A New View on Lean

3. Tie demand signals tightly to supply.

   Once demand drivers are clearly understood, the next step is to use demand to drive development of a connected supply chain plan, from distribution to production, to raw materials through to optimized sourcing. An optimized and connected plan can eliminate the significant levels of waste — Muda — that exist in most supply chains.

   Waste comes in many forms, including: high production changeover costs and excessive downtime due to inefficient scheduling, excessive materials and finished goods inventories that build over time in an attempt to keep service levels high and supply chain risk mitigated, as well as high logistics costs associated with unnecessary expediting and inefficient loads.

   With one synchronized view of demand, companies can transition from push manufacturing to pull manufacturing, driven by consumer demand, customer orders and accurate forecasting.

   Two critical keys to success are the ability to determine optimum inventory policies and continuously optimize sourcing plans based on the most current demand.

4. Leverage the power of IT for global visibility and flexibility.

   The time when companies could effectively manage their demand and supply chains using traditional manufacturing resource planning (MRP) principles to drive a site-by-site production plan based on a simplified view of constraints are over. Manual lean methods of the past have also proven inconsistent and inadequate.

   With complex global supply chains, enterprises need solutions simple to use, easy to deploy and capable of responding to real-time information. They must also provide the collaboration required to drill down into demand drivers at a granular level, as well as integrate and align internal and external supply chain partners.

   Today's robust supply chain software solutions integrate industry best practices, designed to help users manage even the most complex enterprises at today's rapid speed of business. Global visibility and the flexibility to respond to economic and market changes in real time are among the most strategic initiatives any company can deploy to remain competitive.

5. Align the lean initiative closely to operational plans and corporate financial goals.

   One of the most critical elements of an effective lean strategy is tight alignment between demand and supply chain operations and the enterprise's strategic business plan. The role of financial performance management is to plan, direct and oversee capital expenditures, monitor and control cash flows and invest as appropriate to ensure profitability and revenue goals are met. Therefore, it is essential that financial management be integral to lean initiatives and a key part of information flow, transparency, visibility and critical decision-making processes.

To maximize operational efficiencies, enterprises should incorporate sales and operations planning processes into lean manufacturing initiatives on an enterprise-wide global scale to enhance supply chain visibility, eliminate performance surprises and achieve more integrated business planning and management.

Lean is not just about production anymore. It can generate positive results across the value chain and have a profound effect on the long-term sustainability of any enterprise.

In a successful next-generation lean initiative, operational efficiency drives increased productivity and better operating margins, leading to increased revenues. All of these benefits can significantly increase cash flow and working capital, providing a cushion in a tough economy. Moreover, the positive effects of lean can pave the way for competitive growth during both challenging and prosperous times.

David Johnston is senior vice president of supply chain for JDA Software. For more information visit the company's Web site at www.jda.com.