Supplier Relationship Management – How Lean Principles Can Deliver Supplier Value

A Supplier Relationship Management (SRM) programme has a primary goal of increasing value for both the buying organisation and the supplier. One way to do this is to look at the core processes that deliver value along the supply chain and work together on projects to improve them. A key tool in the SRM toolbox is Lean Design. This article will show you how this works.

The purpose of process improvement is to eliminate the root causes of performance deficiencies in processes that already exist. These deficiencies may be causing real pain for the organisation or they may be preventing it from working as efficiently and effectively as it could.

A good tool to use is the Lean methodology.

Lean is about the elimination of waste in a process. These wastes are applicable to processes in both manufacturing and service sectors.

Lean methodology has five core principles. These are:-

1. The definition of Value.

2. The identification and integrated management of the entire Value Stream and elimination of waste.

3. The design of production systems that ensure materials Flow.

4. The introduction of Pull Systems to support customer service.

5. The continuous improvement of all business activities to achieve Perfection.

Let’s describe Principles 1 and 2 in a little more detail

Principle 1

A step in a process adds value if:

o the customer recognises the value

o it changes the product, and

o it’s done right the first time

A step may be non-value-added but necessary if:

o it is required by law, regulation, or contract

o it is required for health, safety, environmental, or ethical considerations.

Value-added activities change the form, fit, or function of a product or service delivered to a customer. If the activity doesn’t do any of these three, it is probably non value-added.

Principle 2

The value stream is the activities that are necessary to design, order and provide a specific product or service from concept to launch, order to delivery and raw materials into the hands of the customers.

To identify the value stream for a customer, a good idea is to “walk the process” and see what happens at every step. Keep an eye out for waste or non-value added activities as you do this.

It can be relatively easy to spot waste in a manufacturing organisation – it tends to create visible signs such as piles of work-in-process. But what about a process in a service industry? Here are some manufacturing terms with a description as to what the equivalent might be in a service organisation:-

o Defects – incorrect data entry

o Over production – preparing extra reports, reports not acted upon, multiple copies in data storage

o Transportation – extra steps in the process, distance travelled

o Waiting – processing monthly not as the work comes in

o Inventory – transactions or paperwork not processed

o Motion – extra steps, travel from office to office or desk to desk and extra data entry

o Processing – multiple sign-offs

The purpose of applying the Lean methodology is to identify waste so that it can be eliminated. This results in an improved service and a lower cost.

Waste is anything other than the minimum amount of equipment, materials, parts, space and worker’s time that are absolutely essential to add value to the product or service.

There are many ways in which waste can be created. Here are some examples:-

o Layout (distance)

o Long set-up times

o Incapable processes

o Poor maintenance

o Poor work methods

o Lack of training

o Lack of adherence

o Poor supervisory skills

o Ineffective scheduling

o Inconsistent performance measures

o Functional organization

o Excessive controls

o No back-up/cross-training

o Unbalanced workload

o No decision rules

o No visual control

o Lack of workplace organization

o Supplier quality

o Inconsistent supply of detail parts

o Over-engineering

o Inspection

Working with your key suppliers in a SRM programme to identify and eliminate waste in the supply chain can significantly boost the value you get from your suppliers.