GLOBAL SUPPLY CHAIN MANAGEMENT
You Need to Create Lean
2011 marked a watershed year
in the way supply chain managers conceived of global practice. Natural disasters that
shook up traditional global
sourcing coupled with a growing willingness to rethink the
value of lowest piece-part pricing led companies to reassess
what it means to operate efficient, effective supply chains.
Companies are rethinking and
reconfiguring supply chains to
be more rational, regional,
practical, low in total cost and
risk, and high in fostering
quality and customer value –
moving toward rational, lean
—John Shook, chairman and CEO,
Lean Enterprise Institute
or the past two decades, much of the business world was in a rush
to de-integrate supply chains by outsourcing and offshoring.
Instead of analyzing and improving product value streams in
order to reduce total costs and provide better value for customers,
managers were searching the globe for suppliers who would quote dramati-
cally lower piece prices.
The objective was clear and simple: rapid and dramatic price reductions from
suppliers through a new negotiating tactic, using lowest global piece price —often
called “the China price”—as a hammer. Other trends, such as more sophisticated
software and transportation systems, contributed to the creation of massively complex supply streams that were hopelessly impossible to manage.
Today, the situation has transitioned dramatically. Currencies have shifted,
labor costs in many low-wage countries have risen steadily, suppliers in high-
wage countries have declared bankruptcy, and the potential for squeezing fur-
ther price reductions from suppliers is largely exhausted.
The challenge now is to turn unwieldy supply chain chaos into lean value
streams where value flows from raw material to customers with ever shortening
lead times, profiting both OEMs and suppliers.
Managers are starting to use lean management principles to totally rethink
supply chains by understanding and improving the underlying value-creation
process that suppliers share with their customers. Such principles include:
• Short lead times are better than long. In general, it makes most sense to
produce close to where you sell and to engineer close to where you produce.
And it certainly makes most sense to procure as close as possible to where you
produce for your customers.
• Less inventory with more frequent delivery is best.
• Avoid both single source and “numerous source” supply configurations.
Pursue dual sourcing for first and second tier suppliers.
Global purchasing chiefs, not to mention CEOs and other leading thinkers, will
continue to question long-established ways of conducting activities such as
sourcing, transportation, and scheduling. Some companies have started unraveling the unneeded complexity caused by 20 years of piece-price optimization,
and more will gradually follow. They will go back to the basics of starting with
the customer, defining value, and working backwards from there.