1. Getting ahead through
Six Practices
Practice 4
Supply Chain Consultancy
Implementing the principles of the
lean value chain
McKinsey & Co, with Georgia Tech respond to changes in customer demand or
College of Management, have identified six supply interruptions. In reality, the removal
‘leading practices’ that drive supply chain of waste and wasteful activity usually results
performance and that allow companies in a more capable and thus agile supply chain.
which excel in these areas to dominate in Hence at Unipart we disagree with McKinseys
terms of service, cost and inventory. Here, on the need for a purely ‘lean’ supply chain and
Derek Thomason, Martin Green and Martin we use the term ‘supply chain capability’ to
Haynes of Unipart Expert Practices (UEP) describe the amalgamation of Lean and Agile.
look at how the fourth of these practices However, this is semantics and the key issue is
–the lean, end to end value chain – can be how to develop a supply chain that is truly fit
implemented. for purpose.
In its simplest form ‘Lean’ is the systematic
removal of waste. On the other-hand ‘Agile’
is usually interpreted as the ability to rapidly
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2. Designing for supply chain capability brings together characteristics of both Lean and Agile and
helps to ensure that the appropriate approach is used at the right time. There are generally
regarded as being five principles of Lean, usually listed as:
 Focus on Customer Value, i.e. what the customer is willing to pay for
 Understand your processes and standardise them
 Smooth the flow of work
 Pull work through, don’t push
 Strive for perfection by eliminating waste (anything that doesn’t add value) through continuous
improvement.
The characteristics of Agile supply chains include:
 Virtuality - using information as a substitute for inventory
 Process integration - collaborative working using common processes and systems.
(This is a key feature of Unipart’s lean operating system)
 Networks - confederations of partners linked together as a network
 Market sensitivity - capturing and responding to real ‘native’ demand
Figure 1. Lean Vs Agile in different environments
 Postponement - configure ‘close’ to the customer.
In general the Lean principles apply equally to ‘Agile’, albeit with some modification.
For example, where demand is exceptionally volatile or unpredictable. In any business,
Make to Order Make to Stock it is possible to take the best from both philosophies to met customer needs. Indeed,
Volatility / difficulty
Hi it is possible that within a single business, there may be a need to accommodate both
Agile Agile
approaches. Figure 1. shows where these different philosophies many be employed. Most
businesses will have products in more than one segment. Indeed, a single product may
move between segments if (for example) it is placed on promotion for a short period.
The most capable supply chains are those that are able to adopt different processes or
Make to Order Make to Stock philosophies to meet different circumstances, which themselves may change with time.
Low
Lean Lean At Unipart, Lean and Agile have been combined, enabling the company to help clients
to determine how best to meet customer demand and prioritise where resources for
delivering improvement should be directed – creating a Capable Value Chain.
Low Hi
Tools for Implementing a Capable Value Chain
Service levels / Importance Value Stream Mapping
Not all activity in the supply chain adds value, in fact, the amount of value adding time
is frequently less than one per cent (from a customer perspective). Value stream mapping is an
important tool in understanding how the supply chain operates, where resources are used and
how value builds up through the chain.
At Toyota this is known as “Material and Information Flow Mapping”, and they teach three flows,
material, information and people/process. Value Stream Mapping is important because it:
 Enables people to visualize more than just the process, it helps you see the flow
 Helps to identify waste
 Forms the basis for an implementation plan
 Identifies the link between the information flow and the material flow
The true benefit of developing a Value Stream Map is that it is a major tool for engaging the
management team. It provides the opportunity to identify bottle necks and problems. It provides
the tool to suggest improvements to the process. It also quantifies the key performance
characteristics of the process, including the proportion of Value Added to Non Value Added time.
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3. Supply Chain Diagnostics
Most companies structure their data flows and management reports either to plan the supply
chain or monitor execution, but there is a third dimension which is equally, if not more, important;
this is improving the supply chain.
Improving the supply chain starts with characterisation. By this we mean getting a basic
understanding of the infrastructure, routes to market, dynamics and business partners involved in
the supply chain.
It may seem strange that organisations can not readily characterise their supply chains but
consider how difficult it is for you to determine the total number of SKU’s on a global basis, the
number of customers, how many suppliers you have, order lines per year, total time in system, etc.
More importantly, few businesses have identified where and when the need to apply ‘Lean’ and
where and when they need to be ‘Agile’.
We have developed a set of data based supply chain diagnostic tools that help companies
understand where opportunities exist in their supply chain and what can be done to realise
benefit.
These tools include:
 Simple infrastructure mapping and material flow techniques
 Cost / activity driver identification, i.e. the primary, secondary and in some cases
tertiary sources of work
 Stock profiling - what is active, obsolete and excess
 Schedule adherence
 Demand analysis
 Service type definition and measurement
The output of this analysis is often revealing. For example, some businesses sell as much as 70 per
cent of their products ‘on promotion’ (and therefore require agile processes), but have systems
and processes designed to support Lean.
End-to-End Supply Chain Optimisation
Supply Chains consist of a complex array of interdependent entities. Making improvements at a
local level in a particular operational ‘silo’ may be beneficial but it will probably have unintended
consequences elsewhere in the chain. Companies must take a more holistic view of the end-to-
end supply chain to deliver benefits, identify where the largest opportunities exist, realise cash
savings that are not available at the functional level, and to ensure that improvements in one area
do not result in costs elsewhere.
End-to-end optimisation should also include business partners. For example, Unipart uses its
‘Hearts and Minds’ programme to work with customers in the same way that its Ten(d) To Zero
Supplier Relation Management encourages benefits delivery across inter-company boundaries.
End-to-end optimisation considers all aspects of the value delivery chain and therefore includes
inventory deployment (where, how much and in what form stock should be held), production
strategy (should products be made to stock (MTS), make to order (MTO), etc), how process
steps should be balanced, capacities required, systems functionality, data availability, and where
outsourcing would be a viable option, to optimise the delivered cost per unit.
The ‘Lean tool-box’
There are many tools developed to support a Lean environment, and the majority of these are
equally appropriate to an Agile environment and are therefore essential for developing a ‘capable
supply chain’. Key tools include Creative Problem Solving, ‘5 S’, Standard work, Communications
cells, Visual management, and several others.
In our experience, the deployment of these tools depends more on the culture and capability of
the management teams, than on the ability of the workforce. It therefore follows that changing
cultures (mindsets and behaviours) is a key element of implementing capable supply chains.
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4. Capable Supply Chain Analysis
We saw in article 1 of this series how important it is for a supply chain to support the strategic
goals of the business. (link to article1). Therefore, the supply management system should enable
the development of plans which support business goals, monitor the viability and execution of
plans and schedules at all levels and simultaneously capture the data required to drive continuous
improvement. In addition, we need to track performance against targets and react when
performance is outside control limit rules. This latter point is a key element of Six Sigma.
Process Capability Indices (Cpk’s) can be developed that show how likely or capable the
process is of delivering results within prescribed customer limits. For example, a capability index
of 1.0 means that the process mean is three standard deviations from the nearest customer
specification limit. This concept can be applied to the entire supply chain.
If your Cpk is 1.0 then your process may need attention. If it is 1.5 you are on the path to
excellence. And if it is approaching 2, then you have an outstanding process.
Determining capability is appealing as it means that we know when a process is running well
or when some work is required. We are gathering data to help us, and this means that we can
design a process that is capable for the task – removing the potential for crises!
Even so, we need to relate performance back to the end-customer. The key questions are: Can
everyone in the supply chain see the effect of their performance on customer service? Do they
understand whether they have done enough to fix a problem? What is the overall process
capability (assessed by comparing the process variability to customer needs)?
Supply Chain Excellence Framework
Unipart has developed a Supply Chain Excellence Framework which has been deployed to help
companies identify best practice, determine their current state through the use of internal and
external audits, and develop a road map for improvements.
The framework typically consists of 5 core elements, (although, it can be up to 10) each
containing a number of sub-categories. Core elements include:
 Strategy development and deployment
 End-to-end supply chain management
 Competence and people development
 Systems and technology
 Continuous improvement and sustainability
Within each element is a set of specific topics. Each topic has six range statements which indicate
the typical characteristics and features of companies
at
Strategy development each level of development. These statements also
include suggested Key Performance Indicators (KPI’s)
4
and attainment targets. A typical output is shown in
Figure 2 and helps identify the areas requiring the
most attention. In our experience this is often in the
area of competence and people development.
0 It is worth pointing out, finally, that the ‘capable
supply chain’ techniques we have been discussing
Continuous Improvement
and sustainability E 2 E SC management
-4
Figure 2. The areas of strength and
weakness in a companies supply chain
Systems and technology Competance and People
development
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5. in a manufacturing environment can be applied with great success to administrative and clerical
environments, and to support services such as accounts, HR and even IT.
Conclusions
There are many tools and techniques available for implementing capable supply chains. These are
well documented, and supported by many consultancies.
However, in our experience, the major issue in implementing these processes in any business is
the culture in which the change is being attempted. Some businesses have a culture of support
and collaboration, and will adopt new techniques and philosophies quickly. Other organisations
operate in silos and are less able to cooperate constructively with other parts of the supply chain.
A recent report by Cranfield School of Management confirms this by concluding that “people
barriers are much higher then technical barriers. (1)
End-to-end thinking has a powerful affect on supply chain cost. Companies that use this approach
can capture savings that are simply not accessible to those that only optimise within functional
or regional silos. The challenge is to ensure that managers can see the potential benefits and are
energised to implementing the necessary changes – often in the face of contrary attitudes and
behaviours.
Unipart Expert Practices
As the consultancy arm of Unipart Logistics, Unipart Expert Practices (UEP) provides supply
chain consulting services. UEP has particular areas of expertise in process re-design, sustainable
employee engagement, supply chain strategy, design and operation. UEP’s clients include Shell,
Home Delivery, ESAB, Network Rail & Sky.
The next articles in this series, together with any other publications from our quarterly
publication Living Logistics are available from the Thought Leadership section of our web site.
www.unipartlogistics.com/consulting
For more information contact:
Unipart Expert Practices
Unipart House, Garsington Road
Cowley, Oxford
OX4 2PG
Tel: +44 (0) 1865 384690
uep.enquiries@unipart.co.uk
or visit our website:
www.unipartlogistics.com/consulting (1) Supply Chain Strategy in the Boardroom. 2010. Cranfield University
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