Logistics and Supply Chain Management

Guiding Principles in Logistics and Supply Chain Management: Creating the Lean Fulfillment StreamLogistics and Supply Chain Management

Why does fulfillment stream management require guiding principles? Because a fulfillment stream is lengthy an dynamic and it’s impossible for managers to evaluate every action taken with detailed analysis. For example, Toyota has a guiding principle that reducing lead time is the right thing to do. Managers there don’t spend time doing analysis every time they try to reduce lead time to prove that this is the correct thing to do in logistics and supply chain management. Instead they live by the guiding principle, confirmed over several decades, that reducing lead time eliminates waste, improves quality, and reduces costs. Eight guiding priciples have been shown over many years to be essential for creating lean fulfillment streams in logistics and supply chain management.

1. Eliminate all the waste in the fulfillment stream so that only value remains. Creating flow in a fulfillment stream requires all departments and functions in an organization to work in harmony. Focusing on the fundamental lean principle of eliminating waste so that only value remains helps achieve this harmony.

The seven types of waste in manufacturing are well known: overproduction, waiting, conveyance, processing, inventory, motion, and correction. The seven types of waste in logistics and supply chain management are:

  • System complexity – elaborate scheduling systems and managers working around mismatches between the formal schedule and actual needs.
  • Lead time – too much time from one stop to the next
  • Transport – excessive conveyance among facilities and companies
  • Space – in lieu of processing, space becomes a value factor and excessive space for storing inventories is waste
  • Inventory – at any point in the fulfillment stream
  • Human effort – fulfillment stream members working at cross-purposes, which creates re-work, confusion, and excessive motion
  • Packaging – the wrong types of goods in the wrong quantities resulting in damages, excessive inventories, and corrections downstream

2. Make customer consumption visible to all members of the fulfillment stream. If customer consumption is visible across the entire fulfillment stream, then it is much easier for every participant to plan work based on the pull of customer demand.

3. Reduce lead time. Reducing inbound and outbound logistics lead times in logistic s and supply chain management will get orders to the customer faster. When a company can reduce lead times to the point where it can exceed lead-time expectations of the customer, it will no longer need to rely on forecasts and can “pull” material throughout the fulfillment stream. End-to-end fulfillment stream lead times are reduced when overall inventory in the system is reduced.

4. Create level flow. The ultimate goal in logistics and supply chain management is to have goods and information move in a predictable, consistent, and uninterrupted manner based on the actual demand of the customer. This is known as level flow. Level flow reduces variation in processes and tries to spread activities equally over working time. This minimizes the peaks and valleys in movement that create unevenness and overburden, which result in waste.

5. Use pull systems. Use pull systems in logistics and supply chain management when level flow is not possible. A pull system is an inventory-replenishment method (i.e. kanban) in which each downstream activity (customer consumption) signals its need to the next upstream activity. Pull systems reduce wasteful complexity in planning and overproduction that can occur with computer-based software programs such as material resource planning (MRP), and they permit visual control of materials in the fulfillment stream.

6. Increase velocity and reduce variation. Velocity if the speed with which information and material flow through the fulfillment stream in logistics and supply chain management. Meeting customer demand by delivering smaller shipments more frequently increases velocity. This helps to reduce inventories and lead times, which allows you to more easily adjust delivery to meet actual customer consumption.

7. Collaborate and use process discipline. The collaboration of all participants in logistics and supply chain management is necessary to identify problems in the stream, determine root causes, and develop appropriate countermeasures. To be truly effective, this collaboration must be combined with standard improvement processes and regular PDCA.

8. Focus on total cost of fulfillment. Make decisions in logistics and supply chain management that will meet customer expectations at the lowest possible total cost – no matter where they occur in the fulfillment stream. This means eliminating decisions that benefit one part of the stream at the expense of others. This is the real challenge of building a lean fulfillment stream, but it can be achieved when all members share in the operational and financial benefits when waste is eliminated.

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