DRIVING VALUE IN THE UPSTREAM CHAIN …

1 ARTICLE IN PRESSP lease cite this article in press as: M. HELMOLD International Journal of Lean Thinking (2011) International Journal of Lean Thinking Volume 2, Issue 2 (December 2011)Lean Thinkingjournal homepage: DRIVING VALUE in The UPSTREAM CHAIN Management Through Lean Principles Marc Helmold Director Procurement Bombardier Transportation, Berlin E-mail: A B S T R A C T K E Y W O R D S A R T I C L E I N F O Lean principles, Supply CHAIN management. Received 8 May 2011 Accepted 10 May 2011 Available online 19 May 2011 Lean principles and methods must be part of the total supplier management approach in any enterprise.

2 Organisations can thus differentiate and create a competitive advantage. Surveys have shown that the lean integration of the supply CHAIN and the elimination of waste within the UPSTREAM supply CHAIN management lead to significant cost savings and benefits. 1. Introduction Supplier Management has recently raised the interest of experts in industry and academia. Trends like the increasing globalization, the concentration on core competencies and the outsourcing of products and services reduce the own VALUE adding activities significantly. Especially in the USCM, the VALUE CHAIN towards suppliers, it is crucial that suppliers are managed in such a way that processes and activities are running parallel and lean.

3 In the present situation, several industries are characterized by an increasing number and complexity of launch activities. In this context, quality, cost and delivery aspects throughout the USCM are crucial features to differentiate from its competition with a sophisticated time to market concept. VALUE adding activities consist in many companies of about 20-30% as Figure 1 shows. Original equipment manufacturers (OEM) are permanently outsourcing activities and services to suppliers as proven by the Mercer Management Consulting and the Fraunehofer Gesellschaft in their survey FAST . The study shows that the trend towards non-core competencies to suppliers will increase from 65% to 77% in 2015.

4 As a result the core competencies and VALUE adding activities will decrease to less than 25% on average. Please cite this article in press as: M. HELMOLD International Journal of Lean Thinking (2011) ARTICLE IN PRESS Figure 1. Trend towards outsourcing: Percentage of VALUE adding activities 2. Concept and Implementation As a consequence only lean enterprises with a flexible and lean supply CHAIN can survive in this environment. As a matter of fact, many companies have introduced already lean principles, but have not yet applied this concept to their suppliers. This should convince companies to do so.

5 Every crisis means also an opportunity to introduce new concepts and paradigms. In the Japanese language the term crisis also means opportunity or chance as shown in Figure 2. The lean concept was developed by Taichi Ohno, who worked for Toyota Motors. It derived from a bundle of instruments which come from sophisticated production methods or supporting functions like logistics. The ideal interplay and optimal combination of all instruments are essential for success. The vision of lean production is based on the JUST-IN-TIME (JIT) philosophy and the TOYOTA PRODUCTION SYSTEM (TPS) as shown in Figure 3 and focuses on the elimination of waste and the minimization of stock.

6 Figure 2. Crisis means also an opportunity to improve In contrast to traditional schools of thought the objectives of lean production are based on a reduction of throughput times and the elimination of non-adding activities. These activities are waste or so called 0%10%20%30%40%50%60%70%80%20022015 SupplierOEMC risis = KIKI ( )Catostrophy ( ) + Opportunity ( )Crisis = KIKI ( )Catostrophy ( ) + Opportunity ( )M. HELMOLD/International Journal of Lean Thinking Volume 2, Issue 2 (December 2011)2 Please cite this article in press as: M. HELMOLD International Journal of Lean Thinking (2011) ARTICLE IN PRESS MUDA (Japanese).

7 Figure 3 shows the two concepts, the traditional and the lean one. Both concepts are directed towards customers. Nevertheless the lean concept s foundation is based on the optimal reaction capability and not based on inventories. Inventories are increasing the cost of capital and have negative impacts on the shareholder VALUE , whereas short cycle times lead to small inventories. Figure 3. Lean Production approach In the JIT approach, it is important that the right part comes in the right quantity in the right quality at the right time to the right place as shown in the 5R principle. This principle focuses on a zero defect as shown in Figure 4.

8 Figure 4. The 5R concept The TPS has been applied by many OEMs in automotive industry, railway area or other business sectors. Bombardier Transportation is applying the Bombardier Operations System (BOS), Porsche the Porsche Production System and Daimler the Daimler Production System, However, it is not always Theright PartIn theright QualityZero DefectsAt therightTimeNowIn therightQuantityOne PartAtrightPlace HereTheright PartIn theright QualityZero DefectsAt therightTimeNowIn therightQuantityOne PartAtrightPlace Here TraditionalApproachLeanThinkingLargeInve ntory=ShortCycle Times=High Delivery CapabilityCustomerOrientationOptimalReac tionCapabilityCustomerOrientationM.

9 HELMOLD/International Journal of Lean Thinking Volume 2, Issue 2 (December 2011)3 Please cite this article in press as: M. HELMOLD International Journal of Lean Thinking (2011) ARTICLE IN PRESS successful, as the activities are only partially introduced and not rolled out in total. Secondly, lean principles are not synchronized with the USCM and may thus not show the desired effects and results. It does not make sense to establish only single lean instruments. It is of the utmost importance and a fundamental aspect of the lean concept that principles are applied in a total approach that involves the suppliers.

10 In this respect, it is the crucial role of procurement and supplier relationship management to transfer this competency to its supply CHAIN . Inefficiencies throughout the supply CHAIN can thus be identified, waste can be eliminated and processes can be harmonized in order to strive for continuous improvements. Continuous improvement (Japanese = Kaizen) means small steps and is part of the lean philosophy. Empirical data by Marc Helmold, who is currently the Director Procurement at Bombardier Transportation in Hennigsdorf/Berlin-Germany, show that the complete transfer of lean principles to the supply CHAIN can lead to significant cost reduction advantages of up to 15 percent.