Exclusive Logistics Management Research: 2008 Lean Benchmark Survey

Supply chain professionals around the globe have been tasked with reducing waste, increasing turns, and building greater flexibilities into their operations. Our recent study finds that organizations are starting to implement and practice lean concepts—and are becoming greener and more responsive in the process.

By Karl B. Manrodt, Ph.D, associate professor logistics, Georgia Southern University; Kate Vitasek, managing director for Supply Chain Visions; Rich Thompson, senior vice president, supply chain consulting, The Staubach Company -- Logistics Management, 4/1/2008

Lean thinking is migrating from the manufacturing floor to the supply chain, a transition that should not surprise anyone. Supply chain professionals around the globe have been tasked with reducing waste, getting green, increasing turns, and building greater flexibilities into their supply chains. Lean, green, and responsive are supply chain attributes that everyone is hoping to add to their skill set.

But the question remains: What makes a supply chain lean? Our initial study, Understanding the Lean Supply Chain: Beginning the Journey (Download it here) completed in 2005 with Oracle and APICS, identified six major attributes that make up the lean supply chain:

demand management;
cost and waste reduction;
process standardization;
industry standardization;
cultural change; and
cross enterprise collaboration.

This year’s study provides clear benchmarking data as to the current state of the lean supply chain, comparative analysis of changes from our 2005 study, and documents how well firms are implementing lean practices within their supply chain.

The 2008 benchmarking study was initiated in late November 2007 with an email invite sent to selected APICS members and the readers of Logistics Management. The effort landed 476 respondents, and as expected given the nature of the survey group, the largest segment of the respondents (over 46 percent) told us they function in manufacturing. Respondents from the distribution, wholesale, warehousing, and transportation segments came in at 23.5 percent. More than 46 percent of the respondents reported sales less than $250 million, while 11.5 percent reported sales greater than $3 billion dollars, nearly equal to the 2005 breakdown.

Analysis was completed based on industry type, manufacturing process, size of firm, location in the supply chain, just to name a few. Interestingly, there are very few statistical differences based on these demographics, which should be good news, especially for smaller shippers who can adopt many of the attributes of lean and benefit from the work.
We found that organizations are starting to actually implement and practice the lean concept, and most attributes have experienced improvements from the previous study. Here are our 2008 findings and our recommendations for future action.

What is a lean supply chain?

As many shippers are aware, “lean” is a systematic approach to enhancing value to the customer by identifying and eliminating waste—time, effort, and materials—through continuously improving the flow of the product to the customer. Lean is currently viewed by shippers in several ways: It’s seen as an all encompassing philosophy; a system where a company can focus on reducing costs; and as a set of tools and techniques to be applied to streamline processes.

Which view of lean is correct? From our perspective, all three have value. Lean does provide a set of tools that will enable firms to remove waste. It’s certainly useful to view lean as a system, in that it helps firms focus on process that impact the final customer. And it’s helpful to view lean as a unifying philosophy that is not limited to the manufacturing process. The greatest benefit of lean will come by identifying the key attributes of lean and applying them across functional boundaries.

So what makes a supply chain lean? It’s a matter of focus. It leverages lean concepts refined in manufacturing and extends them beyond corporate boundaries to include significant transportation and logistics partners, among others. The focus is on eliminating waste from all areas of the supply chain; and one way this can be accomplished is through the development of standards that are adhered to by all of these partners. And finally, the metrics employed are shared with all to encourage the use of best practices across the supply chain.

All well run and managed supply chains have some elements or attributes of lean embedded in them. By their very nature of being both efficient and effective, partners work to eliminate waste; however, lean gives everyone an important framework for thinking about how to work together, how to communicate problems and solutions, and a way to communicate with functions beyond traditional logistics and supply chain.

The six attributes of lean

As our research reveals, building and maintaining a lean supply chain revolves around mastering these six key attributes:

Improved demand management: One of the key principles of lean is to move to a “pull system.” That is, products or services are pulled (work initiated, services performed, products delivered) only when requested by the final customer. In its purest form this would be developed using data from the point of sale and conveyed upstream to all members of the supply chain from point to point without a change in the volume.
Waste and cost reduction: Sometimes, elimination of waste and cost would appear to be the singular focus of lean management. However, this is true only to the extent that it does not negatively impact the customer value equations. In the broadest sense, waste can be time, materials, process redundancy, or even unnecessary movement. To achieve a lean supply chain, partners have to work together to eliminate wasteful processes and excess inventory across the channel.

Remember that the emphasis of lean is placed on reducing waste, not cost. This is not a matter of semantics but one of philosophy. A preoccupation with reducing costs may lead a firm down a suboptimal path—as not all waste can be easily tied to costs.

According to our 2008 survey, 25 percent of the respondents are working with their supply chain partners on waste elimination, an increase over the 20 percent reported in 2005. However, 46 percent reported an internal focus on waste, and we’re concerned this may breed ignorance of a larger reduction of waste that can be achieved by joint efforts between supply chain partners.
Process standardization: Standardizing is one of the components of the “5 S’s” (sort, simplify, sweep, standardize, sustain) methodology associated with lean. It enables continuous flow to occur in the company, a major tenet of lean manufacturing. A thorough understanding of the processes involved though the supply chain will help partners to work towards standardizing important processes and shifting work to the most efficient point in the chain. One of the important processes that transcend firms is planning and production.
Industry standards adoption: Product and process standardization between trading partners can still lead to waste. This is especially the case where “common” components are not as common as they could become. Plugging a telephone into a wall outlet is the same in all fifty states; in this case an industry standard was developed and accepted.

Survey results indicate that 64.6 percent of the respondents reported that they make use of partial or full use of industry standards when developing new products. Only 14.2 percent participate in venues that develop industry standards. Again, this appears to be the result of companies trying to differentiate themselves through the introduction of unique proprietary products.
Cultural change agent: There is one problem with applying lean concepts—they have to be applied by people. These are the same people who are doing things the old way today; the same people who have been doing things the old way for a long time; the same people who have a vested interest in doing things the way they have always done. This is one of the biggest challenges in getting lean. So how do our respondents view people in their organization? Are they expendable? Or, are they seen as a valuable asset that enables formal improvement processes to be put in place?

The previous study found that just under 69 percent of respondents had an active process in place to enhance employee development and reduce turnover. This year, over 46 percent of the respondents have identified change leaders and were on the way to develop a culture of continuous improvement.
Cross enterprise collaboration: In order to leverage the lean principles of defining value and understanding the value stream, supply chain partners should work to maximize the added value provided to the customer.

The objective must be to understand value as it applies to the customer. Added services, regardless of the perceived value of the supply chain partners, are only of true value if they are understood and desired by the customer. This is most effectively accomplished through the use of cross enterprise teams. While 48.4 percent of the respondents indicated that they have implemented some form of cross-functional teams, only 30.1 percent employ cross-company supply chain teams. These should be developed to provide a foundation for lean supply chain activities.

Key lean benchmark study takeaways

Regardless of what it’s called, organizations are starting to actually implement and practice the lean concept, and most attributes have experienced improvements from the previous study. There are two conclusions based on our research:

Lean concepts and principles are starting to permeate the supply chain. When comparing those firms that had applied more lean concepts to those that had not, we found that “high lean implementors” had higher inventory turns than their counterparts.
Given the limited resources found in most firms, we recommend that firms interested in employing lean techniques start by managing their demand signal. The demand signal is the drum beat that determines the actions that the entire supply chain should employ to reduce waste.

How do you focus on the demand signal?

One specific tool that’s relevant and helpful is a process map, or value map. It’s the first step at showing how the signal is communicated across the supply chain.
Next, look for improvements in the process by using cross-functional teams to relay the information in a timely manner.

Perhaps answering a few questions like these below will point you in the right direction.

How can the signal’s velocity be increased?
What are the benefits of increased velocity?
Who benefits from increased velocity or visibility of the signal?
Who sees the signal now, but doesn’t use it?
Who doesn’t see the signal, but could benefit from it?

Is it worth it? If lean thinking is good in the doctor’s office and on the manufacturing floor, perhaps we can start to learn ways to apply and benefit from it in our supply chains. Shedding inventory and wasteful processes can help us be lean, green, and responsive.

Detailed Lean Benchmarking Survey Research Findings
Percent of all respondents
Internally focused			Supply chain focused
Managing the demand signal
12.0	35.0	13.5	19.3	20.2
Product is “pushed” through the channel based on forecasts	Demand forecasts are created based on actual usage of product (current stock levels, or min/max levels, or order points) and projected sales	Downstream Supply Chain Partners provide periodic forecasts to make the immediate upstream partner aware of requirements	Product is “pulled” through the channel based on actual usage data from upstream Supply Chain partners	Product is “pulled” through the channel using consumer demand from point of sale systems in near real time
Waste reduction efforts
20.8	25.4	28.7	14.9	10.1
Waste reduction is focused at the functional areas within the company	Company analyzes internal processes to minimize waste	Some Supply Chain partners are waste conscious but most focus on cost reduction and profit improvement	Some Supply Chain Partners begin working together to eliminate waste	All Supply Chain Partners understand end-to-end processes and work together to eliminating waste throughout the supply chain.
Planning & production process standardization
7.6	26.9	37.1	16.4	12.0
No attempts are made to standardize processes internally or externally	Processes may be documented by the operator but may be considered “proprietary” and are not shared with Supply Chain Partners	Processes are documented and general process understanding exists across the Supply Chain	Processes used by the various Supply Chain partners are well understood by all, though not standardized	Planning, production and stock management processes are defined and standardized across the Supply Chain
Industry product standards
19.3	16.0	33.3	17.1	14.2
No industry standards and products are considered to be “proprietary”	Individual partners attempt to set their own standards outside of industry standards groups	Partners make partial use of industry standards in development of new products	Partners agree to standardize products based on standards set by outside groups	SC Partners participate in industry standards bodies Partners use industry standards in development and manufacture of products
Continuous improvement / change culture
4.1	23.3	26.1	25.4	21.1
No continuous improvement programs in place	Informal improvement projects in place	The need to change / improvement has been identified and communicated to the workforce by top management	Operational level “change leaders” have been identified and are being educated on the need to change and how to effect change	Management has a well-developed published vision for all facilities and has operating objectives that fully support the vision A continuous improvement culture exists across the supply chain
View of teams
12.2	39.4	18.3	23.3	6.8
Little of no use of process improvement teams Teams work within a functional department only	Some use of cross functional teams within a company	Team members at individual Supply Chain member companies actively work together for internal processes only “What’s In It For Me” (WIIFM) has been addressed at all levels and is understood and accepted	Cross company Supply Chain teams exist to develop an understanding of how process improvement practices can be implemented across supply chain partners	Cross company Supply Chain teams actively proactively recognize opportunities and enact positive change for the benefit of the entire supply chain, even if it means less revenue on behalf of their individual company