International Trade and Physical Distribution

1 International Trade and Physical Distribution Lean supply: key principles and role on sustainable supply chain efficiency Introduction The concept of lean supply and distribution is used in manufacturing with an aim of reducing wastage of raw materials. It applies a ‘Just-In-Time’ approach system where materials required for manufacturing are only acquired in the right proportions needed at the opportune time to eliminate costs of keeping inventory. The system emphasises more on error prevention as opposed to reacting to situations after they have already occurred. This report reviews and evaluates the main principles of lean supply and their role in helping a firm to achieve sustainable supply chain in a more efficient way.

Principles of lean supply Establishing goals, objectives and policies The determination of goals and objectives is one of the main principles in a lean reengineering project. The management must set out targets that the firm wishes to attain within specific timelines and then formulate policies that will help in achieving these objectives.

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2 Typically, such plans are accomplished within the organisation’s workshop where managers representing each function, such as human resources, engineering, finance, operations and information technology meet to brainstorm these issues (Management services, 2009).

The team of managers in this meeting define the manner in which the company will manage the lean program and also determines the best possible way in which the program will be branded across the entire organisation. As part of the implementation plan, group members formulate a management framework that develops a communications strategy with clear messages defining the program. The group is also tasked with the responsibility of setting expectations and selling it to associates (Oliver, Schab & Holweg, 2007).

Assessment of current processes After defining goals and restructuring the organisation accordingly, the other important principle is to lean out each of the organisation’s existing processes in the distribution channel. It involves carrying out an assessment of individual processes all the way to the element level. The main reason for carrying out this assessment is to eliminate any probable waste and streamlining the system altogether.

There are two main activities that occur at this stage; observation and clear understanding of existing work flows. These will result in mapping out and breaking down the processes into procedures and methods. The procedures refer to the best practices of performing the job or task while methods refer to the variety of things needed to be done in order to enhance performance or productivity. Workflow analysis mainly targets to identify areas having waste and providing solutions to eliminate the wastage. This study eventually enables the company to come up with efficient procedures and methods (Roland, 2003).

3 The distribution channel should baseline its operation during workflow analysis. This means the distribution’s current output should be measured by using key metrics in order to provide a benchmark for making comparisons after lean implementation. Failure to have a clear understanding of the process by managers and supervisors will obviously cause the entire lean to crumble. Managers focus on workload management and will hardly step back to carry out an assessment to determine causes of stunted productivity (Alan, 1996).

Unproductive processes in a distribution channel do not occur intentionally. They occur gradually as the workflow also evolves and therefore it is paramount that associates be involved in assessing the process. Structured brainstorming sessions need to be incorporated into the organisation framework so that knowledge on how things can be made to work better is gotten and shared among the managers and supervisors. Apart from helping in the generation of ideas, such sessions also encourage associate buy-in by according a sense of ownership as far as the outcome is concerned (Andreas & Matthias, 2007).

After leaning out each process successfully, the system has to be documented and a flow chart drawn. This is particularly important as it forms the basis of labour engineering as well as memorialising the whole process for purposes of consistent training and aiding roll-out plans.

The company devices two sets of operating procedures which is considered standard. The distribution channel manager keeps one of the procedures that detail a full and complete account of the entire lean program while a simplified version is kept by the associates mainly for training purposes (Christopher & John, 2006).

The standard operating procedures meant for training focuses on imparting skills and knowledge to the associates so that they can be efficient and effective while performing their duties. The procedures are written in brief, highlighting only the keys to success. The training

4 must be done before engineered studies, which is the next phase, is launched (Maike, Todd & Patricia, 2009).

Conducting engineered studies Engineered studies are conducted while the program is underway so as to evaluate the performance of the associates. The result of these studies is used as a basis for engineered labour standards as well as for purposes of devising incentives. Labour productivity standards should be developed only after the analysis of distribution channel processes has been carried out and leaning executed. Companies need not commit the mistake of establishing labour standards prior to carrying out an analysis on the viability of the work flows and checking whether the processes chosen are the best. This is a costly mistake as it sets up the system for failure due to erratic measurement results. The end results of such a failure are situations where a worker performs at 120% of the standard on one day and 80% on the following day. This variability could be misinterpreted to mean an associate is failing to perform on his duties when actually the flaw on the process is to blame. Such situations further cause the associates to develop a dislike for the labour standards as they are generally viewed as unworkable and unfair (Barriga et al, 2005).

The company also needs to train managers together with supervisors on techniques of effective feedback mechanism as well as coaching. One area that supervisors require skill on is on-the-floor-observation and about how to train associates such that they can be able to perform to standard. Additionally, they need to be in a position to train workers who are finding it a challenge to meet set standards. Labour standards should be developed in tandem with configurations of the warehouse management system (WMS) and labour management solution (LMS) particularly if WMS is needed to be integrated to LMS (Matha & Sunil, 2002).

5 A lean overhaul helps a company to free its distribution channel from the control and attachment of software outsourced by the company for control of its distribution from a third party developer. The WMS enables the company to support the best operational practices rather than taking the determinant role (Reeve, 2002).

Addition of incentives Incentives play an important role in the lean mix by recognising and rewarding high performing associates. Programs on incentives should be based on accountability since workers are responsible for attaining set labour standard and earn extra amount for exceeding it. Apart from simply paying workers because they have performed, incentives could also include recognition programs, time off as well as other rewards which are non-monetary. Incentive programs should be inclusive, being implemented at the individual, team and departmental levels (Zylstra, 2007).

Notable benefits triggered by lean distribution Lean distribution causes an organisation to shorten its lead time as much as possible. This is the duration of time between when an organisation places an order to the supplier and when actual supply is done. Due to the increased efficiency caused by lean, a shorter lead time means materials only come in the required quantity at the right time so as to eliminate the need to hold them as inventory which comes with additional costs.

The overall performance of delivery also improves with a successfully implementation of lean distribution. Unnecessary shortage or too much supply that surpasses demand means wastage in the manufacture system in terms of either additional inventory cost or lost business opportunities. However, with a lean strategy, all this wastage is eliminated and thus delivery performance enhanced (Cohen et al, 2009).

6 Sales revenue is also increased as a result of adopting lean distribution. Supply to the market can never be irregular since the flow of materials into the system is regular without any breaks. Consumers therefore have more confidence in the company’s products and will continue buying thus increasing the sales revenue (Dynes et al, 2007).

Lower operating costs. Any business entity targets the maximisation of profits through reduced costs of running business. Lean distribution achieves this since it maintains very minimum operation costs thus allowing the company to make greater profits.

It improves customer satisfaction and maintains relations with suppliers as cordial as possible. Lean distribution adds value to the product since it is specifically tailor made to suit customer wishes and demands. Customers therefore develop trust with the product owing to the satisfaction they get from using the product. On the other hand, there exists mutual trust between suppliers and the manufacturer since there are no delays in payment and supply is almost standardised due to the high quality of lean management (Supply House Times, 2010).

Lean increases inventory turns thus further enhancing efficiency. The rate at which inventory transformation is achieved is maximised and therefore no wastage is experienced in terms of machine idleness or inventory keeping. The rate at which inventory processing takes place is determined by market demand and therefore any product delays due to over supply are not experienced.

Lean also boosts employee morale thus achieving higher retention rates. Workers feel their individual contribution to the company’s performance is appreciated and the company does everything within its reach to get the best out of every individual. Workers in such a working environment can hardly leave in search of other opportunities and therefore the overall maintenance cost of employees is kept as low as possible. There is less training endured by the

7 company, which means additional expenses that would have otherwise been spent on recruitment, hiring, training and induction are maintained as profits to the company (Weber, 2006).

Lean ensures there is additional working capital that can be spent on different projects.

This concept generally enhances efficiency, where a lot is achieved at very minimal costs. Funds saved by lean that would have otherwise be consumed as operation costs can therefore be used as capital to initiate other projects that will be beneficial to the company (Trebilcock, 2004).

Lean reduces the amount of physical space required by a manufacturer to carry out processing. The efficiency of the system extends to the physical space that a manufacturer will require to do operations. Land is an expensive asset and saving expenses on its acquisition would further ensure that more funds are availed for other profiting ventures.

Obstacles that may hinder the benefits of becoming lean Inadequate personnel training could be a stumbling block in achieving lean operations.

There needs to be a lot of cross-training so as to achieve team work if the benefits of lean distribution are to be felt across the entire organisation. Much effort should therefore be used to adequately train workers to impart the necessary skills (Nighswonger, 1999).

Inefficient and outdated tools also hinder the journey of achieving lean operations. There needs to be some level of automation in the tools and equipments being used in order to achieve lean. However, such equipment could also be expensive to acquire, thus posing a challenge to the company.

Storage locations that are ill-sized also block lean. The main target of lean is maximisation of performance where fewer resources are utilised to achieve maximum benefits.

Thus, far placed storage locations or abnormally huge warehouses or tiny ones could not be

8 beneficial to the company unless they are completely restructured according to the targets and standards.

Poorly located fast-moving products will fail to achieve lean. Determining a suitable location on where to run operations is a huge challenge to manufacturers, basing on the type of market served. A fast moving product would basically require being near the market to cut down on the cost of transporting finished products to the market. It will also eliminate inventory costs completely.

Locating new or misplaced products poses a challenge to a lean system. It beats the logic of achieving efficiency when products can hardly be traced. This means the manufacturer cannot have an exact evaluation of his performance to determine whether he is making profits or losses.

Part B Chupa Chups supply chain Introduction Chupa Chups is a global confectionary manufacturer whose headquarters is based in Barcelona, Spain but with different other factories situated in many countries that include France, Russia, Mexico, Brazil and China. With its huge size that straddles across the globe, the company reoriented its process of manufacturing to make-to-stock from the previously pursued make-to-order in a bid to reduce inventories and also synchronise crucial activities in its subsidiaries. This report analyses Chupa Chups supply chain, identifying its problems and suggesting possible solutions that could be profitable to the firm.

Transformation of Chupa Chups distribution channel Chupa Chups had previously been employing a make-to-order strategy where its products were basically being manufactured in huge quantities and then await orders from consumers and

9 dealers. However, the company analysed its operations and saw the need to change and adopt a make-to-stock strategy as a way of increasing efficiency. The manufacturer cited its goals and objects as the need to cut down on inventories, synchronise executive and planning activities across its factories, anticipate customer demand as well as be able to foresee bottlenecks and integrate its entire suppliers (mySAP, 2002).

An intensive selection process was carried out and Chupa Chups selected SAP Advanced Planner and Optimiser (SAP APO) as the best vendor to help out the company as it transformed its distribution strategy. However, the integration experienced a number of challenges that could not immediately transform into benefits to Chupa Chups.

Significant problem on the integration of lean into Chupa Chup’s supply channel Given Chupa Chups magnitude, it was difficult for SAP APO to establish a smooth schedule that would achieve easy integration without experiencing disruptions. There were obvious delays and failures even as SAP APO looked for the right combination that would suit Chupa Chups requirements (mySAP, 2002).

The entire implementation was done in piece-meal, picking only a few of the workers and training them in stages on how the new system operated. There was also initial resistance from the workers who felt the new system posed a threat to their employment and did not offer their full cooperation to the implementation process (Manrodt, Vitasek & Thompson, 2008).

An important requirement for Chupa Chups in its implementation strategy was the acquisition of expensive tools of analysis in order to collect information company-wide and process it accurately for the benefit of lean distribution. This tools and equipment also needed special training to those who will be charged with the responsibility of manning them at Chupa

10 Chups. These training and equipment acquisition posed a great challenge to the manufacturer due to the costs involved.

Having been pursuing a make-to-order strategy previously, Chupa Chups had built expansive warehouses to store inventory as they awaited orders from dealers and consumers.

However, with successful transformation to make-to-stock strategy, the company had a problem with wasted space because the new strategy does not require the keeping of inventory. Instead, goods are manufactured and released to the market immediately while supplies come are only ordered according to required quantities (Vitasek, Manrodt & Abbott, 2005).

Potential solutions to these challenges Implementing the new strategy in one go is not easy and possible for a big manufacturer like Chupa Chups with presence in more than two continents. The right implementation strategy would be to prioritise different functions as well as announce different start dates to minimise downtime. As a precautionary measure, Chupa Chups should elect only one of its companies to act as its model before rolling out to the others.

Facing resistance from workers when a company implements new strategies is a common thing. However, this problem can be addressed by carrying out training sessions specifically meant to change their mindset and introduce them to the new system (Andreas & Matthias, 2007).

Expensive equipment and tools for supporting lean most of the times hamper a smooth implementation process. However, companies can draw up a cost effective approach by inviting an expert in lean supply and distribution to give advice on how to tackle the issue of costs.

11 Wastage of space previously intended for inventory purposes can be avoided by leasing out such facilities so that the firm can continue deriving value out of them rather than leaving them to lay idle (Management Services, 2009).

Conclusion Lean supply and distribution is an efficient strategy to be adopted by manufacturers as it aims at optimising profits through while reducing the cost of doing business. Its main principles are addition of value, satisfaction of consumers, boosting worker’s morale and enhancing efficiency through reducing operation cost. This concept is useful as it helps manufacturers to maintain good relations with their suppliers while at the same time building consumer trust as a result of the value addition. However, there are also challenges that come with the implementation of lean, among them including training costs, acquisition of new tools and equipments as well as wastage of space due to the elimination of inventory.

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