Lean Manufacturing

Lean manufacturing is a methodology that focuses on minimizing waste within manufacturing systems
while simultaneously maximizing productivity. Waste is seen as anything that customers do not believe
adds value and is not willing to pay for. Some of the benefits of lean manufacturing can include reduced
lead times, reduced operating costs and improved product quality.

Lean manufacturing, also known as lean production, or lean, is a practice that organizations from
numerous fields can enable. Some well-known companies that use lean include Toyota, Intel, John
Deere and Nike. The approach is based on the Toyota Production System and is still used by that
company, as well as myriad others. Companies that use enterprise resource planning (ERP) can also
benefit from using a lean production system.

Lean manufacturing is based on a number of specific principles, such as Kaizen, or continuous

improvement.

Lean manufacturing was introduced to the Western world via the 1990 publication of The Machine That
Changed the World, which was based on an MIT study into the future of the automobile detailed by
Toyota's lean production system. Since that time, lean principles have profoundly influenced
manufacturing concepts throughout the world, as well as industries outside of manufacturing, including
healthcare, software development and service industries.

Five principles of lean manufacturing

A widely referenced book, Lean Thinking: Banish Waste and Create Wealth in Your Corporation, which
was published in 1996, laid out five principles of lean, which many in the field reference as core
principles. They are value, the value stream, flow, pull and perfection. These are now used as the basis
for lean implementation.

1. Identify value from the customer's perspective. Value is created by the producer, but it is defined by
the customer. Companies need to understand the value the customer places on their products and
services, which, in turn, can help them determine how much money the customer is willing to pay.

The company must strive to eliminate waste and cost from its business processes so that the customer's
optimal price can be achieved -- at the highest profit to the company.

2. Map the value stream. This principle involves recording and analyzing the flow of information or
materials required to produce a specific product or service with the intent of identifying waste and
methods of improvement. Value stream mapping encompasses the product's entire lifecycle, from raw
materials through to disposal.
Companies must examine each stage of the cycle for waste. Anything that does not add value must be
eliminated. Lean thinking recommends supply chain alignment as part of this effort.

3. Create flow. Eliminate functional barriers and identify ways to improve lead time. This aid in ensuring
the processes is smooth from the time an order is received through to delivery. Flow is critical to the
elimination of waste. Lean manufacturing relies on preventing interruptions in the production process
and enabling a harmonized and integrated set of processes in which activities move in a constant
stream.

4. Establish a pull system. This means you only start new work when there is demand for it. Lean
manufacturing uses a pull system instead of a push system.

Push systems are used in manufacturing resource planning (MRP) systems. With a push system,
inventory needs are determined in advance, and the product is manufactured to meet that forecast.
However, forecasts are typically inaccurate, which can result in swings between too much inventory and
not enough, as well as subsequent disrupted schedules and poor customer service.

In contrast to MRP, lean manufacturing is based on a pull system in which nothing is bought or made
until there is demand. Pull relies on flexibility and communication.

5. Pursue perfection with continual process improvement, or Kaizen. Lean manufacturing rests on the
concept of continually striving for perfection, which entails targeting the root causes of quality issues
and ferreting out and eliminating waste across the value stream.

The eight wastes of lean production

The Toyota Production System laid out seven wastes, or processes and resources, that don't add value
for the customer. These seven wastes are:

 Unnecessary transportation;

 Excess inventory;

 Unnecessary motion of people, equipment or machinery;

 Waiting, whether it is people waiting or idle equipment;

 Over-production of a product;

 Over-processing or putting more time into a product than a customer needs, such as designs
that require high-tech machinery for unnecessary features; and

 Defects, which require effort and cost for corrections.

Although not originally included in the Toyota Production System, many lean practitioners point to an
eighth waste: waste of unused talent and ingenuity.

Seven lean manufacturing tools and concepts

Lean manufacturing requires a relentless pursuit of reducing anything that does not add value to a
product, meaning waste. This makes continuous improvement, which lies at the heart of lean
manufacturing, a must.

Other important concepts and processes lean relies on include:

 Heijunka: production leveling or smoothing that seeks to produce a continuous flow of

production, releasing work to the plant at the required rate and avoiding interruptions.

 5S: A set of practices for organizing workspaces to create efficient, effective and safe areas for
workers and which prevent wasted effort and time. 5S emphasizes organization and cleanliness.

 Kanban: a signal used to streamline processes and create just-in-time delivery. Signals can either
be physical, such as a tag or empty bin, or electronically sent through a system.

 Jidoka: A method that defines an outline for detecting an abnormality, stopping work until it can
be corrected, solving the problem, then investigating the root cause.

 Andon: A visual aid, such as a flashing light, that alerts workers to a problem.

 Poka-yoke: A mechanism that safeguards against human error, such as an indicator light that
turns on if a necessary step was missed, a sign given when a bolt was tightened the correct
number of times or a system that blocks a next step until all the previous steps are completed.

 Cycle time: How long it takes to produce a part or complete a process.

WHAT IS AGILE MANUFACTURING?

Agile manufacturing is a manufacturing methodology that places an extremely strong focus on rapid
response to the customer – turning speed and agility into a key competitive advantage. It represents a
very interesting approach to developing a competitive advantage in today’s fast-moving marketplace.
An agile company is in a much better position to take advantage of short windows of opportunity and
fast changes in customer demand.
WHY IS AGILE MANUFACTURING EFFECTIVE?

Agile manufacturing is effective because it acknowledges the realities of the modern marketplace and
transforms them into a competitive advantage. It directly addresses the following issues:

 Consumers love instant gratification. They are increasingly getting used to it and they are often
willing to pay for it. For example, have you ever ordered a product with overnight
shipping…waiting in eager anticipation?

 Consumers love choice. They prefer to get a product exactly as they want it…without
compromise.

 Consumers are fickle. Their interests shift and move in unpredictable ways.

Agile is of particular value for manufacturers in countries with large, well-developed local markets and
high labor costs (e.g., the United States). It leverages proximity to the market by delivering products
with an unprecedented level of speed and personalization, which simply cannot be matched by offshore
competitors. It turns local manufacturing into a competitive advantage.

4 KEY AGILE MANUFACTURING ELEMENTS

There are four key elements for agile manufacturing:

1. Modular Product Design: designing products in a modular fashion that enables them to serve as
platforms for fast and easy variation

2. Information Technology: automating the rapid dissemination of information throughout the

company to enable lightning fast response to orders

3. Corporate Partners: creating virtual short-term alliances with other companies that enable
improved time-to-market for selected product segments

4. Knowledge Culture: investing in employee training to achieve a culture that supports rapid
change and ongoing adaptation
LEAN VS AGILE MANUFACTURING

Lean manufacturing is generally considered to be a precursor to agile. Many lean practices are also
enablers for agile manufacturing. For example, manufacturing in small batches (or even better –
manufacturing with one-piece flow), fast changeovers, and a culture of continuous improvement are all
foundations that pave the road to agile manufacturing.

It is quite interesting to see how lean manufacturing tools and techniques can benefit areas that extend
beyond the core lean objective (improving productivity and profitability by relentlessly eliminating
waste). Agile manufacturing is one such area.

For any given business segment, ask the following questions:

 Is there a potential market for a personalized fast-delivery version of one of our current
products?

 Is there a new product that we can develop that is within our company’s sphere of competence
(or alternately that can be co-developed with a partner) that would strongly benefit from
personalization and fast delivery?

AGILE MANUFACTURING EXAMPLE

The 3-Day Car Project (in the UK) and the 5-Day Car Project (in the EU) focused on the idea of
transforming automotive manufacturing into a build-to-order system (i.e., each car built for a specific
customer order) with delivery times measured in days instead of weeks or months. Considering that the
actual manufacturing time for a car is on the order of 1.5 days, this is a realistic goal – although perhaps
not yet an attainable goal. But without a doubt – the company that gets there first will have created a
significant competitive advantage.

Virtual manufacturing

Virtual manufacturing (VM) is the use of computers to model, simulate and optimize the critical
operations and entities in a factory plant. Virtual manufacturing started as a way to design and test
machine tools but has since expanded to encompass production processes and the products
themselves. The main technologies used in VM include computer-aided design (CAD), 3D modeling and
simulation software, product lifecycle management (PLM), virtual reality, high-speed networking and
rapid prototyping.

Virtual manufacturing provides an organization with the ability to analyze the manufacturability of a
part or product as well as evaluate and validate production processes and machinery and train
managers, operators and technicians on production systems. There are three main subcategories of VM:

 Design-centered VM provides information about the manufacturing process to engineers and

designers so they can optimize products for production purposes or learn how production issues
might impact product design. They can also save money by testing 3D product models and
processes instead creating of physical prototypes.

 Production-centered VM simulates manufacturing processes so they can be tested and

optimized.

 Control-centered VM simulates the controls that are used to run the actual production
processes.

VM can be extended to multiple manufacturers and suppliers, creating in effect a virtual manufacturing
network for collaborating on production and sharing models and other types of information. It can also
be used to assess business risks and identify potential breakdowns in machine tools and other
equipment. The market for specialized VM software consists mostly of niche vendors that often focus on
one aspect, such as robotics simulation. However, many vendors of CAD, 3D modeling and PLM software
support the modeling and simulation of a "virtual" product, process or machine -- sometimes called a
Digital twin -- that is central to virtual manufacturing.

JIT Manufacturing

In manufacturing, speed to market and costs of production can make or break a company. Just in time
(JIT) manufacturing is a workflow methodology aimed at reducing flow times within production systems,
as well as response times from suppliers and to customers.
JIT manufacturing helps organizations control variability in their processes, allowing them to increase
productivity while lowering costs. JIT manufacturing is very similar to Lean manufacturing, and the terms
are often used synonymously.

In this post, we’ll discuss the ins and outs of JIT manufacturing, including its history, the basic concepts
included in this methodology, and its potential risks.

Supporting a JIT manufacturing system requires discipline, structure, and explicit processes. In addition
to strictly limiting inventory, the following methods are included in a true JIT system:

 Housekeeping – physical organization and discipline

 Elimination of defects

 Setup reduction and flexible changeover approaches

 Small lot sizes

 Uniform plant load – leveling as a control mechanism

 Balanced flow – actively managing flow by limiting batch sizes

 Skill diversification – multi-functional workers

 Control by visibility – using visual tools to improve communication

 Designing for process

 Streamlining the movement of materials

 Cellular manufacturing

 Pull system

 Kanban

Benefits of Just-in-Time Manufacturing

When done well, adopting a Lean manufacturing or just in time manufacturing system can have a drastic
impact on an organization’s productivity, risk management, and operating costs. Here are just a few of
the quantitative benefits experienced by manufacturers worldwide:

 Reduction in inventory

 Reduction in labor costs

  Reduction in space needed to operate

 Reduction in WIP (work in process)

 Increase in production

 Improvements in product quality (lower rates of defects)

 Reduction of throughput time

 Reduction of standard hours

 Increase in number of shipments

Potential Risks

In general, companies employing JIT manufacturing practices enjoy reduced cycle times, faster times to
market, and reduced operating costs, although there are some potential risks, especially for smaller
organizations. In order to find success with JIT, it’s important to find suppliers that are close by, or that
can supply materials quickly with limited advance notice. Sometimes, minimum order policies can pose a
risk to smaller manufacturers who might order smaller quantities of materials.

Hub and Spoke Model

What is the hub and spoke model?

The hub and spoke model refers to a distribution method in which a centralized "hub" exists. Everything
either originates in the hub or is sent to the hub for distribution to consumers. From the hub, goods
travel outward to smaller locations owned by the company, called spokes, for further processing and
distribution.

Hub and spoke model vs. point-to-point

There are many benefits of the hub and spoke model, and it's perhaps easiest to understand these by
comparing the hub and spoke model to the model it was intended to replace: the point-to-point model.
The exact opposite of the hub and spoke model, the point-to-point model has goods and services go
directly from Point A to Point B without going to a centralized distribution hub.

In the point-to-point model, transportation costs can actually be higher than in a hub and spoke model.
This happens because more routes are created in a point-to-point model, whereas products can be
grouped and efficiently shipped following set routes in a hub and spoke model.
A hub and spoke model also makes it possible for transport drivers to travel shorter distances and stay
in a more centralized area. That's because drivers can switch at the hub. In a point-to-point system,
there's no company space for drivers to easily meet and switch.

Hub and spoke model airlines example

The airline industry revolutionized the hub and spoke model. Airlines operate out of a centralized hub
and use regional airports as the spokes from which they offer flights. Aviation experts acknowledge that
the hub and spoke model resulted in the rapid increase of the airline industry thanks to an increase in
the efficient use of relatively scarce air transit resources (only a certain number of airports exist, for
example).

The smaller regional airports (the "spokes") transport passengers to one of the larger centralized hub
airports. From there, a connecting flight can take them to another regional airport. This is more efficient
than having numerous direct routes ("point to point") from regional airport to regional airport. The
disadvantage of this model is felt primarily by the passengers, who might experience delayed flights and
increased transit time by getting on two different flights rather than one direct flight.

Congestion at centralized hub airports can also cause dissatisfaction among travelers. Although many
large airlines believe the advantages of the hub and spoke model outweigh the disadvantages, some
smaller airlines are capitalizing on the service gap of offering regional point-to-point flights.

What Is Reverse Logistics?

Reverse logistics is a type of supply chain management that moves goods from customers back to the
sellers or manufacturers. Once a customer receives a product, processes such as returns or recycling
require reverse logistics.

Reverse logistics start at the end consumer, moving backward through the supply chain to the
distributor or from the distributor to the manufacturer. Reverse logistics can also include processes
where the end consumer is responsible for the final disposal of the product, including recycling,
refurbishing or resale.
When Is Reverse Logistics Used?

Organizations use reverse logistics when goods move from their destination back through the supply
chain to the seller and potentially back to the suppliers. The goal is to regain value from the product or
dispose of it. Worldwide, returns are worth almost a trillion dollars annually and have become
increasingly common with the growth of ecommerce.

The objectives of reverse logistics are to recoup value and ensure repeat customers. Less than 10% of in-
store purchases are returned, compared to at least 30% of items ordered online. Savvy companies use
reverse logistics to build customer loyalty and repeat business and to minimize losses related to returns.

Reverse Logistics vs. Traditional Logistics

Traditional product flow starts with suppliers and moves on to a factory or distributor. From there, the
goods go to retailers and customers. Reverse logistics management starts at the consumer and, moving
in the opposite direction, returns products to any point along the supply chain.

Well-designed supply chains are responsive to changes and can handle some reverse logistics
requirements. This reverse process can return products one step back in the chain or to the original
supplier. They can even send returned products back to regular sales or discount channels (like
liquidators).
How Reverse Logistics Works

Reverse logistics moves goods from the traditional endpoint of the supply chain at least one step
backward. This process can involve various plans and controls. Some companies prefer to outsource this
work.

Reverse Logistics Process

The reverse logistics process involves managing returns and buying surplus goods and materials. The
process is also responsible for dealing with any leases or refurbishments. Reverse logistics vary across
different industries, and there are different economic incentives for improving reverse logistics
management.

For example, in the beverage industry, the reverse logistics process uses empty tap containers. Beverage
production companies want to recapture the value of their containers by reusing them. This
requires planning transportation, managing shipping loads and cleaning the containers.

In the construction industry, reverse logistics moves and recycles salvaged materials to new sites. As the
construction industry adopts more sustainable practices to reduce waste, there is an opportunity for
cost savings by using reverse logistics.
In the food industry, reverse logistics is responsible for returning packaging materials and pallets.
Companies also must deal with rejected food shipments. Rejections can create logistical challenges due
to delays that lead to food spoilage and concerns over tampering. The Reverse Logistics Association is
developing secure, quick, reliable, login (SQRL) codes on packaging to provide detailed product
information and address these logistical challenges.

5 Steps to Good Reverse Logistics

1. Process the Return

The return process starts when the consumer signals they want to return a product. This step
should include return authorization and identify the product’s condition. This process also
involves scheduling return shipments, approving refunds and replacing faulty goods.

2. Deal with Returns

Once a returned product arrives at your location or centralized processing center, inspect it and
determine its return category. (Note: If you have optimized reverse logistics, you should know
where the product should go before it arrives.) Sort products into the disposition options: fix,
resell as new, resell as a return, recycle, scrap or refurbish.

3. Keep Returns Moving

Reduce your daily waste by sending repairable items to the repair department.

4. Repair
After reviewing the returned item/equipment and determining whether it can be repaired,
move it to the repair area. If not possible, sell any sellable parts.

5. Recycle
Any parts or products that you cannot fix, reuse or resell should be sent to the area for
recycling.

Green logistics

Green logistics refers to the set of sustainable policies and measures aimed at reducing the
environmental impact caused by the activities of this business area. This logistics concept affects the
configuration of processes, structures and systems or equipment in the transport, distribution and
storage of goods.

The traditional approach to logistics often leaves environmental sustainability on the sidelines during
decision-making. On the other hand, the aim of green logistics is to find a balance between ecology and
economy. How can you manage it? Why include green logistics policies in your company? What
challenges does this particular logistics paradigm face? Here we analyze the main issues related to
sustainable logistics.
The objectives of green logistics

Green logistics seeks to:

 Measure the carbon footprint of logistics operations to establish a starting point for
considering sustainability measures and controlling their results. One of the most widespread
methodologies for calculating energy consumption and greenhouse gas emissions is the UNE-EN
16258:2013 international standard.

 Reduce air, soil, water and noise pollution by analyzing the impact of each logistics area,
especially those related to transport.

 Use supplies rationally by reusing containers and recycling packaging.

 Spreading sustainability to the supply chain, eco-logistics is also shaped by the design of
products and their packaging. Both must be designed to minimize their environmental impact.

What are the challenges facing green logistics today?

Today, the logistics industry is not known for its high degree of sustainability. Companies face
significant obstacles in implementing environmental policies in the field of logistics. This is due to several
causes:

1. Dependence on fossil fuels, especially in transport

Effective, economically viable solutions have yet to be found to wean the sector’s fuel reliance in goods
transport.

2. Last Mile Deliveries’ impact on urban traffic

In particular, e-commerce deliveries have greatly increased the volume of delivery vehicles in large
cities and many operate without carrying full loads when faced with mixed orders.

3. Lack of infrastructure

Local authorities are in the process of regulating emission limits. However, a cross-sectoral agreement is
needed to put measures in place to build new facilities that meet the wants of those involved in
logistics activities.

4. Businesses which need to invest

Whether logistics operations are carried out in-house or outsourced, the tight rates and
margins involved don't always let you think about investing in infrastructure, process automation or
more efficient handling equipment.
5. The invisibility of logistics to consumers

Generally, logistics isn’t sustainable because neither is the customer. An additional problem exists: for
the customer, logistics is invisible and increasingly so. It is difficult to apply green logistics policies when
the customer demands, for example, 24-hour deliveries that prevent consolidating your loads or making
the most of transport flows. Moreover, logistical costs are often not itemized in an invoice or are
negligible. This diminishes their relevance and, therefore, reduces the reasons for a business to invest in
its environmental sustainability.

How to apply eco-friendly logistics approaches: strategies

1. Include eco-friendly criteria in your procurement policies

Sustainability criteria can be included in a company's purchasing and procurement policy when it comes
to assessing suppliers' proposals. These can refer to:

 Product characteristics: e.g., buying eco-friendly packaging and limiting the use of plastic in
packaging.

 Manufacturing processes: international regulations guarantee favorable environmental

management. Mecalux is ISO 14001 certified, which ensures that an environmental
management system has been implemented in the company's global operations.

 The supplier's location, prioritizing those closest to its facility.

In this way, the possibility of purchasing eco-friendly supplies could be evaluated. For example, more
and more efficient industrial vehicle options curtail greenhouse gas emissions, especially in the light
duty class. Moreover, it is worth looking into whether funding or a subsidy is available to help purchase
them.

2. Optimize transport fleet management

Transport is a major carbon footprint area in the logistics chain. Aside from buying cleaner running
vehicles, to limit emissions, it is necessary to use systems that assist delivery route planning and
prioritize load pooling. Not only do you achieve higher efficiency in fleet management, but you also cut
back the overall emissions produced by the transport.

3. Have a warehouse that follows sustainable construction and management standards

The boom in the logistics sector is driving demand for new warehouses or forcing companies to redesign
their infrastructure to meet market requirements. As such, there are different ways in which eco-
logistics can be reflected in warehouse design:
  The so-called 4.0 logistics buildings take center stage: their design and construction incorporate
environmental protection measures that guarantee sustainable management of the building.
The Breeam or Leed certifications are two of the seals that endorse logistics warehouse
sustainability. These certifications are granted by analyzing issues such as the water and energy
consumption efficiency, the use of alternative energy sources, the selection of construction
materials and waste management throughout the entire process.

 In-warehouse monitoring and promotion of energy savings: these can be implemented in

different ways. For example, the total automation of certain processes in the warehouse makes
it possible to limit artificial lighting needs (emulating the methodology known as lights-out
manufacturing). Another way to adhere to sustainable logistics approaches is to use as little
packaging as possible on products to limit resource wastage, or to make use of adaptive
packaging options which are more versatile.

4. Enable measures to reduce and recycle the waste produced in your warehouse

One of the measures to help apply environmental logistics in a warehouse is to use sustainable criteria
to manage the generated waste. For example:

 Establish a waste sorting process according to materials to be recycled.

 Roll back in-warehouse paper usage by implementing IT solutions such as the Easy WMS
warehouse management software.

 Control special waste management so that they comply with appropriate recycling procedures.

5. Improve stock management and reverse logistics processes

Achieving a more efficient storage facility follows one of eco-logistics core principles: reducing waste
through overall process improvement. Some measures to achieve this are:

 Scale down movements within your warehouse through a combination of good storage
location management and optimized picking plans.

 Prevent stock damage caused by manual handling of goods. Deploying robots and automated
systems in your warehouse resolves this issue.

 In the case of perishable goods, accurately manage the FIFO criterion to control
expirations and prevent goods from spoiling.

 Establish quality control processes for returned products that leverage reverse logistics
management.
Why go green in your logistics?

There are compelling reasons why green logistics is gaining ground:

 Green logistics policies represent a strategic advantage over the competition. Not only do they
revalue your brand and set it apart, but they also prepare your company for the future, which
inevitably must be sustainable.

 Energy saving measures are an effective strategy for coping with rising supply costs.

 They ensure that a company is prepared to comply with environmental regulations.

If you want to improve your company's supply chain management and apply measures to encompass
green logistics ideals, you can rely on Interlake Mecalux. Not only do we go green in our company, we
also offer our customers our experience in managing all types of warehouses to make them more
efficient and sustainable.

Bullwhip Effect

The bullwhip effect is a supply chain phenomenon describing how small fluctuations in demand at the
retail level can cause progressively larger fluctuations in demand at the wholesale, distributor,
manufacturer and raw material supplier levels. The effect is named after the physics involved in cracking
a whip. When the person holding the whip snaps their wrist, the relatively small movement causes the
whip's wave patterns to increasingly amplify in a chain reaction.

In supply chain management, customers, suppliers, manufacturers and salespeople all have only partial
understanding of demand and direct control over only part of the supply chain, but each influences the
entire chain with their forecasting inaccuracies (ordering too much or too little). A change in any link
along the supply chain can have a profound effect on the rest of the supply chain. Given that, there are
many contributors and causes of the bullwhip effect in supply chain management.

A simplified example of the bullwhip effect

The bullwhip effect often occurs when retailers become highly reactive to demand, and in turn, amplify
expectations around it, which causes a domino effect along the supply chain. Suppose, for example, a
retailer typically keeps 100 six-packs of one soda brand in stock. If it normally sells 20 six-packs a day, it
would order that replacement amount from the distributor. But one day, the retailer sells 70 six-packs
and assumes customers will start buying more product, and responds by ordering 100 six-packs to meet
this higher forecasted demand.
The distributor may then respond by ordering double, or 200 six-packs, from the manufacturer to
ensure they do not run out. The manufacturer then produces 250 six-packs to be on the safe side. In the
end, the increased demand has been amplified up the supply chain from to 100 six-packs at the
customer level to 250 at the manufacturer.

This example is highly simplified but conveys the sense of exponentially increasing misalignment as
actions and reactions continue up and down the chain. The bullwhip effect also occurs as a result of
lowered demand at the customer level (which causes shortages when inaccurate) and can be caused at
other places along the chain.

Causes of the bullwhip effect

Companies must forecast customer demand based on insufficient information, and try to predict how
much product customers will actually want while accounting for the complex factors that enable that
amount to be delivered correctly and on time. At every stage of the supply chain there are possible
fluctuations and disruptions, which in turn influence the myriad supplier orders. Changes in customer
demand directly influence all the other factors along the chain, including inventory. However, the
bullwhip effect can occur even in relatively stable markets where the demand is essentially constant.

Forecasting demand has always been a difficult endeavor, and the increasing complexity of today's
global supply chains intensifies that difficulty, as does increasing consumer preference
for omnichannel and e-commerce. A few of the most common dependencies that can cause a bullwhip
effect are:

 Lead-time issues such as manufacturing delays

 Less-than-optimal decisions made by supply chain stakeholders at any point along the chain, for
example, customer service or shipping

 A lack of communication and alignment between each link or stakeholder organization in the
supply chain

 Over- or under-reacting to demand expectations, such as ordering too many units or not enough

 Customer companies, often retailers, waiting until orders build up before placing orders with
their suppliers, a practice called order batching

 Discounts, cost changes and other price variations that disrupt regular buying patterns

 Inaccurate forecasts from over-reliance on historical demand to predict future demand

Impact on supply chain management

The bullwhip effect can be costly to all the organizations in the supply chain. Excess inventory can result
in waste, while insufficient inventory can lead to reduced lead time, poor customer experience and lost
business.

Most businesses use safety stock (reserve inventory) as a buffer against demand fluctuations. However,
safety stock is not a solution to the bullwhip effect, but it provides enough product to fill orders until
more arrives from suppliers.

Some solutions to the bullwhip effect

Better information is necessary to reduce the bullwhip effect. This means better communication among
supply chain partners and better forecasting methods. Some commonly recommended actions include
the following:

Foster supply chain communication and collaboration.

Better alignment around supply chain issues both within the company and among customers, suppliers,
distributors, manufacturing and the rest of the partners is needed. In particular, when suppliers work to
understand customer needs, they can work to help reduce excessive inventory. Supplier and project
portals, Electronic Data Interchange (EDI) transactions and other capabilities of supply chain
management software can help.

Use better forecasting and visibility tools.

A wide range of software helps enable more accurate demand forecasts and visibility into what is
happening along the supply chain. These include demand sensing software, forecasting software,
inventory optimization software and tools that use analytics (especially predictive analytics), artificial
intelligence (AI) and Internet of Things (IoT) connectivity.

Explore a demand-driven approach to supply chain management.

A demand-driven approach relies on a system of coordinated technologies and processes to gain insight
into supply chain occurrences and react to them quickly. It uses many of the approaches mentioned
above, especially collaboration and communication and new technologies to enable supply chain
visibility, for a coordinated holistic approach. Each company will need to decide on the right push-pull
approach to its strategy, where a push approach is used for stable products and a pull approach is used
for those with more erratic demand.
Global Positioning System and its uses

GPS and location data allows you to track items, people, and even shipments. At any given time, you can
see where something is, how long it might take to reach a particular destination, and also how fast it’s
traveling.

You can find a lost item using a GPS tag. You can even get real-time driving directions to a new location.
But in the enterprise, and with the right tools, GPS data can reveal so much more. Consider fleet
management operations, for instance, which suddenly become much more comfortable and more
efficient thanks to location services.

The ability to monitor your fleets whereabouts — in real-time — means so much more than just
knowing where they are or what they’re doing. You can more accurately plan their routes, including
detours to avoid traffic or events. You can mitigate travel and transport costs by finding much faster
routes. You can even optimize plans by choosing the right driver for the right task. Maybe one drives
better on country roads yet does terrible in urban areas, for example.

Combine the information with advanced analytics and logistics platforms, and you can tap into more
accurate, predictive insights.

GPS Tracking Is More Advanced Than Ever

Gone are the days where you must use a proprietary or handheld display to monitor location data.
Instead, you can use something you have on you at all times — your smartphone. In turn, this means
that you can also access the necessary systems and information from anywhere, anytime.

It’s still possible to access GPS systems from a conventional desktop computer or work-based terminal,
but you now have the added option of mobile. Mobile support has revolutionized everything, especially
regarding supply chain operations. Decisions must be made on a dime, with absolute accuracy and
reliability.

Thanks to mobile, executives and management teams can issue orders exactly when needed, no matter
what they’re doing or where they are themselves. All of this productivity “given” to management can be
tied together by a robust series of field service and location-tracking software. This software leads
directly to greater operational efficiencies and lowers associated costs.

A whopping 95 percent of businesses claim to have seen a noticeable improvement in their technician’s
punctuality after adopting field service tools with built-in GPS tracking capability. A further 90 percent
saw a boost in the number of work orders completed on time.
What Are the Benefits?

GPS and location service tools are powerful, that much is true. The real focus, however, should be on
the vast number of benefits the technology can offer.

1. Improved Fleet Management.

As previously discussed, it’s possible to manage your fleet in real time via location data. Think of it as a
direct line of communication, where you can make adjustments to improve efficiencies, arrival times,
and more.

2. Increased Driver Safety and Performance.

Until self-driving and autonomous vehicles are used as a primary source of transport, the core of
responsibility still falls on human drivers. It also means their safety, performance, and behaviors are
paramount to a successful business. If a driver falls asleep at the wheel, veers off the road, and causes a
massive accident, it’s going to be costly for your business. Goods will be lost, the company’s reputation
will be tarnished, and both equipment and resources will be damaged.

A constant tracker encourages drivers to be safe and responsible, and when they’re not, you’ll have the
opportunity to remind them. You can also create a loyalty system that incentivizes good driving because
you have more oversight as to who’s driving well or poorly.

3. Better Security.

In transportation, distribution, and logistics, there’s a lot at stake. If a vehicle, whole shipment, or even
part of a shipment is stolen, the losses amount to more than just material items and their value. Your
business’ reputation suffers, your customers and clients lose money, and in some cases, your drivers or
personnel may even be in danger.

Advanced GPS systems can be used to monitor your fleet and so much more. They can also be
programmed to send alerts when something strange is going on, which gives you ample time to check in
with a driver or take action if something is wrong. The faster you react to a potential threat or attack,
the less damage you take.

4. Enhanced Operational Efficiency.

For the most part, modern GPS systems and their related software tools are heavily automated. You
don’t have to monitor them constantly — instead, you’ll receive notifications when something requires
your attention. This setup eliminates the need to hover over all operations constantly but at the same
time affords direct micro-management opportunities that are more informed and stated.

This technology improves efficiency and experiences for the drivers too. They can see information about
their routes, such as congestion areas, accidents, and detour sites. It’s an essential tool for optimizing
the way they drive.

Additionally, less administrative resources are needed, as the vehicle-tracking tools provide precisely
what information and stats office workers would be tasked with reporting.

5. Boosted Customer Service.

Of course, increased efficiency, faster arrival times, and safe driving habits all contribute to improved
customer service. When it comes to deliveries, they’re always on time, maybe even faster. When it
comes to providing clients with information about their shipments, you have more control and can
report more as well — including accurate delivery schedules.

You can also enable new solutions. A freight courier, for instance, could locate a particular shipment and
allow antsy clients to pick it up, on the move, by meeting the driver somewhere. You can also identify
incorrectly shipped or stowed packages and make faster decisions, like swapping couriers or
destinations as necessary.

6. More Detailed Cost Analysis.

Fuel costs can be incredible, especially with today’s prices, so it’s essential to mitigate the use of
company vehicles to cut down on consumption. You don’t want drivers taking their work or business
vehicle out for a personal trip, for instance. When they’re on the open road, you also want them to
make the most efficient route possible to reduce the amount of fuel they use and cut down on refueling
costs along the way.

GPS and vehicle-tracking tools can help you do precisely this. You can monitor bad habits, fuel mileage,
and costs and make adjustments to meet specific goals. Want a driver to fuel up as little as possible?
Calculate exactly how much fuel is needed for a trip, and communicate with your driver about how
they’re keeping to said goal along the route, making minor adjustments in real-time.

7. Ultimate Transparency.

More control and oversight and more information will mean increased transparency across the entire
operation. You know precisely what your drivers are doing, where they are, where shipments and goods
are located and what the outcomes of each system will be — not just with transport, but throughout the
entire supply chain. When this information is coupled with something like blockchain technology, you
can monitor everything starting at the source, all the way until the goods are handed off to a partner or
customer and beyond.

This data can be shared with your customers and clients as needed too. Some may want to know that
you’re sourcing from environmentally friendly suppliers, or they may want to monitor the quality of your
goods. It’s all connected from head to toe.

Technology Partnership

Technology is playing a key role in supply chain management for digital transformation

Within all supply chains, is a data chain that is vast, complex, and ever-growing. The data collected from
these supply chain processes are often not consolidated, if consolidated not analyzed, if analyzed not
interpreted well, for the benefit of the Company. Thus, we need highly advanced and updated
technology solutions to proactively manage the supply chain data. Artificial Intelligence, Machine
Learning, Blockchain, and Digital twins are the leading technologies that supply chains are opting for to
bring increased efficiency and transparency to the processes. For some domains, these solutions work
well individually, for others, they can be combined to better understand the data, find operational gaps
and define steps to take immediate corrective actions.

Where can you see the impact of technology implementation in the supply chain?

In today’s era, technology assistance is needed in each and every step and function of the supply chain
process. Supply chains generate big data and analytics is needed to streamline this data to information
& gain intelligent insights. Let us have a look at the individual stages of the supply chain & understand
how technology helps in bringing improved efficiencies. Starting from the Planning stage. It is
undoubtedly the most data-consuming stage of the supply chain process as it needs even the minutest
of the details to predict, plan and align the operations. Planning as an operation is interlinked with all
major supply chain stages like manufacturing, logistics, inventory, warehousing, packaging, etc. Thus,
data needs to be continuously pulled in from all the software that individually manages these processes.
For example, Analysis of data from WMS is helpful to plan the inventory and accordingly run the
manufacturing. Similarly, data from ERP gives an overview of orders helping the system understand
market demand and accordingly work with manufacturing & transportation to give the requisite supply.
Nowadays, technology has revolutionized the production/manufacturing stage to another level.
Especially, if we see the chemical or paint industry, the machinery now is capable of interpreting the
product composition and properties and automatically defining the right method of production of the
product as per the customer requirement. For example, BASF, a German producer of paints recently
adapted machine learning technology to interpret customer requirements & give inputs to
manufacturing units to prepare the paints in the composition required by the clients. Quality
assessment is another area where technology has helped various industries. Agricultural seed
processors use a variety of cameras in real-time to get the quality assessments of seeds. This kind of
data is collected, compiled, and analyzed to get compliance reports that can further help in
strengthening the manufacturing processes. Then comes the most important stage of supply chain
management – Logistics & Transportation management. This stage alone takes up 70-80% of supply
chain costs hence, we need to make sure it functions at its 100% efficiency. This stage consumes a lot of
data starting from details of the goods, consignor/consignee information, vehicle & vendor details, route
to be followed, driver details, driver performance, etc. Thus, this phase needs a lot of coordination
internally within the department and with external devices & agencies. Fuel consumption, Speed
compliance, On-time deliveries, and Delivery plan are a few of the key analytics that directly helps in
performance evaluation & logistics cost savings. We, at Elixia, have completed almost 12Million trips &
helped various companies save 5-10% of their logistics costs. Apart from these stages, analytics also
plays a very crucial role in Vendor or 3rd party management. A successful supply chain works in close
collaboration with vendor partners who come into the picture at all stages of the supply chain. Data,
technology, and ultimately analytics make it possible to consolidate all data and keep a track of their
performance, which finally comes in handy at the time of contract renewals. For example, if a company
deals with multiple vendors for transportation then it’s imperative to have constant tracking of
parameters like trips completed, rates provided (in comparison to market rates), their order acceptance
rates, and OTIF (on-time, in-full) delivery score, driver performance, etc. A similar case can be taken for
companies who outsource packaging, raw material supply, temperature monitoring, etc. Analytics can
help them capture the cost structure and define cost-effective models for partner collaborations.

Key technologies backing the required Analytics

Machine learning & Artificial intelligence are the backbones of supply chain analytics. These
technologies continuously study the data, develop algorithms and give human-like responses to manage
the supply chains. IoT constantly works in the background to collect & provide the raw data that is
needed for the AI to work effectively. Digital twin & Control tower then together come into the picture
for end-to-end management of supply chains. Control towers closely monitor all the functions of supply
chain processes, identify the gap areas & suggest necessary corrective actions. Digital twin, which is
nothing but a virtual representation of the original process, shows how the recommended actions can
bring overall benefit to the supply chain. Analytics here works in tandem with all of these technologies
to give immediate, practical, and to-the-point solutions to ensure supply chains work smoothly and
efficiently. So, in a gist, this is how technology & analytics go hand-in-hand in providing a resilient &
cost-effective supply chain management solution.

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