Agile more important than lean
Distributed business models require visibility, software-supported production methods
By Nancy Bartels, senior editor -- Manufacturing Business Technology, 5/1/2006 6:00:00 AM
Some industry experts are warning that simply being lean is not enough for manufacturers that work with extensive networks of supply chain partners.
"Lean works well in a steady-state environment," argues Christian Verstraete, a senior director at Hewlett-Packard (HP), who is widely recognized as a supply chain expert. The problem is supply chains are not that steady. Demand changes. Deliveries are delayed. Politics, business cycles, disruptive new technologies, and various acts of God can wreak havoc on carefully laid supply chain plans, leaving companies with lean inventories scrambling to meet customer orders.
The answer, according to Verstraete, is to go beyond lean and become agile—creating the ability to see, and react to, potential problems ahead of time. And how is this done?
The first step is implementing processes and solutions that offer a clear view—what the experts call visibility—into all supply chain operations, not just those at an individual company. "I don't understand how you can run a business without visibility," says Jim Preuninger, CEO of global trade management solutions supplier Management Dynamics, adding that visibility should include constant feedback on supply chain performance.
"You need actual data about your supply chain—how long it takes to move these goods along these trade lanes at this time of the year," Preuninger says. "Then you can go back to your planning [staff] and tell them specifically what those variables should be, and they can build better plans."
Gilles Bouchard, the executive VP responsible for managing HP's global supply chain, says becoming agile requires developing "lean nodes within a well-designed supply chain."
Kevin Steele, a VP with The Results Group, a supply chain management consultancy based in Mountain View, Calif., advocates a pragmatic approach: adopting lean one step at a time, reaping some benefits, and then moving on. "You don't have to have the ideal lean operation to achieve some of the benefits," he says. "Companies can be very successful when they adjust lean concepts to fit their model."
Software is essential
But Steele, unlike previous generations of lean consultants, advocates the use of software in lean endeavors. "Companies need software to forecast on a weekly basis, for example, or a planning system that takes the last three weeks of actual demand and modifies the forecast based on that. It's no longer nice to have these capabilities. You have to have them."
For J&E/Earll Manufacturing, Lakeville, Minn., a custom fabricator of sheet metal products, Easy Lean from Infor, a pull-oriented scheduling system, is the basis for the company's lean manufacturing initiative.
"Getting a scheduling system that worked was fundamental to doing anything serious regarding lean manufacturing," says Mike Hansen, CEO.
Easy Lean sets the manufacturing schedule based on a set buffer size. "We chose a standard buffer size of two weeks," says Hansen. "The scheduler looks at hundreds of orders and prints a report that shows which jobs you need to work on first based on how much time you have left in your buffer zone. If you need a job in one week instead of two, the scheduler automatically pushes it ahead in the schedule."
The result: "We've easily avoided having to add people as we've grown, while maintaining the same level of on-time delivery," says Hansen.
The information derived from the system also has provided the basis for J&E/Earll's next step in lean. "We're looking at our component offerings. We think we can identify upward of 25 percent of components we could combine to make in a lean cell," says Hansen.
On the other hand, Tucson, Ariz.-based turf care and golf course equipment parts supplier R&R Products has used lean manufacturing concepts for nearly 30 years, but just now is cautiously moving to bring the same principles to its supply chain.
"Service is a top priority with us," says Brian Larson, R&R's VP and CFO. "We're probably not as lean as we could be, but we don't want to stumble. We want to maintain that 98-percent to 99-percent fill rate."
The challenge for R&R is the seasonality of its products. "It's common to order the whole inventory of a certain item in the winter and have it on hand," says Larson. Using the demand-planning module from enterprise vendor IFS, and some 18-months' worth of order and inventory history, the company is working with 20 selected suppliers to order less product more often.
R&R has chosen products that, for the most part, it does not make, but only sells, because, Larson says, "A lack of raw materials can disrupt production more."
So far, the slow and cautious approach is paying off. R&R reduced its irrigation parts supply from several months to several weeks. It now orders 80 kinds of corrugated boxes on a daily basis. "We hardly have any packaging material on hand any more," says Larson. "It's brought over every day, and that has saved us a lot of warehouse space."
By the numbers
Planning and forecasting is only one piece of the lean and agile supply chain puzzle.
"Lean is all about cycle-time improvement. If you shrink the cycle time, you win," says Donal Alvine, VP of supply chain at Agere Systems,a global semiconductor manufacturer based in Allentown, Pa. "You take the traditional lean model for continuous improvement and push it out into the supply chain."
But continuous improvement requires metrics—key performance indicators (KPI), benchmarks, and performance statistics, says Management Dynamics' Preuninger. "Over time you want to compress cycles. The only way to do that is to be able to measure everything in your supply chain."
To achieve this balanced supply chain—one that is both lean and agile—companies are replacing inventory with information, says Gary Latham, marketing director for asset management and tracking vendor WhereNet. "Without the more sophisticated systems that lend visibility, you couldn't become super lean because you don't see what's happened."
This kind of visibility and real-time information exchange, however, ideally requires a common single process across suppliers, or at least a set of processes that fit together more or less seamlessly, says HP's Bouchard. Unfortunately, he says, most companies "have no infrastructure to do that." So a step in getting a lean supply chain is establishing connectivity with suppliers.
"If you think about the way business-to-business commerce has evolved, you could have 50 suppliers, each on a different platform, so when they interact with your advanced-planning or ERP system, they each come at you a different way," says Agere's Alvine.
Agere uses E2Open's Manufacuturing Visibility Software to link its extensive network of contract manufactures to a consolidated hub, so there is no need for individual connections. The system provides a complete view of outsourced manufacturing operations, from shipping material to suppliers through fabrication, testing, and assembly.
Using E2Open, Agere plans its supply chain daily. "We change the configuration of factories based on orders on a daily basis, due to the visibility we get into the supply chain," says Alvine. "We guarantee a 12-hour turnaround. Orders are sent to the advanced-planning system and are automatically acknowledged if they are in inventory. If not, we query our suppliers as to work-in-process. For the most part, this is done automatically."
The long-term view
All these shrunken inventories, reduced cycle times, and just-in-time deliveries sound like a manufacturer's dream, but it is possible to take the drive to lean too far, warns HP's Verstraete. "You can be lean, but at the same time you have to be ready," he warns—that is, prepared for unexpected events, either positive or negative, that inevitably affect supply chains. "Supply chain visibility is not sufficient. You have to know what's happening now and what your alternatives are," says Verstraete, adding that this is the true meaning of agile.
Verstraete recommends using some of the savings generated by lean to develop serious risk management and long-term planning strategies. "You need a "what-if" analysis team that does nothing else," he says. "Companies need to see beyond their direct supply chain and down the distribution channel."
Part of the problem with the drive to take costs out of operations is that it leads to narrow, short-term thinking, says Verstraete. Understanding the way the total supply chain works, and taking a long view, allows companies to think not only about how to respond in case of a major supply chain disruption, but how to take advantage of it. "This is the other side of this kind of 'what-if' planning," he says.
Agere's Alvine agrees. "I have a lean supply chain group that does this all the time. We have a formal review on a monthly basis. We plan our business on a 24-month horizon. What's happening? What are the trends? Where are the risks?"
For small companies whereby such a department is impractical, Verstraete recommends simply keeping in mind the need for alternative suppliers and transportation options. He actually thinks smaller companies have an advantage in this area.
"Smaller companies are by their nature more agile," Verstraete says. "Larger companies are more structured and harder to change."
