Green and Sustainable Supply Chain Management

Environmental changes across the world have generated a movement to identify the causes of global warming and develop solutions to end it before it is too late. In an effort to achive this, many countries are creating laws and regulations with the specific aim to reduce carbon emissions and greenhouse gas effect.

The truth is that environmental change is upon us. Not only do we have climate problems but we are also dealing with a resource depletion issue. With economies like India and China growing at near double digit rates, the population of the world continues to grow creating shortages of many resources that we use to take for granted.

Many consumers, stakeholders and businesses are becoming more involved in the growing green movement. Influenced by customer loyalty shifting towards environmentally friendly products, businesses are trying more and more to make their supply chains greener by introducing sustainability strategies throughout their organizations and supplier relationships. The recent focus on sustainability has resulted in a growing need for integrating environmentally safe choices into supply chain management practices. The concept Green and Sustainable Supply Chain Management can be defined as the process of using environmentally friendly inputs and transforming them through change agents into outputs that can be reclaimed and re-used at the end of their life-cycle therefore, creating a sustainable supply chain. The whole idea of a sustainable supply chain is to reduce costs while helping the environment.

Sustainability and Profitability

A Green and Sustainable Supply Chain integrates ecological factors and supply chain management principles to identify the environmental impact of an organization’s supply chain processes.… Read the rest

Postponement Strategy in Supply Chain Management

Postponement is first implemented in manufacturing processes to reduce cost of inventory and improve service level within the company while the product variety increases. The concept of postponement is to delay the change in form, identity and place to the latest possible point until customer commitments have been obtained. It is by exploiting the commonality between items and by designing the production and distribution process so as to delay the point of differentiation. Postponement is closely intertwined with modularization where products in a certain product family are designed where all of them consist of different standardized units. With modularization, combination of different standardized sub-components allows the producing of different end products. The form, function and place of the product are altered and is in contra with the push systems in which goods are manufactured entirely in anticipation of future customer orders and stored downstream without customer’s formulated specifications.

Postponement is a mass customization technique that is applicable for certain products that can have their variety postponed until just before shipping. Here’s a list of methods for achieving mass customization:

  • Create products and services that are customizable by customers (involving design function)
  • Modularize components to customize finished products and services (involving the manufacturing, distribution, marketing function and the product design).
  • Provide quick response throughout the value chain (involving the design, manufacturing, distribution and marketing function).
  • Customize services around standard products or services (involving the distribution and marketing function).
  • Provide point of delivery customization (involving the marketing function).
Need for Postponement

The application of postponement strategies is increasing in the practice of international business.… Read the rest

Role of the Warehouse in Postponement Strategies

The rapid changes occurring in customer-supplier relationship has resulted in shortening the product life cycle along with the product variations, which could meet the complex customer satisfaction demands. As the customer requirements changes rapidly, it increases the complexity of planning and demand forecasting to suit the changing demands. Hence, postponement strategies are able to help in solving such complex issues. The strategy involves delay in the production process to the maximum possible time, while delaying the point of product differentiation. As the whole strategy is related to the value of information, it can be maximized with delay in production decision time, giving more time to receive and analyze the customer requirement and demand. Hence, the postponement strategies help in improving the quality of decision, while also optimizing the quality of product planning and demand forecast. The relevant strategy also allows for the flexibility in the production scheduling, where the actual demand, in real terms, can play an effective role in the complete supply chain network.

While Alderson introduced the concept of postponement strategy in marketing, for the first time in 1950, the postponement applications have been extended to areas like manufacturing and distribution, as well as, process re-design. Later on, the delayed product differentiation enabled the postponing the product design and manufacturing process, to improve the relevant product quality. Similarly, the concepts involved would include the point of differentiation and the level of postponement, which would refer to the warehousing facilities needed at different locations for storing the products.

However, the motivation for implementing postponement policy in Supply Chain Management confined mainly to the provision of incentives for reducing cost and improving the level of service, while increasing product variety to suit the changing demands of the customers.… Read the rest

5 Why Analysis – A Root Cause Analysis Tool

5 Why Analysis is a simple approach for exploring root causes and instilling a “Fix the root cause, not the symptom,” culture at all levels of a company. The 5 Why Analysis was originally developed by Toyota founder Sakichi Toyoda and was later used within Toyota Motor Corp. during the development of the Toyota Product System (TPS). At Toyota, 5 Whys is still a critical component of problem-solving training, and the method is still widely applied within the company when problems occur.

“Toyota Business Practices dictates using the ‘Five Whys’ to get to the root cause of a problem, not the ‘Five Whos’ to find a fire the guilty party.” – Jeff Liker, The Toyota Way

It can be used whenever the real cause of a problem or situation is not clear. Using the 5 Whys is a simple way to try solving a stated problem without a large detailed investigation requiring many resources. When problems involve human factors this method is the least stressful on participants. It is one of the simplest investigation tools easily completed without statistical analysis. Also known as a Why Tree, it is supposedly a simple form of root cause analysis. Application of the procedure involves taking any problem and asking “Why – what caused this problem?” Then, when the cause is identified, asking “Why?” again (i.e. “what caused the cause?”) The strategy, as commonly understood, is to ask “Why” five times or more uncovering links in a causal chain going back in time. By repeatedly asking the question, ‘Why?’ you peel away layers of issues and symptoms that can lead to the root cause.… Read the rest

Goldratt’s Theory of Constraints – Constraint Management

An Israeli physicist, Eliyahu Goldratt wrote a book titled ‘The Goal’, about a factory manager’s quest to save his factory from being closed down for lack of profitability. It chronicles the process that the manager and his staff go through as they learn how to save their factory. What they learn is how to apply the principles of what Mr. Goldratt calls the “Theory of Constraints.”

Theory of Constraints (TOC) is a logic-driven approach which focuses on system improvement. The core idea of TOC is that every organization has at least one constraint that prevents management from achieving the goal of the organization to a larger degree.

A system can be defined as a collection of interrelated, interdependent components or processes that act in concert to turn inputs into defined outputs in pursuit of a particular goal. Linking systems to chains, TOC defines weakest link as a Constraint. Constraint limits the systems performance. A constraint determines the maximum capacity of a System. Theory of Constraints assumes that every system has at least one constraint that prevents from achieving the system goals. The performance of the entire system is limited by the constraint. Constraints can be physical resources or policies. TOC develops a set of procedures and methodologies to identify and optimize such constraints. Theory of Constraints helps to increase throughput, reliability, and quality while decreasing inventory, late deliveries, and overtime.

Goldratt introduced a method called the five focusing steps for addressing system problems on a continuous improvement basis. The steps are:

  1. Identify the constraint: Identify the operation that is limiting the productivity of the system.
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Six Sigma – A Business Process Improvement Methodology

Six Sigma is a methodology that provides businesses with the tools to improve the capability of their business processes. This increase in performance and decrease in process variation leads to defect reduction and vast improvement in profits, employee morale and quality of product

“It’s the only program I’ve ever seen where customers win, employees are engaged and satisfied, and shareholders are rewarded.” – Jack Welch

Historical Background of Six Sigma

Around 1980 Robert Galvin, at that time CEO at Motorola, realized the importance of working systematically with variance reduction as the Japanese had done for a prolonged period. Together with Bill Smith, Mikel Harry and Richard Schroeder, he created an improvement program that was given the name Six Sigma. Bill Smith came up with the idea of “inserting hard-nosed statistics into the blurred philosophy of quality”. The program was inspired by Japanese work, but also strongly influenced by Juran’s thoughts. Due to Six Sigma, Motorola managed to reduce their costs and variation in many processes and were an inaugural winner of America’s Malcolm Baldrige National Quality Award in 1988. They reported a profit from the program of USD 700 million for 1991 alone.

“We quickly learned if we could control variation, we could get all the parts and processes to work and get to an end result of 3.4 defects per 1 million opportunities, or a Six Sigma level. Our people coined the term and it stuck. It was shorthand for people to understand that if you can control the variation, you can achieve remarkable results.” – Robert W.

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