainty, complexity, ambiguity). To meet those challenges top management must draw up and systematically attend to a daunting agenda that include maintaining reliable supply for consistent delivery to customers. This in turn means reacting robustly to supply disruptions while at the same time adapting to rapidly changing market environments. LEAN SCM provides the organizational structure with which your company can overcome the challenges of the VUCA world. After your company successfully adapts its supply chain to the LEAN SCM paradigm, it will reap the benefits of reliability and agility. However, transforming your company’s supply chain in accordance with the LEAN SCM paradigm is a journey that requires considerable effort, depending on the starting point. Nothing less than a major shift in the organizational mindset is required, because the major principles of SCM change dramatically. LEAN SCM will require changing your company’s business processes, functional roles and responsibilities, and IT systems. Do not expect the journey to be an easy one. Nevertheless, if your company adheres to the following three guidelines, it will successfully complete the LEAN SCM journey and fully capture its benefits: Build strong commitment to and leadership for LEAN SCM—for organizational alignment. Create a holistic LEAN SCM architecture—for process and systems alignment. Establish LEAN SCM program management—for active governance. 381 382 LEAN Supply Chain Planning 11.1 Building Strong Commitment and Leadership for LEAN SCM Every transformation initiative needs management buy-in and leadership commitment to be successful. However, a supply chain transformation on the scale of a transition to LEAN SCM from conventional SCM practices requires even stronger commitment. LEAN SCM is a conceptual paradigm change in supply chain and operations planning that changes everyday processes for many roles in the supply chain organization (see Figure 11.1). Although every change encounters resistance, the paradigm changes associated with LEAN SCM will very likely mean that significant barriers in your company will complicate the journey. Consider, for example, the role of supply chain planner. Under LEAN SCM concepts and processes, he or she will be responsible for assuring up-to-date inventory target settings that are synchronized along the entire supply chain. He or she will therefore need to participate in monthly tactical renewal processes and devote considerable time to analyzing demand and supply trends that impact the supply chain. Traditionally, this role and the person carrying it out was not involved in tactical or operational planning tasks at all, working more on setting objectives (for others). Supply chain planners are therefore unlikely to jump into the new LEAN SCM Planning environment with unbridled enthusiasm. Local planner Market planner Supply chain planner Preconfigured Rhythm Wheels (RW) with synchronized cycle times Active use of safety stocks for demand peaks Dynamic and global inventory target setting CT (+) 12 d CT CT (–) 8d Material supply Rhythm Wheel leveled asset Figure 11.1 Changes in the supply chain under the LEAN SCM paradigm. Safety stock Stock Customer The LEAN SCM Journey 383 Next, consider the local production planner. He or she typically works hard to fulfill incoming orders and has likely acquired individual techniques with which to “optimally” schedule and reschedule production to satisfy incoming demand. Continuous actions and reactions by shifting orders give the appearance of adopting a customer orientation but more often than not this approach merely make a lot of noise at production sites, generating additional “waves” in the upstream supply chain. This is not the LEAN SCM way of planning. Under LEAN SCM the planner receives a simple, predefined production schedule based on a preconfigured Rhythm Wheel. A planner accustomed to the traditional business-asusual approach will not like the idea of losing the freedom to individually reschedule production and might even fear becoming replaceable by some sort of standardized production planning concept. Moreover, the traditional supply chain planner will need to accept the impact of LEAN SCM scheduling on upstream supply chain stages as well, and be convinced that the Rhythm Wheel approach stabilizes both local asset utilization and more importantly all productive activity along the entire supply chain. Finally, consider the market planner. Market planners typically concentrate on building significant safety stock to address demand and supply variability. Safety stock is by definition never touched by planning runs in existing ERP or APS systems. However, in the course of daily execution of supply chain processes, the use of physical safety stock often causes at least mild panic as planners overreact and place emergency orders to production sites. Guided by LEAN SCM concepts, however, productions assets are managed and inventories are replenished according to preconfigured and takted Rhythm Wheel schedules. This means supplying products based on average Rhythm Wheel cycle times and configured cycle time variations that absorb the major part of demand variability (Figure 11.1). Nevertheless, some demand signal peaks will be completely cut off during a LEAN SCM Planning runs and therefore have to be filled from planned safety stock. Thus, using the new LEAN Planning approach, safety stock will be used actively for some demand peaks—a paradigm change in supply chain planning. It will remain a challenging task, however, to convince the market planner and the supply chain organization not to panic, but to stay calm and trust that the tactical parameter settings will cover demand volatility. This will be neither easy for nor self-evident to the market planner. The supply chain and production planning organization is generally wedded to its old way of working, and members of the organization are 384 LEAN Supply Chain Planning very skeptical of change. It should come as no surprise that individuals carrying out business processes that have followed the traditional forecast-based input myth and push-based planning system approach for more than 50 years will resist the transition to a new paradigm. To overcome such organizational concerns, your company will need active leadership and strong commitment from key stakeholders. And it will need such commitment not only for the moment, but also for the long term to accomplish a complete transformation to the LEAN SCM paradigm. Only when leaders show commitment and lead the way will others follow. To support such a paradigm change in supply chain planning and bring the supply chain organization on board, we mention two methods of proving the benefits of LEAN SCM that have worked successfully in the past. First, top management must be convinced with a realistic and wellresearched business case. A simulation case study that compares the status quo with a LEAN SCM scenario can be of invaluable help. With a dynamic simulation model of your company’s supply chain, you can objectively estimate the impact of LEAN SCM concepts on resulting supply chain performance. Second, the IT organization also has to be convinced to adapt the existing ERP/APS-based system landscape and to enhance its functionalities to provide application support for the LEAN SCM Planning paradigm. The best way to do so is to construct a small-scale IT prototype. Such a prototype can achieve proof-of-concept that demonstrates how LEAN SCM concepts and processes come to life in existing IT systems. Such a simulation will also show the IT organization that its investment in APS software was not in vain, as LEAN SCM functionality requires only complementary additions that will allow the IT organization to continue leveraging its existing enterprise software. Thus, when introducing and implementing LEAN SCM in your company, you must win the commitment of top management, the business, and the IT organization from the very beginning. And be sure to sustain this commitment for the entire journey, because there will be new barriers and new resistance with every step you travel. 11.2 Creating a Holistic LEAN SCM Architecture In addition to pledging leadership and commitment to LEAN SCM, your company needs to adopt an architecture and roadmap as a platform from The LEAN SCM Journey 385 which to successfully launch its LEAN SCM journey. It is not easy to build a house without knowing what it is supposed to look like architecturally before beginning construction. The same holds true for a supply chain transformation: implementation cannot begin without knowing what the “targeted ideal state” is supposed to look like. Effective LEAN SCM architecture is holistic. This means considering and integrating all processes, organizational roles, performance management activities, and IT systems. Only by coordinating and linking these dimensions with each other can your company achieve a properly functioning and harmonized process along the entire supply chain. We illustrate such an architecture (much simplified, of course) in Figure 11.2. Consider LEAN SCM demand and supply planning processes. They must be set up in a new way to support agile, consumption-based pull replenishment. Prior to adopting LEAN SCM, your company’s planners were likely accustomed to traditional push replenishment, relying on the quality of the demand forecast and then netting it against target stock levels and actual available stock before propagating it to the next node of the LEAN SCM architecture Processes Organization Inter-site leveling and leveled flow design Product assignment to flow paths Roles and responsibilities Flow path 1 Supply chain Flow path 2 Flow path 3 Strategic planning mode selection Sourcing Production Distribution Performance management Monitoring Cycle time CTmax. CTA Tactical parameterization Cycle time Designed cycle time Actual average cycle time CTmin. Time IRL Operational planning and scheduling Rhythm Wheel production schedule Figure 11.2 Holistic and integrated LEAN SCM architecture. IT systems IT landscape 386 LEAN Supply Chain Planning supply network and eventually down to the production sites. The production sites were then in charge of creating their own production schedules. Yet how long can production sites really follow such plans? Not long, since everyone understands that all forecasts are more or less wrong from the start, and that all such plans and the corresponding schedules have to be changed frequently. This has always meant constant firefighting along the supply chain as well as on the shop floor in everyday operations. When your company has embraced LEAN SCM, it can escape the forecast trap by completing the transition to real consumption-based pull replenishment and relinquishing its dependency on forecast accuracy, at least in the course of operational supply chain planning processes. This will entail establishing new tactical parameter renewal processes for configuring Rhythm Wheels and setting and adjusting inventory target levels. This is perhaps a monumental change in your company’s planning processes— separating the tactical supply chain configuration from operational supply chain planning. As we have seen, LEAN SCM heavily impacts the roles and responsibilities of the (global or end-to-end) supply chain planner and the (local) production planner. The two need to be included in the LEAN SCM journey carefully. In the past, supply chain planners were accustomed to translating strategic objectives, such as overall corporate inventory targets, into tactical guidelines and KPIs for each product group and brand. The work of operational inventory planning was typically done by others. Planners only monitored and reviewed the tactical inventory target guidelines and the ex-post results—and usually only right before the quarterly financial reporting period ended. At the same time, the work of operational supply chain replenishment and network planning, including the adaption of planning parameters, was performed mostly at the local level. Following the new LEAN SCM Planning approach, however, the responsibility for the tactical setting and dynamic adaptation of inventory parameter values for each product is to be managed by supply chain planners as a primary responsibility. This additional responsibility and operational work need to be understood by management and accepted throughout the global SCM organization. Another unique perspective must be adopted by local production planners. Their former planning and scheduling work will be divided into two parts. The first part covers the asset-related tactical preconfiguration of the production order sequence based on the Rhythm Wheel logic. This is The LEAN SCM Journey 387 typically done and reviewed quarterly. The second, operational, step taken by local production planners simply follows the designed sequence, resulting in reduced scheduling complexity and fewer nervous rescheduling actions. So the new LEAN SCM Planning concepts require and promote fewer “rescheduling heroes,” those who unintentionally create undesirable variability along the supply chain when coping with very sporadic demand signals from sales organizations. This makes it obvious, then, that here also some organizational implementation and transformation barriers have to be overcome. The same holds true for performance management. Traditional KPIs such as customer service level and inventory turnover remain valid and provide insight into the strategic performance of the supply chain. They do not, however, reflect some key LEAN SCM Planning objectives: reducing variability in the network and improving asset performance through the takt-leveled and synchronized supply chain. Therefore, the performance management system will have to incorporate metrics such as cycle time attainment to designed Rhythm Wheels, which indicates the extent to which the takt and synchronization along the supply chain are being maintained. In this way, LEAN SCM KPIs facilitate direct “temperature checks” of supply chain configuration stability as designed, adaptability to consumption surprises, and the resilience of “out-of-takt asset operations.” Tactical LEAN SCM performance metrics are key inputs for monthly parameter renewal. Therefore, LEAN SCM performance indicators provide more of an ex-ante view of trends in supply chain behavior. They provide early signals of the need for adaptation and resilience along the supply chain and are therefore the central control parameters of a LEAN supply chain organization. Last but not least, your company’s IT systems will need to be adapted to the new requirements of LEAN SCM as well. The planning processes that are currently mapped in existing ERP and APS systems need to be enriched and customized in accordance with the newly envisioned LEAN Planning approach. In addition, implementing some LEAN SCM add-on applications such as a Rhythm Wheel design tool and a dynamic stock parameter configurator is necessary for supporting LEAN Planning processes with full organizational acceptance. We hope you now understand the interactions between processes, organizational roles, performance management, and IT systems that are required to implement LEAN SCM in your company. Can you imagine what would happen if you attempted to change only one of 388 LEAN Supply Chain Planning the above-mentioned dimensions while leaving the others untouched? Correct: LEAN SCM concepts could not be successfully transferred into your organization. LEAN SCM will not work at all unless all dimensions of the LEAN SCM framework are addressed. Your company’s LEAN SCM initiative will succeed only by creating a holistic LEAN SCM architecture and a transformation roadmap that ensures that all relevant dimensions are aligned and coordinated with each other. 11.3 Establishing LEAN SCM Program Management As we have shown, adopting the LEAN SCM paradigm might entail a considerable amount of change in your company. In your experience, you have probably witnessed or participated in many projects that did not deliver the expected outcomes because they were not managed properly or were sliced into smaller project steps and managed as “one-off initiatives.” We hope by now that you do not perceive a LEAN SCM initiative as a quick one-off project designed to achieve only short-term improvement. When adopting the LEAN SCM paradigm, your company takes on a mid- to long-term transformational journey that requires more than a mere project: it requires a program. And, to avoid seeing your company’s LEAN SCM transformation end like so many single “one-off” projects, you need to establish tight LEAN SCM program governance (see Figure 11.3). Supply chain functions Sourcing Production Distribution LEAN SCM program management m Customer service … Coordination of initiatives Knowledge keeping Process governance LEAN SCM processes Figure 11.3 Functions involved in LEAN SCM program management. The LEAN SCM Journey 389 Companies often spend considerable effort launching well-intentioned lean manufacturing, supply chain planning, or supply chain visibility initiatives. All too often they run out of steam on the way to completing a single one of those initiatives. One obvious reason for false starts is that such individually well-intended and meaningful initiatives interact with each other. In the worst-case scenario, they counteract each other. Therefore, it is especially important that your company practices LEAN SCM program management that coordinates single initiatives into an integrated whole. This ensures that all initiatives are aligned with each other and are effectively integrated. During your company’s LEAN SCM journey, it will gather knowledge from many new experiences while learning LEAN SCM concepts. It is important not to lose this knowledge because some program members might decide to leave your company and take their experience-based knowledge with them. To maintain such valuable knowledge, your company’s LEAN SCM program management team should form a dedicated staff to manage knowledge related to LEAN SCM. When internal adjustments or external trends crop up during the LEAN journey, such knowledge keepers can evaluate and integrate them into the ongoing LEAN SCM concepts. Once integrated into the existing concepts, the knowledge can then be spread across the company to benefit the entire organization. Now, imagine that your company has successfully implemented LEAN SCM Planning architecture. Do not be fooled by the illusion that everyone involved will adhere naturally to the same production and replenishment planning processes for the next 5 years. It is difficult to maintain standardized processes in a global corporation without effective process governance. Process governance ensures the long-term sustainability of implemented LEAN SCM processes, ensuring that such processes are not changed without alignment and permission of the LEAN SCM governance organization to guarantee standardization and continued high quality. To summarize the most important points of this chapter, be sure to treat your company’s LEAN SCM journey as a program, not a project. Effective LEAN SCM program governance will ensure proper coordination and integration of the various initiatives involved in the overall process, retain valuable knowledge of LEAN SCM in your company, and ensure longterm process sustainability. 390 LEAN Supply Chain Planning Chapter Summary The VUCA world poses new challenges for companies in process industries. LEAN SCM has become the most effective way to meet those challenges. To implement LEAN SCM successfully, however, you must not underestimate the effort involved in changing the mindset of the organization. This should come as no surprise, as transitioning to the LEAN SCM paradigm is not a simple process improvement initiative. It involves a paradigm change in supply chain and production planning, targeting a quantum leap in supply chain performance. Therefore, your company will need strong commitment from its leadership team to convince people throughout the organization to follow the new SCM paradigm. Such commitment is the only way to persuade people to leave their old ways of working behind and to stop resisting change. Ultimately, the transformation to LEAN SCM must be regarded from a holistic perspective. Since processes, roles and responsibilities, performance management, and IT systems will change dramatically, it is important to ensure that these dimensions are compatible with each other. A holistic LEAN SCM architecture will bring about the necessary integration. Last but not least, it is essential not to regard a LEAN SCM transformation as a “one-off” project, but instead to see it as a mid- to long-term program. To accompany the transformation, your company should establish a LEAN SCM program management team that oversees the coordination of interacting initiatives, retention of valuable knowledge, and the process governance that is necessary to achieve the long-term sustainability of LEAN SCM. After all, the LEAN SCM journey is ongoing. There is always room for improvement, even though your company might already be a supply chain champion. The idea of continuous improvement is embedded in many LEAN SCM processes (e.g., in the renewal processes) and represents a major part of the LEAN philosophy. If you are willing to accept this commitment, welcome aboard and have a safe LEAN journey!