When supply chains are working well, consumers rarely think of them. When they’re disrupted, they become fodder for headlines and dinner table conversations. But for business owners, supply chains are always top of mind. If you run a business that sells products, you may have dealt with supply chain issues.
An efficient and reliable supply chain benefits both consumers and businesses. Reducing supply chain inefficiencies, like eliminating waste or obsolete processes, is necessary for creating a lean supply chain.
What is a lean supply chain?
A lean supply chain is the efficient, flexible series of processes necessary to get products from manufacturers to consumers—while reducing costs and allowing room for continuous improvement. The goal of lean supply chain management is to streamline processes, from manufacturing and warehousing to communication among teams. Efficiency serves two business purposes: It allows businesses to pivot if needs be and it reduces costs.
Lean supply chain management looks different for each business, but it could include the following initiatives:
- Reallocating work among roles to do more with fewer people
- Upgrading to more sophisticated software to automate tasks
- Replacing inefficient vendors
- Auditing and updating (or removing) inefficient processes
- Cutting inefficient product lines
The most common challenge businesses face when working toward a lean supply chain strategy summons the old adage, “pound wise, penny foolish.” Businesses must try to balance efficiency-oriented or cost-cutting initiatives with the mandate to maintain product quality and expected delivery times, all while keeping up with market demands.
Laura Schwabe, the VP of supply chain at SOMOS Foods, is a self-described supply chain enthusiast. Laura evaluates all facets of SOMOS’s supply chains regularly to see where the company can streamline operations for a lean supply chain and where it can be more agile.
“We realized that we needed to save money and improve our efficiency in our operations in both Mexico and the US,” Laura says.
The brand’s efforts led to a new warehouse and distribution method.
Increasing profits and reducing waste with a lean supply chain
Minimizing supply chain waste saves money and increases a business’s competitive advantage. Businesses typically become more profitable with a lean philosophy. Refining supply chain performance often results in reduced operational costs, allowing resources to be allocated elsewhere if needed. Or, they can simply flow through to the bottom line.
For example, a lean supply chain aims to eliminate overpurchasing, which can lower warehousing and storage costs. When it comes to materials, some companies over-order raw materials out of haste, poor planning, or because large purchases are often more economical per unit than small purchases. If there is weak customer demand, those materials can sit in a warehouse, where businesses must pay to store them. A lean supply chain might have smaller orders, which would be pricier, but could ultimately lower the spoilage rate and reduce warehousing costs.
Can your supply chain ever become too lean?
Cutting costs doesn’t always yield a positive business impact: When certain steps are removed from the supply chain without adequate research, the system can perform less efficiently, or even fail. It could turn out, for example, that a seemingly unnecessary step was integral to a product’s quality and customer satisfaction.
Terrand Smith, founder and CEO of 37 Oaks, an educational company based in Chicago that helps small businesses grow and scale, cautions against an overzealously lean approach. Businesses attempting to go too lean may inadvertently reduce quality or compromise experiences, which can risk dropping customers.
“The last thing you want to do in this environment is to lose customers,” Terrand says. “It’s hard to get them back.”
Terrand advises clients to figure out where to save money on the supply chain without compromising the integrity of the brand, and keep their satisfied customers. For example, one of her clients makes a fragrant room spray in a glass bottle. Terrand believed that switching to a plastic bottle wouldn’t compromise the product (and could help the brand save on both materials and shipping costs), but reformulating the spray with inferior ingredients might turn off the brand’s loyal customers.
A supply chain that’s too lean can also result in product delays or longer lead times. An overly lean supply chain may struggle to keep up with customer demand, resulting in out-of-stock items, poor employee morale, and end customer dissatisfaction. When supply chain operations are trimmed to the bare minimum, there is no room for error. If one link in the supply chain disappears due to an unpredictable curveball—like new regulations or changing market demands—the result can be catastrophic.
How to make your supply chain lean
Creating a lean supply chain is typically done after extensive data analysis, especially if big changes—like switching manufacturing facilities or sourcing from a different vendor—are on the table. Keep in mind what is considered a lean supply chain could differ during a bull or bear market, or other economic factors, like higher-than-usual unemployment or soaring inflation, in addition to new regulations.
1. Reduce touchpoints
Laura and Terrand both advise reducing the touchpoints embedded in the supply chain’s various processes—from the physical movement of goods to their marketing and ecommerce tech stack.
Laura encourages minimizing the touchpoints across all supply chain processes: manufacturing, packaging, warehousing, and distribution. The fewer times the product changes hands, the better, since each exchange adds time and costs.
Similarly, Terrand recommends minimizing the touchpoints for the data in a business’s ecommerce and marketing tech stack. For example, if you run your ecommerce store on Shopify, you can use its native email system for marketing blasts rather than an additional system like Mailchimp.
2. Streamline shipping
Small businesses, in particular, face challenges around shipping because they typically have small volumes of goods. Some trucking companies charge a full truckload delivery price or an inflated price for one or two pallets of products, called LTL (less than truckload). One way to address this challenge is by strategizing with shippers to consolidate with other businesses’ deliveries when shipping LTL to save on costs.
Faced with shipping challenges, SOMOS found an even more creative solution—partnering with an asset-based warehouse that doubles as a logistics partner. The warehouse stores all of SOMOS’s products, which are then delivered using the warehouse’s own trucks, rather than SOMOS contracting with another company to pick up and deliver its products. The warehouse also offers cost-saving consolidation, filling their trucks with pallets from multiple customers in the warehouse shipping to the same destination.
3. Embrace technology
In addition to supply chain management software, there are other tech tools that can help create a lean supply chain. Terrand advises clients to use ChatGPT or Gemini for brainstorming, asking AI something as simple as, “Can you help me brainstorm ways to reduce costs?” Terrand notes that AI won’t give you all the answers, “but at least it’ll help you uncover some opportunities or low-hanging fruit.”
Specialized databases can also help with specific inventory management needs. For example, SOMOS built a custom database to manage the shelf life of their products. Every month, SOMOS inputs inventory with expiration, the forecast for those items, a set of expiration rules by customer (some might require 50% of shelf life remaining, others 75%, for example), and the database generates a risk report. According to Laura, a report like this generates a risk call-out if you’re not going to sell all the inventory by the last date your customer needs it. In an instance like this, she might approach the marketing or sales teams to work out a sales or promotional strategy for this inventory.
4. Be agile
Making your supply chain lean is often a process of trial and error. Some initiatives will improve operational efficiency, while others will prove to have hidden costs. Macro factors can force changes too—something could happen (politically, economically, internally at the company) to change the dynamics within an efficient supply chain. Businesses have to be ready to pivot, but to do so, they have to be lean.
SOMOS learned this through the process of bringing parts of their procurement in-house. Originally, when the brand launched, products were sourced, manufactured, and packaged in Mexico and trucked into the US at Laredo, Texas. But in 2023, the company decided to move some of the purchasing to the in-house team to have more control over the longer-lead-time packaging and ingredients.
Over time, the business saw that its small internal team wasn’t set up to handle that activity as well as their manufacturers were.
“We realized that we needed to give that back to the contract manufacturers to allow us to be a little bit more lean,” Laura says. “[Handling it in-house] ended up causing unnecessary time, effort, and burden on our balance sheet.”
As a result, the company outsourced purchasing once again to its manufacturers. This ability to pivot has helped it become leaner in their supply chain, ultimately saving money.
Lean supply chain FAQ
Why do businesses use a lean supply chain?
Businesses that aim to have a lean supply chain are trimming excess from their processes that cost money unnecessarily. A lean supply chain ideally reduces waste and makes repeat customers return for reliable, quality goods.
What is an agile supply chain?
An agile supply chain is one that is flexible and can easily adapt to unpredictable changes. An agile supply chain prioritizes adaptability and often complements lean principles; most businesses use both agile and lean methodologies.
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—often in haste without proper analysis—risk stripping away essential qualities that make a product or experience unique and ultimately in demand.
