Aug 30, 2009

What people are saying about... Lean in distribution

I posed a question about lean in distribution operations to the LinkedIn Lean Six Sigma group, and here is a quick look at some of the answers that came in from:

Mike Gentile (MG)

Self-Employed Professional, New York, NY

Jeffrey Jackson (JJ)

Experienced change agent specializing in supply chain and operations management, Tampa-St. Petersburg, FL

Mike Darrish (MD)

Industry Specialist at OpenConnect Systems, Inc., Atlanta, GA

Peter Nathan (PN)

Project and Program Manager and Author, Atlanta, GA

Gregg Miner (GM)

President & COO at SCORE Business Systems, Raleigh-Durham, NC

Ulises Penarredonda (UP)

Divisional CPI Coordinator at US Navy, Norfolk, VA

Alex Conway (AC)

Global Supply Chain & Sourcing Manager-Sealants at Momentive Performance Materials, Rotterdam, The Netherlands

UP: A distribution center is for distributing, not for inventory. From a true lean perspective, a distribution center is non-value added (NVA) in the eyes of the end customer. However, inventory may have business value. It may benefit internal customers, for example.

JJ: Inventory in distribution may provide a competitive advantage in customer service or cover a customer service problem. The former may be important to the business plan while the latter might be waste.

UP: Ultimately, we are shooting for real JIT: A reliable replenishment of goods from the supplier, and a suitable inventory buffer to protect us from demand variability. Our goal is perfection, pure synchronicity.

Key factors

MG: Key factors for Distribution Operations include capacity utilization and time utilization -- getting as much on the truck (or railcar, boat, or plane) as possible and keeping the equipment moving productively while minimizing down time.

MG: this requires excellent forecasting, scheduling, and inventory management -- anticipating demand, scheduling tightly to it, and ensuring there is just enough inventory to meet it. In turn, this requires having people, equipment, and your vendor network ready to go when needed.

Examine the entire supply chain

JJ: The total inventory level within the total supply chain needs to be looked at. This includes the inventory levels coming off of the supplier inputs (whether from internal make operations or from suppliers) as well as the inventory levels within the distribution operation and downstream at the customer locations as well.

MD: There are typically many suppliers with different policies. The distributor may be stocking items manufactured in other countries with more of a batch mentality. One may be forced away from single piece flow because of lead times, minimum order sizes and so on. The manufacturers don't want to transport air in partially empty cargo ships or trucks.

MD: Solving the quantity shipping issue might mean something radical like building a new factory closer to the distribution warehouse, which would enable a pull system, milk runs, move distribution closer to single piece flow. That may be prohibitively expensive, however, so there may not be an easy solution.

Companies have different ideas about how to manage the distribution channel. PN: Wal-Mart has suppliers helping manage the inventory and order replenishment re-counts in a push. While as a supplier, Coke pushes order replenishment with retailers.

How do you start?

GM: The best thing to do is go back to the roots of lean. Keep it simple!

AC: One of the greatest challenges is always what to do first and how to limit the field of ideas for Lean implementation. Lean is a continuous improvement mechanism and the goal is perfection—it’s not exactly an overnight process. It requires patience and commitment.

MG: Applying Lean principles means mapping out distribution processes, eliminating unnecessary steps and other forms of waste, and executing crisply every time to the standard. Sounds simple, tough to execute, but fun when it works well.

JJ: The logical first step in any lean application is to value-stream map the major processes in order to determine the full scope from supplier inputs to customer outputs (SIPOC, in 6 sigma speak).

MD: Identify the seven or eight (depending if one is a purist or a modernist) forms of waste, then reduce them. Make sure that the voice of the customer is used, whether through Kano Modeling or some other tool, use a pull system--only purchase at the rate that the customers buy--hard to forecast, sure, have to build some inventory, sure, but work with manufacturers to lean out their processes as well.

GM: The simple formula is:

Define Value

Determine steps in delivering value

Put Value in Flow

Perform at the rate the customer wants

Do it right every time.

Old concept but works every time.

UP: All these concepts, lean, six sigma, JIT, buffer management, cross-docking, will help get us there (to pure synchronicity) and, in some places, with use of technology i.e. RFID, telematics. It's happening, as lean as it can be, as it flows in and flows out right before our eyes.

Recommended reading

AC: I’m sure you have read "Lean Thinking" by James Womack. It’s a kind of bible and I re-read it about once a year.

PN: You might try reading these two references for some ideas:

1. Improving the Extended Value Stream: Lean for the Entire Supply Chain by Darren Dolcemascolo

2. Lean Six Sigma for Supply Chain Management: The 10-Step Solution Process by James W. Martin

A final thought:

PN: Another area that would be interesting to note would be a large cargo shipping carrier. I'd like to get some insights into how trans-oceanic cargo gets distributed with the trade offs between the “must have it by X date” and rates variables. You can do the same with train cargo, but the sea carriers would exaggerate the issue.

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