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Many of the processes replaced by SCM, VMI, and CPFR strategies involve merely producing “the average of this month over the last 3 threes plus a small percentage”. Such ad hoc strategies, although widely employed, contain substantial inefficiencies. Exploiting these inefficiencies is the incentive for pursuing these programs. Another reason such programs are popular with managers is that savings realized go directly to the bottom line as customer needs are met while using less organizational resources.

An effective supply chain management program is one that develops processes shared among all the supply chain members in order to minimize the waste of time and enable fast and reliable reactions to changes in demand. Technology has exponentially increased the transfer of information between organizations, resulting in improved supply chain performance. Two common practices, Just-In-Time (JIT) and agile inventory approaches, are used to allow suppliers to react more quickly to changes in customer demand.

Just-In-Time emphasizes minimizing inventory and smoothing the flow of materials to ensure adequate and prompt delivery of components. Products and materials are ordered and delivered “just in time” as they are needed reducing inventory costs and ensuring unneeded materials are not ordered. JIT began at Toyota Motor Company but it evolved into a system for continuous improvement of all aspects of the manufacturing operations.

Lean production is a philosophy based upon a collection of management methods and techniques (Russell, 2006). Workers and machines are multifunctional in lean systems. Workers are required to perform various tasks and help in the improvement process. The machines are arranged in small, U-shaped work cells; this structure enables parts to be processed in a continuous flow. Workers produce parts one at a time and transport them between the cells in small lots. The only schedules prepared are for the final assembly line. This schedule “pulls” sub-components through production by making requests to stations that cascade to production lines. Nothing is done until requested by the next station.

The system is best implemented when suppliers are few in number and are reliable. The suppliers’ manufacturing system must be flexible, because multiple deliveries may be requested of the same item in the same day. Lean production produces items in necessary quantities at necessary times. Consequently, quality must be extremely high, as there is little buffer inventory between workstations and production schedules include only requested products.

Lean systems can produce high quality service quickly at a low cost. Also, the system responds to changes in customer demand. Many retailers use lean systems such as Zara and Blockbuster.

Benefits of using lean production are:

  • reduced inventory
  • improved quality
  • lower costs
  • reduced space requirements
  • shorter lead time
  • increased productivity
  • greater flexibility
  • better relations with suppliers
  • simplified scheduling and control activities
  • increased capacity
  • better use of human resources
  • greater product variety

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Source:  OpenStax, Business fundamentals. OpenStax CNX. Oct 08, 2010 Download for free at http://cnx.org/content/col11227/1.4
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