lean-supply-chain-management-principles-and-practices4872.pdf

Lean Supply Chain Management Principles and Practices Professor Deborah Nightingale October 3, 2005 Lean Supply Chain Management Learning Points • Lean supply chain management represents a new way of thinking about supplier networks • Lean principles require cooperative supplier relationships while balancing cooperation and competition • Cooperation involves a spectrum of collaborative relationships coordination mechanisms • Supplier partnerships strategic alliances represent a key feature of lean supply chain management ESD.61J / 16.852J: Integrating the Lean Enterprise Page 2 © Deborah Nightingale, 2005 Massachusetts Institute of Technology Theory: Lean Represents a “Hybrid” Approach to Organizing Interfirm Relationships • “Markets” (Armʼs Length): Lower production costs, higher coordination costs • Firm buys (all) inputs from outside specialized suppliers • Inputs are highly standardized; no transaction-specific assets • Prices serve as sole coordination mechanism • “Hierarchies” (Vertical Integration): Higher production costs, lower coordination costs • Firm produces required inputs in-house (in the extreme, all inputs) • Inputs are highly customized, involve high transaction costs or dedicated investments, and require close coordination • “Lean” (Hybrid): Lowest production and coordination costs; economically most efficient choice-- new model • Firm buys both customized standardized inputs • Customized inputs often involve dedicated investments • Partnerships strategic alliances provide collaborative advantage Do