Supply Risks Rising — Why Lean Alone Ain’t Enough to Manage the Supply Chain

Earlier in July Business Week posted a short column online by guest author Kevin O'Marah of AMR Research. For those of you who don't know Kevin, you should. Kevin is one of the few remaining supply chain gurus in the analyst world who understands both applied process and technology, not to mention having a strong grounding in theory (e.g., lean). In the column, he suggests that current approaches to managing the supply chain won't cut it in today's climate. Specifically, he suggests that "as businesses prepare for a new normal of hyper-volatility, the limits of the Japanese-inspired, low-tech, Lean philosophy are starting to show. The global supply chain in 2009 is a lot more than just a factory and a loading dock -- today's system of plants, distribution centers and retail outlets works more like a worldwide telecoms network than an assembly line. Add a hefty dose of supply chain risk to the mix and a tech-free Lean gospel just can't hack it anymore."

For a while, I've always thought that lean actually ran counter to reducing supply risk. Why? It's simple. At its most basic, lean pushes off the burden of inventory (i.e., a margin of safety) onto someone else. Now inventory could take any form. It could be feedstock for process industries, parts for discrete manufacturing or even labor or an assembly line or distribution facility. But the point of lean is taking waste out of the equation. And waste, as all good buyers know, was put there for a reason to begin with -- so that no one got fired because the assembly line (either physical or virtual) was never forced to stop. Moreover, lean can increase supply chain risk by forcing suppliers to absorb added costs at a time when they can least afford to do so.

So are we entering an era where lean is secondary to managing all forms of volatility and risk in the supply chain? Perhaps secondary is too strong a statement, but risk management is definitely on the rise. As Kevin writes, AMR's 2009 data "shows supply failure at the top, and well up from last year," of supply chain concerns. What else is the latest AMR data suggesting matters to manufacturers today? "Commodity price volatility is still a top concern, but down a bit, indicating that supply chain people don’t necessarily like low commodity prices any more than high prices; they just want stability. Product quality failures, both internal and from suppliers, are well up over the year in a trend that looks to be independent of economic conditions (perhaps reflecting the challenge of ever-longer, more complex supply networks). And of course, dampened consumer spending threatens everyone."

Jason Busch

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