Fundamentals of LEAN SCM Planning: A Paradigm Shift in Planning PDF

3 Fundamentals of LEAN SCM Planning: A Paradigm Shift in Planning Many companies struggle to adapt supply chain planning to the new business realities of the VUCA world. While the realities have changed, however, supply chain planning still all too often follows the principles and recipes of the pas...

3 Fundamentals of LEAN SCM Planning: A Paradigm Shift in Planning Many companies struggle to adapt supply chain planning to the new business realities of the VUCA world. While the realities have changed, however, supply chain planning still all too often follows the principles and recipes of the past, when stability and predictability were still predominant characteristics in process industries. Here, we describe a paradigm shift in supply chain planning, offering a new paradigm that allows companies in process industries to adapt their supply chain planning and design to the realities of the VUCA world more effectively. The essence of the new planning paradigm introduced in this book changes how your company should address the root causes of poor customer service and unsatisfactory results in SCM. With LEAN SCM, your company will address variability and uncertainty directly and actively manage these factors, while considering the unique manufacturing constraints on supply chains in process industries. In this chapter, we outline the fundamentals of the LEAN SCM Planning framework, answering the following questions: What is the best supply chain paradigm to follow in the VUCA world? What are the core building blocks of the new LEAN SCM Planning approach? How does LEAN SCM provide a basis for achieving a step change in performance and results? 55 56 LEAN Supply Chain Planning 3.1 What is the Most Suitable Supply Chain Planning Approach to Follow? A frequent topic of discussion is whether a lean, agile, or resilient supply chain strategy best fits a particular company’s business model. Lean strategies are designed to reduce costs and not to “waste” valuable resources that are necessary to meet customer demand at any stage along the supply chain. On the other hand, agile supply chain strategies enable companies to react to and adapt rapidly and effectively to variations in customer demand. By following the resilient strategy, a supply chain becomes more robust to major disruptions in supply that might result from natural disasters, geopolitical developments, or other unexpected events (see Figure 3.1). Many publications focus on the supply chain trend of the time, typically mirroring general economic trends. It seems that during economic downturns a greater number of organizations favor lean manufacturing and supply chain principles, focusing their activities on inventory reduction and optimization of base costs. In contrast, during economic growth phases, many companies favor agile and reliable supply chain principles, tolerating higher inventory levels to avoid missing any new market opportunity. Before we draw any conclusions about which is the right paradigm to follow, we briefly characterize all three through the lens of supply chain planning. 3.1.1 The Lean Supply Chain is More about Waste Elimination and Cost Efficiency The roots—and broad acceptance—of lean management principles go back decades. Despite the huge number of lean principles and supporting resilient supply chain Decoupling point Supplier Production lean supply chain Production Warehouse Customer agile supply chain Figure 3.1 The traditional view of the lean, agile, and resilient supply chain paradigms. Fundamentals of LEAN SCM Planning 57 lean tools, we will keep the story short and refer the reader to one of the numberless publications in the field of lean manufacturing or lean management. Furthermore, most companies already have substantial experience in this area through lean manufacturing initiatives, which aim at increasing value added by eliminating waste and improving operational excellence at the shop-floor level. Beyond the shop floor, lean principles have already been extended in many companies through a variety of lean supply chain improvement programs. Starting typically with a value stream mapping initiative, waste and excess resources (measured in costs, time, and inventory) are eliminated first. In the second step, the major intention is to create leveled flow across manufacturing sites and along the entire value chain, to smooth resource utilization, increase throughput, and improve cost ­efficiency. For a lean and leveled flow along the ­supply chain, it seems obvious, a matter of common sense, to move products downstream in the fastest possible time with a minimum of waste, and to perform these ­activities without interruption when a customer requests them. However, most practitioners in process industries consider the lean and leveled flow paradigm to be the most suitable for the supply chain steps upstream of the decoupling point. At the decoupling point, companies have typically held their strategic stocks, as demand at this stage is typically smoother and higher product volumes flow through a manageable number of value streams. In contrast, leveled flow principles are rarely applied downstream of the decoupling point in process industries, which can be explained by the typically divergent supply chain structures and high-mix product “fan-outs.” 3.1.2 The Agile Supply Chain is More about Responsiveness and Customer Service Many companies have developed capabilities for responding more rapidly to changes in customer needs in terms of volume and variety. The main characteristics of such agility capabilities are considered to be flexibility, responsiveness, and speed in mobilization of global resources. These qualities allow companies to keep up with changes in technologies, supply markets, and customer expectations. A key enabler of an agile supply chain is “strategic flexibility” to enable prompt adaptation of network structures and relationships between all network entities, including suppliers and contract manufacturers. On the tactical planning level, vital 58 LEAN Supply Chain Planning agility enablers include supply chain visibility and integrated processes. Responsive tactical management decisions, such as shifting production volumes from one plant to another or to a contract manufacturer, are possible only when SCM can access information in real time. Furthermore, agile supply chains are characterized through their market sensitivity and are closely connected to end-user trends and demand signals. An agile supply chain is therefore the key enabler for companies to exploit opportunities in volatile and dynamic marketplaces. The agile paradigm is widely accepted, but the common understanding of SCM practitioners in process industries is that it should ideally be applied downstream from the decoupling point, where product specifications vary more widely and demand variability regarding a particular product variant is high. This attitude can be explained to some extent by the experience these practitioners have with planning processes and systems of the past. Because frequent planning and rescheduling of upstream operations, which are highly dependent on product sequences, utilization, and cost-sensitive assets, cause disturbance they would like to avoid. 3.1.3 The Resilient Supply Chain Is More about Risk- Avoidance and Robustness Today’s global marketplaces are subject to increasing levels of turbulence and risk exposure, often rooted in unpredictable supply chain events, for example, natural disasters, geo-political developments, and economic or legal developments. But even as companies have labored mightily to squeeze costs and reduce variability buffers (inventory and lead times) in the past, their supply chains have become more vulnerable to such events. When major disruptions occur in such “buffer-stripped” networks, supply chain activities tend to be interrupted and require a long time to recover. Therefore, more and more companies have recently been adopting countermeasures such as systematic supply chain risk management and promoting best practices to increase robustness and resilience. During the financial crisis of 2008–2009, many companies experienced bankruptcies among their major suppliers and contract manufacturers. When a company follows a single sourcing concept, such an extraordinary event can lead to substantial issues for customers and thus for the entire supply chain. To master such a situation, the prompt strategic reconfiguration of a company’s own network structures is essential to achieve supply chain resilience. Fundamentals of LEAN SCM Planning 59 On the tactical level, the key imperative for developing resilient capabilities is global visibility. Take for example the eruption of the “E15” volcano in Iceland, an unforeseen natural event that disrupted air travel in Europe for 6 days in 2010, or Hurricane Sandy of 2012, whose 110 mph winds caused $74 billion in damage in a swath that it cut from the Caribbean to Cape Cod. Both events paralyzed air, rail, and road networks. In such cases, the complexity involved in revising integrated supply chain, production, and distribution schedules cannot be overstated. Yet creating and evaluating feasible recovery scenarios are impossible without accurate and timely data. In SCM, several urgent questions arise: how can product supply be rerouted from air traffic to available trucks? How can product confirmations be reallocated to serve markets short on stock first? Many companies in these situations could not apply appropriate countermeasures to manage the disruptions adequately due to the lack of end-to-end supply chain visibility. Finally, on the operational level, short-term resilience is more about organizational behavior, and enables a company to stand firm while conducting everyday business. In this case, stakeholders in the supply chain and operations units need to be aligned with the organizational attitude that determines how effectively they react to such disruptions in supply. They need to be able to adequately manage and buffer delays in production and transports. For example, when touching safety stock levels, employees in operations tend to overreact and usually create more turbulence at the top—even though safety stocks have been calculated for exactly such disruptions. The resilient supply chain paradigm focuses on activities that are involved in meeting these challenges. Resiliency determines how well the supply chain responds to disturbances and how quickly it returns to the original state of business activity. Your company’s potential to exhibit resilience can be a competitive advantage if its supply chain can respond more quickly to disruptions than its competitors. 3.1.4 Trade-Offs among the Common Paradigms in Supply Chain Management As demand variability and volatility have been increasing in recent years, many companies have been discussing whether to shift their SCM strategies toward agility and reliability, with the implication that any progress made toward lean and leveled flow no longer seems impressive. However, based on our experience with leading companies in process industries, it should not be a question of choosing agility OR reliability, but rather 60 LEAN Supply Chain Planning a question of how to achieve agility AND reliability in accordance with market needs. The question then is where the optimal balance between these paradigms lies. In other words, how can your company’s SCM organization ensure that it can maintain the necessary agility in moving goods and services through its extended supply networks, not only to satisfy ever-changing customer demand or manage threats posed by disrupting events, but also to effectively manage the supply chain in an era of lean practices carried out to achieve maximum efficiency? Obviously there are trade-offs among the broader concepts involved in SCM (see Figure 3.2); the effects of which strongly depend on the business environment. So, first, it seems important to increase a company’s agility to ensure that it can operate effectively in a more dynamic environment. In general, the benefits of agility increase substantially in the face of variability, but this strategy is typically accompanied by an increasing need for working capital and often more costly operational processes. On the other hand, it is more imperative than ever for companies to accomplish better results while consuming fewer resources. Thus, many companies aim for the benefits of lean principles in their supply chains. As a consequence, the entire supply network requires leveled product flow and synchronization of activities to ensure minimal buffering in inventory and capacity. Finally, any supply chain, whether lean or agile, must Trade-offs and interactions between supply chain strategies Performance The sweet spot Benefits of agile strategies Benefits of lean strategies Benefits of resilient strategies Variability Figure 3.2 How to find and stay in the sweet spot of supply chain performance. Fundamentals of LEAN SCM Planning 61 have the capabilities it needs to manage risk and ensure resilience following disruptions. As all strategies offer appealing benefits, a balanced supply chain strategy is required to manage VUCA challenges successfully. But the key question is then: how can your company find the “sweet spot” that balances the different strategic directions? Here it is important first to recognize that this requires a strategic direction that combines both leanness and agility. As outlined above, a company must “plan for variability” across the entire planning horizon and prepare its operations to “respond to volatility” as the plans are executed. Ideally, an SCM organization is able to plan for variability in a lean way, but when it comes to executing its plans it must also be able to respond to volatility with great agility. A strategy that combines these two elements effectively will certainly find the sweet spot for supply chain performance. To remain in the sweet spot, however, requires resilience capabilities to bring supply chains back into a desired level when out of balance. Once SCM has set a planned direction (plans), ideally around the “sweet spot,” velocity is required to get there quickly. Velocity is defined as speed to rebalance with the direction set in supply chain plans and therefore a major resilience capability. To be sure, most supply chain professionals would agree with us to this point in the discussion. However, most would now wonder how they can find this sweet spot of targeted supply chain performance and, even more importantly, how can they remain in this area of heightened efficiency when in the face of increasing demand variability one of these unpredictable events affects the company. So how can your company keep going in the “planned” supply chain direction while adjusting to the perpetually changing supply chain reality in execution? Obviously, this means setting the correctly balanced direction for supply chain performance. But there is also a need to structure supply chains and planning capabilities to incorporate formalized principles and processes that support continuously renewed and resilient plans. Responding with the necessary speed that the VUCA world demands from companies today creates the needed “velocity to resilience.” 3.1.5 How LEAN SCM Combines and Builds upon a New Planning Paradigm To help your company find the sweet spot of supply chain performance, we have developed the LEAN SCM Planning framework for process 62 LEAN Supply Chain Planning industries that actively addresses the challenges of the VUCA world. Therefore, we hark back to the LEAN SCM planning principles and a combination of the conceptual elements of the agile and lean supply chain paradigms highlighted above. One of the central elements of this new planning framework is taking an integrated approach to “closing the loop” between variability management and volatility management. This means that SCM planning processes will be integrated through continuously ongoing renewal activities (on the strategic, tactical, and operational levels) with effective response capabilities in execution (see Figure 3.3). We are convinced that efforts made to build “agile response capabilities” in supply chains—especially in the capital-intensive process industries—should not be limited only to the downstream or customerfacing value chain steps. In fact, preparing response capabilities is the first step toward creating “strategic flexibility” in supply chains. The results of a flexible and prompt reconfiguration of supply chain networks and relationships (see overview in Chapter 4) are essential to adapting quickly to new market developments or serious supply disruptions. Additionally, we have incorporated automated segmentation and related classification activities into a regular strategic capability review for “supply mode selection” in production and replenishment to better keep pace with the new market dynamics (see Chapter 5). Finally, we have embedded operational agility into the framework using the best way to “respond to volatility” by driving supply chains based on real customer demand. Propagation of the “customer voice” is enabled through demand-driven and consumption-based pull replenishment signals (see Chapter 7)—from the first customer-facing value chain step upstream to the last upstream stage. However, to operate a supply chain in this way, the SCM organization needs to prepare and plan for rightsizing and parameterization of buffering capabilities in inventory and capacity (see Chapter 6). In the face of the long product lead times that are typical in process industries, companies must create tactical plans for 12 months to as many as 36 months ahead to be able to synchronize every last stakeholder upstream along the supply chain. To do so effectively, the best possible demand forecasts of customer expectations must be generated and used for supply chain parameterization. There are, however, two major differences regarding the use of forecasting information in LEAN SCM Planning compared with traditional planning modes. First, volatility Operational renewal process for LEAN SCM Planning framework for process industries facing the VUCA world. Figure 3.3 uncertainty Tactical renewal process for ‘velocity to resilience’ Closing loops between variability and volatility management agile supply chain–for end-to-end capability configuration and response ‘Responding to volatility’ flexibility Strategic renewal process for lean supply chain–for end-to-end parameterization and synchronization ‘Planning for variability ’ LEAN SCM Planning Framework Time Volatility in demand Up to product lead time Demand variability Fundamentals of LEAN SCM Planning 63 64 LEAN Supply Chain Planning forecast information should never be translated and released directly into operational manufacturing orders, because there is too much uncertainty around those forecast data. In contrast, real consumption data that becomes available later in the process should be used to trigger manufacturing orders. Therefore, product-level forecasts are no longer needed for tactical planning, as always been assumed in SCM, because we do not need them for operational order creation. The second difference is consequently the replacement of product-level forecasts at the tactical level by more aggregated forecasts. The basis for such aggregation is for instance time or product hierarchies. Overall, this is an efficient way to reduce demand variability along supply chains as much as possible. Simultaneously, this also helps to significantly reduce the workload and complexity involved in the monthly demand forecasting process. The lean supply chain elements we introduce in this book will provide your company with a conceptual framework for clear (and, as far as possible, stable) direction-setting across the entire end-to-end supply chain organization and help to avoid ambiguity among roles in the new LEAN SCM Planning approach. Starting with the best available data for future demand expectations, we offer, on the tactical level, integrated supply chain parameterization based on only two manageable parameters, thus providing simplicity and reducing planning complexity. These parameters are product- and asset-specific cycle times combined with right-sized inventory targets. The conceptual foundation for cycle time determination is the Rhythm Wheel approach; while inventory target setting is based on multi-echelon planning approaches that consider variability along the entire end-to-end supply chain (see Chapter 6). All those supply chain parameters will be calculated to provide the best possible synchronization to the “global takt” of each value chain to ensure overall costefficiency and corporate competitiveness. However, a supply chain that is parameterized and synchronized in this way is in effect a snapshot of the “lean ideal state.” Since every “tactical plan” needs continuous renewal, we provide formalized processes for adaptation to anomalous or unexpected situations (see also Chapter 6). In this sense, our approach not only provides your company with a tactical “plan for variability,” but also the acceptance of uncertainty and the preparation for changes in the business environment. The concept of LEAN SCM Planning therefore features continuous control loops. In such closed-control loops, there is an objective Fundamentals of LEAN SCM Planning 65 function (the tactical plan) that aims for the best possible end-to-end leveled flow, along with continuous sensing to recognize deviations from the objective function (monitoring and feedback) with formalized renewal processes on different time horizons and decision levels (adaptation): 1. The strategic renewal process (described in Chapter 5) reviews decisions involving the redesign of the supply chain network and supply chain mode configuration, accounting for flexibility in capabilities. 2. The tactical renewal process (described in Chapter 6) reviews and regularly updates the planning parameters, accounting for uncertainty in plans. It is best embedded in an operational, monthly S&OP cycle. Here, the supply chain is also prepared for exceptional demand and supply events such as building up stock for marketing campaigns or plant shutdowns. 3. The operational renewal process (described in Chapter 7) involves short-term parameter “factoring” to adapt preconfigured operations to short-term changes in consumption demand or supply deviations, enabling volatility management in execution. Renewal processes in LEAN SCM should be built up in a formalized way to enable rapid adaptation to changing conditions or disruptive events at any supply chain planning level. By adopting such processes, your company will be able to achieve greater velocity in SCM. Furthermore, the associated resilience capabilities will increase SCM capabilities at the strategic, tactical, and operational levels. In the LEAN SCM Planning framework, demand variability is effectively managed through robust planning processes for parameterization and synchronization, and demand volatility is effectively managed through robust response capabilities that are configured and prepared in supply chain execution. The implications of this new SCM paradigm are far reaching. The most fundamental implication is that tactical planning and operational execution are set up in a completely new way. However, by separating these functions, LEAN SCM actually synchronizes them much more efficiently. In this vein, LEAN SCM takes a different course from supply chain planning systems currently in place in order to cope with the new realities of the VUCA world. In the end, this will allow your company to make more out of its supply chain and 66 LEAN Supply Chain Planning thus lead to new competitive advantages (see Section 3.3 for benefits of LEAN SCM). 3.2 The Building Blocks for LEAN SCM Planning: Concepts and Highlights Given the ongoing evolution of SCM, new ideas and concepts are constantly emerging. In many cases, old concepts are dusted off and reintroduced as something new. Of course, it might be fair to ask yourself if LEAN SCM really does provide something valuable and new for you and your organization. Therefore, we now highlight the five core building blocks of the new LEAN SCM Planning concept we introduce in this book. In some cases, you might recognize familiar elements, but you will also see that each building block goes far beyond what has been used before for planning in process industries. The paradigm shift entailed by the LEAN SCM Planning concept will result in meaningful changes at various areas and levels of supply chain planning—on the demand side, the supply side, and in supply chain synchronization as well. In each of these areas, some fundamentally new conceptual elements will be introduced that are significantly different from today’s traditional planning processes and systems. These conceptual enhancements for planning in process industries will help your company overcome the obstacles of today’s VUCA world. Before introducing each element in detail in the course of this book, we will first introduce the major highlights to explain the motivation and fundamentals of the supply chain planning architecture we are laying out. In detail, those building blocks provide answers to the following questions: How can cyclic planning be applied in high-mix and high volatile manufacturing environments? How can dynamic inventory targets and active use of safety stocks in planning reduce variability? How can Rhythm Wheel planning and global takt synchronization be aligned in a flexible way? How can tactical pre-parameterization and planning execution reduce complexity? How can visibility be created with LEAN SCM Planning in existing IT systems for sustainability? Fundamentals of LEAN SCM Planning 67 3.2.1 Flexible Rhythm Wheels Enable Cyclic Planning while Responding to Variability We must admit that the conceptual roots and foundations of Rhythm Wheel-enabled planning are not absolutely new. However, LEAN SCM Planning extends their applicability to high-mix product manufacturing environments that operate under high variability; it further makes it possible to achieve end-to-end synchronization of multiple Rhythm Wheels that operate in interlinked but globally dispersed production sites. Industry experts such as Ian F. Glenday, Peter L. King, and Raymond C. Floyd have already introduced “cyclic scheduling” and “product wheel” applications in process industries. They were able to connect the general lean (manufacturing) concepts and lean principles, as well as the underlying elements of simplicity, flow, and pull, with the physical restrictions of production planning and control in process industry manufacturing. They first started to apply cyclic schedules with the ultimate ideal of producing every product every cycle (EPEC), with the dominant objective of achieving simplicity and stability in manufacturing. But they also recognized that an EPEC schedule is not feasible in all manufacturing environments and across the entire product range running on a specific production line. Later they developed methods for differentiating, for example, fast-mover and slow-mover portfolios in product wheels. Although they showed how to identify products that are suitable for specific EPEC schedules, product wheels would still be propagated for a more stable environment, typically with fixed product wheel cycle times. Nevertheless, product wheels within such a stable cyclic scheduling environment have already been applied at various chemical manufacturing sites of industry giants such as DuPont and Dow Chemical. At these facilities, the companies apply a simple product wheel design process, based on practical methods for finding the optimum manufacturing sequence, minimizing changeover costs, and freeing up useful capacity. However, in discussions with various companies from process industries, we identified three unanswered questions that were highly relevant for most of the companies: How can product wheels be applied in a high-mix production environment with a high mix of variability patterns in demand, as often seen with pharmaceutical manufacturers, in specialty chemicals, or food production? 68 LEAN Supply Chain Planning How can multi-step supply chains that use product wheels at more than one site be synchronized, and how can that synchronization be adapted in a flexible way to cope with variability and unexpected events? How can global visibility of supply and capacity be achieved for endto-end capability synchronization and how can product wheels be integrated into corporate supply chain planning? In recent years, we have consolidated practical product wheel experiences across process industries—using our own approach and those of various industry experts. To achieve the vision of a transformation of the product wheel concept into a high-product-mix and high-demandvolatility manufacturing environment, we refined the existing industry approaches to product wheels along several dimensions. These efforts allowed us to introduce the “Breathing” and “High-Mix” Rhythm Wheels concepts (see Section 6.1 and Figure 3.4). The most important conceptual advancement is our approach regarding management of cycle time and cycle time boundaries (upper CT+ and lower CT–) for Rhythm Wheel-based planning. The concept of cycle time boundaries and a formalized process for calculating and using them now provides the required manufacturing flexibility to manage increasing demand volatility. And this can be done without jeopardizing the benefits of cyclic planning that makes the use of product wheels so appealing. The effect of “breathing” in Rhythm Wheels within cycle time boundaries can be explained and visualized as a ballooning tube, providing production output in the product sequence as designed, but with more or less throughput allowed within the parameterized volatility boundaries. This increased flexibility on a cyclic-takted production line should be From Product Wheels … to Breathing Rhythm Wheel … and to High-Mix Rhythm Wheels CT (+) Cycle time Cycle time CT (–) 1. Cycle 2. Cycle 3. Cycle Figure 3.4 Breathing and High-Mix Rhythm Wheels enable cyclic planning while responding to variability. Fundamentals of LEAN SCM Planning 69 monitored and managed carefully (see Section 7.3). Permanent measuring and visualizing of cycle time developments over time-phased Rhythm Wheel cycles are central and necessary for monitoring the pace or takt of a production asset. It is similar to monitoring the heartbeat with a cardiograph; we must constantly monitor the drumbeat in manufacturing to understand and act in light of implications along the supply chain. In case tactical planning variability or any unexpected demand peaks occur above the set cycle time boundaries—above the calculated and therefore allowed volatility boundaries in manufacturing—then LEAN SCM makes it possible to mitigate such volatilities with designed inventory buffers. We explain this in greater detail in the following section, which covers dynamic inventory target setting and the effective use of safety stocks in planning. We should emphasize here that the concept of cycle time boundaries for supply chain synchronization in cyclic planning provides for the very first time a formalized key to smoothing variability and limiting volatility propagation upstream along the supply chain. Even as the Rhythm Wheel approach is designed to be more flexible and to “breathe” within the cycle time spans, at the same time (replenishment) demand propagation upstream is restricted within the defined upper and lower cycle time boundaries. This achieves significantly reduced variability upstream along the Supply Chain. Effectively, demand variability is cut off, above and below the agreed cycle time boundaries as defined in the Rhythm Wheel design. Therefore, at every Rhythm Wheel-managed stage there is “funneling” and “dampening” of variability in a controlled way up to the next sourcing site (see Figure 3.5). Instead of incurring the infamous bullwhip effect through upstream propagation and internal amplification of internal demand, it is possible now to reduce variability propagation actively and in a highly controlled way. Without doubt, this new and more flexible planning approach will allow for a step change in supply chain performance as it enables much more efficient use of the working capital tied up in safety stock and variability buffers. One of the central challenges for cyclic planning is finding the best cycle time for each manufacturing line. Companies that have already applied product wheels will know how complex and cumbersome this is since typically only self-made Excel files are available for decision support. And this becomes even more difficult when it comes to high-mix manufacturing lines with several low-volume products needing a much lower manufacturing frequency than those defined by the product wheel cycle time. For these cases, we have developed a High-Mix Rhythm Wheel concept with 70 LEAN Supply Chain Planning Unconstrained market variability Replenishment variability is ‘funneled’ and ‘dampened’ CT (+) CT (+) CT CT (–) Upstream production or supplier with ‘dampened’ variability CT (–) Productions lines on Rhythm Wheels and cycle time boundaries Safety stocks are actively used to buffer variability Customer Figure 3.5 Upstream variability is actively funneled and dampened. dynamic calculation and balancing of product manufacturing frequencies over the planning horizon (see Section 6.1). This falls very much in line with the principles of “campaign planning” in process industries, but is now aligned with the concept of cyclic planning with Rhythm Wheels. When necessary, Rhythm Wheel parameters should be adapted through the tactical parameter renewal process (described in Section 6.4), which is typically integrated into the monthly S&OP process. Short-term adjustments are made within the short-term operational renewal process, which we call parameter factoring (see Section 7.2). Traditional product wheels are typically locally managed manually or with simple Excel-based solutions outside of the existing corporate information systems; their planning results are then transferred manually into local ERP systems for execution. As a consequence, product wheel principles and associated techniques tend to significantly differ across sites or even manufacturing lines. Therefore, such well-intentioned initiatives very often ignore process standardizations and lose global visibility in corporate planning systems, hindering global synchronization of supply chains. To avoid such issues in Rhythm Wheel-empowered planning, we developed the LEAN Rhythm Wheel Planning Suite inside the corporate IT systems platform for supply chain planning (see Chapter 10.3). The LEAN Planning Suite includes the “Rhythm Wheel Designer,” “Rhythm Wheel Scheduling,” and the “Rhythm Wheel Monitor” components that make Fundamentals of LEAN SCM Planning 71 it possible finally to achieve the required global visibility for Rhythm Wheel-cycled product supply and takted capacity utilization for synchronization of supply chains. 3.2.2 Dynamic Safety Buffers in Planning for Two-Sided Variability Management A major improvement in LEAN SCM Planning is the use of safety buffers and, specifically, safety stocks that are used to hedge against variability. In most companies, this alone could involve a paradigm change in supply chain planning practice, because in traditional supply chain and tactical production planning processes, variability is managed and buffered onesidedly, through capacity. With LEAN SCM, we want to change this and improve the ability to “plan for variability.” So how does this work today? In supply chain planning practice, inventory target levels are carefully calculated and recalculated. In particular, these calculations include various safety stock elements that account for customer demand fluctuations, forecast inaccuracy, and lead time variations. The calculated safety stocks are later used only for unexpected supply and fulfillment situations, responding to short-term volatility (see Figure 3.5). So far this seems quite logical and should not be a cause for complaint, and definitely not a basis for the sort of “panic behavior” or “nervous reactions” that arise in SCM organizations when safety stock must actually be consumed in the face of a potential shortage. Essentially, safety stocks are designed for such situations and should not give the planner a bad conscience, as it often does. However, although this is still not the supply chain “paradigm change” we have been describing, it provides a good indication of how planners typically react in tactical planning as well. In contrast, safety stocks are never used in the tactical planning process despite the fact that they have been planned for variability. The previously calculated safety stocks that are built up to meet inventory replenishment targets in the calculation are never touched in those tactical planning runs, despite the fact that they have been designed for, and are intended to be used for, specific demand peaks. As a consequence, resulting from this practice, very often a large amount of dead stocks occur in overall inventory, and this share will further increase when the variability increases (see Figure 3.6). But even more painful is the fact that planning runs are creating stock replenishment orders with the same one-to-one quantity oscillation as in 72 LEAN Supply Chain Planning Inventory Safety stock used in fulfillment horizon to manage volatility Safety stock not used in tactical planning horizon to manage variability Target stock level Inventory development Within the order fulfillment horizon Within the tactical planning horizon Where we have to manage volatility and unexpected short-term changes Where we see panic behavior when safety stocks are used for their designated purpose Where we have to manage variability and uncertainty in tactical plans Time Where we can observe blindfolded planning causing dead stocks and supply chain nervousness Figure 3.6 Safety stocks in the fulfillment and the tactical planning time horizon. the forecasted (market) demand signals with all their forecasting inaccuracy. On the tactical planning horizon, demand oscillations are therefore not absorbed through inventory due to the fix-maintained inventory targets, nor are they dampened by the safety stocks included in the tactical plans. This means in consequence that all the market variability and forecast uncertainty are passed along via the planned stock replenishment signals, one-to-one into production planning and manufacturing capacities. Consequently, the capacity side has to manage all the variability onesidedly through permanent replanning and rescheduling activities. Such planning behavior typically results in lower capacity utilization, since production and asset planners have to violate the best possible production sequence to maintain sufficient capacity buffers to manage increasing demand variability. But with ever-increasing market dynamics on one hand and the need to accomplish better results with fewer resources in less time on the other, the traditional planning approach must be seen as a conceptual dead-end for today’s variability management. This therefore calls for a paradigm change in this supply chain practice. The new LEAN SCM Planning concept masters variability with a twosided approach (see Figure 3.7). Demand variability in supply chain planning is managed on both sides, on manufacturing capacities as well as on the SKU. In particular, safety stock elements in all SKU inventories are now actively used in tactical planning runs, as they have been designed to Fundamentals of LEAN SCM Planning 73 Through flexible cycle times and boundaries for synchronization Market demand variability managed on two sides… Through dynamic target stock-setting (buffering in planning) CT (+) 12d CT CT (–) 8d Cycle stock Pipeline stock Demand safety stock Supply safety stock Policy stock Rhythm Wheel-managed manufacturing assets Inventory stockkeeping units (SKU) Figure 3.7 Market demand variability is managed on two sides. do, to level the replenishment trigger signals and keep market noise out of manufacturing, at least to some extent. To make this happen, we have developed and designed an additional renewal process as a structured and disciplined approach for the dynamic adaptation of target inventory replenishment levels (IRLs). This now allows SCM to keep some parts of demand variability—peaks in the forecasted demand signals—out of manufacturing plans. In this way, planners can actively use the safety stock in tactical “planning for variability” as designed. This will smooth capacity utilization and planners will not need to resolve so many unnecessary changes in production plans and schedules. 3.2.3 Cycle Times and Inventory Targets Aligned to Global Takt for Synchronization We have now introduced several concepts and tools that can be used to “plan for variability on the supply side” and create ideally leveled plans for manufacturing capacities. We achieve this with cycle times and boundary setting within the flexible Rhythm Wheel design. Consequently, we “plan for variability on the demand side” through dynamic inventory sizing and right-sized target setting to enable real consumption-based replenishment down the line in operations and fulfillment (see Section 6.2). Overall, we now have developed the concepts and instruments your company needs to mitigate market variability in planning. This is achieved through ongoing 74 LEAN Supply Chain Planning adaptation of cycle time boundaries and subsequent use of the calculated safety stocks in our tactical plans. We have emphasized the importance of end-to-end supply chain synchronization in planning. Therefore, all LEAN SCM Planning concepts are tailored to achieve true end-to-end supply chain synchronization. But how can your company achieve multi-echelon synchronization of global supply networks at the tactical level? This question is especially important in process industries due to typically large differences in lead times, starting generally with long chemical conversion processes and moving downstream to the shorter physical formulation and packaging processes. To see a better illustration of this issue, it is useful to view the various Rhythm Wheel designs as gear wheels of unequal sizes, representing unequal cycle times, which must nevertheless mesh with each other (see Figure 3.8). To create end-to-end leveled flow, it is necessary to formalize a “global takt” for synchronization and to balance the cycle time differences of the interlinked product flows with the right-sized inventory levels from step to step (see Section 6.3). In a stable supply chain environment, this could be enough for the purpose of synchronization, but not in cases with high demand volatility and high product mixes in the manufacturing portfolio. To see this, recall the above-mentioned picture of ballooning tubes to visualize the “breathing” Rhythm Wheel. Now imagine having many of those “ballooning tubes in a tightly interlinked pipeline.” Imagining this might bring to mind a End-to-end synchronization with Breathing and High-Mix Rhythm Wheels Cycle time and boundaries IRL CT (+) CT (–) API production CT~90 days Cycle time and boundaries IRL CT (+) Cycle stock Safety stock CT (–) Bulk production CT~30 days Cycle time and boundaries IRL CT (+) Cycle stock Safety stock CT (–) Cycle stock Safety stock Packaging CT~10 days Figure 3.8 Unequally sized Rhythm Wheels to be geared with the global takt and dynamic target inventory replenishment level settings. Fundamentals of LEAN SCM Planning 75 fragile network. But when they are accurately leveled, Rhythm Wheelbalanced supply chains provide a significant “calming effect” representing a step change in performance and financial benefits. We have defined two core parameters that are required for synchronization: cycle times and cycle time boundaries for every Rhythm Wheel, and a dynamic inventory target-setting approach for the multi-echelon supply chain. In line with these parameters, we have designed continuous planning control loops with formalized renewal processes on tactical (see Section 6.4) and operational time horizons (see short-term parameter factoring in Section 7.2). These techniques provide structured realignment and decision support for adapting synchronization parameters when production falls out of takt or an imbalance occurs. When these renewal processes are embedded in operating models, the needed capabilities for agile SCM are developed. By adopting such renewal processes, your company will be able to carry out SCM with more direction and therefore more velocity. As a consequence, the supply chain can react rapidly when something falls out of sync through a disruption, providing resilience through a global re-takt or reset of the supply chain. 3.2.4 Separation of Tactical Pre-Parameterization and Planning to Reduce Complexity At this stage, it is important to understand how to manage demand planning, supply planning, and synchronization following the new supply chain concept. The next logical step is the transfer of these planning concepts into process architecture and later into system architecture for implementation. Although this is a logical consequence of the process we have described, it constitutes the largest barrier to a LEAN SCM Planning transformation in most companies. Today’s process architectures in supply chain planning are very much constrained by the underlying ERP and SCM software tools, as discussed above. These tools simply lack the required differentiation between variability and volatility and lack the capacity to manage both efficiently. Under the LEAN SCM concept, a more differentiated view of volatility and variability is taken. Demand variability has been introduced here in line with future demand forecasts outside customer order lead times, and volatility has been introduced in the form of demand deviations within the lead times of the received order against the plan. This distinction has had far-reaching consequences in our conceptual framework. Therefore, 76 LEAN Supply Chain Planning the new approach in supply chain planning must involve a two-step planning architecture (see Figure 3.9) that makes a clear distinction between: 1. The tactical planning process layer in which companies “plan for variability” and the demand and supply parameter configuration (lean-leveled parameterization of cycle times in Rhythm Wheels and inventory targets reflecting the long lead times and variability). 2. The operational planning process layer in which companies “respond to volatility” in more simple planning runs for consumption-based, pull replenishment within the preconfigured parameters and buffers, while strictly keeping forecasted elements out of manufacturing and fulfillment orders. Forecasted demand Customer demand MOQ Operations planning in ERP/APS Batch calculation Campaign building Iterative configuration and planning run Sequence calculation Inventory Replenishment and production orders Move to a two-step planning approach: Forecasted demand 1 Tactical planning parameterization in LEAN SCM MOQ Batch calculation Configuration run Campaign building Sequence calculation Pre-configuration 2 Operational planning execution in LEAN SCM With pre-configuration Planning and consumption run on Rhythm demand generating Wheels replenishment and manufacturing orders Pre-configuration production cycles and inventory target levels Customer demand Inventory Replenishment and production orders Figure 3.9 Two-step separation of tactical configuration and operational planning in LEAN SCM. Fundamentals of LEAN SCM Planning 77 Maintaining this distinction is not an easy task; in fact, it is not even possible within the process architectures and planning systems generally in place today. The way in which they manage variability and volatility in the planning processes makes it irrelevant whether they have forecasted future demand variability, volatility associated with incoming customer orders, or just volatility associated with internal stock replenishment orders; those ERP-based or APS-based planning processes manage these factors in the same mixed-up way. In consequence, they give planners no chance to identify the root cause of volatility in his or her typical MTS environment, and that is why they add some “just-in-case stock” to be on the safer side. As we have outlined in presenting the LEAN SCM Planning framework, long lead times force supply chains to plan for future demand and demand variability. In LEAN SCM Planning, this is done at an aggregated demand level, but in a way that enables planners to prepare the right supply chain plans and parameter configurations for the right level of the needed capacities and inventories later in execution. With leveled and takted plans and right-sized parameter configurations (parameterization at the tactical level), supply chain managers can develop efficient capabilities for agile responses to customer orders and associated order volatility. This makes it unnecessary to guess or forecast product levels for short-term customer orders. Within the operational planning and fulfillment time horizons, it is now possible to work within the buffers and parameters that have been planned on the tactical level. This makes the supply chain well prepared to respond to consumption-driven pull replenishment based on the real customer order. Regarding eventual implementation of LEAN SCM Planning, we wish to emphasize and summarize the most important aspect of the planning process architecture that is required to make the recommended changes possible. In this respect, it is important to separate the tactical preconfiguration and operational planning layers in your company’s existing business process architecture and system platforms. The parameterization or preconfiguration of the supply chain is most efficient when based on aggregated demand forecasts, but actual operational planning is conducted only on actual (and thus reliable) consumption signals. This separation is essential, but it is not possible to transform your company’s existing process and system architecture into LEAN SCM Planning without additional IT planning support. 78 LEAN Supply Chain Planning 3.2.5 Enabling IT to Create Global Visibility and Staying Power for Sustainability In SCM, it is not possible to achieve end-to-end visibility of inventories or utilize a company’s capabilities for synchronizing capacities and inventory buffers in the global network without an integrated IT planning system. The LEAN SCM Planning framework and process architecture are designed to achieve this visibility and enable end-to-end synchronization and should be seen as the “conditio sine qua non” or “must-have” to get LEAN SCM up and running. However, it is important to note here that the designed planning process architecture we have described cannot simply be transferred into existing planning systems. So, does this mean that your company will need to replace its existing planning system platforms to implement the new LEAN SCM Planning approach? Absolutely not! Obviously, we cannot ask companies to replace their SAP ERP and SCM systems, for example, which are commonly used in process industries. Companies have typically made substantial investments in those systems, and the achieved standardization and consolidation must not be jeopardized. Consequently, when we first began assisting companies in transforming their planning concepts toward LEAN SCM Planning, we had to do this on the existing system platforms. To allow for an effective transformation to LEAN SCM, we developed additional IT concepts and software add-ons to enhance the existing planning systems for the initial implementation. These enhancements of the existing IT infrastructure address both of the key layers of supply chain planning (see Figure 3.10): 1. End-to-End (global) LEAN SCM Planning Add-on Suite for tactical supply chain parameterization, multi-stage cycle time and multiechelon inventory synchronization with decision support for the global tactical renewal processes; the required solutions for implementing new “planning for variability.” 2. Site-Level (Local) LEAN SCM Planning Add-on Suite for Rhythm Wheel-managed assets, with Rhythm Wheel design and monitoring, Rhythm Wheel planning heuristics with parameter factoring during the operational renewal processes, creating resilience against order-injected volatility in manufacturing; the required solutions for creating and implementing an agile “response to volatility.” Fundamentals of LEAN SCM Planning 79 1 Tactical Renewal Cockpit for end-to-end supply chain synchronization (Global) End-to-end IRL LEAN SCM parameterization and decision support C (Global) SAP SCM IRL Supply Network Planning (SAP SNP) (Local) Plant level LEAN SCM Planning execution and monitoring 2 A E A B IRL A C B Cycle time IRL Rhythm Wheel Designer Cycle time and product sequence D C B Cycle time (Local) Detailed SPlanning and Scheduling (in SAP PP/DS) + LEAN Planning Heuristics IRL Multi-stage inventory target-setting IRL ERP (SAP ECC) Multi-stage cycle time synchronization Demand Planning in SAP SCM (SAP DP) Rhythm Wheel Monitor Cycle time and IRL trends Cycle time + LEAN Factoring Heuristics Time Operational LEAN SCM Planning Suite for Rhythm Wheel-managed assets IRL = Inventory Replenishment Levels Camelot LEAN Planning SAP SCM Add-ons SAP AG Standard Applications in SCM and ERP Figure 3.10 LEAN SCM Planning embedded in an existing ERP and SCM planning environment with add-ons. The key challenge regarding end-to-end tactical supply chain planning is to achieve real-time visibility into capacity and inventory. Companies already using integrated global supply network planning (SNP) on top of their ERP systems are well-prepared for the next step: adapting the new LEAN SCM Planning approach to global planning. To provide the right system support, however, we added an IT-enabled planning decision support component for regular tactical supply chain parameter (re-)configurations on top of SNP. In LEAN SCM Planning, there is also an additional need for IT capabilities to support the evaluation of demand variability. Based on demand variability data, it is necessary to undertake segmentation of the entire product portfolio and classify it according to the most appropriate supply chain channel and supply mode, resulting in a differentiated customer–supply interaction matrix (see Sections 5.1 and 5.2). Once this preparation is in place, the next step is to “plan for variability” and decide on the right buffer size for capacity and inventory according to the identified variability, lead times, and assigned service levels in the individual customer–­supply channels. 80 LEAN Supply Chain Planning Therefore, the first planning application built as an add-on was an inventory target-setting tool to enable dynamic IRL calculations. This was further supported by optimization capabilities for multi-echelon inventory target-setting. In addition, the optimal inventory levels depend directly on the Rhythm Wheel-managed cycle times. Furthermore, both cycle time and inventory targets must align with the global takt to achieve end-toend product flow synchronization (see Section 6.3). We have consolidated all these functionalities under the umbrella of a tactical renewal cockpit, providing decision support for the end-to-end parameterization of supply planning processes. Simulation and what–if analysis features have been embedded into the tool to make optimal evaluation of scenarios possible and provide options regarding supply chain performance. Companywide visibility and standardization remain a barrier for the classical product wheel approach that is applied in many companies; product wheels are managed either manually or based on individually developed local Excel solutions. In contrast to those local and often isolated solutions, we have envisioned leveled flow with multiple Rhythm Wheels that are synchronized to a global takt in a flexible fashion. Consequently, an IT-based solution is required for global standardization and also to enable a company to stay nimble when adapting Rhythm Wheel parameters in the face of unpredictable planning dynamics. At the local plant level, the Rhythm Wheel Designer has been added to existing tools such as the SAP SCM PP/DS application. This tool supports planners effectively in identifying and configuring the best production sequence, production quantities, and cycle times for their Rhythm Wheels. Later, these preconfigured plans are combined with actual pull replenishment signals during local LEAN Rhythm Wheel Planning runs to generate only consumption-based production orders. If the designed cycle time boundaries are violated during execution, planners can apply a short-term Factoring heuristic to move back within the designed boundaries. The Factoring functionality provides the required flexibility for “reacting to volatility” caused by short-term supply disruptions or unforeseen market events. However, deviations between the forecast-based Rhythm Wheel design parameters and the executed, consumption-based Rhythm Wheel schedule will always remain. To monitor such deviations and overall ­performance, we developed the Rhythm Wheel Monitor. Here, we monitor cycle times, run-to-target results, capacity utilization, and IRL development. Now planners can continuously evaluate the adherence of executed plans to the Fundamentals of LEAN SCM Planning 81 optimal preconfigured Rhythm Wheel set-up. The same locally monitored data—cycle time variation and inventory developments—are passed on to the global supply chain level to allow for end-to-end supply chain synchronization. IT-empowered planning standardization and global visibility will give the new LEAN SCM Planning concept staying power rather than being only a temporary fashion in SCM, providing the benefits we outline next. 3.3 How LEAN SCM Planning Drives Corporate Success in the VUCA World As discussed above, traditional planning has worked well enough in predictable and stable business environments. To withstand the challenges of the VUCA world, however, a shift in the planning paradigm is required. Overall, LEAN SCM directly addresses the root causes of poor customer service and weak financial performance in a company’s operations—by actively managing variability. In this section, we highlight the benefits your company will gain when changing its planning paradigm, resulting in better customer service, better asset performance, and lower inventories along the end-to-end supply chain. By changing the rules of the game in supply chain planning, your company can: Create a step-change in supply chain performance. Turn customer satisfaction into a competitive advantage. Let your supply chain drive financial success. 3.3.1 Creating a Step Change in Supply Chain Performance Today, supply chains have to compete along several dimensions to successfully contribute to a company’s market success. Although shareholders continually expect cost reductions all over the globe, competing on cost alone is not sufficient for virtually any supply chain. To attract new customers and keep old ones, it is absolutely necessary to offer agreed service. Similarly, only a supply chain that acts in a timely and flexible way will have the agility and resilience to withstand the turbulent times of today’s VUCA world. LEAN SCM helps your company increase its competitiveness along the four key dimensions of supply chain performance: cost, time, flexibility, 82 LEAN Supply Chain Planning Cost Service Variability Old supply chain performance Time Flexibility LEAN SCM performance Figure 3.11 LEAN SCM improves on the key dimensions of supply chain performance. and service (see Figure 3.11). To this end, LEAN SCM actively addresses the key root causes of “performance waste” in a supply chain. By addressing variability, uncertainty, complexity, and ambiguity in supply chain planning and management, it raises the level of performance along all key supply chain dimensions described above. However, LEAN SCM goes beyond short-lived cosmetic corrections and ad-hoc changes. By introducing a paradigm change in supply chain planning, LEAN SCM creates a true and sustainable step change in supply chain performance. Take for example variability, which causes so many issues in today’s supply chains. Most supply chain organizations and the people therein are simply overwhelmed by frequent changes in supply and demand patterns. Existing supply chain planning processes and systems struggle to keep pace with these changes. By reducing variability along the supply chain, your company can rid itself of these issues, effectively supporting the organization and its people, and make more out of the planning systems already in place. 3.3.2 Better Service Leads to Customer Satisfaction and True Competitive Advantages Your company’s supply chain is the key interface with its customers. A well-run supply chain ensures that customers receive the right product at the right place in the right quantity and at the right time. In life science industries, ensuring a stable and reliable drug supply is more than just Fundamentals of LEAN SCM Planning 83 a business-related challenge—it is an ethical and legal obligation. Many companies thus regard best-in-class service as integral to business success. However, high levels of customer satisfaction do not happen automatically in the VUCA world. The factors that affect customer satisfaction must be addressed proactively. As product portfolio differentiation increases and market developments become ever more dynamic and uncertain, managing variability has become a major challenge along the entire supply chain. If variability is not addressed adequately, reliability will suffer and there is a substantial risk of poor performance in key determinants of customer satisfaction, such as maintaining high service levels and avoiding stock-outs. LEAN SCM addresses and reduces variability along the supply chain effectively. By “dampening” the variability and triggering production based on real consumption instead of unreliable forecasts, it becomes possible to “calm the supply chain” and reduce unwanted fluctuations in production and replenishment. The rewards are substantial. A 30% reduction in variability goes a long way as it directly increases service levels or reduces the risk of stock-outs in your company’s supply chain by more than 60% with no additional investments needed (see Figure 3.12). Impacted KPIs Top-line impacts Order fulfillment lead time Perfect order fulfillment rate Customer satisfaction Service level Customer loyalty sales price premium Stock-out risk Supply chain response time Example of improvement lever +5% Service level improvement –30% Variability reduction Figure 3.12 How LEAN SCM raises customer satisfaction. –60% Stock-out risk reduction 84 LEAN Supply Chain Planning 3.3.3 World-Class Operational Supply Chain Performance Means Financial Success Beyond raising your company’s customer service levels, improving supply chain planning through LEAN SCM also contributes to better overall financial performance. In this sense, planning forms the backbone of SCM as it ensures that production assets and working capital are deployed efficiently and effectively. These are among the sustainable benefits of better planning (see Figure 3.13). Consider again the impact of variability. Many supply chain managers worry that their supply chains need to carry higher and higher inventories to buffer rising variability along the supply chain and ensure continuity of operations. In many cases, up to 50% of all inventories can be traced back to the need for protection against such variability. And the truth is those inventories often cannot be reduced without negatively affecting the desired customer service levels. Therefore, LEAN Supply Chain Planning is designed to address the roots of variability. LEAN SCM thereby goes beyond eliminating the obvious Impacted KPIs Balance sheet/P and L Manufacturing losses Operations effectiveness Planning effort Cycle stock Working capital Return on assets Inventory turnover Cost of goods sold Inventory Safety stock Asset utilization stability Operations efficiency Asset OEE and throughput Example of improvement lever +7% Asset utilization improvement –30% Variability reduction Figure 3.13 How LEAN SCM improves key financial indicators. –40% Safety stock reduction Fundamentals of LEAN SCM Planning 85 sources of waste and inefficiency in a supply chain such as overproduction or redundant operations and activities. By introducing the LEAN SCM paradigm change in planning, variability itself is reduced by active “dampening” on assets, “funneling” orders through Rhythm Wheels, and “calming the supply chain,” which in turn reduces the immense cost involved in buffering variability. For instance, reducing variability in demand signals by 30% reduces safety stocks by around 40%, based on the typical mechanics of a company’s inventory management system. Similarly, more effective variability management also reduces the need for costly capacity buffers. Thus, by changing the underlying planning problem, companies can unlock new opportunities to improve financial performance and master the challenges of the VUCA world successfully. To summarize, improving supply chain planning also raises financial performance. By improving operational efficiency, effectiveness, and inventory deployment, your company can significantly reduce both the cost of goods sold and working capital consumed. And variability is just one root cause of “performance waste” that is actively addressed by LEAN SCM. As a holistic planning and management approach to supply chains, it also provides a new way to cope with the uncertainty, complexity, and ambiguity that are inherent in today’s VUCA world. Considering the often high value of inventories and production assets as well as the total costs that are directly linked to operations and the supply chain, LEAN SCM is a necessity for corporate success. Chapter Summary Many companies struggle to adapt supply chain planning to the new business realities of the VUCA world. LEAN SCM provides a paradigm shift in supply chain planning; it is designed to enable planning to cope successfully with today’s variability and complexity in supply chains by providing new planning concepts that are fully integrated into a company’s corporate IT systems and supply chain organization. To pave the way for a true step change in supply chain performance, companies need to overcome the multiple drawbacks of traditional MRPbased planning and its variants in ERP and APS solutions. Furthermore, they need to adapt conventional lean approaches to the new reality, so they 86 LEAN Supply Chain Planning can support global supply chain synchronization. To achieve these objectives, five building blocks of LEAN SCM are fundamental: The introduction of High-Mix and Breathing Rhythm Wheels makes it possible to smooth variability and limit volatility propagation upstream, two areas in which standard product wheels fail. Two-sided variability management allows companies to efficiently buffer both demand and supply variability in inventory instead of relying solely on very costly buffers in capacity. Effective alignment of inventory targets and cycle times allows companies to introduce a global takt in manufacturing and achieve true global supply chain synchronization. The separation of tactical and operational planning functions reduces the need for unrealistically high levels of forecast accuracy and reduces planning complexity considerably. The full integration of all LEAN SCM concepts into organization, processes, and corporate IT systems through dedicated planning add-ons guarantees sustainable change. On the basis of these building blocks, companies can bring together planning paradigms that are often seen as conflicting: LEAN SCM introduces lean flow along the supply chain, but ensures high agility to respond to changes in the business environment through effective variability control mechanisms. High response capabilities toward business changes also provide greater resilience along the entire supply chain. In this way, the LEAN Supply Chain Planning paradigm combines leanness, agility, and resilience for sustainable SCM. The Lean SCM Planning framework represents a step change in supply chain performance. Several industry cases in this book confirm that process industries can achieve substantial improvements in customer service and key financial figures. All these examples from leading chemical and pharmaceutical companies show that LEAN SCM can provide a decisive competitive advantage in process industries.