Lean supply chain: How? (1)

Filed in archive Point of view on November 24, 2005

There is an article in October issue of Supply Chain Management Review with this title: "What makes a lean supply chain?". I found it quite interesting and a number of critical issues were mentioned in the article. I try to summerize these key issues and today, you can the first part:

How do companies develop the lean supply chain capabilities that will lead to the kind of superior supply chain performance demonstrated by the top adopters and the industry leaders? Six attributes have been identified that companies should strive to develop.

1. Demand Management CapabilityAn underlying tenet of the lean philosophy is that product should be "pulled" by actual customer demand rather than "pushed" into the market. Ideally, point-of-sale (POS) data is gathered in real-time, or near real- time (daily), and transmitted upstream to all the supply chain members. This doesn't mean just the tier one suppliers but the tier two and tier three suppliers as well. Thus, suppliers at each level of the process would receive the customer's demand signal and convert it into something usable (such as part number and quantity) for their upstream partners. In this way, all members in the channel can understand the total volume being sold. Over time, this capability should minimize the need for Forecasting, since the supply chain is responding to actual demand.

Gillette is one of the best practitioners of demand management in the consumer goods space. Gillette receives actual demand data from POS systems at the retailers and uses that data to create replenishment orders to ship just the right amount of a product to each store. The company is even working to develop radio-frequency identification (RFID) processes that could ultimately lead to continuous monitoring of backroom and shelf inventory, providing automated notification when replenishment is required.