Does Lean Supply Chain Work for Small Companies?
Lean Supply Chains are often associated with large, global retailers and manufacturers. But Lean can and must be embraced by small companies too. In this post, we will learn why Lean Supply Chain works for SME and how small companies with limited budget can get started with Lean.
What is Lean in Supply Chain?
Lean defines how resources are utilized to operate end-to-end supply chain processes. A lean Supply Chain has the following characteristics:
Limited wastage of inventory – raw material, packaging, and finished goods
Agility to quickly adapt replenishment plans from a change in demand
Fast roadmap from product design to shelf readiness
Low usage of human resources (requires fewer headcount)
A high degree of automation and digitization
The common misconception about Lean is that it is a set of rigid rules and processes that teams must follow, therefore it is more suitable for large organizations with rigid structures, but Lean is not a set of rules and processes.
Although a structured approach can exponentially increase the benefits, lean supply chain are defined by a mindset, a specific management style and set of technology tools that supply chain teams can embrace to harvest the benefits described above: reduce wastage, greater agility and a competitive advantage for the overall business.
The six principles in details:
1. Limited wastage of inventory – raw material, packaging, and finished goods
Most companies that have experienced steady growth underestimate the importance of reducing inventory wastage until a sudden change happens and wastage hits the bottom line. This is when CXOs start learning about Lean.
One of the main benefits of lean is indeed to reduce inventory wastage, this is achieved mainly by a combination of the following:
Streamline procurement, production storage and distribution to reduce the inventory hold. In FMCG less inventory hold results in less wastage.
Align Supply Chain, business strategy and NPD to design products that are multi-channel ready. With fewer SKUs that are viable for more sales channels, there are fewer needs to hold inventory.
Enable a Just In Time inventory strategy. More about JIT in this article from Wikipedia
2. Agility to adapt replenishment from a change in demand
Lean Supply Chain enables companies to manage erratic demand. When COVID caused countries to enter a lockdown demand for grocery retailers shifted overnight. Companies with Lean Supply Chains managed to get their products on the shelves faster than their competitors. How is that achieved?
Simplified processes: with fewer steps in planning, manufacturing and logistics, replenishment is faster and changes can be applied at a shorter notice.
Elimination of Supply Chain bottlenecks
Reduction of no-values activities
Better data shared faster
3. Fast roadmap from product design to shelf readiness
A faster road to market is the holy grail of any SMEs in FMCG. Companies like Zara have made their ability to go from design to shelf fast their competitive advantage. More details in this article from Bloomberg
4. Low usage of human resources
Efficient processes require fewer resources. When talking about resource utilization in Supply Chain we might think of production equipment, packaging material, trucking and warehouse space and cash.
But the consumption of labour hours in terms of admin time, data entry and other activities that require people’s time are equally, if not more an even more important resource required to run the supply chain.
With Lean thinking companies can achieve a significant reduction of admin time thanks to the following:
Faster decision-making thanks to streamlined processes
Elimination of no-value activities
Cut of changeover times
5. A high degree of automation and digitization
In Lean supply chains, streamlined workflows are designed by people and elements of such workflows are run by technology. Companies with a high degree of automation can increase the benefits of Lean when technology is seen as a tool to run processes. Here are just a few examples of business technology to support a Lean supply chain strategy:
Enterprise software: Better if in the cloud and with capabilities to connect and integrate with 3rd party applications like EDI and API. The problem with enterprise software is that it can be very expensive to change functions to support specific business tasks. SAP, Oracle or Microsoft enterprise suites can be enhanced but the costs can easily get to tens of thousands even for minor changes. Small companies can struggle to get a reasonable ROI for their spend on bespoke development.
No-code automation apps: Supply Chain users can develop their applications while enhancing enterprise technology without coding in the core system with No-code cloud applications. I talk more about this technology in this article
IoT: connecting objects to the net is also a great tool to increase digital adoption in the supply chain. Trucks with devices streamlining data in real-time about the position, speed, number of deliveries completed or even cargo temperature are just a few examples of what IoT can do to boot digital capabilities of a lean supply chain
Is Lean only for large organizations?
No. Like other tools to support Supply Chain strategy, Lean is often implemented in large organisations only because it is easier to find people with knowledge and experience about the subject and because corporations are more used to work with structured processes.
Embracing the need to acquire knowledge and work with structured processes then are the essential elements to adopt a lean mindset for SMEs. A mindset that focuses on designing efficient workflows and continuously strives to find better ways of delivering value to the businesses while maximising the usage of talent, time and technology. No rigid procedures, no corporate bureaucracy or complex paperwork, a lean supply chain can be achieved by small companies too if the management embraces the ideas above. This requires letting go of obsolete ideas about Supply Chain:
Stop thinking of cost-cutting and move towards waste-cutting
The cost of staying the same is often higher than the investment required to change
Good technology runs elements of a process which is designed by teams
Teams should find solutions to problems – not managers.
Companies who are obsessed with costs, fear change, have their teams running processes and use technology as digital stationery cannot get their Supply Chain to become lean.
Costs of lean transformations
How much should your organization spend to become lean? Costs can vary significantly. Below a basic guideline that I use to assess my clients:
In this other article, you can read more about the costs of the different automation tools available in the market.
How long does it take to complete a lean transformation project?
Like costs, implementation times can vary and so will the adoption time of the new Lean processes. As a rule, a Lean process change can take between 3 months to 1 year; more in case of companies with complex supply chains. The case study that I describe in this post took 1 year to be completed. Normally, an agile methodology is preferred when introducing change in a small business.
Agile vs waterfall
The main characteristic of agile project management is the use of short sprints to implement change in stages. Agile gives the best results with small motivated teams where members are subject experts. There is no traditional management role in agile and the team oversees designing and implementing the changes under the guidance -not the direction- of an expert.
Lean sprints can last up to 1 month giving the team opportunities to review and apply corrective actions fast if needed that will affect the following sprint.
Why short sprints are better than long change projects
Small companies must be able to adapt fast to any change in the market. This includes new customers, suppliers and business partners can join the company ecosystem at a short notice.
When change projects are implemented using old methodology with long plans and huge documents, chances are the strategy designed can become obsolete before it is in use; in this scenario, small companies can go back to the drawing table and adapt the change plan to the new requirements introduces by a new launch for example of the onboarding of a new big client.
How to get started with lean
Processes, culture or technology, what to change first? This table can help us understand why culture comes first:
Culture includes teams, management and directors' mindset about adopting Lean thinking. It is the cheapest to implement – it should cost nothing to change somebody’s mind – and it is the one element that, if managed well can deliver the best results. The second stage involves changing processes and finally, technology can be applied to support committed team run smooth workflows
Reasons why lean will not work in an SME
There are many reasons why companies fail to embrace lean thinking: Here is a small list of obstacles that I come across in my consulting practice:
Quick fixes mindset
Where managers are more focused on quick wins rather than looking at the bigger picture, the adoption of a leam mindset is almost impossible. A typical sign that teams are more focused on quick fixes is when the team is run by occasional managers.
When a good admin gets in charge of a team, but they lack team management skills the focus is mainly of getting things done fast and accurately. The ability to look at the bigger picture often is missing in occasional managers.
Teams rely on the expertise of the manager
When teams don’t own the tools or the knowledge to make informed decisions, they lack guidelines or the authority to make important decisions they are disempowered, therefore they constantly rely on the management, even for simple problem-solving activities.
Lean supply chains are built on teams who possess the tools to make decisions. Micro-managing, no training and no delegation are huge obstacles to implement smooth workflows.
Bad business data is common with small companies and it can delay attempts to improve the supply chain processes. Lean is based on data and bad data in the analysis phase will result in failing to identify the root causes of wastage. Bad data though is not a critical factor in a lean transformation, but it must be addressed before making the first step.
Why non-Lean SMEs are more likely to fails in case of disruption
Companies that run on inefficient processes, obsolete technology and pay a high price in wastage are more likely to be hit hard by a disruptive event.
During the lockdown caused by COVID, it became clear that a lean supply chain is not just a matter of cost-saving but rather a case for business continuity.
Reduce waste of time and resources
Where can SMEs start the Lean journey to waste cutting
If you want to learn more on how to start a Lean implementation journey check my training video in this link where I describe the 3 stets of my SLDTM program for Lean Automation