Many manufacturers who adopted lean principles by applying a “just-in-time” (JIT) mindset to inventory of materials and parts have been burned, sometimes badly, by cascading supply chain disruptions. Broken links in the supply chain have created havoc, especially for smaller manufacturers.
Some have scrambled to build “safety stock” of hard-to-find supplies. Others have sought out redundant sourcing. The reality is that everything is connected in your supply chain, and those connections can be fragile when they are not well supported.
No, lean supply chain is not dead. It’s quite the opposite. When your supply chain breaks down, lean systems for the rest of your value stream system will help you deal with the issue. Solutions revolve around agility and controls, not masking inefficiencies.
Being lean does not mean having little inventory; that has always been a higher-risk strategy. “Lean supply” means having a defined value of what your inventory levels should be and what risk you are willing to take on. JIT is a lean methodology that includes developing standard inventory buffers in your value stream. It requires strong relationships with suppliers so you can work with them through shortages and price increases.
Smaller manufacturing operations often have had an element of JIT for their hard-to-find inventory. One example is with the price of copper, which has fluctuated in the past 15 years. It is a business decision whether you can absorb the financial impact of storing more copper when the price is low. The size of your copper inventory has to make sense for process flow, cash flow and margin, storage space, and more.
Companies with more agile operations routinely outperform those that carry more inventory. However you adjust to a disruption, the alternative should not create more waste overall or mask inefficiencies.
A supply chain disruption can have a significant trickle-down impact through your operation, not just in sourcing but also in how you use newly sourced materials. New components or materials often result in an operational process change, which can be a challenge to manage, whether it is short or long term. Some changes in inventory and processes can even be a challenge with your existing plant layout. Potential impacts are vast.
For example, electronics manufacturers have struggled with supplies of semiconductors and components. A replacement chip or transistor may have different tolerances and variation in performance. Some engineering development work may be necessary for that component to work effectively in a product.
Uncertainty and temporary solutions can lead to failure to adhere to lean principles, especially if you are using multiple alternative materials or changing more than one dynamic.
A recent case at a food manufacturer illustrates the direct and indirect impacts of disruptions. It also speaks to the power of documenting standard work and the need for strong lean systems.
One of the products that the company makes uses a white chocolate coating, and it was forced to use an alternative supplier for this coating. The compound of the new white chocolate supply was different, and not as reliable, which resulted in a series of changes. The first change was to the recipe, and then to the operational temperature, which changed the way the equipment was run and how the company measured the quality of coating. This even changed how the company had to store the material, keeping it separate from other supplies, and how it had to clean the equipment to ensure compliance for traceability.
The company faced the dilemma of whether these changes were a short-term solution or if it needed to update the standard work documentation and training modules — all for one ingredient.
Documenting standard work is a cornerstone for lean. Standard work procedures should be updated frequently, but it is a tedious, difficult task, so it is not unusual for small manufacturers to have documentation that is two or more years old.
Changes in materials as a result of supply chain disruption often lead to subtle process changes. You may view this as a temporary situation, with the expectation that you will soon be going back to the original process. However, even a few months can have a big impact. Now you have a new process and new procurement. Danger creeps in when you don’t have standard controls in place. Manufacturers can lose sight of this when they are in reactive triage.
It becomes imperative to establish benchmarks and key performance indicators, even as a supplemental standard of work. Stepping back to analyze a situation and re-establish a new standard is a proactive approach. You are in a stronger position to address issues if you are measuring and tracking performance. This is why lean methods apply now more than ever.
Disruptions often result in the need for more frequent and varied training, which puts stress on your instructors. When process changes occur, you must update your training program. If you are shutting down one product line for several weeks due to a material shortage, you may need to cross-train some employees on a different machine or process.
If you don’t update standard work and training, even temporarily, you open the door to other issues, especially with new employees. Lack of documentation with training can lead to process issues, which often cause more tension[MDE1] and quality issues. Additionally, when employees get discouraged, retention issues increase.
Supply chain disruptions will have direct and indirect impacts on your operation. You may see a dip in overall equipment efficiency or increased waste. Your continuous improvement program will be less effective because you are in reactive, problem-solving mode. Whatever you do, avoid causing unintended consequences. Take a back-to-basics approach to track performance and keep more things within your control. Use daily management display boards and follow the plan-do-check-act (PDCA) methodology for any changes you implement.
Here are four keys to help mitigate impacts:
A disciplined approach to lean supply chain helps keep you in control of as many variables as possible. When one critical aspect of lean manufacturing is being disrupted, the other elements are more important than ever. Experts at your local MEP Center can help you manage supply chain disruptions.