Lean logistics- the concept and application
What is lean logistics?
These days, organizations are constantly on the lookout for improving their business processes, in order to gain the much need-needed competitive advantage in the market. They feel that reduction in time, cost and inventory is a proven way towards this improvement and the Lean Logistics is a method of ensuring the same.
In simple terms, lean logistics refers to the method of identifying and eliminating wasteful activities from the organizational supply chain with a motive to increase the flow and speed of the products.
What is the importance of lean thinking?
Organizations need to inculcate the process of ‘lean thinking’ if they want to achieve the benefits of lean logistics. The very aim of lean thinking is to eliminate organizational waste from all processes and the elimination of inventory is at the top of its agenda. Its focus lies on eliminating any inventory that is not supporting operational and customer needs.
The concept of lean thinking actually originated in the manufacturing methods employed by Japanese car manufacturers. The lean manufacturing implemented by Toyota Motors was summarized beautifully by Jim Womack in his much-acclaimed book “Lean Thinking”. Because of inherent shortages and a dearth of resources, Toyota employed such a manufacturing process that focused on minimizing waste. This method was soon employed in all the manufacturing areas, supply chain management, and product development.
Lean Thinking is centered around a continuous cycle of looking for perfection through maximizing product value and eliminating waste. This process ensures that the customers do not have to pay for the organizational waste and lack of efficiency.
There are four principles involved towards ensuring minimal waste. These are mentioned below-
- Specification of value– In this process, the value of the customer is specified and incorporated along the entire supply chain network.
- Mapping of the value stream-In this process, the value of processes along the entire supply chain network are measured and those processes are identified that do not add value to the product. The value creation and identification are done from the perspective of the customer.
- Creation of a product flow- Here, the factors identified towards assimilation of the valuable processes into the system are applied. These factors are – minimizing downtime, reducing interruptions and reduction of inventories.
- Establishing customer demand– The demands from customers are given due importance while manufacturing a product. The demand information is processed and made available in all stages of the supply chain.
Each of these above-mentioned processes is perfected on a continuous basis so the product value is maximized and the waste is minimized.
What is the impact of lean thinking on logistics?
Lean thinking has a significant impact on logistics. Any organization that incorporates the concept of lean thinking into its supply chain management can immensely benefit from reduced environmental impact and improved customer service, apart from other benefits of waste reduction, as a result.
The process of elimination of waste reduces inventories, which, in turn, reduces the cycle and process times. This subsequently increases the velocity and flow of the supply chain.
Lean thinking also has a strong cultural impact on the logistics process as it focuses on the culture of “total cost”. The lean thinking process emphasizes the total ownership cost, rather than focusing on individual factors of cost such as warehousing or transportation. Making important decisions depending on the total ownership cost has significant implications for logistics as inventory carrying costs usually make up for about 25-40 % of the entire logistics cost in many organizations. Without a lean thinking approach, organizations never completely rely on this total cost concept and keep the focus on individual cost drivers such as warehousing, transportation and inefficient sourcing practices.
Lean Six-Sigma logistics
Six-sigma is another tool like lean, that brings discipline to logistics. These tools, when used in combination, can identify and deal with waste and other gross inefficiencies in an organization.
Six Sigma is a methodology that is used widely to eradicate defects, enhance processes, and minimize variations in any business process. The crux of the Six Sigma approach is built on eliminating wastes and thereby improving efficiency and quality. It also seeks to streamline and improve all the underlining processes. Six Sigma works on an extremely disciplined system of data collection and makes use of improved statistical tools. Hence, the Six Sigma approach can be very handy if applied to logistics because, such an approach can increase the satisfaction level of both external or internal clients and, in turn, can result in financial benefit for an organization.
Six Sigma is all about getting to the root of the variations and finding the most suitable solution to eliminate them so that the system can run at “near zero defects”. It is a simple, yet effective, structured and process-oriented way of ensuring improvements with a precise allocation of responsibility and organizational objectives to attain significant results. Six Sigma is more of a program to attain continuous improvement over a long period of time.
Lean six-sigma is an effective tool to make effective changes in a logistics process, which can be really challenging for an organization. It is based on a disciplined approach towards developing a culture that facilitates improvement. It allows choosing a few of the best possible solutions from a plethora of solutions available for the same problem. It ensures that the right decision is made in this regard so that the identified solution does not involve large investment or implementation cost. These solutions should also be tested thoroughly and their efficacy should be checked before they are cleared for implementation.
To carry out this entire decision-making process, the team can take help of mini testing cycles called the “Plan, Do, Check, Act ” or PDCA. This will help them to chalk out and refine the ideas while going through the process of collecting stakeholder feedback.
The Bottomline :
Organisations should understand that for powerful tools like lean and six-sigma to work in combination in logistics, a fundamental mind-shift is the key. They must have the requisite courage to eliminate inventories and take decisions based on depending on the “Total Logistics Cost”.