Figure 1: Putting supply chain management theory principles into practice can significantly impact an organization’s bottom line.There are many business theories related to supply chain management — enough to fill several library shelves of books. While that may seem daunting, a bit of insight into a few of the most important theoretical frameworks can go a long way toward establishing supply chain best practices and putting organizations on the path to success.

Lean

The core idea behind lean practices is the elimination of waste, which is defined in terms of the customer: Any production activity that does not add customer value — in other words, something a customer would be willing to pay for — is considered waste.

Creating a lean supply chain involves improvement to each of its key areas.

• · Procurement: avoiding duplicate procedures
• Manufacturing: improving quality to eliminate defects and returns
• Warehousing: keeping inventory at low levels
• Transportation: consolidating products into single shipments

For the lean approach to be successful, the supply chain must be viewed as an interconnected system of partners with the common goal of waste elimination. Technology such as radio frequency identification (RFID) tags for inventory, GPS for freight tracking and customer relationship management (CRM) cloud solutions can be used to monitor and assess the system, providing key metrics for improvement.

Theory of Constraints (TOC)

Drawing on the lean concept, TOC is based on a sustained focus on removing obstacles. It is designed to identify the most significant constraint that is preventing the whole system from reaching its full potential, and to make systematic improvements until that specific bottleneck is no longer a limiting factor. One of the tools offered by the theory is the Five Focusing Steps, which outline a continuous cycle of improvement:

· Identify the constraint: targeting a single aspect of the process limiting achievement of a goal

· Exploit the constraint: making quick improvements using existing resources

· Subordinate and synchronize to the constraint: reviewing all other activities in the process to ensure that they support the needs of the constraint

· Elevate the performance of the constraint: considering further actions as needed; at this point, further resources such as capital investment may be required

· Repeat the process: moving immediately to the next constraint

In a supply chain context, the constraint likely to be identified would be its “weakest link.” If, for example, one component moving through the supply chain goes at a significantly slower pace than all the others, the entire process is bogged down. But if that one constraint can be effectively managed, there is an across-the-board benefit. It is important to note that the theory does not support diverting optimization efforts toward components not identified as constraints.

Quick Response Manufacturing (QRM)

Traditional organizations are liable to be focused on cost-based goals. QRM shifts the emphasis to time-based goals: specifically, reducing lead times across all phases of operations.

There are four core concepts of QRM, as outlined below:

· Realizing the power of time: short lead times are the benchmark for success

· Rethinking organizational structure: self-managing “cells” as opposed to hierarchical schemes are designed around focused target market segments, allowing nimble response

· Exploiting system dynamics: lowering utilization of machines and labor creates valuable spare capacity within the system

· Implementing a unified enterprise-wide strategy: a shared approach throughout the organization is key to implementation

Like many other broad theories, QRM can be applied to the supply chain. In this context, shorter lead times can eliminate overstock, foresee engineering changes that could create obsolete inventory, and increase flexibility to respond to changes in demand.

QRM is unique as a lean practice in its support for highly customized products and a highly variable product mix. Instead of seeking to eliminate variability to create better flow, QRM exploits it as a strategic advantage to increase competitiveness in the marketplace.

Conclusion

Although all these theories offer a unique take on the supply chain, aspects of each can be combined to craft a custom approach. This brief overview just scratches the surface, but putting these principles into practice can significantly impact an organization’s bottom line. For more information, consider a trip to those business shelves at the local library. And, as always, stay tuned to Radwell International for insights into a wide range of best business practices.