The Deadly Supply Chain Wastes

Joel Sutherland, Managing Director—Supply Chain Management Institute, University of San Diego
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Joel Sutherland, Managing Director—Supply Chain Management Institute, University of San Diego

While there are many large firms that have the resources and senior management commitment to implement formal Six Sigma (or Lean / Six Sigma) programs, there are many more firms of all sizes who simply want to implement Lean principles that will enable them to establish a Lean culture without making a commitment to such a rigorous and time-consuming program. These firms simply want to have a process that enables them to quickly identify and eliminate those activities that do not add value. This is the essence of the Toyota Production System (TPS).

TaiichiOhno created the TPS in the mid-20th century. Ohno founded the system on five core principles which can consistently improve production quality and most importantly reduce or eliminate waste. They are:

• Muda: A Japanese word referring to anything that is wasteful and doesn't add value.

• Process Focus: Managers work cross-organizationally to develop and sustain robust business processes.

• Genchi Genbutsu: A Japanese phrase that refers to collecting facts and data at the ac- tual site of the work or problem.

• Kaizen: A Japanese word for continuous and incremental process improvement.

• Mutual Respect: Toyota values a strong relationship between management, employees, and business partners. By grasping these core ideas you can begin to apply them to make your supply chain lean and efficient. Most importantly, you will be able to identify what we call “ Deadly Supply Chain Wastes”—the wastes that keep supply chain management from achieving its full business potential. This article briefly explains each of these wastes and then provides examples of how the TPS principles can be effectively applied to correct them.

1. Overproduction: Requesting a quantity greater than needed for end use or requesting it earlier than needed.

Example: At ConAgra streamlined its demand planning system to rein in its overproduction. Each day, a total of between 15,000 and 20,000 head of cattle were slaughtered at four of the company's meat packing plants (located in Colorado, Kansas, Nebraska, and Texas) prior to implementing improvements. The focus was on maximizing production and yield every day with little consideration given to actual demand for the products.

This frequently required loading trailers and shipping products while the sales department desperately searched for customers to buy the product – often reducing the price as time passed. If no customers were found, the product was delivered to a refrigerated warehouse where the product was flash-frozen and stored until it could be sold—usually at a significant loss.

Applying genchigenbutsu techniques, ConAgra discovered that its problems were rooted i n inadequate demand planning for their finished product.

Weather patterns and economic shifts played an important role in determining the type of product to produce. To address this problem, a sophisticated demand-planning tool was developed and implemented, taking all the variables into account. ConAgra was now able to effectively align production with more accurate production plans, which in turn improved 35 percent increase in sales forecast accuracy.

2. Delay/Waiting: Any delay between the end of one activity and the start of the next activity, such as the time between the arrival of a truck and the loading of the trailer, and the delay between receiving the customer's order information and beginning to work on fulfilling the order. Example: At Formica, strict labor union rules and a complex handling operation caused wasteful delays.

Applying genchigenbutsu techniques, the company instructed both qualified industrial engineers and union stewards to closely observe each production and distribution activity and identify opportunities for improvement. These opportunities were then evaluated for their impact on productivity improvements and presented a plan to the union for approval. The goal was to significantly reduce and rationalize the number of restrictive work rules in order to eliminate delays and increase productivity.

3. Transportation/Conveyance: Out of- route stops, excessive backhaul, locating fast-moving inventory to the back of the warehouse and other transport wastes cause unnecessary material handling distances to be incurred.

Example: At Transplace, a North American 3PL, the company managed dozens of major shippers' transportation needs independent of each other. There were significant wasted (i.e., deadhead) miles in many of these shippers' networks between the unloading process and driving to pick up the next assigned load. By employing genchigenbutsu techniques, various account teams methodically identified specific lanes and the deadhead miles that were traveled within each of their respective account networks. Working collaboratively with other account teams, they systematically combined multiple shipper networks into a single network and identified regular backhaul lanes for one shipper that were regular head-haul lanes for another shipper.

4. Motion: Any kind of unnecessary movement by people, such as walking, reaching and stretching. Motion waste also includes extra travel or reaching due to poor storage arrangement or poor ergonomic design of packaging work areas.

Example: At Denso, a manufacturer of electrical components for Toyota and many other auto makers, the company assembled air conditioning kits for Toyota. These kits were shipped in cartons to dealers and to various ports around the country to be installed in vehicles as options. .The problem was that two separate assembly lines were used for this process.

The solution was simple— and at the same time very complex. A dramatic reduction in unnecessary motion could be gained by combining the two lines into one continuous process. This required a significant improvement in synchronizing inbound component receipts and scheduling assembly operations. The results were impressive. There was now one continuous assembly process and the components were now handled and moved only once, through this unnecessary movement was reduced to 40 percent.

5. Inventory: Any logistics activity that results in more inventories being positioned than needed or in a location other than where needed.

Example: A major wholesaler (now part of Fisher Scientific) distributed thousands of SKUs throughout the 48 contiguous states. These products belonged to clinical and industrial groupings depending on the type of customer they were sold to. Each of the company's 22 U.S. distribution centers stocked virtually all of these products, even though the typical customers for each line were dramatically different.

A kaizen, supported by sales and marketing, determined that the ordering processes and lead time requirements were significantly different for these two customer groups. Industrial customers were typically large manufacturing operations that placed replenishment orders with a 30-day order-to-delivery lead time.

Eliminating Wastes—Culture is the Key Companies attempting to adopt and apply TPS principles to their supply chain operations will be challenged to approach the efficiency and quality achieved at Toyota. This is an absolute necessity in order to utilize the full human potential of every employee for the continuous improvement of your business. While there are many seminars and consulting practices geared toward the tools of TPS, this is only the tip of the iceberg. Teaching TPS cannot take place in a classroom or through seminars, but where the operations actually take place.

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