Written by: Chad Palmer, Vice President of Client Development for Transportation Insight

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How can lean waste-cutting strategies improve your productivity and profit margins?

The Journey of LEAN for Food ProducErs

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13MAY | 2014 |

food plants, which typically run 24/7. With the need to deliver quality food products on time on a consistent basis, food producers are turning to LEAN supply chain techniques and continuous improvement initiatives to meet these goals.

According to a study by Boston Consulting Group, manufacturers that use LEAN methodologies effectively can cut their cost of goods sold by as much as 3 percent. That corresponds to 20 percent of their addressable manufacturing cost base. Further research states that over the next two years, the leading 100 food-manufacturing companies worldwide could save a total of $9.4 billion, and the top 70 beverage suppliers could save $4.2 billion.

LEAN initiatives can focus on specific logistics processes, or they can embrace entire supply chains to include suppliers, customers and trading partners. The removal of waste is fundamental to the LEAN value stream. Improved productivity leads to streamlined operations, which in turn can expose further waste and quality problems in the systems.

Traditionally, there are seven “wastes” that occur within an organization that include:

Creating a LEAN supply chain is a journey that companies undertake to eliminate non-value-added

activities within their organization. It results in optimized processes and lower costs. The LEAN manage-ment concept places emphasis on cooperation, networking and agil-ity. It was originally developed in the automotive industry, but has since been adopted by others.

The food industry is a highly complex industry whose supply chain begins with the farm, then to factories, retailers and ultimately consumers. Products must be delivered on time in the right quantity to the right location. If a food product is unavailable in a store, consumers may go elsewhere to purchase the product, causing the store to lose business.

Food retailers also compete on price and shelf location. Consumers demand low-price food, which puts pressure back down the supply chain to deliver low margins and high productivity. In order to perform well in the food business, costs have to be controlled and minimized, and performance has to be at a consistently high level.

Pressure on profit margins and the need to supply large quantities of food has led to the growth of large

Overproduction – Manufacturing items before they’re required so they end up in inventory or as scrap. In food manufacturing this takes the form of overfilling. As most food products are sold by weight and volume, overfilling packages can be a huge waste.Waiting – Goods remain in stasis before they’re ready for the next process; lines are improperly balanced and operations poorly managed.Excess Movement – when transporting goods from one process to the nextInappropriate Processing – Manufacturing products whose quality is higher than customers are willing to pay for.Unnecessary Inventory – Excess inventory can increase warehouse costs. For perishable food, lower inventories save money and reduce workload, but also lead to fresher products.Excess Motion – Unnecessary movement of the product and people during production. DEfEcts that result in rework. In the food industry, many defects can be reworked, which reduces the loss of raw materials.

A LEAN supply chain is one that produces or provides only what is needed, when it is needed and

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Effectively managing overproduction can dramatically reduce costs

Optimising the movement of goods onsite reduces production times

Improve delivery schedules and product handling procedurecs

through mapping the value streams of concept to market, raw materials to finished goods and order to cash. Logistics-related process improvements in the order-to-cash value stream are applied to achieve rapid results through enhanced carrier sourcing, freight invoice audit and payment services, transportation management systems technology and business intelligence, including interactive web-based analytics.

Components of the LEAN Supply ChainLEAN sUPPLIErs – Able to respond to changes in demand; prices are lower due to efficiencies of LEAN processes; product quality is excellent; always deliver on time. To develop LEAN suppliers, companies need to include suppliers in their value stream and involve them in LEAN activities to fix problems.

LEAN Procurement Processes – Typically these processes are automated so that strategic souring, bidding, transactions and payments do not require human interaction. The key to LEAN procurement is visibility. Suppliers and customers must be able to see into each other’s operations. Organizations should map the current value

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where it is needed. This typically has a number of key advantages over traditional supply chain management, including:

• Supply more tightly linked with demand• Lower inventory risk• Processes that focus specifically on activities that add value for the customer• A greater focus on mistake-proof processes

Various tools are needed for identifying waste within the physical product flows and information flows in the supply chain. There are four types of flows within a food production facility that include operations, transportation, inspection and storage. The first step is to map every step throughout the order fulfillment process to create a value-stream map.

By mapping the flow of information and materials throughout the value stream, businesses see and eliminate the waste in upstream and downstream processes—from the originating supplier to the end customer. By visualizing the current state of the entire supply chain, businesses are able to create a robust future state.

Efficiency gains can be realized

Effectively managing overproduction can dramatically reduce costs

Optimising the movement of goods onsite reduces production times

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stream and then collaborate to create a future value stream in the procurement process.

LEAN Manufacturing – LEAN Manufacturing systems produce what the customer wants, when they want it, in the right quantity, for the right price. LEAN efforts typically start in manufacturing because they free up resources for continuous improvement in other areas.

LEAN Warehousing – Eliminating non-value added steps and waste in product storage processes. Warehousing waste can be found throughout the entire storage process, including defective products which create returns; overproduction or over shipment of products; excess inventory which requires additional space; excess handling; waiting for parts and materials; etc. Fine-tuning the warehouse with a more efficient layout and better-utilized resources streamlines inventory and reduces warehouse space requirements. LEAN transportation – concepts include core carrier programs; automated functions; optimized mode selection; combined multi-stop truckloads; cross-docking; right-sizing equipment;

import/export transportation processes; and inbound transportation and backhauls.

LEAN customers – They value speed and flexibility and expect high levels of delivery performance. They want to work with their suppliers and trading partners in an effort of continuous improvement to reduce total supply chain costs.

Extending the LEAN Initiative Outside the Four WallsAn estimated 75 percent of waste in the supply chain lies outside the four walls of a single enterprise. Companies can receive more LEAN benefits by implementing LEAN strategies across the entire supply chain; not only a single facility, but also those of their suppliers, trading partners and customers. Traditional LEAN focuses its efforts at the plant or manufacturing level only.

Most food and beverage manufacturers have a large number of plants, so LEAN programs need to be rolled out to all these facilities in order to foster continuous improvement. A top North American 3PL, Transportation Insight, offers the Extended LEAN™ approach that connects the entire end-to-end value stream, from raw materials, to manufacturing sites, to end customer

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and all activities in-between.By extending a LEAN focus

throughout the entire supply chain, companies connect their entire value stream. Ultimately, linking supply chain value streams across trading partners, customers and a business creates industry-wide value networks, which is where true competitive advantage is realized. Taking LEAN outside the four walls of the company to customers and suppliers takes supply chain continuous improvement from tactical to transformational and takes companies from surviving to thriving.

Mapping the entire value stream from the customer’s point of view uncovers more significant wastes not typically found in the traditional approach. The result is a bigger payback. Even better, add these savings to others created by focusing on other logistics-related activities, such as enhanced carrier sourcing

strategies, freight invoice audit and payment services, transportation management systems technology, and actionable business intelligence. Partnering with a third-party logistics provider with expertise in these areas means companies can gain labor efficiencies more quickly and can generate a more rapid return on investment. w

Benefits of LEANLEAN initiatives both inside and outside of a food processing organization eliminate waste, right-size inventories, lower costs, optimize processes and improve customer satisfaction and productivity across the extended supply chain. By taking on a continuous improvement approach, companies can improve their overall operational performance, execution strategies and corporate culture, which helps them stand out from the competition.

Mapping the entire value stream from the customer’s point of view uncovers more significant wastes not typically found in the traditional approach