Guiding Principles of LEAN SCM Planning PDF

2 Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges Before we lay out the fundamentals and building blocks of the LEAN SCM planning framework later in the book, we must consolidate major planning requirements we have identified. In this chapter, we formulate central principles to adopt...

2 Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges Before we lay out the fundamentals and building blocks of the LEAN SCM planning framework later in the book, we must consolidate major planning requirements we have identified. In this chapter, we formulate central principles to adopt in the design of the new supply chain planning paradigm. They will guide us in framework development and provide a first impression of the conceptual basis on which we build our system. Those principles provide first thoughts leading to how we recommend facing VUCA challenges in tactical and operational supply chain planning. We consolidate these principles and group them into three areas, offering an opportunity for some early reflection on several critical questions: LEAN demand—How to cope with rising demand variability and uncertainty in planning? LEAN supply—How to establish firmer control of supply volatility and supply reliability? LEAN synchronization—How to master complexity and reduce ambiguity? We begin with the demand view, because it triggers all subsequent planning work. 2.1 LEAN Demand: How to Cope with Rising Demand Variability Predicting the future has always been a challenge. Reflecting our own experience and looking back on current demand management practice in 37 38 LEAN Supply Chain Planning companies we have worked with, we have to admit that most of these companies seek perpetually to predict future demand but continually fail to do so with sufficient accuracy. Nevertheless, all planning activities today start with sales forecast input—predictions of future demand. However, in today’s VUCA world forecasting accuracy is more difficult to achieve than ever. The search for new ways to approach planning and forecasting is therefore on many supply chain planners’ agendas. So how can companies cope with this forecasting dilemma? We suggest the following three principles to guide SCM into the future: 1. Accept uncertainty and eliminate the need for certainty—put the forecast accuracy myth aside. 2. Obtain better aggregated demand views—be better prepared for consumption-driven supply. 3. Stop using forecasts to trigger manufacturing—it is better to respond to real consumption based on pull. These principles would, of course, have far-reaching consequences for any traditional or conventional supply chain organization; we now explain them shortly so that your company can put them into practice. 2.1.1 Accept Uncertainty and Eliminate the Need for Certainty in Execution In process industries, lead times of up to one year are not unusual. But can a sales organization accurately forecast all their products up to 12 months ahead at the detailed SKU level? As experience shows, they cannot. Most sales forecasts turn out to be completely wrong and the question is: Should we really go ahead and manufacture products, building up inventory according to those forecasts? Forecasting accuracy is closely connected to the sales volumes and variability associated with each product. As a rule of thumb, the higher the sales quantity of a product the lower is its variability, and thus the lower the forecasting error (see Figure 2.1). For high-volume products with stable demand, most forecasts fall therefore into an acceptable range of accuracy, something planners can live with. For a large number of products in the portfolio, however, demand variability makes accurate forecasting impossible: the lower the volume, the poorer the forecasting accuracy. Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges 39 Product portfolio Forecast deviation Variability Forecast error We have no clue about it High 100% What is killing us Medium What we try to improve Low 50% What we can live with Low Medium High Volume Low Medium High Volume Figure 2.1 Forecasting accuracy increases with product volume and decreases with demand variability. To reduce the increasingly negative effects of poor SKU-level forecasting, companies still desperately try to improve their SKU forecasting accuracy. But let us face facts: all those accuracy improvement initiatives at the detailed SKU level have failed to significantly change results in the past and in the face of even greater VUCA challenges they are even less likely to succeed. So, what can companies do to solve this obvious dilemma in SCM? Instead of continuing to try to improve SKU-level forecast accuracy, companies should take a different way: they should accept uncertainty and eliminate the need for exact and detailed SKU-level forecasts. This sounds easy, perhaps, but it is likely to cause conflicts given how planning processes and systems work today. In MRP, for instance, today’s systems require detailed SKU-level input to make net demand calculations, even for long-term stock replenishment plans. Consequently, the resulting replenishment signals include all the variability and are distorted by forecast errors—but are still used to trigger production. We hope to change this practice in order to ensure that no forecast errors are included in production orders for MTS products your company manufactures. By applying this principle, your company can dispense with the need for detailed but typically inaccurate SKU-level forecasts and significantly reduce planning complexity. 2.1.2 A View of Aggregated Demand: Be Prepared for Consumption-Driven Supply If it is no longer necessary to use detailed SKU-level forecasting in operations, it is natural to ask: what then is the future role of forecasting in 40 LEAN Supply Chain Planning SCM? To master the VUCA world, supply chains have to rely more heavily on pull strategies in order to realize consumption-driven supply management. To do so effectively, there is still a need for improved aggregated forecasts to enable the right configuration and parameterization along the supply chain. As many supply chain practitioners have experienced, it is usually possible to accurately estimate total demand three months in advance, while it is virtually impossible to forecast precisely on which day or even during which week a particular customer order will arrive. Aggregate forecasts have the advantage that their accuracy is higher due to statistical pooling effects. Therefore, we propose using aggregate forecasts for parameter setting: the higher the level of aggregation, the better the forecast accuracy. A monthly forecast, for example, is more accurate than a daily forecast (see Figure 2.2). An aggregated forecast can effectively be used to configure supply chain parameters and prepare the supply chain for later fulfillment of final customer orders. Acknowledging that forecasts at the detailed SKU level have not been accurate in the past and are likely to be even less accurate in the VUCA world suggests the advantage of replacing or complementing them with aggregated forecasts. For instance, it is possible to improve the supply chain configuration considerably by designing it based on monthly forecast information instead of using forecasted daily SKU demand, which is not reliable. As shown in Figure 2.2, using monthly instead of daily or even weekly forecasting can improve planning accuracy significantly. To complement these efforts, forecasts at the product family level or based on postponed value chain steps can also be used. Forecast accuracy at various aggregation levels Forecast accuracy 100% Aggregation Monthly Weekly Daily Time + τ Weekly aggregation 4 3 2 1 Week 10 9 11 10 Forecast 8 10 8 12 Consumption Forecast error –20% –27% –11% 20% Monthly aggregation Month Forecast Consumption Forecast error JAN 40 38 5% Figure 2.2 How forecast accuracy increases with time-wise aggregation levels. 6 5 9 11 12 12 –9% –33% 7 8 8 0% FEB 40 41 –3% 8 12 9 12% Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges 41 Overall, aggregated forecasts are more stable and accurate. Therefore, aggregated forecasts provide a better basis for fundamental supply chain decisions to improve the supply chain configuration like stock allocation, asset investment, and sourcing mode definition. Although such configuration decisions are likely to be better when based on aggregated forecasts, supply chain parameterization for inventories must be designed on a SKU-by-SKU basis, at least for target setting and replenishment calculations; parameterization for production-leveled schedules using the Rhythm Wheel design can still be achieved on a product family basis. Therefore, product family forecasts should be disaggregated to the SKU level using proportional factors, but such disaggregates still achieve higher accuracy and contain less variability than, for example, any of the individually planned SKU-based forecasts that project 24 months into the future. With higher forecasting accuracy, inventory target levels at the tactical level can be adjusted regularly up or down in accordance with the forecasts, so that the range of demand variability that must be covered by safety stocks will be narrower by far and the overall cycle stock can be optimized. 2.1.3 Stop Using Forecasts to Trigger Manufacturing: Respond to Real Consumption To solve problems caused by the increasing demand uncertainty and variability that make SKU-level forecasts very inaccurate, with the supply chain configuration based on forecasts aggregated at some level, we recommend applying real demand-driven, pull-replenishment principles to move beyond the “forecast accuracy myth” in customer order fulfillment and operations. In pull mode, replenishment is triggered by real customer demand, not by forecasts. In other words, production processes are initiated in response to actual customer orders, not in anticipation of those orders. Pull thereby directly reacts to the voice of the customer. With consumption pull concepts, aggregated forecasts are used only to set inventory targets and inventory replenishment levels as part of supply chain planning parameterization. Planning runs using those parameters later create pull replenishment signals and trigger actual production by comparing current inventory levels with those targets. Thus, although the inventory replenishment target levels are based on and adjusted to forecasts across the planning horizon, on a daily basis final production 42 LEAN Supply Chain Planning Consumption signal Material supply Production site Stock Customers Figure 2.3 Real consumption should trigger/pull production. will always be based on real consumption, current inventory status, and a “production-leveled” schedule (see Figure 2.3). It would perhaps be natural to object here that using any forecasts in planning seems more like applying a push strategy than the postulated pull strategy. As a response to this obvious first reaction, we observe that even Toyota, widely known as a major promoter of lean and pull principles, expends considerable effort on forecasting. But Toyota does not use forecast information to trigger orders. Instead, they use them for configuring the supply chain, for example, for determining how many kanban cards are needed for each product or part type at various inventory locations. Reflecting this and based on our own experience in process industries, we follow the pull principle; while supply chain configuration with inventory planning and target setting should be based on best-available aggregated forecasts, actual replenishment and production should always be based on current inventory status and real consumption needs. In this vein, it is possible to avoid constant operations re-scheduling due to variability and uncertainty in forecasts and calm supply chain nervousness. We thus recommend implementing pull consumption whenever possible. 2.1.3.1 Summary of LEAN Demand Principles The “planning loop trap” in traditional, forecast-oriented supply chain planning is a major challenge for every company in process industries, resulting in high inventory levels, widely fluctuating capacity utilization, and, in spite of it all, unsatisfactory customer service. Nevertheless, undertaking additional forecast improvement initiatives or blaming the lack of “market intelligence” on sales does not solve the root cause of the problem. Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges 43 The simple truth is that demand for low- and medium-volume products will always remain hard to predict and thus be linked with low forecast accuracy. To move beyond the “forecasting accuracy myth,” companies must change how they create the relevant outlook on future customer demand in SCM. On the one hand, they should use aggregated forecasts with higher accuracy (through statistical pooling effects) for the tactical configuration of right-sized buffers in inventory and capacity in order to prepare for the ideally leveled product flow along supply chains. On the other, they should respond only to real consumption-triggered pull signals when fulfilling customer orders in operations. 2.2 LEAN Supply: How to Get a Grip on Supply Uncertainty and Reliability As highlighted above, today every supply chain faces increasing variability and uncertainty. As a consequence, companies have to plan much more thoroughly for these factors on the demand side. Furthermore, they need to create and utilize appropriate buffers in inventory and capacity on the supply side. Yet most companies lack the required processes and systems for developing adequate safety stocks and an effective capacity buffer strategy. Nevertheless, companies can either choose for themselves how to buffer against variability or this will be “chosen” for them; when it is “chosen,” it will show up in the form of lost sales, late shipment penalties, and a more chaotic supply chain. So, we recommend being better prepared for increasing variability by applying LEAN Supply principles: 1. Manage demand spikes with planned and right-sized safety stock buffers. 2. Level production plans to create flow and stabilize utilization. 3. Use cyclic production patterns to achieve a common takt and regularity in operations. 2.2.1 Manage Demand Spikes with Planned and Right-Sized Safety Stock Buffers In process industries, forecast variability and order volatility enter supply chains typically through MTS products due to long supply lead times. 44 LEAN Supply Chain Planning Such MTS products are usually assigned fixed inventory target levels and associated significant safety stocks as a buffer against uncertainty. Unfortunately, however, safety stocks are used only for short-term volatility impacts in fulfillment and manufacturing and for reactions after a shortterm demand peak hits the supply chain in an unexpected way that creates variation between forecast and real consumption, causing inventory to drop below a pre-determined (safety stock) level. In this case, immediately and often hectically, a new replenishment order is triggered and flagged for expediting before being passed along to production (see the left side of Figure 2.4). We are however convinced that safety stocks should be put into place also to prevent the upstream propagation of demand spikes and further amplification of variability. Therefore, within the tactical planning horizon, new replenishment orders should not be triggered immediately when inventory falls below the safety stock level. Safety stocks have been designed and configured for those variability peaks. In this sense, inventory buffers should be used to dampen demand variability and reduce the infamous bullwhip effect upstream along the supply chain. For effective supply chain planning, we recommend changing the current practice of buffering variability in two ways. First, safety stocks should be used actively as a buffer against demand spikes (also for forecasted demand); in this way market variability can be dampened to some extent. Second, inventory replenishment levels and the included safety stock buffers should be adapted dynamically to actual demand. This prevents demand variability from entering the supply chain by buffering it in inventory that has been designed for variability management (see the right side of Figure 2.4). In this sense, safety stocks are actively used to cover demand spikes. When configured correctly and dynamically Traditional planning Demand variability is buffered by production assets Planning in LEAN SCM Demand variability is buffered in inventories Replenishment signal Demand signal Production Inventory Customer Replenishment signal Production Demand signal Inventory Customer Figure 2.4 In LEAN SCM, demand variability is buffered in inventories and not passed on into the supply chain. Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges 45 adjusted, safety stocks become a very powerful variability control mechanism indeed, and act as a first firewall against variability within SCM, also offering a means of avoiding that demand variability is propagated one-toone or even amplified upstream. This built-in variability control actively counteracts the bullwhip effect and enables smoother capacity utilization. 2.2.2 Level Production Plans to Create Flow and Stabilize Utilization If manufacturing commits to production campaigns that consist of MTS products, the supply chain obviously cannot be tied to real customer demand, which makes it difficult to meet foreseen or unexpected demand changes that occur frequently in the VUCA world. Therefore, most companies invested substantially in ERP or APS technology to cope more adequately with customer demand variability and volatility in their manufacturing schedules. Unfortunately, however, an increasing number of “rush orders” and replenishment orders caused by demand changes have to be scheduled—and even more often re-scheduled—in order to meet real or assumed demand (forecasts). This might suggest that manufacturing plans and schedules are perfectly tied to customer demand but in fact we see in most cases higher changeover costs and lower capacity utilization (see Figure 2.5). Furthermore, when this happens, product flow is thrown out of balance and overall throughput decreases. To be sure, companies in process industries should, and typically do, aim for balanced flow and smooth utilization with regard to their capitalintensive assets. Therefore, production sequences and quantities should be leveled over time to improve flow and achieve more stable capacity utilization. Figure 2.5 illustrates how production quantities will be leveled by Capacity behavior under traditional planning Utilization 140 120 100 80 60 40 20 0 1 2 3 Demand 4 5 Period Production Capacity behavior under LEAN SCM Utilization 140 120 100 80 60 40 20 0 1 Utilization 2 3 4 5 Max required capacity Figure 2.5 LEAN SCM enables stable capacity utilization and reduced excess capacity buffers. Period 46 LEAN Supply Chain Planning Replenishment signal Raw Replenishment signal Intermediate Demand signal Finished Customer Figure 2.6 Leveling of production quantities reverses the bullwhip effect. LEAN SCM. In contrast to traditional planning, production-leveled schedules avoid overstressing of production capacity by adapting to demand peaks. Instead, demand peaks are now buffered actively in safety stocks and replenished with a time delay. As a direct consequence, capacity utilization becomes smoother and maximum capacity is lower compared with traditional capacity planning. Finally, leveling production reduces the need for capacity slacks, which means lower overall capital expenditures. Moreover, by following LEAN Supply principles, upstream production stages can benefit from leveled production quantities as well. If production at any supply chain stage is leveled, the required input materials are leveled as well. This creates smooth replenishment signals from downstream to upstream stages, which makes it possible to reduce inventory levels. This effect can be regarded as the reverse of the bullwhip effect (see Figure 2.6). A major objective of LEAN SCM planning is providing formalized variability control mechanisms for inventories as well as manufacturing capacities. Therefore, we recommend building on the product wheel concept but evolving it to provide greater flexibility in high product-mix environments that face high demand variability and order volatility. In addition, a formalized variability control mechanism is required for production-leveled schedules to provide SCM with the key to controlling variability propagation upstream along the supply chain. In this sense supply chain planning can funnel and dampen the variability at each Rhythm Wheel-managed asset and, in sum, reduce variability and the infamous bullwhip effect. 2.2.3 Use Cyclic Production Patterns to Achieve a Common Takt and Regularity Today, manufacturing schedules react very nervously due to the onesided variability management approach of traditional planning. This creates significant variations in production rates and fluctuations in product flows, both ultimately leading to waste because manufacturing lines, equipment, workers, and required inventory must always be prepared for Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges 47 Production pattern under traditional planning Quantity Production pattern under LEAN SCM Quantity A B A C B A C B C B A C Takt Takt Takt Time A B C A B C A B C A B C Takt Takt Takt Time Figure 2.7 Cyclic production patterns lead to constant takt. peak production. Traditional planning has responded to this by reserving additional capacity buffers on production lines. But even with these additional buffers, firefighting is still a daily routine that leads to burdensome planning efforts. Erratic production schedules and unfavorable order sequences due to the high variability of order quantities and completion dates remain common phenomena (see the left side of Figure 2.7). Therefore, LEAN SCM focuses on implementing cyclic production patterns to achieve more favorable production sequences with regard to changeover costs and planning effort. Cyclic production patterns provide greater transparency in manufacturing as they follow a regular takt and mostly repeat the same production sequence over and over. Cyclic schedules also contribute to production leveling and reduced planning complexity. The entire planning concept and its outcomes are easy to understand and thus are readily accepted by planners at the shop floor level. Repetitive patterns also facilitate organizational learning as shop floor employees are more certain about which products are to be manufactured next and thus can better master the production process, leading to economies of repetition. In light of better overall supply chain synchronization, upstream supply chain stages can better oversee the needs of their customers and what needs to be supplied to downstream stages. In this sense, cyclic scheduling enables a more effective coordination of activities between production stages to be achieved. 2.2.3.1 Summary of LEAN Supply Principles Without doubt, the goal of achieving a steady and constant material flow on the supply side is of utmost importance. With the LEAN Supply principles we have introduced, your company can meet this objective while 48 LEAN Supply Chain Planning also buffering variability in inventory to a greater extent, not purely and one-sidedly on production assets. Therefore, dynamically adjusted safety stocks and inventory replenishment targets should become a variability control mechanism and act as the first firewall against variability. In this way, demand peaks can be kept under control and the bullwhip effect is more effectively prevented. In addition, manufacturing quantities should be actively leveled with cyclic patterns to create robust production schedules that require lower capacity buffers. This leads to lower capital expenditures, which is a crucial competitive factor in capital-intensive process industries. Moreover, cyclic production patterns introduce local takt in manufacturing. The transparency achieved in the production sequence and more predictable takt provide a new level of coordination between production stages. For your company’s employees, cyclic patterns provide simple and comprehensible rules for managing production sequences and quantities, enabling rapid improvements in the production process. 2.3 LEAN Synchronization: How to Master Complexity and Ambiguity In a LEAN end-to-end supply chain, demand and supply are synchronized. This ensures that the right product goes to the right place, in the right quantity, and at the right time. Synchronization also implies coordination across supply chain stages. By contrast, with the traditional planning approach, high inventory levels and widely fluctuating capacity requirements often occur due to inadequate coordination between production stages. By creating transparency of demand information across all supply chain stages and furthermore synchronizing production stages, a company can reduce inventories significantly while simultaneously balancing capacity utilization. The following principles will enable a LEAN synchronized supply chain: 1. Separate planning activities and slice complexity for global synchroni­z ation. 2. Use “parameter-driven” end-to-end supply chain planning. 3. Establish visibility and a collaborative environment for end-to-end synchronization. Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges 49 2.3.1 Separate Planning to Slice Complexity for End-to-End Synchronization Traditional ERP- and APS-based planning concepts have blurred the line between planning parameterization—the way we configure all activities that need to be conducted during a planning run—and planning execution—the way we create replenishment plans or daily production orders. Today’s planning practice, with no separation between planning parameterization and execution, results in perpetual planning, replanning, and order chasing as systems “shuffle the whole order pack” each time they run, requiring constant attention from all planners. Technically speaking, traditional planning slices corporate supply chain planning activities vertically into location-specific MRP runs to cope with the complexity involved, consequently increasing the need for synchronization across site locations. Even within the local MRP, planners are barely able to distinguish forecasted demand from real consumption during a multi-level planning run. Such planning practices constantly push manufacturing to produce orders that are based on volatile and inaccurate forecast data; in most cases, they are “planning operations” to either over- or under-supply the supply chain. In supply chain organizations that face ever-increasing network complexity and demand variability, it is vital to separate activities associated with the planning configuration from the daily generation of replenishment and manufacturing orders. As shown in Figure 2.8, end-to-end supply chain planning is sliced into a global tactical planning configuration and local operational planning that triggers execution. At the tactical planning level, all production and replenishment parameters such as inventory and replenishment levels or cycle times are configured as Traditional planning Tactical planning Planning in LEAN SCM Forecast Tactical planning - global conditioning - planning parameterization Pre-configuration Forecast - variability - uncertainty Consumption demand Operational planning Push-trigger for execution Operational planning Pull-trigger for execution Figure 2.8 Tactical and operational planning are separated. - volatility 50 LEAN Supply Chain Planning replenishment and manufacturing orders are released on the operational level during order execution. The tactical configuration and its renewal should cover all planning activities designed to support the global S&OP process in order to build, synchronize, and agree on common supply chain plans. Best practice would be to align those plans with the frequency of the S&OP (in practice often monthly). Once the tactical planning cycle is complete, the time inbetween will be spent in operational planning: raising orders against the tactical configuration in line with real customer demand pull. 2.3.2 “Parameter-Driven” End-to-End Supply Chain Planning Configuration or parameterization in tactical supply chain planning is about building and agreeing on network-wide capacity plans and corporate inventory plans. In traditional supply chain planning, this is done sequentially and typically distorted by forecast variability. A forecast is used to determine the plans for the finished good stage; the dependent demand resulting from the underlying production plan is propagated upstream to the next supply chain stage. This stage again determines its own production plan and propagates the dependent demand upstream (see the left side of Figure 2.9). The drawback of this planning approach is the enormous planning effort and heightened planning nervousness, since all capacity and inventory plans need to be adjusted whenever a single production plan changes. Consequently, most companies see the adoption of global parameterization and synchronization processes—undertaken to define the right level of inventory and capacity along the supply chain with the right buffer Traditional planning Forecast Local planning Local planning Local planning Execution Execution Execution Planning in LEAN SCM Global conditioning planning parameterization Local execution Local execution Forecast Local Consumption execution demand Figure 2.9 Global pre-configuration of supply chain parameters reduces planning complexity and planning nervousness. Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges 51 against variability and uncertainty—as itself a critical business process. If SCM does not establish those processes that enable it to define a robust parameter and buffer strategy and some measure against which to preconfigure supply to address variability, the entire business might struggle. In global networks, buffer and safety stock parameter setting plays a critical role in helping to protect the supply chain from variability and disruptions. Today, however, this is not an isolated task carried out at each plant or warehouse. Instead, a formalized global planning approach to defining buffers in inventory is required to ensure that the right balance between the benefits and costs is targeted. To achieve this, supply chain planners must determine both the location and size of inventory buffers at the same time, which requires the use of multi-echelon inventory optimization approaches. To make these decisions as robust as possible in the face of intensifying business dynamics, companies need to establish processes and rules for dynamic inventory target setting. Tactical parameterization also requires focusing on capacity models that result from cyclic production patterns based on flexible Rhythm Wheels. The capacity models in place should be aligned with the established inventory rules and should also contribute to mitigating demand variability. Therefore, variability control tactics should be formalized at each Rhythm Wheel-managed asset. Global parameterization uses forecasts for determining just a few global control parameters (e.g., target inventory levels, Rhythm Wheel cycle times), which constitute the framework for operational planning and execution (see the right side of Figure 2.9). Each supply chain stage simply follows these globally pre-configured parameter settings. Since only a few parameters need to be determined, planning effort can be significantly reduced. Furthermore, separated tactical pre-conditioning enables efficient planning execution, since parameter pre-configuration can be held constant for a certain period. 2.3.3 Establish Visibility and a Collaborative Environment for Synchronization To optimize inventory levels and capacity utilization globally, each supply chain step should be synchronized with the upstream and downstream stages—and with customer demand. In the simplified and parameterdriven LEAN SCM planning framework, synchronization of operations is achieved by global synchronization of the supply chain parameters. The 52 LEAN Supply Chain Planning mechanisms and rules for variability control of inventories and capacities introduced above are the central keys for supply chain synchronization in today’s highly volatile and complex supply chains. To achieve optimal flow and throughput along the supply chain, companies need to establish a global takt, which involves orchestrating and guiding all tactical parameterization and renewal processes. Aligning all manufacturing steps to a global takt ensures that all stages always produce the right quantities as multiple Rhythm Wheels mesh with each other like gears at the right time to serve global customer demand (see Figure 2.10). However, functional silos in an organization might limit opportunities for systematically reducing complexity and prevent optimization of the endto-end supply chain. Often, managers tend to focus on their own functions or departments. Without a cross-functional, end-to-end perspective along the supply chain, the required visibility and trust within the organization are lacking, keeping it stuck in a pattern of local silo decisions (Figure 2.11). A global organization must transcend local interests to achieve global coordination and maximize performance. This requires breaking through functional silos and departmental walls in the minds of employees. However, employees are usually incentivized to aim at potentially conflicting (local) targets. To get people aligned and committed to common corporate objectives, it is essential to establish an end-to-end mindset and effective cross-organizational collaboration. However, collaboration starts with the fundamentals known to successful supply chain professionals: transparency, timeliness, and discipline. To overcome collaboration barriers, people need to understand their individual impact along the entire value chain and the role of their own Synchronization of operations Raw Intermediate Finished Customer Figure 2.10 Operations are synchronized by the synchronization of supply chain parameters. Guiding Principles of LEAN SCM Planning: Facing VUCA Challenges 53 Overcome functional silos and mental walls in planner’s minds Local planning Local planning Local planning … … Intermediates Finished goods Distribution Figure 2.11 Create visibility and trust and tear down collaboration barriers. work within the overall network. This allows them to evaluate the impact of their own local decisions on the rest of the supply chain. However, to reach such important corporate goals, cross-functional empowerment is crucial to SCM; it ensures the foundation for successfully introducing a collaborative mode within an organization. Such empowerment enables global coordination of targets and incentives to guide the organization in the right and synchronized direction. This allows all stages of the supply chain to share the benefits of end-to-end collaboration activities. 2.3.3.1 Summary of LEAN Synchronization Principles LEAN SCM calls for synchronizing demand and supply such that high customer service levels can be achieved at the lowest possible cost. To coordinate information and material flows efficiently along a supply chain, an organization needs to establish end-to-end collaboration. Only in this way can it achieve a true global optimum for the entire supply chain. By working with a parameter-driven framework, the planning effort is significantly reduced. Execution has only to adhere to the pre-configured supply chain. By synchronizing parameters globally, supply chain operations can be synchronized to customer demand, enabling stable material flows and ensuring that the right quantity is produced at the right time. Chapter Summary Process industries face growing complexity and variability in the VUCA world. Traditional planning methods typically result in high inventory levels and the need for excess capacity since they cannot manage these 54 LEAN Supply Chain Planning challenges efficiently. At the same time, competition and capital markets pressure companies to reduce working capital and capital expenditures. Companies can now choose between two alternatives: either learn to live with the drawbacks of traditional planning methods or change the fundamental principles on which SCM operates. This chapter introduced LEAN SCM principles for achieving an end-to-end synchronized supply chain. By following LEAN demand, LEAN supply, and LEAN synchronization principles, variability and complexity can be managed efficiently. The benefits on the demand side are high customer service levels and short lead times. On the supply side, LEAN SCM brings stable capacity utilization and improved asset performance. From an end-to-end perspective, total lead time is reduced and inventory levels are minimized. To explore how thought-leader companies of the process industries put these principles into practice, we recommend reading Chapter 12. There you will find the industry cases of your peers who already made big steps toward LEAN SCM.