7_lean_sup_ch_mg

7_lean_sup_ch_mg - Lean Supply Chain Management Principles...

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Lean Supply Chain Management Principles and Practices Professor Deborah Nightingale October 3, 2005
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Lean Supply Chain Management Learning Points Lean supply chain management represents a new way of thinking about supplier networks Lean principles require cooperative supplier relationships while balancing cooperation and competition Cooperation involves a spectrum of collaborative relationships & coordination mechanisms Supplier partnerships & strategic alliances represent a key feature of lean supply chain management ESD.61J / 16.852J: Integrating the Lean Enterprise Page 2 © Deborah Nightingale, 2005 Massachusetts Institute of Technology
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Theory: Lean Represents a “Hybrid” Approach to Organizing Interfirm Relationships “Markets” (Arm ʼ s Length): Lower production costs, higher coordination costs Firm buys (all) inputs from outside specialized suppliers Inputs are highly standardized; no transaction-specific assets Prices serve as sole coordination mechanism “Hierarchies” (Vertical Integration): Higher production costs, lower coordination costs Firm produces required inputs in-house (in the extreme, all inputs) Inputs are highly customized, involve high transaction costs or dedicated investments, and require close coordination “Lean” (Hybrid): Lowest production and coordination costs; economically most efficient choice-- new model Firm buys both customized & standardized inputs Customized inputs often involve dedicated investments Partnerships & strategic alliances provide collaborative advantage l ʼ i Dominant conventional approach: Vertica integration, arm s length relat onships with suppliers ESD.61J / 16.852J: Integrating the Lean Enterprise Page 3 © Deborah Nightingale, 2005 Massachusetts Institute of Technology
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Lean Supply Chain Management Differs Sharply from Conventional Practices ( I ) ILLUSTRATIVE CHARACTERISTICS CONVENTIONAL MODEL LEAN MODEL Number & structure Many; vertical Fewer; clustered Procurement personnel Large Limited Outsourcing Cost-based Strategic Nature of interactions Adversarial; zero-sum Cooperative; positive-sum Relationship focus Transaction-focused Mutually-beneficial Selection criteria Lowest price Performance Contract length Short-term Long-term Pricing practices Competitive bids Target costing Price changes Upward Downward Quality Inspection-intensive Designed-in ESD.61J / 16.852J: Integrating the Lean Enterprise Page 4 © Deborah Nightingale, 2005 Massachusetts Institute of Technology
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Lean Supply Chain Management Differs Sharply from Conventional Practices ( II ) ILLUSTRATIVE CHARACTERISTICS CONVENTIONAL MODEL LEAN MODEL Delivery Large quantities Smaller quantities (JIT) Inventory buffers Large Minimized; eliminated Communication Limited; task-related Extensive; multi-level Information flow Directive; one-way Collaborative; two-way Role in development Limited; build-to-print Substantial Production flexibility Low High Technology sharing
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This note was uploaded on 11/08/2011 for the course AERO 16.851 taught by Professor Ldavidmiller during the Fall '03 term at MIT.

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7_lean_sup_ch_mg - Lean Supply Chain Management Principles...

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