“Sunlight is the best disinfectant.”—Elon Musk
Lean supply chain methodologies have been around for decades. And many supply chain professionals have spent careers learning, practicing, and perfecting lean methods. Then Covid-19 hit. In the wake of the pandemic, things certainly changed throughout the supply chain world: e-commerce boomed. Ports backed up. Disruptions. Bottlenecks. Backups.
Lean supply chains proved brittle. In some cases, supply chains broke. As a result, lean strategists have been taking a hard look in the mirror. Serious, high-level questions are being asked. Are the core tenets of lean still viable? Do we need to modify the lean approach? Is the lean method antiquated? Is it dead? Do we need to kill lean and start from scratch? Or can elements of lean still serve us?
Today we’re wrapping our arms around this issue. In order to do so, we’ll look to the past to help us understand the future. So, let’s look at some classic examples of lean supply chain companies. How did lean methods help these companies build world-class supply chains? What, if any, modifications have these lean leaders made in the wake of the supply chain crisis?
Ultimately, what many of us want to know is simple, yet complex: what are the weak points in lean? And what kind of visibility do we need to avoid them in the future? To investigate this topic, we’ll look at four companies that overlap in the lean supply chain:
- -Taiwan Semiconductor Manufacturing (TSMC)
Ready? Let’s shine some light on lean’s weaknesses.
The “Best Practices” of Lean
“Practice? Practice?”—Allen Iverson
First and foremost, let’s start with the lean basics. Broadly defined, lean has three core principles:
- -improve continuously
- -eliminate waste
- -deliver value—as defined by the customer
According to Study.com: “Lean supply chain management is about promoting efficiency by removing unwanted or wasted components from a process. This process is most often applied to manufacturing, where supplies can be ordered as they’re needed rather than holding a lot of inventory as backstock.”
In other words, the goal of lean is to continuously remove waste from a process, leaving only that which is deemed valuable by the customer.
That said, a lean business will create workflow maps for how to execute the lean method correctly. These steps can be as granular as where to hang the dustpan. Or these steps can be high level and conceptual, like how much inventory to order using the just in time (JIT) theory. Either way, these steps are called “best practices.”
When lean works best, things are said to be “running in accordance with best practices.” But Covid-19 rocked the foundation and best practices of lean. As a result, many companies have had to rethink their supply chain in un-lean ways. I’ve heard some supply chain folks even say that lean is dead. Is that indeed the case? Or will lean have a resurgence, find new best practices, and continue to improve over the long arch of history?
In the next section, let’s look at a few famous examples of lean companies, like Toyota, Apple, and TMSC. How have these lean companies managed the supply chain crisis, and what tech are they using to stabilize their value streams?
As you may already know, the history of lean manufacturing began with Toyota and the famous Toyota Production System (TPS). Most accounts of lean will thus begin in Japan following World War II. But Japan is an island nation. So, in reality, supply chains for certain resources reach much deeper into Japan’s cultural past.
That said, during the post-war reconstruction, Japanese companies had to be creative with how they procured material and components. For example, Toyota simplified its designs to conserve resources. Toyota also avoided the cost of holding expensive inventory by developing just in time manufacturing methods.
The lean concepts driving the TPS lead to smaller, more efficient cars. And when the 1970s oil crisis hit, Toyota was in the perfect position to capitalize on the market opportunity. Over the years, Toyota has branched out into other brands and industries. But make no mistake, every one of Toyota’s subsidiaries utilizes lean methodologies.
So, what adjustments did the Toyota group make in lieu of the supply chain crisis? First of all, by some accounts, Toyota fared better, for longer, than many other supply chains. Nevertheless, Toyota couldn’t avoid disruptions due to the ongoing global semiconductor chip shortage. We’ll look at how Toyota managed for so long in the next section.
But ultimately, Toyota was forced to do what all manufacturing companies do when a required subcomponent is not at the assembly line when it’s needed. It shut down the line. For example, in March of 2022, Toyota cut production by 13 days at one factory due to a lack of chips. Based on this disruption, Toyota in turn slashed its forecast by 50,000 cars for 2022. That’s a hard pill to swallow that many OEMs have faced recently.
Taiwan Semiconductor Manufacturing (TSMC)
Anecdotally, the chip shortage is one example of a reoccurring theme throughout the manufacturing sector. Unlike other companies, Toyota survived the chip shortage the longest thanks to a prior catastrophe. The 2011 Fukushima nuclear disaster severed Toyota’s supply chains. As a result, Toyota decided to stockpile inventory under a business continuity management plan. This plan was installed for critical parts such as semiconductors from TSMC.
TSMC is one of the most valuable companies in the world in my opinion—not just because it has the market cornered as one of the most cutting-edge chipmakers. Not because of its level of investment in global chip manufacturing. And not just because it supplies these chips to some of the biggest brands like Apple, AMD, Nvidia, and Toyota. But also because both TSMC’s supplier base and customer base stretches deep into China.
That said, holding stock was a seemingly a very un-TPS decision by Toyota. After all, holding inventory flies in the face of lean’s waste elimination principles, right? Yes. So, instead, Toyota drafted contracts with suppliers. These required them to either hold the inventory or hold Toyota’s place at the front of the line for future inventory. Toyota contractually made sure it was first come and/or first serve for TSMC’s chips.
I’ll try to avoid too much political pontification from my armchair here. But I think the market dynamics surrounding TSMC, its supply chain, and the nature of its product, keep the peace in Asia. The economics of TSMC’s supply chain and Moore’s law are driving increasingly complex chip technology. That’s why I’m optimistic that tensions will not escalate in Asia the way they did in Ukraine.
As noted, Apple is a customer of TSMC. Therefore, Apple competes with Toyota for TSMC’s production capacity. Despite the worldwide digital revolution and e-commerce trends, Apple could be doing even better were it not for supply chain disruptions. Apple forecast that supply chain issues would result in a loss of $4 billion to $8 billion in revenue.
Some of Apple’s other suppliers are famous by proxy. For example, Foxconn, Intel, and Qualcomm are all familiar names in the US. In turn, Apple controls costs via this global supply chain network. And it’s clear by now that Apple’s success is as much thanks to its partnerships with Asian suppliers as it is to Steve Jobs. Even though Asia has handled Covid-19 very differently than the West, a large-scale near-shoring is unlikely.
Apple’s supply chain is entrenched. Thus, like many supply chain businesses, Apple has cranked up visibility efforts in order to illuminate weak spots. This means working closely with its vendors and communicating data. Despite that, some analysts still simply say “Covid is hard to predict” in Asia.
If Apple is looking for help with both its visibility and Covid-19 problem, one potential solution can be found in its own App Store.
Vector is a document digitization software company that focuses on the supply chain. The shift to digitized documents is critical for the continued improvement of the modern supply chain. Gone are the days when the global supply chain could keep up using paper BOLs. Check phone calls. Hand-counted inventory. We’re simply moving too much freight to do things that way anymore.
Nowadays, communication actually means sharing data. We are officially as good as our data. In essence, Vector converts the traditional supply chain processes and day-to-day workflows into digitized data points. This digitized data is the starting point of all other technological integrations.
Modern supply chain businesses want to use lean principles to solve a visibility crisis. In my opinion, the only way to pull this off is to integrate tools of technology. Control towers. IoT. Real-time GPS. Contactless shipments. Otherwise, we’ll face the same issues over and over again. Fortunately, as the saying goes, “there’s an app for that.”
Maybe our businesses aren’t quite like Toyota, TSMC, or Apple. Few are. But we can learn a lot from observing how these companies manage their business.
The key takeaway is this: the promise of the future supply chain begins with tech. And that tech begins with digitized data. To that end, the lean approach to solving our supply chain crisis starts with Vector.
This post was written by Brian Deines. Brian believes that every day is a referendum on a brand’s relevance, and he’s excited to bring that kind of thinking to the world of modern manufacturing and logistics. He deploys a full-stack of business development, sales, and marketing tools built through years of work in the logistics, packaging, and tier-1 part supply industries serving a customer base comprised of Fortune 1000 OEMs.