Reorder Point

What is Lean Supply Chain Definition?

Executive Summary

  • A lean supply chain is often proposed to improve outcomes, but what is it actually?
  • We provide our definition of Lean supply chain.

Introduction

There is an enormous amount of false information provided about what is Lean supply chain definition.

See our references for this article and related articles at this link.

The following quotation is a good example.

Top management knows that lean can add value, but many still haven’t moved past the initial education stage into full-scale lean supply chain implementation. One reason may be that they haven’t made the paradigm shift as to how to implement lean. The Lean Supply Chain is a system of interconnected and interdependent partners that operate in unison to accomplish supply chain objectives. There should be metrics involved to monitor these objectives to ensure success across the supply chain. These metrics should be reviewed frequently to ensure supply chain success. – Cerasis

Lean proponents have a way of presenting perfect world scenarios that change things that Lean programs don’t have control over. Companies that I have reviewed that follow Lean approaches don’t match what the Lean consulting firms say that Lean accomplishes.

In this article, we will cover what is Lean supply chain definition from a realistic perspective instead of presenting a fantasy world, which is the most common presentation of Lean.

The Definition of Lean

Lean is fundamentally about reducing waste. Lean proponents tend to vastly overstate how many ways Lean can minimize waste. And they also tend to underestimate waste their changes cause but which they don’t measure (for instant factory inefficiency due to lean inventory management causing more changeovers and lower manufacturing productivity, to stock outs due to a lack of inventory). The definition of Lean suffers from the enormous scope that is often proposed for the approach.

The following list is an excellent example of this.

“Workforce Management throughout the Supply Chain,

Omni-channel fulfillment, RFID,

Supply Chain Management (SCM) systems, Electronic Data Interface (EDI),

Trading Partners Interface (TPI-Retail Value Chain Federation),

Customer Order Management,

Customer Relationship Management (CRM)/Cloud Solutions,

Transportation’s Yard Management Systems (YMS)

GPS for Tracking Freight

Reduce Lead Time

Create a Level Flow/Level Load

Use Pull Systems, Like Kanban

Increase Velocity, Throughput and Reduce Variation

Collaborate and Use Process Discipline

Focus on Total Cost of Fulfillment

Apply Lean Supply Chain Six Sigma

Increased Customer Fill rate and Customer Satisfaction

Supply Chain Visibility and Increased Performance Measurement

Distribution Center Utilization of 5S

Kaizen/Continuous Improvement

The New Role of the 3PL” – Cerasis

In many ways, Lean is less about a specific approach and more about virtue signaling. It is often the case that Lean is something to say you are doing, without necessarily doing anything. The definition of each item is often incredibly preachy, as the following quote illustrates.

The new role of the 3PL will not just be to transport and warehouse, but serve as a trusted partner in the lean supply chain journey by implementing lean in their operation (5S, Continuous Improvement, Pull Systems and Lean Six Sigma) identifying problems. – Cerasis

One would think that Lean would stop at the supply chain, but in fact, Lean proponents have extended even beyond this into “Lean Accounting,” as the following quotation explains.

There are positive and negative reasons for using Lean Accounting in the lean supply chain. The positive reasons include the issues addressed in the “Vision for Lean Accounting” shown above. Lean Accounting provides accurate, timely and understandable information that can be used by managers, sales people, operations leaders, accountants, lean improvement teams and others. – Cerasis

It seems to be a description that has come out of China or written by a Soviet Commissar.

There is a remarkable similarity between the writing of Lean proponents and totalitarian documentation, such as the writing in Mao’s Little Red Book. 

Lean proponents believe that their assertions must be accepted, without any burden of proof.

The Problem with Listening to Lean Proponents about Lean

Lean proponents tend to be expansionist and highly doctrinal — those that contradict them are brushed aside as idiots. What is unknown to most lean proponents is that most of their lore or supporting evidence is contrived, and the case studies or examples have been embellished by lean consultants.

The Lack of Evidence of Lean Improvement

There is no evidence that Lean adjustments have lead to improvements for companies.

Lean is a renaming of JIT, which was a disaster for companies that implemented JIT in the 1980s. JIT had to be renamed in part to mitigate against the bad reputation that JIT had developed and its inability to meet the promises made by JIT consultants and proponents.

What is Our View of Lean?

Lean to Brightwork Research & Analysis as it applies to inventory management are two related proposals.

  1. The Usefulness of Forecasts Assertion: Items cannot be forecasted, or as is often asserted by Lean proponents, “Forecasts are useless.”
  2. Consumption Based Planning Methods Combined with Mindlessly Cutting Inventory: Lean proponents advocate the application of consumption based supply and production planning techniques. This means things like reorder point and EOQ. Lean proponents did not create a reorder point and EOQ. They simply coopted by them. A further problem with Lean proponents is that they often do not agree with mathematical formulas for inventory management assert without evidence, that the inventory should be lower. They will often say strange and unsupported things like.

“The lot size should be one.”

Why is never explained, beyond some obscure reference to the importance of Lean (therefore a circular or tautological explanation) and then a reference to something that never actually happened at Toyota.

Where Did Lean Come From?

The history of supply chain planning since roughly the 1970s has been a story of the development of increasingly sophisticated mathematics for performing planning. Then along came Lean, which called into question the applicability of these methods, and essentially proposed going back to the earlier simpler ways. It seems natural to question where this all came from. Interestingly, in terms of the origin of Lean, it came from the Toyota Production System, or TPS. However, the TPS drew parts of its approach from Ford Motor Company. This is explained in the following quotation, which is from the book Today and Tomorrow:

“I was first introduced to the concepts of just-in-time (JIT) and the Toyota production system in 1980. Subsequently I had the opportunity to witness its actual application at Toyota on one of our numerous Japanese study missions. There I met Mr. Taiichi Ohno, the system’s creator. When bombarded with questions from our group on what inspired his thinking, he just laughed and said he learned it all from Henry Ford’s book. The scale, rigor and continuous learning aspects of TPS have made it a core concept of Lean.”

This is an oversimplification because it is also well-known that the management at Toyota felt parts of Ford’s manufacturing approach needed to be altered. Hence, the TPS is better described as a combination of the Ford manufacturing approach with many cultural aspects that are specific to Japan. However, the degree of credit given by the main intellectual force behind the TPS, Taiichi Ohno, is quite remarkable:

“We have learned a lot from the US automotive empire. America has generated wonderful production management techniques, business management techniques such as quality control (QC), and total quality control (TQC), and industrial engineering (IE) methods. Japan imported these ideas and put them into practice. The Japanese should never forget that these techniques were born in America and generated by American efforts.”

In terms of why Lean is such a strong trend, a trend that extends far beyond manufacturing, I believe that Lean has been driven in large part by dissatisfaction in the quality of the output from supply and production planning systems. This dissatisfaction can stem anywhere from MRP’s logic being overly simplistic to where implementing companies have run into problems implementing supply planning methods more complex than MRP/DRP. However, it should also be noted that all of the methods employed in manufacturing and inventory management have been disappointing in one way or another for the majority of companies that implement them.

“Americans seem to have a stubborn faith in the eventual emergence of a swift and permanent solution to the manufacturing problem. Each successive approach to manufacturing management – scientific management, operations research, MRP, JIT, TQM, BPR, ERP, SCM, Lean, Six Sigma and so on have been sold as the solution. Each one has disappointed us, but we continue to look for the elusive “technology silver bullet” which will save American manufacturing.” – Factory Physics

The Big Lean Trend

Currently, there is a sharp focus on the topic of Lean. While Lean is continually presented as fresh and new it has quite a long history – and I am not only speaking of its history at its point of origin, which is Japan. Just in time inventory (JIT), which was one of the major pillars of the Toyota production system (or TPS for short) was prevalent in the 1980s and was part of the Japanese manufacturing craze that affected pretty much all discrete manufacturers. Many types of manufacturing outside of discrete manufacturing to some degree or another.1 The book Factory Physics has the following comment on JIT:

“…MRP II was roundly criticized in the 1980’s, while Japanese firms were strikingly successful by going back to methods resembling the old reorder point approaches. JIT advocates were quick to sound the death knell of MRP. But MRP did not die, largely because MRP II handled important non-production data maintenance and transaction processing functions, jobs that were not replaced by JIT.”

It’s well known that Lean is, in part, renamed and rebranded JIT. A cynical view of this renaming is that JIT lost much of its credibility in the marketplace, and therefore a new term was used to improve acceptance. Like JIT, Lean is a philosophy that originated in manufacturers and then migrated over to supply planning. Some books explain how to apply Lean to retailers and wholesale operations. Two of the most prominent ideas touted by Lean are listed below:

  1. Variability: Lean holds that variability is the main problem in supply chains, and that management of variability should be the main focus of supply chain planning. This can entail either reducing the variability or placing buffers closest to the point of variability. (Reducing variability may mean switching to a more reliable transportation company that delivers consistently. Adding a buffer would mean keeping sufficient inventory at the receiving location to account for the inconsistency of the delivery company.)
  2. Not Forecasting: Rather than performing forecasting, the supply chain should instead be reactive and only carry a minimal amount of inventory. This can be accomplished by reorder point planning, and minimal list can be achieved by how the reorder point (either duration or quantity) is set.

What is the Core of Lean?

Lean is partially a series of techniques for reducing waste but is also a management approach. And a bit part of Lean is people making things up for pushing their career forward for little concern for what is true.

This is explained by the following quotation from Factory Physics:

“In setups and many other areas, the Japanese have taken a holistic, systems view of manufacturing of how these systems behave. Consequently, they have been able to identify policies that cut across traditional functions and to manage the interfaces between these functions. Thus while the specific techniques of JIT are important, the systems approach to transforming the manufacturing environment and the constant attention to detail over an extended period of time are fundamental.”

It involves things like coaching or mentorship. It would be illogical to compare the management approach that is Lean to the techniques of supply chain planning like supply and production planning procedures. Therefore, I am not going to attempt to do that. Instead, I will be taking an approach to Lean that focuses on its techniques, and specifically its techniques that are relevant to inventory. However, I do explain how one cannot take a reductionist view of the techniques employed by Lean proponents to explain the success of some of the companies that have used Lean principles.

Conclusion

We tried to answer the question of what is Lean supply chain definition by applying a realistic definition but then also providing background to Lean and then important limitations around Lean and how it is presented.

People that look up what is Lean supply chain definition sometimes do so because they face intermittent – or “lumpy” – demand. This is one of the most common features of a product’s demand history that makes a product unforecastable. Unfortunately, as is covered in the book Promotion Forecasting: Techniques of Forecast Adjustment in Software, several factors are combining to reduce the forecastability of product databases. This includes factors such as the increase in the number of SKUs carried – called product proliferation, reduced product lifecycles and higher turnover, and increases in promotions. The less forecastable the product database, the less than an MRP, or any other supply planning method, can do to provide a good supply plan. With sales and Marketing running strategy at most companies, companies are making it increasingly difficult for themselves to have a manageable supply chain. It also means that some maintenance areas must be performed with increased frequency on the MRP system. This is a good segue into our next topic, which is how to improve MRP systems.

We developed an approach where reorder points are calculated externally, which allows for a higher degree of control. And for the average inventory to be coestimated in a way that provides an observable total system inventory, holding cost, service level and a picture of what is happening to the overall system. Calculating individual parameters like reorder points without an appreciation for the systemwide does not make any sense.