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5.1.

Supply Chain Management (SCM)


The term supply chain can be defined as a network of facilities and distribution
opportunities that carries out the role of obtainment of materials, conversion of
these materials into finished products, and the circulation of these finished
products to customers. According to Poirier and Reiter (1996), a supply chain is a
system through which organizations deliver their products or services to their
customers. The intention of supply chain is to offer a high pace flow of high
quality, appropriate information that will facilitate suppliers to give a nonstop
and accurately timed flow of materials to the customers. Supply chain is an
integrated course of action where the raw materials are manufactured into final
products and then through distribution and retail, reaches to the final customers.
The APICS Dictionary describes the supply chain as (Lummus and Vokurka, 1999):
1. The processes from the internal raw materials to the ultimate consumption of
the finished product linking across supplier-user companies; and
2. The functions within and outside a company that enable value chain to make
products and provide services to the customer.
It is now considered that firms can no longer effectively compete in isolation of
their suppliers and other entities in the supply chain (Lummus and Vokurka, 1999).
So, a proper management of supply chain is crucial these days. Supply chain
management (SCM hereafter) is the effort that focuses on bettering the manner, in
which a business collects the raw materials according to the need in order to
produce products or services, manufactures that product or service and transfers
it to the customers. In other words, SCM is related to the administration of
materials, information, and finances as they move through an operation from the
supplier to manufacturer to wholesaler to retailer to consumer. SCM encompasses
coordinating and synthesizing these flows. It concentrates on these flows both
within and among companies. The eventual target of SCM is to decrease inventory
with a view to make the materials available when needed. The use of SCM is seen in
both service and manufacture industries. The organizations of this competitive
business environment, now days, are concentrating highly on their supply chain as
it is becoming very obvious that non-integrated manufacturing and distribution
processes with poor relationships with suppliers and customers can be harmful for
them. Lamming (1996) stated that SCM is a theory grounded in the field of
logistics. In its simplest form the chain can be described as a network among the
supplier, the manufacturer and the customer like figure 5.1:
Figure 5.1: Supply Chain

The network starts with the sources that provide basic ingredients to produce the
products or services. An example of this network can be given by explaining figure
5.2. Suppose, Company X produces high quality shirts that have good demand in the
market. This company gets the supply of its fabrics from Company Y, a textile
mill. In order to make the fabrics, Company Y gets yarns from Company Z. The
retailers of the shirts of Company X are Co. A, Co. B and Co. C. The ultimate
customers get the products of X from these retailers. At the end of every week, X
get information from its retailers (A, B & C) about the sizes and styles of shirts
in these retail shops. Then, X orders more fabric from Y for the next delivery.
According to the needs of fabrics of X, Y then orders yarns from Z. in this way,
the players in the supply chain use the recent sales information to produce what
to be sold next.
Figure 5.2: Supply Chain Management

In this way, all the partners in the supply chain get benefited. A good
relationship with the suppliers is imperative in this case. The manufacturer needs
to make a long term relationship with the suppliers and ensure an assurance and
commitment from the part of the suppliers so that they provide a better and timely
supply of goods. An efficient SCM helps both the producer and supplier by reducing
costs and increasing margins.

5.2. Just-in-Time (JIT)


Just-In-Time (JIT) is a manufacturing philosophy that was developed by the
Japanese. It was introduced by Toyota. The concept of JIT continued to gain
acceptance through the lare 80s and throughout 90s (Karim, 2003). JIT is a kind of
manufacturing system that mainly focuses on achieving excellence with the help of
continuous improvement in productivity and elimination of waste (Crawford and Cox,
1990; Lummus and Duclos-Wilson, 1992; Orth et al., 1990; Suzaki, 1987). Baykoc and
Erol (1998) state that JIT production systems have a simple goal: produce the
required items, at the required time, in the required quantities. Calvasnia et al.
(1989) defined JIT as: “……..a system of production control that seeks to minimize
raw materials and WIP inventories, control (eliminate) defects; stabilize
production; continuously simplify the production process; and create a flexible,
multi-skilled work force.” The general principles that guide JIT are (Brox and
Fader, 1997; Fullerton and McWatters, 2001):
1. To produce to customer demand, with faultless quality, with zero unnecessary
lead times;
2. To eliminate waste;
3. To develop the productive potential of a firm’s labor force; and
4. To pursue a quest of the continuous improvement of every aspect of
manufacturing operation.
5. To shorten customer response time.
If JIT can be implemented successfully in the organizations, it can lead to
superior productivity, lesser costs, and elevated profits (Hall, 1981;
Schonberger, 1982; Cheng, 1990; Cheng and Podolsky, 1993). Schonberger (1987) says
that JIT is the most important productivity enhancing management innovation since
the turn of the century.
Generally, in past, most of the organizations used to follow a ‘push’
production system. In this system, they used to purchase raw materials and kept
them as stocks. Then basing on the sales forecast, a schedule of production was
prepared. According to the requirements specified in the production schedule, raw
materials were issued and products were produced. These finished goods were kept
in the store and then when customers ordered the goods, finished products were
sold to the customers. JIT opposes the concept of ‘push’ system and focuses on
‘pull’ system of manufacturing flow. Here, a product is not made until the
customer requests it and components are not made until they are required for the
next production stage (Cashmore and Balachandran, 2001). In this system,
practically no stock (no raw material and no finished goods) is kept. So, in order
to implement a successful JIT program, an effective supply chain management is
very much important. Suppliers should work effectively so that they can deliver
raw materials several times a day and so when the raw materials arrive they may
straight into the factory and be used immediately (Cashmore and Balachandran,
2001). The logic behind this system is that it is now said that a common non-
value-added activity found in many types of business organizations is maintaining
excess amount of inventory (Karim, 2003). Cashmore and Balachandran (2001) states
that JIT requires the following:
1. The labor force must be versatile so that they can perform any job within
reason to keep production flowing as requires.
2. Production processes must be grouped by product line rather than by function
in order to eliminate stock movements between workstation and to speed flow.
3. A simple, infallible information system.
Golhar and Stamm (1991) identified four basic tenets of JIT management philosophy.
These are:
1. The elimination of waste;
2. Employee involvement;
3. Supplier participation; and
4. Total Quality Control.
The successful implementation of JIT requires a group effort of employees,
managers and suppliers who perform some needed activities (figure 5.3) and thus
waste is eliminated on a continuous basis and ultimately the firm gets benefited
(Lawrence and Hottenstein, 1995).

Figure 5.3 Model of JIT Production Philosophy

Source: Lawrence, J.J. and Hottenstein, M.P. (1995), The relationship between JIT
manufacturing and performance in Mexican plants associated with US companies,
Journal of Operations Management, Vol.13, pp.3-18.

JIT denies the traditional plant layout pattern of the organizations. In the
traditional job and batch manufacturing system, products are passed from one group
of identical machines to another. Machines with identical functions are located
together in department or process. Mainly traditional system supports the
departmental structure. In this case specialized labors are kept for each
department or machines. But JIT supports the manufacturing cell structure. Hansen
and Mowen (2003) say, manufacturing cells contain machines that are grouped in
families, usually in a semicircle. Each cell is arranged to manufacture an
individual product. The workers are assigned to cells and are skilled to run all
machines within the cell. Thus, JIT encourages multi-skilled labor.

Hansen and Mowen (2003) state the following comparison of JIT and traditional
approaches (table 5.1):
Table 5.1 Comparison of JIT approaches with traditional manufacturing and
purchasing
JIT Traditional
1. Pull-through system;
2. Significant inventories;
3. Small supplier base;
4. Long-term supplier contracts;
5. Cellular structure;
6. Multi-skilled labor;
7. Decentralized services;
8. High employee involvement;
9. Facilitating management style;
10. Total quality control;
11. Buyer’s market;
12. Value chain focus. 1. Push-through system;
2. Significant inventories;
3. Large supplier base;
4. Short-term supplier contract;
5. Departmental structure;
6. Specialized labor;
7. Centralized services;
8. Low employee involvement;
9. Supervisory management style;
10. Acceptable quality level;
11. Seller’s market;
12. Value-added focus.
Source: Hansen, D.R. and Mowen, M.M. (2003), Cost Management, Thomson South-
Western.

5.3. Lean Manufacturing


Lean production got ample popularity in the discipline of business in recent years
and got attention from both academicians and management professionals. A good
number of studies have been done on this topic. The main source of attraction
towards lean production comes from the fact that it focuses on some revolutionary
production/operations management tools together in a production process. According
to Cooper (1995), there have been two major revolutions in manufacturing in the
twentieth century and these are: mass production and lean production. Lean
production was developed by Toyota. Emiliani and Stec (2005) states that lean
manufacturing evolved purposefully over time by borrowing key concepts developed
by Henry Ford, Charles Sorenson, Fredric Taylor and it was driven forward by
management practitioners, in alignment with Toyota’s corporate purpose, anchored
in key principles, and by applying the scientific method to the day-to-day
practice of management. Lean production is different from the traditional
production processes. Rather than focusing on large lots and functionality
oriented traditional production processes, lean gives emphasis on a flexible and
quickly changeable production process.
These days, customers have become the key point of focus. The market, in case of
almost every product, has become competitive. As a result, customers can choose
among the suppliers and buy their needed products. Customers will look for the
suppliers who ensure on-time delivery and deliver product according to their
specified configuration. In order to fulfill the customer needs in a better way, a
high-speed ‘custom-order’ oriented production process should be established. To
ensure the supply of customer-specified products, the production process should
also be made flexible. This flexible and high-velocity production process will
ensure customer satisfaction and thus market share for the products will be
increased. As a result, growth in revenue will be made certain. Lean production
focuses on these issues.

5.3.1. Definition of Lean Production


As discussed earlier, traditional manufacturing systems focuses mainly on large
scale production and aims on providing ‘standard’ orders for all the customers. In
today’s highly competitive market where the customers want products with their
needed specification and quantity, producing large quantity standard product
thinking of fulfilling some common ‘customer-needs’ only, make the firms
incompetent. Lean production process tries to prescribe solutions for these
demerits of traditional production system. It suggests that products should be
produced according to the quantity and quality/ specification needed by specific
customers and the delivery of the products must be on-time. For these, lean
production concept focuses on short lead time. It also focuses on a demand-pull
inventory management system, means; inventory should be availed only when needed
to satisfy a customer order. To reduce the lead time, the value-added and non-
value added activities should be identified and non-value added activities should
be subtracted. Another important issue that is focused in lean production concept
(unlike the traditional production process) is that of flexible organization.
Rather than producing common products in large scale, the organizations should
emphasize on the quantity and specifications needed by their customers. Different
customers may demand different specifications in the products. So, rather than
having a rigid functionality based production process, the organizations should
prepare themselves to produce in a flexible environment that will help in
engineering the product with specific requirements. Thus, Lean Production can be
defined as follows:
“Lean Production is a high-velocity customer-specification oriented production
concept that encourages on-time delivery of the products to the customers by
reducing lead time through ensuring a demand-pull utilization of materials/
inventories, subtracting non-value added activities and establishing a flexible
production process”.

5.3.2. Principles of Lean Manufacturing and the Sequence of their Application


According to Ahlstrom (1998) there are nine principles that guide the lean
production process. These principles are:
1. Elimination of waste: This is the most important principle of lean
production. There should be a persistent detection for waste (everything that does
not add value to the product). It is said that the most significant source of
waste is inventory. So, keeping inventory is a non-value added task. The most
devastating form of inventory is the work-in-progress as it hides the problems and
keeps problems from getting solved. So, it is important to reduce the inventories.
That is why the reasons behind the existence of inventory are to be removed. This
can be done by decreasing set-up times, using precautionary safeguarding to shrink
machine downtime, and changing the layout to reduce transport distances for parts.

2. Pull Scheduling: Materials should be scheduled through pull system. The


manufacturing should start from a customer order which will ultimately go to the
final assembly. Inventory should be pulled only when a customer requirement is to
be fulfilled.
3. Zero Defects: Quality should be ensured in a proper manner. To ensure this,
all the parts and products should be fault-free from the very beginning. Quality
assurance should be the responsibility of everyone. The manufacturing process
should be controlled enough to prevent the defects from occurring at the first
place.
4. Multifunctional Teams: Teamwork is an important feature of lean
manufacturing. Teams should be organized around manufacturing cells and process
flows. There should be multifunctional members operating in a team.
5. Delayering: The responsibilities and authorities should be assigned to the
lower level employees and the levels of hierarchy should be reduced in the
organization.
6. Team Leaders: Teams should be made responsible for supervisory tasks and
these tasks should be done by the team leaders. Team leaders should work as
advisers, coaches, support providers but they should not act like traditional
bosses (who are disciplinarians or task assigners).
7. Vertical Information Systems: There should be a good and reliable
information system that will ensure direct information flows to the decision
makers so that quick feedback is achieved and corrective actions can be taken on
the basis of that.
8. Continuous Improvement: There should be a continuous effort (in a structured
manner) by the operators to improve the manufacturing process.
Robertson and Jones (1999) identified five principles of lean systems. These
principles are described in table: 5.1:
Table: 5.1 Principles of Lean Production (Robertson and Jones, 1999)

Principles Description
Value Value should be precisely specified for specific product. The product
should be redefined through the eyes of customers.
Value stream It is important to identify the product, i.e., the total set of
actions required to bring the product from raw materials to its customers should
be identified.
Flow The flow of value should be uninterrupted. Departmentalization and batch
processing should be avoided and the result of this will be short lead time, high
quality and low cost.
Pull This principle encourages letting the customers pull value from the product.
This is usually done by achieving a system called Just-in-time (JIT).
Perfection Always trying for perfection through continuous improvement.

All these authors focused highly on value creation, quality maintenance through
continuous improvement, demand-pull production and less lead time. These
principles should be applied sequentially. Ahlstrom (1998) suggests that the
principles like zero defects and delayering should be applied at the early stage
of implementation. He identified the principles like elimination of waste,
multifunctional teams and pull scheduling as core principles and these should be
applied throughout the implementation process. Vertical information systems and
team leaders are treated as supporting principles in the implementation. When the
base of lean production in the organization will be set, the principle of
continuous improvement should start working on a ceaseless basis (see figure 5.4).
Figure 5.4 Sequences in the Implementation of Lean Production

Source: Ahlstrom, P. (1998), Sequences in the Implementation of Lean Production,


European Management Journal, Vol.16, No.3, pp. 327-334.

5.3.3. Some Guidelines for the Managers who want to Introduce Lean
The managers of Bangladesh, who want to introduce lean manufacturing process in
their organizations, should be very careful before introducing it. It needs a good
range of planning and commitment from the part of the decision makers before
introducing this kind of manufacturing process. In this section of the article,
some guidelines are presented for the managers who will think of introduce lean.
Firstly, it needs top management’s approval and commitment to introduce lean
production process in the organization. Top management are the decision making
people in the organization and lean production demands a good number of concepts
which are not traditionally followed in Bangladeshi organizations. For example,
giving enough responsibility and power to lower level employees may not seem very
practical to the top management. Top management should feel the need for
introducing this kind of process in the organization and should commit to provide
all kinds of support in order to implement this.
Secondly, employees should be well trained. Lean production encourages Delayering
and putting responsibilities on the shoulders of the employees of lower hierarchy
level. Moreover, teamwork is encouraged. As a result, it is very much necessary
that all these employees know their duties and responsibilities well and they work
as skilled workers. So, formal training for the employees is very important for
implementing successful lean production process.
Thirdly, in planning process also, multidisciplinary teams should be used. In the
principles of lean manufacturing it is said that multidisciplinary teams should be
used in lean production. But before going to implement lean manufacturing, a good
planning is very important. This planning should also be done by a
multidisciplinary team in which there should be people like engineers,
accountants, marketing and management professional.
Fourthly, good relationship with both suppliers and customers should be developed.
Lean production emphasizes on short lead time and demand pull inventory
management. It means, when an order is received from customer, only then raw
materials and other needed materials should enter in the organization from the
supplier and as a result, there will be no need of holding inventory in the
organization. For this, a good relationship with both the customers and the
suppliers is needed. The supplier should be reliable enough to supply quality
materials for reasonable price. Otherwise, the task of ensuring zero defects will
not be possible.
Fifthly, employees should be motivated with appropriate incentive plans in order
to establish their commitment towards the process and the organization. In order
to make the implementation of lean successful, every person in the organization
should take part. They should be enthusiastic for continuous improvement and
ensuring quality. A good and effective incentive plan is needed in this case.
Sixthly, a pilot project should be started and tested before going for the final
implementation of lean production. As lean production demands a huge range of
planning and cost, the plan for lean should be, at first, implemented as a pilot
project (in a small scale) to anticipate the possibility of success of the final
project. If the pilot project shows satisfactory performance, only then it will be
applied to the whole organization at a large scale.

5.4. Conclusion
The concepts like SCM, JIT and Lean Manufacturing are interrelated. On one hand,
if an effective supply chain management is not maintained, JIT system will not
work. On the other hand, lean production embraces SCM and JIT and various other
modern production management concepts. All these concepts demand for the attention
to the customer requirement by providing quality products to them. Applying these
kinds of concepts in the business make the firms competitive in the market.