Every successful business needs to make a profit. But no matter how much revenue you bring in, if your operations are inefficient, your company will either underperform or take a loss.

This is a hard fact of life and business. There’s no getting around it.

Lean supply chain management is a way to embrace limits and make business operations as efficient as possible. It’s an attractive promise, and it’s not hard to see why lean supply chain management is a common buzzword in the business world.

Lean principles have been taught for years in everything from books for start-ups to Fortune-100 companies. It’s no surprise to find lean principles at work in the supply chain too.

In this article, we’re going to talk about lean principles first, then talk about lean supply chain management. We’ll go over the advantages and disadvantages of going lean. Then we’ll talk about how you can make your supply chain leaner.

What Does “Lean” Mean?

First, let’s start with the definition of lean principles. There are five of them, and once you understand them, you can start to see how they can be applied to the supply chain.

  1. Define Value. Figure out what is important to your customer, including needs that have previously been unmet or even unmentioned.
  2. Map the Value Stream. Determine how each activity your business performs contributes – or doesn’t contribute – to delivering value to the customer.
  3. Create Flow. Determine which activities are needed to deliver value and do them as efficiently as possible.
  4. Establish Pull. Basically, eliminate wasteful inventory practices.
  5. Pursue Perfection. Always improve.

It’s a simple, elegant system with a lot of applications. Figure out what’s useful. Figure out the best way to be useful. Fix what doesn’t work. Rinse and repeat.

Now let’s talk about how you can apply that to supply chain management.

What Does Lean Supply Chain Mean?

As you can see from the principles above, the Lean Way is all about streamlining processes, eliminating waste, and reducing non-value added activities. It’s a business philosophy that is extremely relevant in complicated industries.

Supply chain management is nothing if not complicated! You can find waste and inefficiency at nearly any step of the supply chain if you try hard enough.

In procurement, it’s common for different departments to do the same thing. Manufacturing is a hotbed for material waste if done wrong. Warehousing costs can quickly spiral out of control without good inventory practices. And transportation? As anyone who’s ever moved across town with a U-Haul knows, it’s not easy to pack efficiently!

On the flip side, a lean supply chain is a laser-targeted mechanism for delivering value to the customer. Very little is wasted, whether time or material. Expenses go down and often revenues go up.

10 Advantages of Lean Supply Chain Management

Adopting lean supply chain principles can have a lot of benefits. These benefits range from saving money to simplifying processes. We can think of ten that are especially relevant for businesses that carry inventory, listed below:

    1. Eliminating waste saves money. Profit is nothing more than revenue minus expenses. Lean processes cut expenses and can often lead to efficiency gains that increase revenue as well.
    2. Lean supply chain management is a proven way to cut down on waste. Waste costs money, looks bad, and puts a subconscious psychological strain on workers. This results in poorer customer service.
    3. Less waste means better customer service. Fewer wasteful practices allow your company to create better products and provide better services, making customers happier.
    4. Lean management clarifies vague processes. Vague processes force workers to make too many decisions, which results in poorer decision making. Lean supply chain management is a great way to remove complexity.
    5. Lean supply chains require less inventory. One of the five main points of lean supply chain management is to reduce excessive inventory. This is fantastic for businesses since inventory is expensive!
    6. Carrying less inventory makes it easier to reinvest in different projects. It’s a lot easier to roll with changes in demand with lower inventory levels. This can save a ton of money, leaving valuable company resources available for more promising projects.
    7. Lean processes are faster. With simpler processes, it’s easier to eliminate time-consuming parts of the supply chain. That can reduce excessive lead times in the supply chain, giving your company a much better chance at responding to changes in the market.
    8. Simpler processes result in less damage. More carefully crafted processes typically result in fewer damaged items.
    9. Unnecessary labor costs are reduced since unnecessary processes are eliminated.
    10. Decision-making is easier. The simplicity provided by lean supply chain principles makes it a lot easier to generally understand what’s going on in your business. That means you can set more relevant goals.

    When you look at this list, it seems like moving toward lean supply chain principles is a no-brainer. But it’s not quite that simple, since there are disadvantages to the approach as well. We’ll cover those in the next section.

    6 Disadvantages of Lean Supply Chain Management

    During the COVID-19 pandemic, supply chains slowed to a crawl. As consumers, we dealt with the consequences of this first through shortages and then through inflation. The initial weeks of slowdown were enough to cause issues for the rest of 2020, as well as 2021 and 2022.

    One of the factors that exacerbated these issues was an overreliance on lean supply chains. A lot of businesses did not have enough safety stock. Others did not have contingency plans for unexpected issues.

    Bearing that in mind, it’s worth considering the disadvantages of unchecked lean supply chain management so you can take advantage of its good qualities while mitigating the bad ones.

    1. Leaner supply chains are vulnerable to disruptions. Companies that hold minimal inventory are more vulnerable to natural disasters, political instability, pandemics, and other random unlucky events. The best insurance policy against this is simple — keep extra stock on hand.
    2. Leaner supply chains are less flexible in some situations. If customer demand becomes highly unpredictable, lean systems may fail to respond efficiently, resulting in stockouts, longer lead times, or the need for costly emergency measures to meet customer needs.
    3. Lean supply chains tend to over-rely on suppliers. Any delays or quality issues from suppliers can significantly disrupt the entire chain, as there’s little buffer stock to cover shortages.
    4. Inventory management needs to be more precise. To maintain a lean supply chain, companies often need to invest in sophisticated management systems and forecasting tools. This complexity can increase costs and require specialized skills to ensure smooth operations.
    5. Going lean isn’t easy to do. Rolling out a lean supply chain can be expensive and time-consuming, requiring careful coordination, process reengineering, and possibly technology investments. The long-term benefits may not always justify the initial cost, especially for smaller businesses.
    6. Lean supply chains are only as good as their forecast. Inaccurate predictions can lead to inventory shortages or overstocking, negating the benefits of a lean approach.

    Lean principles are not a cure-all. Some “inefficiency” in the form of safety stock, back-up suppliers, and redundant processes can be beneficial. Should you decide to move more toward a lean supply chain, keep these issues in mind so they don’t sneak up on you.

    How Can You Implement Lean Supply Chain Management?

    When you pursue lean principles, you are likely to encounter a number of issues. Employees may not provide complete visibility into the nature of their jobs. There will probably be a political element if your company is large enough to have different departments with conflicting objectives. A large part of implementing lean principles is change management.

    With that in mind, we recommend starting small and making incremental changes. If you’re able to effectively make a large number of changes to your organization all at once, all the better.

    1. Look for waste to eliminate.

    The truth here is simple. Waste is bad and any amount that you can eliminate is great! Here are seven wastes commonly found in the supply chain, as said by Cerasis.

    1. System complexity – additional, unnecessary steps and confusing processes
    2. Lead time – excessive wait times
    3. Transport – unnecessary movement of product
    4. Space – holding places for unnecessary inventory
    5. Inventory – inactive raw, work-in-process, or finished goods
    6. Human effort – activity that does not add value
    7. Packaging – containers that transport air or allow damage

    As a general rule, if you can eliminate waste in any of these areas without causing excessively negative outcomes somewhere else, then do it.

    2. Increase process visibility to the point where you intuitively understand what is being done.

    Identifying and eliminating waste on your own is a great place to start. Yet even better is getting others to help you.

    People don’t like waste or inefficiency in their work. The possible exception being when someone’s job depends on inefficiency as a form of job security. Otherwise, when people see waste and feel empowered to make a change, they’ll make it.

    Increasing visibility into opaque processes is a great way to uncover inefficiency so people can collectively come up with ways to improve. This can be done by cross-training, gathering data, or simply holding meetings where everybody shares what they are working on.

    Little changes in visibility of work can make a big difference!

    3. Use technology to make processes simpler.

    Technology is a great way to reduce inefficiency in processes. Properly implemented, systems can force users to be organized and collect data which increases visibility. These factors and more contribute to more lean processes.

    We’ll borrow from Cerasis again here and list out some technologies that can help you make your business’s supply chain leaner.

    • RFID – an excellent way to track inventory in places such as retail stores
    • Supply chain management (SCM) systems with electronic data interface (EDI)
    • Customer order management systems
    • Customer relationship management (CRM) systems such as Salesforce
    • GPS tracking
    • Transportation management systems (TMS)

    Technology is abundant and its uses incredibly diverse. Before implementing any complex technology, though, be sure to do careful analysis. You need to understand existing business processes and how they relate to the delivery of customer value. Technology done well makes life much easier. Done poorly, technology is just another hurdle to doing great work.

    4. Focus on the total cost of fulfillment.

    Always keep the end goal in mind. Lean management is all about finding easier ways to give customers something they care about. In lean supply chain management, this is the only thing that matters.

    With this in mind, look out for political infighting that causes people or departments to act in ways that are contrary to the customer’s best interest. A lot of times, people are simply doing what is in their best interest. Sometimes the business needs to change so that everyone’s best interests are aligned!

    5. Outsource activities when it makes sense.

    Often, it doesn’t make sense for a business to perform every function of the supply chain. That is why businesses rely on manufacturers, freight forwarders, and indeed, fulfillment companies like our own.

    To put it more simply, if you’re doing something in-house that isn’t a part of your business’s core activities, stop.

    For example, acting as your own customs broker often doesn’t make sense. Neither does fulfilling packages on your own either. Don’t be afraid to ask for help.

    Final Thoughts

    Lean supply chain management is a powerful philosophy. That’s why it has managed to gain such a foothold in the business world. And it’s no secret why, since so much of it works on a common sense level.

    Lean principles are sound and can be applied beautifully to supply chain management, where waste tends to be common. With simple principles and a keen eye for process improvements, your business can earn a competitive edge. And who doesn’t want that?

    Ultimately, it comes down to some very basic principles: figure out what’s valuable, find the best way to do it, eliminate waste, and continually improve.

    Lean principles are no cure-all. A little bit of “inefficiency” can be good, especially in the form of safety stock and contingency plans.

    But as a general direction, lean supply chain management is, simply put, a smart, intuitive way to do business. If you take its ideas to heart, you’ll probably save a lot of money and run your business more efficiently along the way.