The Role of Lean Internal Supply Chain Managment

Department of Business Administration – Operations Management

Faculty of Commerce

Ain Shams University

Abstract

Researches and practitioners are focusing on the supply chain management that includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies, but they aren’t well focused on the internal components since these seem to be under control from the organization. Historically, it had been proven that many organizations collapsed due to internal problems.

This paper focused on the role of the lean internal supply chain components in the efficiency and performance of steel plant. Building of internal supply chain passes in three stages; design, implementation and development. Implementation of lean internal supply chain integration will result in many positive results such as increasing revenues, reducing costs, improving the working environment, improving safety and reducing pollution.

Creating of integrated lean internal supply chain is a challenge not to be undertaken lightly but it requires changes in people’ behavior, business processes and building of team work.

Keywords: lean Internal supply chain, material handling, by-products, design, flow.

1.     INTRODUCTION

Supply Chain Management is the task of integrating organizational units along a supply chain and coordinating materials, information and financial flows in order to fulfill ultimate customer demands with the aim of improving the competitiveness of a supply chain as a whole [Hartmut Stadtler,2014].

All supply chain processes discussed in three process views which can be classified into first; Customer Relationship Management (CRM), second; Internal supply chain management (ISCM), third; Supplier Relationship Management (SRM) [Sunil Chopra,2007].

Practitioners always are giving most of the efforts to external supply chain which covers Customer Relationship Management and Supplier Relationship Management mainly to support production side either quality or quantity and are giving less efforts to Internal supply chain management (Hidden Supply Chain).

Internal Supply Chain links functions intercompany such as materials handling and managing of by-products. This paper will present the findings of a case study of internal supply chain integration in steel plant through the handling system of materials and by-products.

 

 

2.     Supply Chain Management interfaces.

As shown in figure 1 below all supply chain processes discussed in three process views can be classified into first; Customer Relationship Management (CRM) which include all processes that focus on the interfaces between the firm and its customers such as market, price, sell, call center and order management, second; Internal supply chain management (ISCM) which include all processes that are internal to the firm such as strategic planning, demand planning, supply planning, fulfillments and field services, third; Supplier Relationship Management (SRM) that include all processes that focus on the interfaces between the firm and its supplier such as source, negotiate, buy, design collaboration and supply collaboration [Sunil Chopra,2007].

Figure 1: Supply Chain Management Interfaces

3.     Actual Priorities of Supply Chain Management Relationships

Actually the researcher noticed that the practitioners pay more attention to customer relationship management (CRM) and supplier relationship management (CRM) mainly to produce value in the form of products and services in the hands of the ultimate consumer but on other hand they pay less attention in the internal supply chain (ISCM) since they consider it is under control of the  organization but unfortunately this attitude lead to have internal weaknesses affect badly the external supply chain performance and some organizations collapsed due to these weaknesses.

4.     What IS INTERNAL SUPPLY Chain?

Internal supply chain refers to the chain of activities within a company that concludes with providing a product to the customer” [Chuda Basnet,2013].  This process involves multiple functions within companies such as Sales, Production, Maintenance, Logistics, Purchasing, Finance, Quality, Marketing, Safety, Environment, Human resources, information technology   and distribution. It is obvious that a company’s performance would be enhanced by the integration of these functions. However, there is no consensus yet on how integration is to be defined. The purpose of this paper is to present the findings of a case study of internal supply chain integration in steel plant since we believe that efficiency and effectiveness be achieved internally first and then be optimized externally.

 

5.     Why lean  Internal Supply Chain is ESSENTIAL?

Globalization and increasing competition have changed the market environment and to survive in the new market environment, companies should tackle several conflicting aspects amongst which are increasing customers’ expectations, achieving higher revenues and increasing expenses, increasing prices of products/services in order to achieve a pre-specified revenue is no longer an option for many companies across various industries [Wael Hadid, 2014]

Consequently, the ancient formula as shown in figure 2 (i.e. selling price = cost + profit margin) that has long been used to determine the selling price of products/services by adding   a profit margin to the cost of products/services is not as valid as it has been in the past.

Figure 2: Cost Plus Strategy Figure 3: Cost Reduction Strategy
Source: Art of Lean, Inc., www.artoflean.com

As a result, it seems more effective for most firms in this new era to focus on and control their costs as a mean for improving the increasingly uncontrollable revenue through the new  formula shown in figure 3 (i.e. profit= selling price – cost), Toyota production system  focuses on elimination of wastes and cost reduction through continuous improvement. Otherwise the companies which apply the traditional concept one a day will disappear from the market; the two formulas are the same mathematically, but there is a great difference in the emphasis; each one places on the variables. In other words, cost-plus considers that the cost is fixed while cost reduction considers that the cost can be effectively changed by lean manufacturing methods, using the cost plus principle can lead to pricing above and then out of the market.

6.     Case Study “Material Handing In Steel Plant”

The simplest concept of Material handling is a manual or mechanical carrying, moving, delivering or working with something, handling of raw materials, consumables spare parts and generated by-products to their places safely in time. [Kent N. Grourdin, 2001]. Some steel factories are facing a lot of troubles due to random handling of materials and generated by-products  without Internal Supply Chain  implementation  that lead to, materials’ damages or losses, delays and time Losses, reworks, loss the control  in scrap impurities, underutilized manning and equipment, mixing of different by-products, increase the recycling time of home scrap, impose the production units to a high risks due to passing of foreign materials to Electric Arc Furnace, occupied wide areas which affect negatively in the other logistics activities, accumulation of by-products complicates the solution and makes it costlier. In the incoming part of this paper the design, implementation and results of internal supply will be illustrated for steel plant with yearly Production of 900,000mt of Hot Rolled Coils & Lime plant capacity of 100,000 ton of quick lime.

7.     Internal Supply Chain Design

Design and implementation of material handling system as a part of internal supply chain is a challenge not to be undertaken lightly, it requires the following stages in order to have an effective and efficient material handling system.

7.1      Build the Index of the handled items.

From figure # 04 the index classified the handled items into  two main groups inputs which included raw materials, spare parts, consumables,  lubricants,……etc. and outputs  which  included products, by products, wastes  …etc., these items have a different   material handling value stream that add value for these items by  moving them from the point of storage to the point of consumption, each homogenous items in shape (bulk/pieces), storage condition (indoor/outdoor) and their flow will have a single flow chart  code to control their flow from inception to demise.

Handling Index Chart
 

#

 

Inputs  

#

Outputs
Item Code Item Code
Figure # 04

7.2      Examine the Value Stream Mapping of the handled items and the related information based on Lean principles

Lean is a systematic approach to identifying and eliminating waste (non-value-added activities) through continuous improvement, flowing the product at the pull of the customer in pursuit of perfection [Jerry Kilpatrick,2003]; the purpose of lean is to remove all forms of wastes from the value stream. Waste includes cycle time, labor, materials, and energy by other meaning lean aims to achieve the same output with less input, less time, less space, less human effort, less machinery, less material, less costs without affecting quality or quantity of the produced goods.

Toyota Production system (Lean) built on five principles; 1) Value: to be defined from the perspective of the customer; 2) Flow: understand the process and clear any obstacles that don’t add value; 3) Pull: Initiate work only when requested by the customer; 4) Responsiveness: be able to respond to changes; 5) Perfection: continuously refine the process to improve efficiency, cycle time, costs and quality [Richard H. Thompson].  One of the lean techniques is value steam mapping which is a visual tool to systematically examine the flow of materials and information involved in bringing a product or service to a consumer. This technique originated at Toyota, where it is referred to as “Material and Information Flow Mapping.” Its purpose is to  identify waste and opportunities for improvement. Data collected during the mapping process might include times, distances traveled, inefficient work methods, and waiting times [Ripon Kumar,2003].

7.3       Collection of the handling Information:

After building of the index and examine the value steam mapping of each item then  determine the wastes and non-value added activities; the collection of the related information to  production inputs and outputs in steel plant including generated by-products must start. In case of a new plant we have to use the plant operation manuals as a reference but in case of operated plant we have to use actual figures from plant records as we made in this research since we collected the actual information, this information related to main two groups as follows:

7.3.1    Inputs

Table # 01 of inputs flows included information about the index number, description of the item, consumption rate, the movement of the item from –to, truck capacity and then number of trucks per/month;

Table #01: Inputs Flows
1 2 3 4 5 6 7 8 9
Index # Description Consumption (ton) Handling Path Truck Capacity Monthly # of Trucks Remarks
Daily Monthly Yearly
Total

 

7.3.2    Outputs

Table 2 of by-products flows included information about the index number, description of the item, the generation rate, the movement of the item from –to, truck capacity and then number of trucks per/month.

Table #01: Outputs Flows
1 2 3 4 5 6 7 8 9
Index # Description Generation (ton) Handling Path Truck Capacity Monthly # of Trucks Remarks
Daily Monthly Yearly
Total

 

 

These information will help the system designer to know the stages of handling activities then link it with the traffic circulation to see is there are a traffic jamming anywhere to avoid delays during handling of these items to storage areas or from storage areas to production units. The aim is to have efficient and effective handling system which must ensure the smooth operation.

7.4   Hold several internal review meetings.

Since handling of materials and by-products have involvements from different departments,    so system designer has to hold several meetings with all involved parties (Production, maintenance, Administration, Environment, sales, finance and safety) as well as all logistics sections.

The main purpose of that review meetings is to define the responsibilities, documents needed if any, sources, distention, the best specifications of recycled home scrap…etc.; this information helps designer to build an efficient and effective system. Also, these meetings are to create a common understanding, to build team work and to avoid conflict during implementation.

 

7.5  Initiate the Flow Chart Design.

Based on the collected information given in table # 01& # 02 we have to start the   flow chart design of each category keeping in mind the application of  the lean principles; (value, flow, pull, responsiveness and perfection) , this flow chart design must define clearly  the processes, used documents and the responsibility.

 

7.6  Review the design with THE VALUE FROM the perspective OF INTERNAL AND external supply chain members.

After complete the design of these flow charts, we have to review them with all supply chain members either internally or externally and collect their comments which to be  considered during updating processes of that design also we have to repeat the review and update continually in pursuit of perfection.

7.7  Internal Supply Chain Implementation

First step of implementation started with explanations of the system to the plant management; second step is awareness for people who will apply that design; then apply the design with continuous monitoring from material handling team to guide and explain the right way of application, finally upload the design in the Integrated Management System (IMS) as a material handling procedure with continuous improvement based on the received feedback from the members.

This system can be applied in any factory after some adjustment based on its products and processes.

 

8.     Implementation’ Results

In additional to generating revenues there are other  several benefits such as effective and efficient  material handling system, define correctly the amount of inputs and create harmony in the flow with other supply chain managements activities such as warehousing, inventory management and transportation , help in recycling of accumulated by products and wastes, accelerate  selling of the  different by-products since  keeping of these items for a long time will increase the total costs by the storage costs and triple handling of these by-products in additional to pollution and environmental problems, also it will lead to avoid occupying wide areas by different by-products which affect positively on the effectiveness and efficiency of the other logistics activities, and finally it will lead to reduce cost, increase revenues and improve working environment and safety.

9.     Conclusions

With the globalization and open markets the traditional cost plus pricing  system will not help the business units  and may will lead one a day to exit from the  market, lean  Internal supply chain management is essential to gain the competitive advantages and to obtain differentiation in the market. Elimination of wastes and cost reduction through continuous improvement is crucial in order to maintain margins and profits.

Internal integration generates revenues also it led to accelerate recycling and selling of by products which have a several environmental and safety benefits  which affect positively on the effectiveness and efficiency of the other logistics activities, and finally it will lead to reduce cost, increase revenues and improve working environment and safety.

 

Researchers and practitioners must pay more attention to the lean Internal Supply Chain integration since many organization collapsed due to the internal problems, As we efficiently managed the internal supply chain as we become more efficient in external supply chain.

 

10.  References

  • Art of Lean, Inc., www.artoflean.com, TOYOTA Production System Basic Handbook
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  • Emma Toivo , The Integration Within What is internal integration in SCM? – An indicative study of the definition of internal integration, 2009
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  • Jerry Kilpatrick, Lean Principles, mep.org-Manufacturing Extension Partnership, Utah Manufacturing Extension Partnership, Untitled Stats, 2003.
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  • Ripon Kumar Chakrabortty & Sanjoy Kumar Paul, Study and Implementation of Lean Manufacturing In a Garment Manufacturing Company, (2011) Journal of Optimization In Industrial Engineering.
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  • Shahram Gilaninia1, Hossein Ganjinia2, Batool Asadi Mahdikhanmahaleh, Difference Between Internal And External Supply Chain Risks On Its Performance, Singaporean journal of business economics, and management studies Vol.1, no.8, 2013.
  • Sunil Chopra & Peter Meindl, Supply Chain Management Strategy, Planning & Operation – 3rd Edition,2007
  • Tengku Nurul Aishah1,*, Jaafar Pyeman2, Ramlah Mohd Tajuddin, Integration of the Internal Supply Chain Management (SCM) towards Long Run Competitiveness , 1Malaysia Institute of Transport (MITRANS), Universiti Teknologi MARA (UiTM), Malaysia , Management 2013.
  • Wael Hadid,The relationship between lean service, activity-based costing and business strategy and their impact on performance, Brunel University London, April 2014.


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