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A lean supply chain eliminates waste and increases efficiency without losing sight of customer satisfaction.
In this article, learn what a lean supply chain is, how it relates to an agile supply chain, and how small business owners use lean principles to improve their supply chains.
What is a lean supply chain?
A lean supply chain is an efficient process for getting products from manufacturers to consumers while reducing costs and increasing value.
It’s a supply chain strategy based on the five principles of lean, as outlined by management researchers Daniel T. Jones and James P. Womack in their 1996 book Lean Thinking:
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Value. Redefine value based on what’s most important to customers, such as fast and free shipping or product quality.
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Value stream. Map each step in the supply chain and eliminate steps that do not add value.
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Flow. Increase operational efficiency at each step of the value stream.
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Pull. Manufacture or order products based on actual customer demand, such as with the just-in-time (JIT) inventory management method.
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Perfection. Monitor results and continuously improve.
Agile supply chain vs. lean supply chain: What’s the difference?
There can be crossover between agile and lean supply chains, but they are not the same. In his 2000 paper, The Agile Supply Chain, professor Martin Christopher argues that while leanness may be part of an agile approach, lean focuses on “doing more with less,” while agile is about staying nimble to “meet the precise needs of the customer more rapidly.”
Martin suggests businesses look at the following factors when deciding between a lean or agile supply chain:
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Variety. Agile makes more sense for businesses with a variety of products that may have different production and shipping requirements. Lean works best for businesses with less variety, where each product gets a similar treatment.
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Variability. An agile supply chain is capable of responding to less predictable environments, like shifts in demand, because it’s more adaptable. A lean supply chain does better with less variability because it’s not as flexible.
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Volume. For businesses with consistent high volume, even small process improvements can have major impacts, as outlined by lean. For businesses with less volume, or unpredictable volume, agile might make more sense.
Some businesses, like Somos Foods, which makes Mexican pantry staples, follow both lean and agile principles.
“We’re not just-in-time because demand is so uncertain as a startup, but we are lean in that we have a very good control on our inventory level,” says Laura Schwabe, Somos’s VP of supply chain.
“And we aren’t agile in the traditional sense, because we don’t burden ourselves with inventory to flex to any situation possible,” Laura says, “But we are really agile in that we’ve set up our teams, our processes, our supply chain to react quickly to new accounts, changes in demand, market conditions.”
3 lean supply chain examples
There are many ways to incorporate lean principles into your supply chain. Here are some examples from successful small businesses to inspire you:
Somos Foods
Somos Foods follows the lean principle of perfection by continuously improving their supply chain based on available data.
“Nothing is set in stone,” Laura says. “No process is the best process. If anyone sees an opportunity for an improvement or efficiency, it’s all hands on deck.”
For example, all of Somos’s contract manufacturers are turnkey, meaning they can handle every aspect of creating a product, from sourcing ingredients to packaging products. When Somos launched, the company was so small that it made sense to outsource every step of manufacturing to their partners.
As Somos grew, they decided to bring some aspects of manufacturing in-house, such as ordering critical raw materials.
“We thought that taking that on was going to be a benefit to Somos and allow us to be more flexible,” Laura says.
“What we learned was that we’re a very small team. We’re not set up in a similar way as our manufacturers are to handle that type of activity. And it ended up causing unnecessary time, effort, and burden on our balance sheet.”
Laura identified these issues—both the initial opportunity to bring some manufacturing elements in-house and the later discovery that this was actually costing the business more—using enterprise resource planning (ERP) software. If you use Shopify, you can connect your ERP to your ecommerce site via Shopify’s Global ERP Program integrations.
Life Is Good
Under the lean principle of pull, customer demand determines when businesses make or order products. As Daniel and James write in Lean Thinking: “Sell one, make one.”
T-shirt brand Life Is Good became more lean when they switched to a print-on-demand (POD) model.
“Prior to 2019, we were manufacturing all of our goods overseas and printing the goods overseas, so there was a six month lead time between creating a new work of art and getting those products on shelf,” Life Is Good President Tom Hassell says on Shopify Masters.
“We were essentially purchasing those products speculatively. Sometimes they would sell quickly, sometimes they would not, but in any case, we were just moving on to the next art and buying those and putting them on the shelf,” Tom says.
With print-on-demand, Life Is Good reduced their lead time to two and a half days.
“If an artist creates a new graphic on Monday, we can be selling that graphic online on Wednesday afternoon because we’re showing it as a virtual item, and it doesn’t actually exist until after the customer places the order,” Tom says.
Life Is Good invested in industrial direct-to-garment (DTG) printers to make their t-shirts in-house. But you can get started with print-on-demand by downloading a POD app that connects your online store to third-party suppliers who will print your items and ship them to customers.
SilkSilky
The lean principle of flow involves creating efficiency in the supply chain by removing obstacles to the continuous flow of product. For clothing company SilkSilky, one obstacle was costly and time-consuming returns.
To reduce returns, SilkSilky used the workflow automation app Shopify Flow to flag high-risk orders and automatically put payment on hold. This small change reduced SilkSilky’s return rate from 7% to 8% to less than 1%.
Lean supply chain FAQ
Does Shopify have features for lean inventory management?
Shopify’s built-in inventory management features can help you stay lean by eliminating the need for additional software. You can use Shopify’s native tools to reduce inventory by forecasting demand and setting low-stock alerts.
Why do businesses use a lean supply chain?
Businesses use a lean supply chain to reduce waste and increase value for customers. Some of the goals of a lean supply chain include reducing lead times and eliminating excess inventory.
What are the 5 principles of lean?
The five principles of lean are:
- Value
- Value stream
- Flow
- Pull
- Perfection
What are the pros and cons of a lean supply chain?
A lean supply chain saves a business from wasting non-value-added time, money, and resources on outdated systems that are no longer efficient. However, businesses that cut too many employees or systems risk stripping away essential qualities that make a product or experience unique and, ultimately, in demand.
