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Lean SCM Logistics
Prepared by Julian Kalac, P.Eng
Lean Six Sigma Master Black Belt
Supply Chain Management:
encompasses the planning and management of all
activities involved in the sourcing and procurement,
conversion, and all Logistics Management activities.
Importantly, it also includes coordination and
collaboration with channel partners, which can be
suppliers, intermediaries, third party service providers,
and customers. In essence, Supply Chain
Management integrates supply and demand
management within and across companies.
Source:CSCMP formerly CLM
Definition of Supply Chain
Management
WAREHOUSE
ORDER
PROCESSING
IMPORT
EXPORT
TRAFFIC
PURCHASING
FORECASTING
DRP
FIXED ASSETS
ACCTS PAYABLE
GEN LEDGER
PLAN EXECUTE MANAGE
MRP
Supply Chain Information Systems
ACCTS
RECEIVABLE
Logistics Management is:
that part of Supply Chain Management that plans,
implements, and controls the efficient, effective forward
and reverse flow and storage of goods, services and
related information between the point of origin and the
point of consumption in order to meet customer’s
requirements.
Source: CSCMP formerly CLM
Definition of Logistics
Management
The Logistics Process
Manufacturi
ng
Warehousing
Production
Planning
Inventory
Management
Raw
Material
Order
Processing
Traffic
Management
Transportatio
n
Customer Seller
Deliver to
Customer
Lean SCM
Hidden Factory
6
Hidden Factory
7
Shipped on time and customer happy
We Made $$$$
Production
Material Ship order CUSTOMER
•No Wasted Time
•No Wasted Money
•No Wasted Resources
•No Wasted Material ??
99%
Customer Quality
The truth
8
The Hidden Factory
$50000-material
scrap costs
$350,000 transportation costs
Lost order
Wrong order shipped
Production
Material Ship order CUSTOMER
Hidden Factory
9
Hidden Factory
HIDDEN INVENTORY
11
Hidden Factory
12
Hidden Factory
Where is the hidden factory?
14
The type of solver technology used is dependent on the
characteristics of the planning applications, including
where, what, when, and how the work is to proceed.
Supply Chain Activities
Source: I2 Technologies
Capacity,
schedules,
status receipts
Service,
capacity,
schedules,
routes,
receipts
Capacity,
schedules,
status
receipts,
inventory
Goods
characteristics,
capacity,
availability, status
Demands goods,
requests services,
requests receipts
Supply Chain Cycle
World-Class Logistics
Customer
Focus Delight the Customer
•Perfect orders
•Responsive
•Very short OTD cycle time
•On-time delivery
•Tailored logistics systems
•Easy to do business with
Focus on Growth
•Partnerships
•Tailored programs
•Product availability
•“Mutual” success
Provide
Shareholder
Value
Minimize Asset Base
•Asset consolidation
•Cross-docking, flow-through
•In-transit merge
•Greater use of third parties
•Worldwide contracting
•Network optimization
•Replace inventory with information
Understand True Logistics Cost
•Activity-based costing
•Net landed cost vs. functional
lowest costs
•External partner linkage
•Competitive cost index
Enable and
Exploit
Information
Technology
Integrate Systems
•Common applications
•Decision support tools
•Leverage capabilities of suppliers
•Real-time tracking
•Reverse logistics
World-Class Infrastructure
•Internal and external resources
•Training
•World-class people
•Constant upgrade of capabilities
•“Interest in change”
WHAT IS IT?
•The use of an outside logistics company to perform all or part
of a company’s material management or product distribution
function.
•It is the integration of information, inventory, warehousing,
and transportation services.
Third Party Logistics
3PL Functions—View from Cadre Technologies
What Is Fourth
Party Logistics?
A Fourth Party Logistic
(4PL) provider is a supply
chain integrator that
assembles and manages
the resources, capabilities,
and technology of its own
organization with those of
complementary service
providers to deliver a
comprehensive supply
chain solution.
Fourth Party Logistics (4PL)
A New Way to Collaborate
4PL Forward Logistics Supply Network
Synchronization
Transportation
Carriers
CUSTOMER
Event
Mgmt
&
SCP/E
Visibility
Communication
SCM
4PL
Lead
Logistics
Provider
Warehouses
DCs
Contract
Manufacturers
Brokers
Forwarders 3PLs
Order
Fulfillment
Domestic versus International Requirements
NAFTA
FMC
GATT
WTO
NVOCC
CHB
IFF
FREIGHT
BROKER
EXPORT
IMPORT
DOMESTIC
24
INSANITY --“Doing the
same thing over and
over again and expecting
different results”
Albert Einstein
25
26
HQ
Advanced
Planning
Systems
Host ERP
Operations Management
Systems
SCP/SCM and
CRM
Warehouse's
WMS Distribution
Center's WMS
Plant's
MES Customer
Base/ERP
Wholesaler
Distributor
Supplier
Base/ERP
Transportation
Carriers
Transportation
Carriers
Integrated Supply Chain Links
Orders Filled
Complete
On-Time
Delivery
Responsive
Production
Rapid Order Fulfillment
Reduce
Transportation Costs
Reduce
Manufacturing Costs
Reduce waste and
obsolescence
Increase turnover
Reduce
inventory
Network optimization software contains advance planning engines to
synchronize and optimize the supply chain channel for supplier/carrier
selection, production sourcing, and inventory pre-build decisions.
Synchronized Lean Logistics
•Identification and systemic elimination of non-value add
costs and re-alignment of resources to deliver value to
the customer faster, better, & more consistently
•Lean Manufacturing =
SPEED
•Lean in Manufacturing:
–Focus: Eliminate waste, non-value add steps, process
constraints and bottle necks that cause problems in work
throughput 29
What is Lean?
Leading to Leading to
Eliminate
Waste Reduced
Cycle Times Increased
Capacity
Eliminating the Wastes
Value Added
Typically 95% of all lead time is non-value added
1. Overproduction
2. Waiting
3. Transportation
4. Non-Value Added Processing
5. Excess Inventory/Material
6. Defects
7. Excess Motion
8. Underutilized People
Non-Value Added
5
%
| | 31
Lack of cross-functional training
Over relying on a select few while others are
Inadequately trained
Operators are unable to rotate and help each
other out to balance the work-load
High overtime, increased pressure stress
32
Hidden Factory
33
Process
Value Added
Adds value to
the output and
customer is
willing to pay
for.
Optimize
Non-Value
Added
Does not add
value to the
output, and
customer isn’t
willing to pay
for.
Eliminate
Business-Value Added
Does not add value
to output, customer
will not pay for, but
is necessary.
(Legal, Safety, Etc.)
Minimize
LEAN VALUE ADD/NON VALUE
ADD
•Lean in Supply Chain:
•Lean Logistics:
35
What is Lean Supply Chain?
Leading to Leading to
PULL
SYSTEM Reduced
Lead Times Reduced
Inventory
Leading to Leadingto
Reduce
waiting time
In/Outbound
Crossdocking Reduced
delivery time
Basic Lean Concepts
Pull Systems
Production scheduling method used to link downstream activities to
upstream activities
Work begins based upon a demand signal (kanban) from a
downstream customer, either internal or external
Avoids overproduction, work backlog, and disconnects within a
process
Nothing is produced until the downstream customer signals a need
37
•KANBAN
–A signal to produce
–Signal can be an empty square, bin, shelf, cart, or kanban
card
–Kanban qty is safety stock used while new order is
delivered
–Kanban qty is calculated based on usage, lead time,
delivery time
–Can be setup manually or automated
–Can extend through electronic notification to suppliers
using automatic messaging and triggers
Basic Lean Concepts
39
SCOR (Supply Chain Operations Reference) Model:
Structured around Five CORE Process Types
SCOR Model
Customer’s
Customer
Supplier’s
Supplier
Supplier
Internal or
External
Customer
Internal or
External
Your Company
Plan
Make DeliverSource Make /
Repair DeliverMakeSource
Deliver Source
Deliver
Source
Return Return Return Return Return Return Return Return
Plan Plan
Provides Framework for your Transformation / Improvement Projects.
•Defining the boundaries / scope of the supply chain .
• Evaluate the supply chain’s strengths and weaknesses.
•Industry benchmarks, standardized terms, metrics,
Enables a total enterprise view of a supply chain 40
Integrating Process Improvement Methods & Tools
Product/Service Value Stream
Processes Processes Process
Start
Process
Finish
Process
Steps
Processes Processes
Organization Customers End-use
Customers
Suppliers
Sub-
Suppliers
Process
Steps
Transactional Process Steps
Return Return
Plan
Make Deliver
Source Make/Repair DeliverMakeSource
Deliver Source
Deliver
Source
Return Return Return Return Return Return
SCOR Supply Chain Model
41
Warehousing Equipment Diversity
Standard Racking Double Deep Narrow Aisle
Mobile Racking Drive in Rack Live / Flow
Source: ATLET
Warehouse Layout-Combo Storage Methods
Crossdocking and Logistics
No stock!
Customer Order
Receipt Ship
Storage!
Cross-Docking
•Cross Docking Helps to achieve the key logistics objectives of:
•Stock reduction
•Fixed resource reduction
•More responsive operating systems
Warehouse Layout--Crossdocking
USING MULTIPLE
MODES OF
TRANSPORTATION
FOR ONE
CONTINUOUS
MOVEMENT
Intermodalism
Supply Chain Compass-Five Stages
The
Fundamentals
Cross-
Functional
Teams
Integrated
Enterprise Extended
Supply Chain Supply Chain
Communities
Business Pain Cost of quality Unreliable order
fulfillment Cost of customer
service Slow growth,
margin erosion Non-preferred
supplier
Driving Goal Quality and cost Customer
service
Profitable
customer
responsiveness
Profitable
growth Market
leadership
Organizational
Focus Independent
departments Consolidated
operations
Integrated
supply chains
(internal)
Integrated
supply chains
(external)
Rapidly
reconfigurable
Process
Change
Standard
operating
procedures
Cross-functional
communication Cross-functional
processes
Customer-
specific
processes
Reinvented
processes
Metric Predictable
costs and rates
On-time,
complete
delivery
Total delivered
cost Share of
customer Net worth
IT Focus Automated Packaged Integrated Interoperable Networked
Key Tools/
Planning Spreadsheets Point tools Enterprise
supply chain
planning
Point-of-sale
supply chain
planning
Synchronized
supply chain
planning
Execution MRP and other
homegrown
applications MRP II ERP Customer
management
systems
Network-centric
commerce
Aligning worldwide
distribution strategies
around sourcing/selling
business models
Reengineering the
movement of product to
improve availability and
lower net landed cost
Synchronizing
processes
across all
regions/markets
Key Requirements Key Performance Measures Key Organizational Processes
•Centralized management/worldwide
integration
•Customer service options
•Sourcing initiatives and alliances
•Procurement/supplier integration
•Global network optimization
•Process-driven information systems
Shareholder Measurements
•Inventory turns
•Asset utilization
•Operating costs
•Customer satisfaction
•Loss management (asset protection)
Customer Measurements
•Product availability
•Flexibility
•On-time performance
•Speed
•Responsiveness
•Consistency
•Quality
Planning and Control
•Configuration and scheduling
•Demand management and
communication
•Sourcing strategy
•Manufacturing strategy
•Supply chain integration
•Product life cycle
Support
•Infrastructure
•Information and technology
•Key performance indicators
Global Logistics Strategy
ng
Lord Kelvin on Measures
When you can measure what you’re
speaking about and express it in
numbers, you know something about it;
but when you cannot measure it, when
you cannot express it in numbers, your
knowledge is of a meager and
unsatisfactory kind….---Lord Kelvin
Measuring Up –A Best Practice Model for
Evaluating Supply Chain Performance
Goal Measure Definition
Improved customer-
order fulfillment Fill rate Portion of custom orders (either external or internal) that are
on time and accurate as the customer would determine
Improved customer
satisfaction Survey Systematic feedback obtained directly from customer
(external or internal); likely using a sampling survey
Better procurement/
supplier management
Supplier order
fulfillment Portion of supplier orders that are on time and accurate
Supplier quantity Non-conforming or defective items or services divided by
total at supplier interface
Procurement
effectiveness Year-over-year cost reduction on like items (i.e., by
commodity family)
Inventory
Days of supply
on hand Inventory investment on hand (in dollars) divided by daily
ship rate (in dollars)
Inventory turns Cost of Goods Sold (COGS) divided by average annual
inventory investment
Timing Cash-to-cash Elapsed time from payment of suppliers to collection of
payment from customers
Quality Quality Non-conforming or defective items or services divided by
total at customer interface
Operational integrity Productivity loss Operational productivity lost due to supply chain non-
conformance
Supply Chain & Logistics Management
A Practical Viewpoint
Logistics Supply Chain
Management
52
THANK YOU