Lean Supply Chains

Accelerating
Supply Chain
Velocity

A guide to understanding and

pursuing an agile, nimble supply chain

By David Ross

he shoclcwaves sent reverberating through the U.S. economy

by Hurricane Katrina dramatically highlighted how dependent
the nation was on the timely and efficient delivery of goods
and services. For a vital few weeks, all sectors of the economy held
their breath to see how devastating the impact would be. Supply
chain professionals everywhere in the country were quick to
meet the challenge by exploring new ways to bypass the potential
bottlenecks the devastation had seemed to portend for water, rail
and truck traffic in the very center of the nation. However, the
disaster dramatically illustrated the need to architect supply chains
agile enough to meet the next maior disrtiption, whether it be a

terrorist attack, a catastrophe at a key port or another natural event.

Simply, how could supply chains ensure that they could mainiain
the necessary velocity of goods and services not only to meet the
potential of threats posed by disrupting events, but al.so to effectively
manage the supply network in an era of Lean and .super efficiency?

Understanding Supply Chain Velocity

From the very beginnings of modern production and distribution
management, companies faced the fundamental problem of how to
optimize the dispersion of goods and services to the marketplace.
When producers and customers are in close proximity lo each othtT.

By Editorial Staff

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24 Supply & Oemand Chain Executive June/July 2007

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Lean Supply Chains

demand signals can bc quickly received by

suppliers, and products and services in tum
promptly delivered to the customer. As the
time and distance separating production and
ihc point of consumption increase, however,
companies must in turn increase the size
of the supply network and the inventories
within it \i customer serviceability is to be
maintained and enhanced. It can be said
that as the supply channel expands, the
importance of managing the velocity ot
the goods and services that flow through it
correspondingly grows in importance.
The analogy mcst often used to describe
supply chain velocity is that of a pipeline
through which product flows. As a pipeline
grows longer to serve an ever-widening
market, the volume of goods flowing through
it correspondingly expands. Several serious
problems can arise in managing pipeline
Hows as they grow longer and longer. To
begin with, as inventory expands, so does
the costs ot ordering, storing and moving
it. As if ballooning pipeline investment and
potential obsolescence were not enough.

the longer the pipeline, the more it becomes

subject to disruption stemming from the
possibility of an expanding number of weak
points as the fabric of the supply chain
continuum is stretched too thin. Finally,
as changes in demand or product/service
variet)' accelerate, the longer the pipeline,
the longer will be the time necessary to
respond to those changes. If supply chains
are to become more adaptable to manage
such events, it stands to reason that one of
the fundamental requirements is that they
be able to increase the velocity of the endto-end tlow of their products and services.
Unfortunately
in
today's
hypercompetitive
environment,
verv few
companies have a true working knowledge
of the velocity of their supply pipelines.
While a small tninority of companies, .such
as Hell, Home Depot and Wal-Mart, base
competitive advantage on knowing and
managing the velocity of goods in their
pipelines, most are inwardly focused and
have extremely limited visibility to what
is occurring in their supply chains. In

addition, this lack ot visibility to channel

velocity has been rendered even more
ditFicult a challenge as companies increase
their dependence on outsourcing, product
tifecycles continue to shrink, and declitiing
customer loyalties and increasing service
leveLs demand even greater supply chain
flexibiliry.
As a result of today's fast-paced global
business environtnent, the gap between the
velocity ot supply lead time and customers'
order cycles is widening. Most companies
address this gap by attempting to increase
forecast accuracy and carrying additional
inventory in the channel pipeline.
Unfortunately, despite the u.se of the most
sophisticated of techniques, forecasts will
often be wrong. Even worse, as each node in
the supply network builds buffer inventories
to manage variability, inventories at each
channel node become subject to the
infamous "bullwhip" atTect. As lead times
cascade down the supply chain, the ability
of supply chains to .serve an increasingly
demanding customer becomes alarmingly

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June/July 2007 www.SDCExec.com 25

Lean Supply Chains

problcmarical. Surely, the solution for
increasing velocities lies in another direction
oiher than focusing on forecasting and
expanding channel inventories.

Closing the Gap

Mitigating [he risk of.supply chain disruption
while simultaneously increasing product
velocities requires the creation of supply
chains that are agile and nimble enough to
thrive in today's global marketplace. Such an
objective requires that supply chains possess
the following .utributcs:
1. Knowledge of customer demand
- The first rule in managing supply
chain velocity is to fully understand
customers, their needs and the intensity
of the experience they expect from
their suppliers. A (ull understanding of
customers' business requires more than
just establishing forecasts; it requires
an intimate knowledge of the solutions
and delivery values each customer
wants.
2. Increased supplier flexibility - A
cri t ic jl driver to impraviiig supply chain
velocity is improvement of supplier

relations. Suppliers that are "seamlessly'

JLIUCI) .s\nchroni/.ation and status
integrated into the channel system can
visibility. Technology tools can be
continuously work on reducing lead
separated into those that improve
times, possess knowledge of and are
operational efficiency and channel
capable of quickly responding to
visibility (enterprise resource planning,
product changes, and are comtnitted
electronic data interchange. Web
to cransparencT and openness.
;tnd radio frequency identification);
Increased
internal
flexibility
those that provide connectivity,
- Driving increased velocity requires
information sharing, event tracking,
operations functions that are lean and
exception management and dynamic
agile. The application of what has
optimization to reduce lead times and
come to be known as the toolbox of
wastes, and increase supply chain agility
Lean techniques permits managers to
(collaborative planning, forecastingand
attack Wiistes anywhere in the company
replenishment; advanced planning and
or in the supply chain. The goal is the
scheduling; and sales and operations
removal of non-value-added functions
planning); and those that focus on
that simply elongate lead times and
customer experience enhancement,
increase supply chain volatility.
customerordetandservice management
Tecbnology-enabled
Gaining
solutions, shipment tracking, channel
visibility through technology tools
disruption
management,
supply
into orders, inventory and shipments
chain improvements, ;ind regulatory
across the extended supply chain
functions.
is critical to effectively manage
How do these four attributes increase
supply chain velocity. The goal is
supply chain velocity? To begin with,
to deploy technology to improve
lean, collaborative and adaptive supply
everything from on-timc delivery and
chains are capable of increasing supply
selt-service order configuration to
chain productivity and profitability by

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Lean Supply Chains

ruthlessly reducing wastes found anywhere
in the channel network. Lean supply chains
seek to create customer-winning value
at the lowest cost through the real-time
synchronization of product/service needs
with the optimum supplier. Achieving such
objectives requites supply chains to he both
responsive (capable of meeting changes in
customer needs for requirements such as
alternative dehvery quantities and transport
modes) as wdl as flexible (adapting assets,
pursuing outsourcing, and deploying
dynamic pricing and promotions). Finally,
lean supply chains are dedicated to the
continuous improvement of people and
processes throughout the extended supply
chain.

Competencies of the Highvelocity Supply Chain

While the above four attributes provide
the foundations for lean, high-velocity
supply chains, deeper investigation reveals
that they can be better understood when
deconstructed into six competencies.
1. Application of Process Kaizen Tools
- "Lean" is about the reduction of

waste found anywhere in the supply

chain. Wastes can occur not only in
inventory and processes, but also in
time and motion, and even in digital
waste. Understanding "waste" enables
the pursuit of that which adds value.
Supply chains ean add value by
removing redundancies, reducing lead
times, optimizing the value stream,
producing to customer demand and
activating continuous improvement.
The toolbox of Lean methods includes
the"5S" system of improvement, single
minute exchangeof dies (SMED)/quick
changeover, process flow analysis, total
productive maintenance (TPM). and
Six Sigma and statistical methods.
2. Process Standardization - Lean, highvelocity supply chains seek to identify
opportunities for the application
of process kaizens to ensure the
continuous elimination of waste and
the removal of all barriers to the smooth
flow ofgoods and information. Process
standardization should be applied to
every repeatable process, including
productive processes, product/service

delivery and inventory management.

Standardization enables companies to
effectively apply kaizen methods to
any process and track, measure and
demonstrate the effects of the kaizen
initiative. Standardization also enables
identification of all inhibitors of flow,
such as batch and queue processing,
unnecessary
transportation,
and
product storage,
3. Channel Partnership - The effective
use of channel suppliers stands at
the core of the lean, high-velocity
supply chain. The role of suppliers
is to fill company productivity gaps
by providing non-core strategic
and operational competencies that
reduce manufacturing, distribution
and service costs, improve flexibility,
keep companies focused on core
competencies, provide access to global
networks and superior technology,
improve quality and service, reduce
capital investment and increase cash
flow.
4, Demand Management - Iwentyfirst century supply chains have found

By Editorial Staff

Enterprise and Supply Chain

Quality Management

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28 Supply a Demand Chain Executive June/July 2007

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T KT T^ T XT T T V O S "
I N I^IN i i Y V^O

Lean Supply Chains

that "push' systems arc incapable of
operating in an era of higfi-velocity
response. Lean supply chains arc
responding to this challenge by
designing "demand pull" systems that
trigger supply commencing at the point
of sale, and then pulling the requirement
from upstream delivery nodes point-hypoint all the way back to the producer.
The goal is to provide advanced
warning oi demand and the channels
collective ability to respond effectively.
Effective
demand
managemenl
increases velocity by reducing channel
uncertainty, variability in fulfillment
processes and supply lead time, and by
linking channel partners together into
networks capable of responding to the
emerging marketplace demands.
5. Lean Implementation - Extending
Lean to the entire supply chain requires
a concise implementation plan, A
carefully designed plan begins with
value stream mapping and proceeds
through core competency definition
and plan composition. Detailed
planning will ensure effective execution
of supplier management, channel
value stream mapping and the use of
process kaizen improvement events.
Finally, even after successes are scored,
implementets should enable what will
be a perpetual step - continuous Lean
value chain improvement.
6. Strong Communication - The lean
supply chain requires all channel
constituents to work together as a
"virtual enterprise" to ensure the highest
value to the customer. Perhaps the most
important driver of the lean supply
chain is the ability of the channel's
kaizen leaders to integrate into a single
vision the different network partners'
perceptions of what constitutes the
value stream. Unification of purpose
and Lean mechanics rests on two
elements: the creation of an effective
Lean supply chain management team
and agreement on toolsets.
Todays best supply chains relentlessly
pursue the above six Lean competencies.
Effective execution enables companies to
realize three essential success factors. To
begin with, application of kaizen tools and
process/industry standardization enable
lean companies to effectively pursue waste
reduction at all supply chain levels. Closely

integrated supply chain partncrship.s and

the development of technology tools
providing real-time information keep all
supply network nodes focused squarely
on how to continuously build and sustain
a high-velocity stream of value to the
customer. And finally, well-designed lean
supply chain implementation projects
and the capability to broaden and enrich
cross-channel communications concerning
quality, change management, collaboration
opportunities and joint metrics will enable
supply chains to maintain a focus on
continuous improvement as they drive

Global
Quality Control

tt)vviird neiwtirk
profitability. ^

competitiveness

and

A b o u t t h e Author: Dai'iri F. Ross,

PhD. C7-7VA/, is senior learuiiig consultant at
Lawson Learning, part ofLawson Sofitvare. A
recognized ERP and supply chain matiagement
industry expert, David F. Ross has spent the
past 20 years in the enterprise business system
(ERP) industry. He ii active in the Chicago
APICS Chapter certification education
program and has taught the CPIM cuniculum
for many years Ross is the author oj three hooks
on logistics and supply chain management.

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Oune/Ouly 2007 www.SOCExec.com 29