Lean Management has long been associated with the manufacturing industry as a way of streamlining operations to improve business processes. Recently though, the supply chain sector has realized how Lean Principles can be implemented to create value in a procurement context.
Speaking to Professor Peter Hines, Chairman of SA Partners, Europe’s longest established Lean Enterprise consultancy, he reveals how Lean is being applied to great effect in a range of industries. “I think we’ve seen in the last three years an increase in Lean in many organizations,” he explains. “If you go back to the 1990s, it was really only the automotive industry that was a must for Lean; but gradually it moved out into more industries, like construction, public sector, manufacturing and retail. Now, many industries are seeing it as a ‘must do’.”
But how can procurement and the supply chain in general benefit from this management system? Professor Hines puts the role of purchasing into context in order to reveal how Lean Principles can work.
“We think of lean as an approach to understanding the transfer of what is valuable to our customers into supplier services. If you think of the role of purchasing in the wider supply chain, it’s like a conduit between the organization itself and its main suppliers,” he says.
While many organizations apply Lean internally, Professor Hines believes it needs to be applied to the wider purchasing supply chain in order for companies to reap the potential benefits.
5 Principles of Lean
To explain, Lean Management has its roots in five Principles: Strategy Deployment; Tools and Techniques; People Enabled Processes; Extended Enterprise; and Value Stream Management.
Professor Hines explains that four of the five Principles are about taking Lean inside an organization. Strategy Deployment involves getting everyone in the organization to understand and become aligned to the strategy. Value Stream Management means understanding the customers’ needs, while People Enabled Processes is about “leadership, engagement, behaviour”. “That’s the essence of the Lean business system,” he says.
These five areas may all seem like fairly obvious processes within any business or organization but it seems they are also the areas that can all too easily be overlooked.
The Sentega Group, a supplier of bespoke labelling technologies to manufacturing firms, implemented Lean Management following its decision in 2002 to establish its Advanced Label Technologies division. This exposed the company’s shortcomings in terms of its existing capacity planning processes. Quality control came under significant pressure as the workload increased. Recognizing that Sentega lacked clear procedures, Managing Director Jean-Luc Verstraeten took the decision to adopt the principles of Lean Management.
Simpler Consulting provided guidance on how to practically implement Lean techniques within Sentega. In line with the Strategy Deployment Principle, Simpler involved staff from all sections of the business to decide how processes could be improved.
“The inclusion of direct feedback from employees highlighted where practical improvements could be made, and ensured that these were integrated into the new processes,” Sentega says.
Since turning to Lean, Sentega has reported a double-digit improvement in cash flow by reducing the level of excess stock. It also saw a 17 percent reduction in the volume of scrap created during the manufacturing process, and a yearly saving of over 133,000 euros in transport costs. Overall, Sentega has realized savings that equate to over 15 percent of its annual turnover.
Toyota – the “granddaddy” of Lean
One company that has fully embraced Lean is Toyota. Professor Hines observed how the automaker – whom he refers to as “the granddaddy of lean” – was able to utilize Lean when he spent several months at Toyota’s Japanese operations in 1994. He soon recognized that the production of cars in Japan was about twice that of Europe and looked closer at Toyota’s supply chain. Professor Hines identified the five elements to its success in his recently published white paper Creating a Lean Business System.
Firstly, Toyota had focused everyone towards a common aim of achieving added value for its customers. The company also deployed through the core processes quality, cost and delivery.
Speaking to Professor Hines today, he reveals that it was not simply a case of Toyota gaining a competitive advantage through labour productivity by being Lean themselves, but rather through their third and second tier suppliers.
“It was in how they were encouraging and developing their own suppliers, and getting those suppliers to do the same with their suppliers. The whole supply chain development approach was producing a much better result than in Europe,” he concludes.
While organizations are beginning to realize the benefits of Lean in purchasing and within the supply chain as a whole, there is still a long way to go before it becomes an industry ‘must’.