Innovations in supply chain management: russian case

Definition and characterization of basic principles of supply chain management. Research of features of logistics is about operation within a single organization. Consideration of essence of the lean management and corporate social responsibility.

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National Research University Higher School of Economics

Institute for Statistical Studies and Economics of Knowledge

Master thesis

«Innovations in supply chain management: russian case»

Student: Tyurin Denis

Supervisor Vitaliy Roud

Reviewer Konstantin Vishnevskiy

Moscow 2016

List of abbreviations

3BL (TBL) -Triple-Bottom Line

5s - sort, shine, set in order, standardize, sustain

CSR - Corporate Social Responsibility

DoA - Delegation of Authority

FMCG -Fast Moving Consumer Goods

GSCM - Green Supply Chain Management

ISO - International Organization for Standardization

JIT - Just-in-time

NPO - Non-profit Organization

PPP - Public Private Partnership

R&D - Research & Development

SCM- Supply Chain Management

SMED - Single-Minute Exchange of Dies

SSCM- Sustainable Supply Chain Management

TPM - Total Productive Maintenance

TPS -Toyota Production System

TQ - Total Quality

TQM - Total Quality Management

VSM - Value Stream Mapping

Summary

This paper consists of the research on innovations in supply chain management. The main purpose of this thesis is to provide the industry and researchers with an insight about how could the sustainable techniques and methodology help Russian companies to stay competitive in the framework of highly volatile economy. By studying the cases of the foreign companies, the 6 typical “situations” were described. Along with the case study, using the method of semi-formalized interview, opinions of the industry employees have been gathered. This data provides a number of limitations for the case study results implementation. All in all, such a compound research shows that also the concept of sustainable development is becoming more and more topical today among the managers and even linear staff, when it comes to the implementation, it splits upon the rock of the Russian day-to-day realities.

The paper has classic structure and consist of the introduction, describing the study background , a set of basic assumptions and terms; literature review, which helps to set up the theoretical framework and define the main terms, used in the paper; then there is a description of methodology with the rationale for choosing the particular methods and information about the empirical data; in the final section there are the results - case study description and some quotes sorted according to the blocks of the semi-formalized interview. Finally, a brief conclusion is given in order to systematize all received data and answer the research questions.

The author of this paper hopes, that the results obtained during the research will be useful theoretical, and, what is more important, empirical basis for the future implementation of sustainable process innovation in the Russian supply chains.

Introduction

Nowadays, globalization, the diversification of production and high instability of economies mean for almost every company the need to compete in even more demanding business environments than ever in the past. That implies companies to look for new methods of gaining the competitive advantages and cost-reduction. Some of them are investing money in brand, marketing and ads, some of them rely on the scale effect and build more and more production facilities all over the world, while others try to be more far seeing and invest into innovations.

There is a strange trend to name innovation as a “buzzword”. Such naming itself has already become buzzing. Let us use the term “innovation” as one of the strategy for any kind of development. In other words, “innovation is the effective application of processes and products new to the organization and designed to bene?t it and its stakeholders” (Wong, Tjosvold, & Liu, 2008). This definition obviously relies on a famous Schumpeter's classification of innovation: product innovation, process innovation and system innovation (Schumpeter & Elliott, 2011).

Staring from the primitive inventions and ending with the hi-end 3D printing technologies for the parts of human body, product innovation was always the dominate way of getting the competitive advantage. From the beginning of the 20th century, when the first truly massive production had been run, the process innovations came to the scene. In the modern conditions, when the competition becomes tougher every day, sometimes, just to invent something does not mean to become the market leader. Company should be ready for possible competition and for particular pressure from the partners, government and, eventually, customers. Moreover, you will need to use the instruments from a particular “toolbox” to meet this pressure. The whole set of these agents, who interacts with your company on a different stages of value creation is called “supply chain”.

Supply chains are inevitable parts of every modern production, extraction and service delivery. Supply chains is not just the relationships between the companies, warehouses and customers, as many of us got used to think. It is complex and multidimensional system of processes occurring at a various steps of value creation. Thus, process innovation serves as an instrument for the development of the supply chain.

100 years ago, productions faced only with the customers' demand determined by simple need for some product or service. Then, one of the first innovations for a mass production were implemented. Ford, apart from brining the idea of flow production into life, also pointed his attention to the fact that by enchasing the labour conditions, he also increases productivity. Then, there was an era of production and labour unions development until the third quarter of the 20th century. That was the moment when people realized that environmental issues should be also taken into account while producing value added; and entrepreneurs being under the pressure from the government and society started to find ways for reducing environmental footprint of their and their partners' activities. Therefore, as it could be seen there are three main dimensions for the implementation of process innovations: economic, society and environment. Because of this “evolution”, the concept of sustainable development was born with the 3BL approach as a foundation.

As it could be seen from this “path”, the process innovation today mainly relates to the sustainable development of the supply chains. Basing on this assumption, the concept of sustainable supply chain management was coined.

According to PWC report, «the relative focus is changing from compliance-based and branding activities to a set of reinforcing capabilities that have the potential to generate value to the business--whether the business value is direct, like cost reduction, or indirect, like customer loyalty» (PWC, 2013). This technology is unique and universal as far as it allows small enterprises to make their path to the customer shorter and «greener», and, at the same time, offers the growth of efficiency and the reduction of costs for corporations. As Carter and Rogers (2008) state, «SSCM is the strategic, transparent integration and achievement of an organization's social, environmental and economic goals in the systematic coordination of key organizational business processes for improving the long-term economic performance of the individual and its supply chain» (Carter & Rogers, 2008)

Talking about Russia, the evolution of the approach to the process innovation was about the same as it was all over the world, but with a bit different timeline. Staring from the USSR with its powerful production and labour system and ending with Russia's global concern about environmental issues in 90s after the revealing the full data about the Chernobyl disaster. Then, again, according to the global tendency, the concern about the environmental issues decreased, along with the social ones, and the pure economic approach to the business started to prevail. Moreover, this approach was quite primitive and product oriented to produce more and then to sell more. In 00s, there was a period of economic growth and Russian large business started to implement the trendy economical innovations inspired by the Toyota Production System. Along with the economic activities, the CSR concept started to emerge in Russia. More and more attention was being paid to environmental problems. Nowadays Russia are in the circumstances of economic recession due to the global economic crisis and the strains with the Western partners. Does it mean that the sustainable or i.e. long-term development goes on the back burner again? Or maybe it was never on the foreground in Russia? Could the sustainability be the lifetube for the companies suffering from the crisis? Or it is just a money down the drain?

In order to find the answer all of these queries, the following research questions were formulated:

· What are the techniques of sustainable supply chain management which could be useful for Russian companies operating in the crisis framework?

· Do the companies, operating in Russia, use some of the SSCM techniques nowadays and, if yes, how effective are they?

· What are the recommendations which could be given for the companies, decided to implement SSCM methods in Russia?

In the following chapters, there is an extensive literature review, providing the reader with the complex understanding of SSCM concept. After that, there is a detailed description of the methodology used for the analysis. Finally, there are the results of the case study and topical quotes from the interviews with four industry professionals. As a result, there is a conclusion chapter, describing the results and answering the research questions.

1. Literature review

In this chapter the complex overview of sustainable supply chain management concept is given. There is a clear path from the concept of sustainability, as a framework of supply chain management, to sustainable supply chains and various instruments. Moreover, there are some critics about SSCM, and the description of the current situation in Russia.

1.1 Sustainability and sustainable development

To start with, what is sustainability? What activity could be seen as sustainable and why? In a word, is this just another trendy buzzword or a real tool for prosperous development? And for development of what?

Firstly, “sustainability” is often believed to be in the list of “hard to define” terms because of its multidimensional nature. Solow gave a very succinct characteristic for such group of terms: “some people say they don't know what does it mean, but it sounds great” (Solow, 1991). Nevertheless, one may say that sustainability is about “dynamic interactions between nature and society” (Robert W. Kates, 2000), others believe that sustainability is about “the system which survives or persists” (Robert Costanza, 1995). Some researches stay even vaguer and claims that sustainability is “our obligation for the future” (Solow, 1991). However, if we talk about future - future of what? Future of environment? Future of economy? Future of science or society?

The answer is quite simple and traditionally hides in history. As we know, the concept of sustainability was coined in forestry. Originally, it was about not to harvest more than it will be substituted by a new growth. According to Wiersum, the word “Nachhaltigkeit” (eng. Sustainability) was firstly used in XVIII century (Wiersum, 1995). On the other hand, we may find the examples of “sustainable” agriculture even in the middle Ages (three-field system). What is important here, first “sustainable” techniques were not about the taking care of nature, environment and long-term perspective of saving recourses for the future generations, but about trivial economic reasons - cost-reduction, opportunity to produce at least the same value of product in quite a short-term, fulfilling the growing demand for goods. Over the years this approach was evolving, sustainability was developing more and more as an economic concept connected to waste and cost reduction in production lines. Starting from the mentioned forest industry in Germany, Ford's assembly lines and innovative motivation techniques for employees (Worstall, 2012), and ending with production planning in early USSR (five-year plans).

Later in the middle of XX century, the problem of responsible usage of natural resources become topical. There is an opinion that one of the starting points for this movement was the “Limits for Growth” report published by the members of the Club of Rome. (Kuhlman & Farrington, 2010). The main message was that if the humanity does not change its attitudes to the natural recourses consumption, many of the crucial ones would be exhausted in 100-150 years scope. The growing concern about the environmental problems eventually crystallized into so-called “Brundtland Report” introduced by UN World Commission on Environment and Development. In this paper, researches try to answer the question how to correspond and reconcile the steady social and economic development with the environmental challenges. Brundrland team offered the concept of sustainable development which is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (World Commission on Environment and Development , 1987). Later world leaders recognized this concept and in 1992, the principles of sustainable development were set up at the UN Conference on Environment and Development (UNCED) in Rio de Janeiro, Brazil.

From that moment, sustainable development concept has been eventually shaped. Sustainability is no more only about economy, ecology or societal relations, it is the complex system of interconnections between these pillars. The interdependent relations between these three spheres are the foundation for understanding the idea of the whole following paper.

Triple-Bottom Line concept

Figure 1. Traditional Tripple-Bottom Line model

As it was pointed out, before the rise of sustainable development programs, corporations were mainly focused on the economic value that they add. Thus, the only one “line” mattered - the “bottom line” of the profit and loss account. (The Economist, 2009). With the introduction of sustainable development paradigm, the growing public interest forced business to revise the traditional managerial techniques and corporate strategies. According to Elkington, these changes could be described in terms of 3-waves of social pressure model, which is depicted further. (Elkington, 2004)

Figure 2. Three waves of social pressure (Elkington, 2004)

The first pressure wave was primarily about “limits” - limits for natural recourses usage and environmental impacts. In the mid-70s, the declining environmental conditions and ostentatious overconsumption of non-renewable recourses eventually led to the series of environmental legislation changes across the Organisation for Economic Co-operation and Development (OECD) region. Industry was literally forced to limit its appetites. Nevertheless, conservative politics of many countries in the 80s made it possible to start talks about the rolling back of strict environment regulations.

The second pressure wave, as it was mentioned before, started with the publication of Our Common Future by the Brundtland Commission. From that moment, the problems of the destruction of ecosystems and ozone layer were constantly on the current political and social agenda. Emerging Green consumerism forced companies to deal with the demand for “greener” production not only form government, but from society and, thus, from consumers. Operating in these conditions, companies had to find new solutions for their production, which were expected to be: 1) cost-effective; 2) omni-purpose; 3) maximum eco-friendly and natural. Some results of these search is described in the empirical part of these paper.

Starting form 1999 the third pressure wave steps forward. Along with globalization, the crucial role of international, cross-cultural promotion of sustainable development became obvious. Eventually, the puzzle was put together - environmental, economic and social branches have been seen as closely correlated and equally important for the sustainable development. (Elkington, 2004).

Thereby, the Triple-bottom line concept was forming through years, wave by wave of social pressure. Social responsibility of business, “0 wastes” approach to production, development of alternative sources of energy based on reusable resources - all of these technologies and initiatives, which are so popular today, could be decomposed in terms of the Triple-bottom line concept. “Only a company that produces a TBL is taking account of the full cost involved in doing business” (The Economist, 2009).

The only problem with the TBL lies in metrics. How can we measure and compare environment in social dimension? Can we shut out aborigines of the North from their traditional craft - whaling? Should people starve because of our care for environment? Could we measure peoples' starvation in the terms of ocean ecosystem? Or how can we measure the monetary cost of the damage which shale play development does to the ecosystems of the USA?

1.2 Weak vs. strong sustainability

When it comes to implementation of sustainable development programs, the most fundamental debates are connected with the choice of “strong” or “weak” sustainability. These dimensions have emerged around the discussion how much do people need “crucial natural recourses” for sustainable development and what capital is “more important” - natural or human? I.e. do the loses of “natural” capital may be substituted with the growing “human” one? (Barry, 2011)

Both weak and strong sustainability implies `capital' to be carried on throughout the generations. According to Dasgupta, strong sustainability is about transferring to the next generation the same amount of natural capital, along with the amount of human capital rises over time. On the other hand, weak sustainability means declining natural capital while human capital grows (Dasgupta, 2007).

Similarly to TBL concept, in strong sustainability “natural capital cannot be viewed as a mere stock of resources”. (Pelenc, Ballet, & Dedeurwaerdere, 2015). Human or manufactured capital is often renewable, while natural capital is not. In addition, even some types of natural capital could be named as renewable, we cannot be completely sure what effect will cause such a restitution in a long-term. Humanity are still far from completely understanding the nature. In addition, if product A requires product B to be created, B can not be fully substituted by A. The same is legit for human capital, which requires natural capital for its production. Finally, we do not have a moral right to force future generations to drink polluted water just because we want to extend our production capacities today.

To sum up, given the concept mentioned below, it seems sensible to modify the original TBL model by Elkington according to the principles of strong sustainability. An updated model implies environment to be the basis or “the nest” for societal and economic dimensions. “Human society cannot exist without the environment, which provides the basic necessities of life: air, water, food, energy, and raw materials. Whereas, the human economy depends on people and social interaction” (USDA, 2010)

Figure 3. Modified 3BL model (USDA, 2010)

Summing up, nowadays sustainability still suffers from two major uncertainties:

1. In addition, sustainability today is believed to be the part of global policy, it is still remains too vague to be precisely formulated and, hence to be put into real practice.

2. When it comes to R&D, sustainability remains mainly about environment, and tremendously less about economy and society.

In other words, practice is still far behind theory. This paper seeks to provide reader with the examples of how the main principles of sustainable development could be implemented in a real life, equally in environmental, economic and social spheres.

1.3 Supply chain management

Similarly to “sustainability”, “supply chain” could be defined using different paradigms and approaches. For example, CSCMP describes supply chain as “every effort involved in producing and delivering a final product or service, from the supplier's supplier to the customer's customer” (Council of Supply Chain Management Professionals). Another definition is that supply chain is “suppliers, manufacturers, distributors, retailers, and customers with the last ones being the main focus of the chain, since the primary purpose of the existence of any supply chain is to satisfy customer needs, in the process generating profit for itself” (Habib, 2011). In addition, supply chain is seen as “a network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer” (Christopher, 1994).

There could be 10 more definitions of supply chains, but the point is that there are obviously two major approaches for this term:

1. to define supply chain as purely managerial and organizational process

2. to consider supply chains as the linkages between three dimensions of 3BL system

Therefore, in correspondence with the topic of the paper, the second approach is chosen and definition by Handfield and Nichols is taken as a central one - “supply chain is all activities associated with the flow and transformation of goods from raw materials stage (extraction), through to the end user, as well as the associated information flows” (Handfield & Nichols, 1999).

Consequently, supply chain management is aimed to streamline the processes happening inside the supply chains. “SCM engages the management of flows between and among stages in a supply chain to minimize total cost” (Horvath, 2001)

Chopra & Meindl in their fundamental paper “Supply Chain Management” talks about dramatic importance of fulfilment the customer demands using the recourses which company has (labour force distribution system, operational processes) in a most efficient way possible. The main goal of every company is to raise the value of supply chain in order to get a greater delta between the income (financial, reputational, and environmental from their activities and expenditures on fulfilling the existing demand.

To put it into nutshell, supply chain managers try to make the demand for some goods equal to the supply they have, thus to minimize such costs as inventory and warehousing, labour force down-time and environmental changes. As it will be mentioned further, there are a broad variety of instruments for supply chain optimization and they go along with the ideas of sustainable development.

Supply chain management is often confused with logistics. According to Hugos, logistics is about operation within a single organization, while supply chains are more about networking and coordination of companies' efforts to deliver a product to market. Supply chain management includes all logistics operations, and also activities which are not connected with the movement of goods, e.g. R&D, customer care and marketing. (Hugos, 2003)

According to Chopra & Meindl and Hugos, the 5 main major supply chain drivers may be formulated.

Figure 4. Supply Chain Drivers (Hugos, 2003)

In this simple scheme production driver is about what, how, and when to produce. Inventory is connected with the issues of storage and production capacity. Location is about the best place for a certain economic activity. At the same time transportation deals with the movement of the materials and products. Finally, information is the basis for making all of these decisions about other 4 drivers.

Apparently, not every company is able to deal with all of these divers at maximum efficiency level simultaneously. Thus, there is a practice of outsourcing. Relying on market conditions, companies often try to focus on these drivers, which could be potentially developed into their key competitive advantages, while outsourcing the rest.

Nevertheless, as it will be illustrated further (Case about Boeing, pp. 56-58) outsourcing is a very dangerous initiative, especially when it comes to the sophisticated and long-term production.

The key challenge of supply chain management today lays in the market transformation. If 100 years ago supply chain was a strict vertical line spreading from raw materials (environment) to customer (society), nowadays with the emerging of fast-moving markets, Internet, globalization and automatization, supply chain is no longer can stay monodirectional. Considering this fact, there is obvious dissonance between the companies building their supply chain relying on trends of modern market and those who follows the “traditional” line. The problem would not be as it is if these companies did not work within the frame of global economy where almost all economic agents are interconnected.

A brief comparison of an “old” and “modern” approach, based on the study by Chinese researchers explains the differences outwardly.

Table 1. "Old" and "Modern" supply chain

Traditional Supply Chain

Modern or Sustainable Supply Chain

Information and communication

Lack of available communication and less information being shared

More information being exchanged and successful communication with each other

Relationship of suppliers

Short period, based on transaction

Long period, strategic partnership

The number of suppliers

Many suppliers

Not so many, sometimes just one or two

Replenishment

Based on inventory

Based on orders

Respond time

Slow

Quick

Summing up, SCM tools allow companies to create value added from activities which previously considered to be costs or savings (i.e. “+” instead of “0” and “-“).

1.4 Sustainable Supply Chain Management

Sustainability, Supply chain, and SCM being reviewed, let us pass to the core-concept of this paper - SSCM. Basing on the ideas stated above, some general assumptions should be made. First of all, again, sustainability is not only about environment, or production, or customers and society. This assumption is crucial, especially if we look at the following data:

Figure 5. Dimensions of sustainable development in publications from 1994 to 2007 (191 analysed), (Seuring & Muller, 2008).

According to this data, only 10% of authors took into their consideration the social aspect of sustainability while writing their papers. Nowadays, when the social responsibility of business is becoming or even has already become an important indicator of company performance and image, when the green and eco movements are becoming literally lifestyles for millions of people, for sure, all of the 3BL elements should be at least taken into consideration.

Secondly, again, supply chain in this paper is not about transferring some goods from Company A to Company B, it is the complex, non-linear system of relations between different economic agents and environment.

The last, but not the least, the concept of sustainable supply chain management described below includes the concept of e-supply chains and author of this paper strongly believes that for a moment it is just one of the results of bringing sustainable development principles into life, not a brand new paradigm.

Thus, eventually, sustainable supply chain management could be defined as “the management of material, information and capital flows as well as cooperation among companies along the supply chain while integrating goals from all three dimensions of sustainable development, i.e., economic, environmental and social, which are derived from customer and stakeholder requirements. In sustainable supply chains, environmental and social criteria need to be fulfilled by the members to remain within the supply chain, while it is expected that competitiveness would be maintained through meeting customer needs and related economic criteria”(Seuring & Muller, 2008).

According to UN Global Compact, “the objective of supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market” (UN Global Compact and Business for Social Responsibility, 2010). Without any doubts, existing system of supply chains in many cases shapes existing ecological, economic and social challenges. Inconsistency of international and domestic regulations, different local contexts, floating political trends, and diverse vision on social development makes corporations to look not only at their performance, but at the whole set of supply chain parties in order to fulfil cost saving and quality enhancement programs. Therefore, companies have to face these challenges by working directly with the suppliers to feel certain that settled social and environmental standards are followed. This control could be maintained by introducing different industry standards and the relevant checking tools. That means, “companies of all sizes have to satisfy the rising expectations with regard to transparency and sustainability” (Forum for Sustainable Development of German Business, 2013). Overall, these problems motivated community to develop a pool of different joint recommendations for the companies aimed to follow the principles of sustainability.

Orientation aid

This guide, developed by the members of Forum for Sustainable Development of German Business provide companies with a list of the key aspects which should be taken into consideration and verified with the stakeholders while implementing the SSCM.

Orientation aid project seeks to help to find the consensus on sustainability amongst business, society and environment. Unification allows to make the communication simpler and to avoid being on a different wavelength.

Table 2. Orientation aid for corporate sustainability

Environment

Social issues and human rights

Governance

Management process

Monitoring and results

*Environmental protection

*Climate protection

*Resource efficiency

*Hazardous substances

*Plant and transport safety

*Social standards and working conditions

*Health and safety

*Social impact

*Management roles and responsibilities

*Management pledge

*Anti-corruption measures

*Management systems

*Escalation and development process in case of violation of rules

*Employee trainings

*Passing on of principles to the supply chain

*Certification

*Documentation, monitoring and reporting

*Sanctions

The Ten Principles of the Global Compact and Supply Chain Sustainability

As well as the Orientation Aid, the Ten Principles are developed by NPO called United Nations Global Compact. Here the focus is shifted to the social and environmental aspects of sustainability.

Human Rights

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights

Principle 2: be sure that they are not complicit in human rights abuses.

Labour

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 5: the effective abolition of child labour;

Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility;

Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. (UN Global Compact and Business for Social Responsibility, 2010)

Uniting these two guides an idea about what practices should company put into action in order to implement the SSCM could be coined. In the following subchapters, more detailed review of sustainable supply chain management techniques is carried out. The concept of Lean production is reviewed, along with its main instruments and metrics. Moreover, the possible environmental and social initiatives which company could undertake are described. Such specification will provide a solid base for understanding the case study and interviews results.

To start with, it is not unreasonable to assume that it is not the companies who want to implement all of the other aspects of sustainable development besides from economic. According to the data from the NBS's report, the main “pressure source” for the companies are consumers, government and public. (Brammer, Hoejmose, & Millington, 2011). If there is no pressure from these three agents, it is highly probable that companies will not choose the way of sustainable development.

Figure 6. Pressure sources for sustainable supply chains development (% from total), (Brammer, Hoejmose, & Millington, 2011)

In the traditional economic system, being socially responsible and careful about environment was just a buzz-bag for some companies. Today, the outside pressure, especially for transnational corporations, leaves them literally no chances to resist these changes. One of the most famous cases is connected with the child labour usage by Nike. In 1996, company was blamed for exploiting child labour in their offshore factories. After two years of rigorous pressure, Nike's CEO introduced a long-term program of improvement of working conditions at their factories and at the productions of their partners. But does the child labour is the only thing that can motivate outer agents to claim for sustainable operations? According to the figures, the most crucial issues are:

· Working Conditions

· Environmental problems

· Corporate Social Responsibility

· Low Wages

· Human Rights

· Child Labour

As it could be easily seen, again, while companies are often focusing on economic aspect of sustainability, the public demands for changes in social and environmental spheres.

Considering this fact, it seems vitally important for every company at first to identify the vector of the pressure source. Maybe the reason for the losses of performance is not that children started to mike, but that some journalist found out that your company uses children to produce goods? After formulating the drivers for changes, company should identify the instruments, which could help to accomplish challenges set by the drivers. These instruments could be split into two major groups by their area of focus: internal and external. For example, training and leadership programs, development of corporate code of conduct relying on the principles of sustainability could be referred to internal activities. While, for example, searching for long-term relationships with the suppliers and partners, development of the certification program for the third parties, etc., are related to external activities. At the last stage, it is time for assessment of the results. The main goal here is to identify the most successful practices, highlight the prospects for the improvement, and understand what resources could be required in the future. (Brammer, Hoejmose, & Millington, 2011)

Like many other management techniques, this process seems quite simple while describing it. Nevertheless, when it comes to real cases, it is extremely hard to implement due to the critical importance of strong coordination between practices, instruments and, what is more consequential, people.

2. Lean management

One of the main instruments for reaching the SSC is considered to be Lean management concept. Lean Production is a term by John Krafcik, graduate student at MIT, now CEO of Hyundai. (Graban, Who Coined the Term “Lean”? And Where is He Today?, 2010) Lean is about the management of productivity. The main goal of Lean management is to maximize value-adding activities and minimize or, ideally, eliminate wastes. “Between 1968 and 1978, US productivity increased by 23.6 percent, but Japan experienced a 89.1 percent increase” (Teresko, 2005). Reasonably, the US and European researchers and authorities started to find the roots of this significant gap. “Lean paradigm connected to SCM is a strategy based on cost and time reduction to improve the effectiveness; involves in optimizing the process of all supply chain, searching for simplification, reducing waste and reducing activities that do not add value” (Afonso & Cabrita, 2015). When it comes to supply chain lean is mainly about (Venkat & Wakeland, 2006):

· Identifying value

· Determining the best sequence for value-creating steps, eliminating wastes

· Performing activities without interruption when a customer request them

· Improving process continually

As it could be seen, lean management is extremely complex system which implies working with broad variety of economic agents simultaneously. It includes communication with the suppliers, coordination of their work, their development, communication with customers, collection of feedback, continuous flow of production and development, preventive maintenance of the active assets, employee motivation and recognition.

Figure 7. The six attributes of the Lean supply chain (Manrodt, Vitasek, & Thompson, 2010)

As it was mentioned, Lean managers are in constant search for minimizing of wastes. While “fighting” them, lean tools aim to improve the quality of products and services, reduce manufacturing cycle, reduce inventory and provide customers with quick and adequate response.

The concept of lean management is traditionally believed to be developed by Toyota. However, also Taiichi Ohno and Shiegeo Shingo were the men who operationalized these practices, as it was mentioned before, Henry Ford was implementing short-cycle manufacturing and waste management in the early 10s of the XX century. Japanese engineers officially introduced Toyota Production System (TPS, also known as The Toyota Way). The system implies a strong tradition of innovative HR management, which is about constant mentoring to think over the real causes to the sticking points, to be social responsible, to introduce a straight- out safety for production and office space. Also TPS system is often associated with Just-in-time production strategy, which stands against the high volumes of production, unreasonably large batch sizes, and, what is more important, long non-value added lags between operations, which mean lower final quality due to the lack of the control. (Arnheiter & Maleyeff, 2005)

Taiichi Ohno identified seven non-value added wastes (Liker, 2004):

· overproduction

· waiting

· unnecessary transport

· over processing

· excess inventory

· unnecessary movement

· defects

In two words, overproduction is producing items when there is no real demand for them. Waiting is often related to stock outs, wrong instruments distribution, equipment downtime, etc. Unnecessary transport occurs because of wrong space management and misunderstanding of the real process flow. Over processing relates to the poor tool quality and selection, or entirely product design. Excess inventory causes longer lead times, delays because of complicated storage system, damaged materials and products. Unnecessary movement closely related to the transportation, but deals with employees and machinery, not goods. The main reasons for this waste are poor layout, sophisticated work instructions. Defects are often caused by poor machinery maintenance, weak employee qualification, inadequate processing of feedback from the customers.

Nowadays the bank of Lean techniques is quite rich. Following paragraphs are describing main instruments, which lean managers use to eliminate wastes and increase the amount of value-adding activities

5 S

One of the most popular tools of the Lean philosophy is 5S operation model. The 5S method is a structured guide for a workplace organization and unification. “The primary objective of 5S is to create an environment where there is a place for everything and everything is in its place.” (Production Automation Co, 2008). Moreover, 5S serves as an instrument for improving loyalty and dedication to the workplace among the employees. Eventually, a lot of companies at first start to implement 5s methodology because it is a kind of a framework, basis for a future lean and sustainable initiatives.

Figure 8. 5S Methodology (Production Automation Co, 2008)

Table 3. Brief description of 5S principles

Japanese Word

Meaning

Seiri

Separating necessary from unnecessary, removing needless objects. “one-is-best” principle

Seiso

Constant cleaning and refreshing. Data collection in order to remove the reasons for dirt or disorder

Seiton

Finding the best layout of instruments for the best efficiency. System should be easy to understand for everyone

Seiketsu

Visual management for simpler communication, standardization of the uniform.

Shitsuke

Finding a way to support day-to-day implementation of 4 other principles, i.e. continuous improvement

According to Antony & Kumar definitive research, benefits of implementing 5S methodology could be notionally different: improvement of staff involvement, better understanding of customers need, developing of a long term strategic vision, less floor space needed, improvement of company's self-image, increased quality of final products, etc. 5S, therefore, is seen to be a crucial one for the other lean tools to be implemented, as far as it is transforming the corporate culture. Apart from economic and social aspects, 5S is also about reducing natural resources consumption (oil / water / air / raw materials). (Antony & Kumar, 2011), (Production Automation Co, 2008)

JIT (Just In Time)

Just-in-time (JIT) production concept is about “producing the right item at the right time in the right quantity” (Dennis, 2007). Originally, JIT was introduced in the 1950s by Toyota managers in response to the extensive list of market challenges:

· Fragmented markets demanding many products in low volumes

· Tough competition

· Fixed or falling prices

· Rapidly changing technology

· High cost of capital

· Capable workers demanding higher levels of involvement (Dennis, 2007)

JIT production seeks for producing something only if there is an order from the customer. This approach helps to reduce inventory and cycle time. According to the 5s principles, production should run smoothly, without any waste of time, thus the level of demand should meet the “smooth production” capacity. Finally, as far as the market nowadays is extremely volatile, machinery and employees should be flexible and skilled enough to be ready to readjust fast.

In order to maintain JIT, cellular manufacturing is being used - machinery and people are put close to each other, so that they can provide value continuously. Using JIT, company should precisely clarify the customers' needs and provide them only with what they want - everything else is a waste. There is an important note here: company should provide customers with only what they need when it comes to the manufacturing, e.g. there is a demand for 1000 yachts, and so company should produce 1000 yachts, not 1005 and 1 cruising ship. Obviously, when it comes to the development of new products and services, customer, as we may see from the story of Apple, does not often know what he/she wants until innovation is revealed.

As a sign-off, JIT allows companies to improve the quality of their product. It happens automatically due to the small batch-size: if there is a defect, it could be found and fixed quickly, instead of recalling enormous lot.

Value Stream Mapping. “Value Stream Mapping is a Lean technique used to analyse the current material and information flow necessary to bring out the products or provide services for the customer” (SUCIU, APREUTESEI, & ARVINTE, 2011). VSM allows to follow all the flow form the customer order, through production, and then to the customer. This technique is mainly about data collection, its analysis and then relevant Lean action plan. VSM allows creating a visualization of process flow and communication hubs, thus managers are able to streamline the processes. This method is believed to be the fastest way to gather and process the current data in a very short cycle. VSM is also extremely compelling when it comes for future planning.

Often, VSM is a one-page picture, which allows tracing not only all value-adding activities, but also wastes and points to improve. Moreover, as far as it is “visual” it allows different specialists to share a common “language” which is extremely important for correct communication. (Chen & Meng , 2010). Therefore, some experts advise companies to start their Lean initiative, at first, with creation of VSM, as far as it will allow to save resources by not implementing the other lean methods in these parts of value chain which could be referred to the wastes with the help of VSM.

Kanban

Kanban is one of the components of JIT system. It is often described as a system of visual tools that coordinates the work of suppliers in correspondence to the demand from the customers. Kanban if usually a card which gives a signal to start producing or transporting some goods. The information about supplier, customer, storage place and transporting requirements helps to keep “empty” lots stocked. Moreover, Kanban could be implemented in the other form, e.g. special “stop-line” at the warehouse - when inventory goes lower that line, this is a signal to start production or shipments from the suppliers. Nowadays the electronic alarm is used to an automatic machine to start production when it is necessary.

Kanban could be upstream (for supplier) and downstream (for customer). Upstream Kanban defines what and how many should the supplier delivery to the production. Downstream, in its turn, determines what and how many may the customer order. Working in “pair” these two streams allows connecting the supplier and the customer into a one continuous flow. In such a system parts are always moving, without any non-value added storage. Toyota engineers are joking that Kanban is a kind of customer's voice saying: “Please make me…” (Dennis, 2007)

Overall, the Kanban system has the following advantages:

· Lack of overproduction

· Wastes elimination

· Logistic costs decrease

· Lower stock = lower inventory

· Lack of administrative barriers

Kaizen

To put in in a nutshell, “Kaizen” means the communication model, which is used to transfer the initiatives from the lower levels of corporate hierarchy to the highest one. Kaizen implies that every idea is important and should be taken seriously, as far as even the smallest improvement could influence the whole process and results a lot. This continuous flow of ideas contributes a lot to the engagement of the personnel and to the sustainable development in the long run.

Kaizen methodology are often believed to be the bridge for top-management to stay tuned what is happening at the production or front lines. Kaizen says: if you have a problem at production - come there and see it, then offer a temporary solution or use the solution offered by employees, find the root reason for the problem to occur, solve the case and standardize to eliminate the way for reoccurrence. (International MultiConference of Engineers and Computers Scientists , 2010).

Kaizen through the insights of the employees and their involvement delivers the next advantages (BOCA, 2011):

· Less spending of R&D

· Decreasing the lag between the idea and its implementation

· Increasing of employees' performance and involvement

Kaizen is extremely applicable and could be used in any firm: manufacturing and non-manufacturing. Finally, when it comes to costs - it is one of the cheapest lean technique to implement: you only need you employees, their fresh ideas and some problems to solve or issues to improve.

Total Productive Maintenance (TPM)

TPM is a logical continuation of the 5 s's initiatives. TPM is “a company-wide approach to plant, equipment or asset care that involves the active participation of more than just the maintenance department working on maintaining and improving the overall equipment effectiveness” (Sharp, Bamber, & Hides, 1998). It deals with the stable machinery functioning and preventive maintenance of the production units. The daily equipment attendance means that every employee at the production floor or office is trained to support the operant condition of the machinery he uses every day. TPM is mainly about preventing serious breakdowns and freeing team of maintenance professionals from daily routine in favour of developing and implementing of innovations, critical maintenance and couching work. This concept allows, again, to increase staff involvement by spreading the idea that there is no only one man or team responsible for “zero breakdowns” at the production - that is, instead, the challenge for everybody and everyone could make a valuable contribution here.

Thus, TPM is aimed to struggle with the following six main production losses (Dennis, 2007):


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