Posted by: Christian Verstraete | December 16, 2009

Lean and Risk, compatible or antagonistic?

Not that long ago, I had the opportunity to meet with a couple lean/six sigma experts. I ended up in a heated debate about how far to go with lean. I now understand better why my company does not use the term lean, although they implement many of its principles. Indeed, in the process of making the supply chain truly lean, there is a danger to diminish the responsiveness of the value chain and as such reduce its capability to respond to an unexpected event.

So, the question really is how “lean efforts” can be balanced with risk mitigation in assessing the implications of the decision that are taken. To do so, a clear understanding of how the supply chain operates is required. Gaining insight in what happens at suppliers sites is part of that. So visibility is required, which implies partners  share information. And here is where the partnership, discussed in a previous blog entry, actually comes in.

Building Supply Chain Visibility consists in gathering data from the players in the supply chain for two purposes. First, detailed information allows a clear understanding of what happens at the moment itself. It provides data on inventory levels, material availability/shortage, cycle times, delays in production or transportation etc. Problems can be spotted, and the appropriate response initiated. The risk mitigation plan should contain the description of the actions required.

Consolidating the gathered data and maintain it over longer periods of time allows to understand the variances in the system and spot trends. This is really the basis for figuring out how the supply chain operates and what its vulnerabilities are. It’s those that risk management will have to address.

Mastering the capability to manage variance at the lowest costs is really the Holy Grail of Supply Chain Management. Lean may get us part of the way by reducing unnecessary waste, but does not help us identify the right levels of “waste” that will secure continuous operations. A deep understanding of the supply chain and a series of simulation tools are necessary to establish how the system reacts to changes. Nothing fancy is needed, but a systematic review of the options open.

For example, when discussing with our supply chain team, we reviewed whether it was possible to address the fluctuation in demand by combining a stable, efficiency focused supply chain to deliver the bulk of the requirements with an agile one that would deliver the deltas. This requires the development of a flexible manufacturing facility that can build multiple models cost efficiently, recognizing that there is no way this supply chain will be as efficient as the base one.

Balancing lean and agility is increasingly becoming the focus of the most advanced supply chains, as it seems the only way to address the antagonistic requirements of customers, to have a large variety of products delivered very quickly. If you have any comments or ideas to share, don’t hesitate.

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  1. […] is likely to encompass all four, making it robust, flexible, agile and resilient at the same time. Is lean logistics the same as risky logistics? No, lean does not necessarily make you more vulnerable or less robust towards supply chain […]

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