The world market today is characterized as an intense competitive market. The ongoing process of globalization, privatization and free trade has been pressurizing the firms to compete at global level at all possible fronts. Improvements of internal processes are no longer sufficient. In a competitive market the threads of both efficiency and responsiveness span across the chain of raw material to the end user. A slack at any point of the chain could impact the competitiveness of the firm. The domain of competition has shifted to the entire supply chain. Firms that can effectively manage the supply chain by aligning it with the competitive strategy of the business can enjoy a competitive edge over the others. One of the core aspects of effective supply chain management (SCM) is developing lean culture in the extended supply chain.
According to a McKinsey Research report companies with high performing supply chain achieve an edge over its competitors through effective management practices[1]. Deloitte sees lean supply chain management as a practically implementable practice that could create significant shareholders value. Bain and Company claims that rapidly emerging technologies, industry consolidation through merger and acquisitions and shorter product life cycles have made supply chain management a complex and dynamic challenge[2]. Firms that have understood the complex issues of supply chain integration and have acquired the management expertise to inculcate lean culture in their supply chain can achieve low cost advantage coupled with higher responsiveness. A well-designed, systematic and integrated supply chain with lean culture becomes an edge when it comes to competition. Such a competitive edge will be difficult to imitate and the firm with the right supply chain strategy will lead the market. Thus, supply chain is no longer being seen as a pure cost reduction centre, but a platform to create value for all the stakeholders of the firm. Achieving competitive edge through lean supply chain requires broad strategic approach based on a long term view.
Concept of Lean Culture
The term lean essentially means a systematic approach to identifying and eliminating waste through continuous improvement for achieving customer satisfaction[3]. The concept related to lean has been discussed under different terminologies including Toyota Production System (TPS), Just-in-Time (JIT), Short cycle manufacture, stockless production, value adding manufacturing, focused flow manufacturing. The underlying concept behind all these terminology is same and has been used as lean culture in this paper. In lean culture anything that is not contributing towards customer value is considered as waste. For example Toyota considers anything other than the minimum amount of equipment, materials, parts, space, and worker’s time, which are absolutely essential to add value to the product as waste. Waste in a supply chain includes overproduction, waiting time, non-value added processing, transportation, inventory, underutilized manpower.
Lean Culture for Competitive Edge
Unfortunately the understanding and implementation of lean supply chain management concepts are at a crude state. Many firms view supply chain a way to achieve high speed and low cost. But supply chain is a broader concept and covers multiple business dynamics beyond high speed and low cost. Firms that focus only on speed and efficiency may lose out due to piling inventory moving away from the lean culture. On the other hand companies like Amazon, Dell and Wal-Mart have cracked the codes of SCM through lean SCM concepts.
The research of Inman at el. has proved that lean supply chain management has a direct positive relationship with agile manufacturing, agile manufacturing has a direct positive relationship with operational performance of the firm, and the operational performance of the firm has a direct positive relationship with the market performance of the firm[4].
Inculcating Lean Culture in Supply Chain
Various consulting firms including McKinsey & Company, Bain and Company, BCG have analyzed supply chain related industry best practices to develop lean culture in the entire supply chain of the firm. Some of the dominant industry best practices conducive to lean culture are:
· Link supply chain strategy with company strategy
Once the business strategy and competitive strategy are decided it is imperative to align the supply chain strategy with the business strategies. The competitive strategies could be mapped with the supply chain requirements. The strategy at the business level could be divided into smaller supply chain process and sub-processes. Aspirations and expectations needs to be communicated at each sub-process level.
· Modify supply chain design for strategic fit
All products in a supply chain do not necessarily have the same level of profitability, complexity and flow dynamics. Hence, the supply chain could demand segmentation and design modifications. Value adding sub-processes needs extra emphasis while the non-value adding sub-processes could be truncated. Customer service requirements, efficiency-responsiveness trade offs are crucial decisions that decide the degree of strategic fit.
· Build strong planning and forecasting team
Accurate planning and demand forecasting will eliminate wastes, improve both efficiency and responsiveness. However, these activities within an organization will require the Herculean attempts of integrating the operations, sales and finance functions together. The same model has to be integrated with other players of the chain. Only collaborative planning can minimize the errors in forecasting and planning.
· Role Assignment and Accountability
The responsibility, authority for each sub-process has to be identified. The responsibilities and accountability should be documented in unambiguous term. The reporting structure, final decision authority should be clear within the supply chain.
· Performance evaluation, Feedback and Continuous Improvement
Evaluation of the performance is critical for improvements of the supply chain practices. The performance of various processes and sub-processes needs to be evaluates against the previously decided objectives. Evaluation process will generates feedback for the entire model. After analyzing the performance gaps and feedback, the required modifications could be implemented in the supply chain for continuous improvement.
The whole set of the above mentioned activities helps the firms to eliminate non-value adding activities shifting focus to the areas that add value to the final customer.
Developing Components of Lean Supply Chain
Tompkins Associate has identified the components of lean supply chain. These are: Lean supplier, lean procurement, lean manufacturing, lean warehousing, lean transportation and lean customers[5]. Lean culture will be required to target each component of the lean supply chain.
Lean Suppliers: Suppliers must be viewed as integral part of the organization’s value stream. Lean suppliers could be developed by encouraging suppliers to make the lean transformation. Suppliers should be involved in lean activities. This will bring suppliers closer to the organization. Environment of trust and collaboration will impact quality and service positively.
Lean Procurement: Visibility is considered as the key to lean procurement. Both the organization and its supplier could be able to visualise the prospects of one another. Current value stream could be mapped to identify the needs of future value stream in the procurement process. Again efficient flow of information and collaborations are the backbones of lean procurement.
Lean Manufacturing: Developing lean manufacturing requires a simple manufacturing system, recognizing the scopes of continuous improvement in the system and implementing improvement process wherever necessary[6]. A lean manufacturing system seeks feedback from the members of the supply chain process improvement and process modification.
Lean Warehousing: Waste in the warehousing process many times goes unnoticed. Typical warehousing wastes are defective products that create returns, unwanted motions and movements, non-value adding processing steps, waiting for parts/information. Unnecessary, repetitive and non-value-added activities of the warehousing should be identified and eliminated.
Lean Transportation: Value stream mapping, efficient information flow, pull process with customer management are critical for lean transportation.
Lean Customer: Identifying lean customers is one of the most critical dimensions of nurturing lean culture in the entire supply chain. Lean customers understand and express their needs and requirements. They value performance, accuracy, agility and resiliency. They add value by proving useful feedback for continuous improvement and also form long reliable partnership with the organization.
Leadership for Lean Culture
Lean culture in a supply chain will require the commitment of the brand owner/supply chain leader. Then only the culture of lean can be sustained and percolated through the chain. The leader of the chain must be committed to long term lean strategy. In addition the leader organization must demonstrate its concerns to indulge each player of the chain in the lean journey. The responsibilities of the leader organization include: clear communication for the need of lean culture, provide a vision that can integrate all the members of the supply chain, presentation of the benefits of the bigger pie to all, addressing the issues of job security and organizational change, fixation of measurable objectives and periodical review of the progress.
Hult at el. have examined the effects of transactional and transformational leadership between corporate buying centre and supply chains[7]. Formalization, centralization, participative and reflective were used as controls in their study. Their findings indicate transformational leadership has a positive moderating effect on the relationship between the value of the corporate buying center and performance, while transactional leadership negatively moderates this relationship.
Designing Organization Structure for Lean Supply Chain Culture
Excessive formalization and centralization of the SCM department within a firm might interrupt complete SC integration and performance improvement[8]. However, some range of control by the SCM department is required to build the foundations of integrated supply chain management. Intermediate organization types such as Functional and Process Staff organization maintains adequate balance and harmony with other functional areas and at the same time it controls, adjusts, and integrates various SCM activities effectively. Such organization types are advisable for lean supply chain management. Some literatures suggest considering hybrid organization types (hybrid of high formalization-centralisation with low formalization-centralisation) for best nurturing the culture of lean supply chain management[9].
Formal communication is positively related to innovation adoption, while centralization is negatively related to adoption of IT innovations[10].
Building Trust in Lean Supply Chain
Trust is a significant predictor of positive performance in lean supply chain. Panayides at el. have evaluated the effects of trust on innovativeness and supply chain performance[11]. Their findings have added credence to the positive effects of trust in lean supply chain management. Handfield at el. have suggested that to build relationships based on trust, suppliers must invest in site-specific and human assets, and buyers must judiciously apply contracts to control for relative levels of dependence within the relationship[12]. They have also demonstrated that buyer-dependence, supplier human asset investments, and trust are all positively associated with improved supply chain responsiveness. Their findings reveal even when buyers do not have a great control over their suppliers; working to build trust within the relationship improves supplier responsiveness.
Deployment of Information System
Information technology (IT) has emerged as a tool to integrate the supply chain to achieve lean culture. The ever increasing complexity in achieving lean supply chain due to information constraints is minimised through the deployment of information and communication (ICT) tools. Electronic Data Interchange (EDI), Internet etc. are examples of such tool. Gunasekaran at el. have provided a framework for deployment of IT for effective SCM[13]. Their framework addresses the critical issues of strategic IT planning, vertical enterprise, E-commerce, IT infrastructure, Knowledge management, IT implementation.
Enterprise application software providers like SAP and Oracle have developed industry specific, solution specific SCM software packages that help to integrate supply chain to achieve lean culture. The SCM solution providers like PricewaterHouse Coopers, Deloitte, IBM, Oracle Consulting etc. help organizations to implement the SCM softwares by making them to adapt to industry best practices, change management etc. SCM application packages and SCM consultants have helped organizations across the globe to initiate and maintain lean cultures.
Evaluation of Lean Supply Chain
Li & Fung’s Lean Culture: A Case
In view of stringent global consumer scrutiny, Li & Fung has developed a strict compliance program with ethical sourcing standards. The group encourages a rigorous Code of Conduct for the entire chain. Systematic inspections, audits and supply chain education ensure production from socially responsible suppliers.
The lean culture of Li & Fung is best reflected in its Inventory day and Fixed-asset turnover ratio. The Inventory day is the average number of days goods remain in inventory before being sold. For Li & Fung despite the gamut of product varieties, the figure has constantly being less than 10 over the last 10 years. Fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-assets like plant, land machinery etc. Li & Fung due to its lean culture has been able to increase its fixed-asset turnover ratio over last 10 years. This means the lean culture supply chain of Li & Fung has been helping them in more effective use of fixed assets to generate revue.
Conclusion
Driving lean culture in supply chain management for competitive edge requires supply chain orientation that can identify the inter-dependence of various factors. Driving lean culture demands alignment of all functional departments within the organization. Role of finance, IT, HR, Marketing and HR are interknitted when it comes to achieving competitive edge. The ability of an organization to manage and steer the intra-organization and inter-organization factors within the supply chain can provide the desired edge over the competition. However, such edge will be sustainable only with continuous improvement and customer orientation.
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