Guiding principles of Lean Supply Chain Planning
First, we want to introduce you to major LEAN planning concepts and present to you formulated central principles to adopt in the design of the new supply chain planning paradigm. They will guide us in a framework development and offer a first impression of the conceptual basis on which we built LEAN SCM. These principles provide first thoughts leading on how we recommend facing VUCA challenges in tactical and operational supply chain planning. We consolidated these principles and grouped them into three areas, offering an opportunity for some early reflection on several critical questions:
LEAN Demand Planning
How to cope with rising demand variability and uncertainty in planning?
Predicting the future has always been a challenge. Reflecting our own experience and looking back on current demand management practice in companies we have worked with, we have to admit that most of these companies seek perpetually to predict future demand but continually fail to do so with sufficient accuracy. However, in today’s VUCA world forecasting accuracy is more difficult to achieve than ever. The search for new ways to approach planning and forecasting is therefore on many supply chain planners’ agendas. So how can companies cope with this forecasting dilemma?
We recommend the following three principles to guide SCM into the future:
- Accept uncertainty and eliminate the need for certainty—put the forecast accuracy myth aside
- Obtain better aggregated demand views—be better prepared for consumption-driven supply
- Stop using forecasts to trigger manufacturing—it’s better to respond to real consumption based on pull
LEAN Supply Planning
How to establish firmer control of supply volatility and supply reliability?
Today every supply chain faces increasing variability and uncertainty. Companies have to plan much more thoroughly for these factors. Furthermore, they need to create and utilize appropriate buffers in inventory and capacity. Yet most companies lack the required processes and systems for developing adequate safety stocks and an effective capacity buffer strategy. Nevertheless, companies can either choose for themselves how to buffer against variability or this will be ‘chosen’ for them; when it is ‘chosen’, it will show up in the form of lost sales, late shipment penalties, and a more chaotic supply chain. So, we recommend being better prepared for increasing variability by applying LEAN Supply principles:
- Manage demand spikes with planned and right-sized safety stock buffers
- Level production to create flow and stabilize utilization
- Use cyclic production patterns to achieve a common takt and regularity in operations
The conceptual foundation for managing variability and leveling capacity utilization in local manufacturing sites is the cyclic scheduling with “product wheels”. Industry experts such as Ian F. Glenday, Peter L. King, and Raymond C. Floyd have already been able to connect the general lean (manufacturing) concepts, and the underlining elements of simplicity, flow and pull, with physical restrictions that are typical in process industries. These concepts have already been influential in many process manufacturing organizations. LEAN Supply Chain Planning builts on these experiences but needed to go further to apply product wheels in a high-product-mix and high-volatility environment—which we named “Breathing” and “High-Mix” Rhythm Wheels.
They are built around optimal product sequences and cycle times. One valuable conceptual advancement is the approach to manage variability with two control parameters: the minimum and maximum cycle time boundaries. With these new conceptual elements we are providing appropriate flexibility in manufacturing to enable companies to manage increasing market volatility, and we also hold the key for smoothing variability and volatility propagation upstream along the supply chain in our hands.
The online portal www.rhythm-wheel.com provides for the first time a summary of the most important information about the many benefits of the innovative Rhythm Wheel concept, and how it works to make production planning and management more efficient. And there’s a unique feature – the especially developed Rhythm Wheel Trainer enables portal users to “grasp” this topic, in the truest sense of the word.
How to master complexity and reduce ambiguity?
To overcome the shortcomings of traditional supply chain planning, companies seek alternative planning approaches. In recent years, lean concepts such as value stream mapping or kanban have become popular across a range of industries as potential alternatives to traditional planning and coordination in operations. When extending the lean approach along the entire supply chain, however, many companies find that lean practices tend to over-simplify global supply chain planning. Because lean concepts do not involve integration with corporate planning systems or planning across multiple plants and assets, these concepts appear insufficient for improving flow at the supply chain level and for supporting global supply chain synchronization.
In a LEAN end-to-end supply chain, demand and supply are synchronized. This ensures that the right product goes to the right place, in the right quantity, and at the right time. The following principles will enable a LEAN end-to-end synchronized supply chain:
- Separate planning activities and slice complexity for global synchronization
- Use ‘parameter-driven’ end-to-end supply chain planning
- Establish visibility and a collaborative environment for end-to-end synchronization
These principles will, of course, have far-reaching consequences for any traditional or conventional supply chain organization. In our publication on LEAN Supply Chain Planning we go further into detail and show how your company can put them into practice.