Cutting out the fat

Cutting out the fat

We all want to be lean. When we're lean we are more agile, we can react faster and we don't get bogged down as easily.

And business is striving to be lean as well. By streamlining manufacturing, shortening cycle times, reducing inventory, increasing flexibility to respond to market needs and taking related actions, companies can achieve dramatic benefits in profitability and growth.

While lean manufacturing is receiving increased publicity, it is hardly new. Japanese companies had been using lean techniques for years when General Motors finally took a peek under the hood at Toyota in the 1980s. The dramatic differences they found in quality levels, assembly times, work-in-process inventories and other key dimensions helped explain why Detroit was eating Japanese dust, and spawned a revolution in American manufacturing philosophy and operations.

"The Machine That Changed the World" (HarperCollins, 1991) provides a good historical account, and a legion of excellent books about the details of Japanese manufacturing techniques is available. Some of the key principles of Lean are summarized below.

-- "Pull" rather than "push" manufacturing: Making more product only when the next step or customer is about to run out - and not making more just to keep the plant running or to fill up the pipeline. Downstream users thus "pull" in more product when it's needed, rather than having it "pushed" upon them.

-- Lot size of one: Making and moving product in small quantities rather than in large batches, and organizing manufacturing and distribution to efficiently handle frequent changeovers among products. This is also sometimes referred to as a unit production system.

-- Kaizen, or continuous improvement: Focusing intensively on improving every small detail of a process, recognizing that lots of small improvements, executed continuously and embedded in the culture of an organization, can yield as much or more benefit than a few "big" programs that are pursued from time to time with a flourish and then forgotten about.

What's the impact of being lean on logistics and supply-chain management? It can unlock such substantial bottom-line benefits that it puts a premium on superior transportation, logistics and supply-chain activities to support it - and will handsomely reward providers who can get it right. For example:

-- Transit-time reliability becomes more critical, because there is less "buffer" to cover failures in delivery. Being lean puts a premium on the ability of transportation providers to flawlessly meet scheduled pick-up and delivery times, and benefits from seamless coordination among inbound and outbound carriers and other supply-chain services suppliers.

-- Dealing effectively with the complexities of global sourcing and increased international trade, especially with new security procedures, becomes a critical component of effective supply-chain operations. Lean operations put additional emphasis on the capabilities of forwarders and customs brokers to move product across borders without delay, and rewards them with a larger role in the overall global flow.

-- Expedited freight becomes a more important option. Despite striving for perfection, having the ability to accelerate the transit time to "make up" for inevitable problems elsewhere in the supply chain is an important element of lean operations. The added cost of using premium freight occasionally pales compared with the cost of having extra inventory around all the time "just-in-case" it's needed.

-- Warehouse facilities require different designs, equipment and personnel to support the higher velocity of product flows that lean operations entail. Developers who build and operate facilities with more doors and fewer long-term storage areas and racks will have all the business they can handle.

-- Information is a critical enabler of effective lean operations. Those who can provide superior real-time visibility across the supply chain, together with mechanisms for making rapid adjustments to manufacturing and shipping, can have a profitable long run position in the lean supply chain.

-- Sweating the details of everyday operations becomes a key element of overall success. There are lots of transportation providers with ships, planes, trucks and the like, so having assets alone is not a differentiator. Lean operations rely on and reward those who can adopt Kaizen principles and make their operations a little bit better every day.

Lean is an important business initiative, and it clearly favors superior supply-chain and logistics operations. In business as well as at the dinner table, it's tough to achieve - but worth it.

Scott A. Elliff is president of Capital Consulting & Management Inc., which works with clients on supply-chain performance. He can be reached at (703) 370-2607, or via e-mail at scott_elliff@ccmiservices.com.