Lean supply chain management is not exclusively for those companies who manufacture products, but by businesses who want to streamline their processes by eliminating waste and non-value added activities. Companies have a number of areas in their supply chain where waste can be identified as time, costs or inventory. To create a leaner supply chain companies must examine each area of the supply chain.
Many businesses have complex purchasing operations because they believe that their purchasing needs are complex, but this is not always true. Large companies often have corporate purchasing groups as well as local purchasing, which means that at the headquarters they may have a purchasing department that dictates policy to the local purchasing groups. Quite often the purchasing function at the headquarters is duplicated at the lower level and there is a waste of resources. By having two purchasing departments, central and local, vendors can often be given different information. They can be given multiple contracts, one central and many local contracts that can lead to variations in prices depending on location. This varying information can cause multiple records to be stored on computer systems, so that employees do not know which vendor is the one that they should use or be in contact with. Overall multiple purchasing departments can lead to significant waste within the organization. The companies that practice lean supply chain management reduce their procurement function so that each vendor has one point of contact, one contract and offers one price for all locations.
Businesses are looking to new technologies to assist them in improving procurement processes. These include internet based purchasing that allows requisitioners to purchase items from vendor's catalogs containing company wide contract prices. Changes in payment options to vendors can also streamline processes. Companies that use a two-way match, which is payment on receipt rather than payment on invoice, will reduce resources in their purchasing department as well as improve supplier relationships.
Lean supply chain management gained popularity in the manufacturing area, as this is where significant improvement can be achieved. Manufacturing processes can be improved to reduce waste and resources while maintaining operational performance. Quality is an important part of lean manufacturing. Having zero defects in the manufacturing process reduces waste and increases efficiency within the organization as a whole. With greater quality customers will no longer return goods, which means fewer resources will be needed for returns and quality issues. Companies who have adopted lean supply chain practices have examined each of their routings, bill of materials and equipment to identify where improvements can be achieved.
Warehouse processes should be examined to find areas of eliminating waste of resources and non-value added steps. One area the companies should always be working on is the reduction of unnecessary inventory. The accumulation of inventory requires money and resources to store and maintain it. By reducing unnecessary inventory, a company can minimize warehousing space and handling, in turn reducing overall costs.
Businesses who want to implement lean processes often look to their transportation procedures to see where they can be streamlined. In many instances companies find that their efforts to improve customer satisfaction leads to poor shipping decisions. Orders are shipped without combining additional orders to minimize costs or expensive shipping options are selected because of a customer request. Businesses often find that they are using a number of shippers unnecessarily when they could be reducing their shipping options and reduce overall costs.
Lean supply chain management requires businesses to examine every process in their supply chain and identify areas that are using unnecessary resources, which can be measured in dollars, time or raw materials. This will improve the company's competitiveness as well as improve the company's overall profitability.