Lean Production in an International Supply Chain

In a study of lean production in a global computer company, Levy determined that the necessary flow of goods and information was costly and difficult to achieve. Managers frequently underestimated the associated costs because they did not plan for a complex, dynamic supply chain. However, some aspects of lean production such as reduction of defects and engineering change orders may facilitate globalization.

In the case of CCT, a PC company, Levy compared various aspects of domestic and international sourcing. Distance was often responsible for severe delays, and the company frequently used air rather than sea freight to expedite deliveries. The expense wiped out the location's cost advantages. Managers often did not plan for the extra inventory needed to cope with fluctuating demand when the source of supply was one month away. Distance affected the accuracy of sales forecasts and impaired communications. Design-for-manufacture issues, which relied on face-to-face communication, also suffered. And production problems, which normally took a day or two to resolve with local suppliers, took almost a week with foreign suppliers. Quality control was also hampered.

Levy warns companies to plan for the additional costs of operating an international supply chain. He suggests locating value chain activities close to each other, for example, in Mexico and the United States. Managers need to anticipatefrequent disruptions and see the chain as a dynamic system, with some links more critical than others.