The Lean Supply Chain: Watch Your Waste Line
Lean logistics can help your company shed fat and build muscle.
From its origins in Japanese industry, the Lean philosophy has spread around the world and beyond the factory floor, into business administration, healthcare, government—and logistics.
For companies working to reduce costs while enhancing performance, the Lean approach is a natural fit. Viewing the world through a lens of continuous improvement, and armed with waste-fighting tools such as value stream mapping (VSM) and 5S, companies are slimming down, toning up, and working out efficient materials flow all along the supply chain.
Lean initiatives can focus on specific logistics processes, or they can embrace entire supply chains. LeanCor Supply Chain Group spends a lot of time helping global companies succeed at the end-to-end approach. To keep those projects manageable, "efforts start with just a few stockkeeping units (SKUs)," says Robert Martichenko, chief operating officer at the Florence, Ky.-based third-party logistics provider.
Lean projects begin with team members drawn from throughout the supply chain spending several days describing the current state of each SKU's entire path, from materials suppliers to end consumer. They then spend several more days mapping a future state—the leaner supply chain the company wants to achieve.
As it proposes a change—for example, to move smaller shipments more often—the group describes every consequence that change might create.
"Setting a future state for inventory levels will drive future lead times," says Martichenko. "That, in turn, will drive a future state for how often a company will make a product or order it from a supplier."
The group conducts a "gap analysis," determining the steps the company must take to achieve the future state. Members then validate that analysis. What would happen, for example, if the company received a product every 15 days instead of every 30? Could the factory or the supplier accommodate that schedule? What else would have to change?
Based on that analysis, the team develops a list of necessary tasks and assigns them to individuals, with time frames. They also perform a failure mode effects analysis (FMEA), examining risk factors attached to the proposed changes.
"Then we begin implementation, which comprises very disciplined plan, do, check, act (PDCA) cycles, and continue to make sure that we're moving toward our goals," Martichenko says.
If all goes well, the last step is determining how to scale up the solution to include more SKUs.
The ultimate goal is to get product flowing through the supply chain based on the pull of customer demand. "Overproduction is the worst waste," Martichenko says. The faster goods move through the system, the closer a company gets to making or ordering exactly the product it needs to fill customer orders—and not one bit more.
Redrawing the Map
When executives at Tim Horton's, an Oakville, Ont.-based quick-service restaurant chain, began to look for Lean opportunities several years ago, their first order of business was to get acquainted. Players responsible for purchasing, product introduction, distribution, and other key functions were surprised to learn how little each knew about the roles the others played.
Correcting that gap results in significant payback. "Identifying everyone's function can quickly generate a 10- to 15-percent improvement in communication and productivity," says Tony Soumas, director of supply chain improvement and planning at Tim Horton's.
Through a VSM exercise, the group developed a detailed picture of all the processes that made up the Tim Horton's supply chain. Then they mapped a future state—the way the supply chain would work once they identified and eliminated processes that didn't add value. Their next step was determining how to remove some of that waste.
One area they focused on was product replenishment. At the time, each of the company's five distribution centers managed that process independently.
"This exercise revealed an opportunity to centralize that function," says Soumas, who also serves as a Lean coach for The Leading Edge Group, Toronto. Centralization led to better communication with vendors and, ultimately, greater efficiency.
Since then, Tim Horton's has centralized other supply chain functions as well, creating the organization that Soumas now heads. That group manages product flow and provides essential coordination.
"Whether it's crisis management, or a quick product introduction that has to happen overnight, this core team has the expertise and connections with the rest of the network to make it happen," Soumas says.
As Tim Horton's fine-tuned its supply chain strategies, it developed ways to translate high-level goals into specific improvements in day-to-day work. For example, its high-volume warehouse in Guelph, Ont., implemented a paced production system that matches staffing to customer demand each day. This system ensures there's always just enough labor—not too little, not too much—to do the work required during the shift.
The new approach has proven especially effective in the frozen foods area, which sees the most variable demand. "That's where the opportunity existed to pace the product, so that a set group could operate as a team and manage the rate at which the product had to be picked and processed, regardless of day," Soumas says. Tim Horton's is now working to implement that process in other DCs as well.
Down to the Root
Miami-based third-party logistics provider Ryder System Inc. has ample experience with large-scale Lean initiatives. But Lean practitioners also know the value of projects that zoom in on specific points of waste. Consider the time Ryder worked with a food manufacturer to reduce product damage.
The problem had multiple causes. "Some damage occurred at the manufacturing site, some during transportation, some within the warehouse, some while unloading, and some because the packaging wasn't adequate," recalls Robert Arndt, Ryder's vice president of Lean supply chain solutions.
The first step was to collect data on the types of damage incurred—was the product smashed, crushed, or held past its expiration date?—and where it was identified. "We worked with finance and operations," Arndt says. "We drilled down beyond the numbers, to where the numbers were coming from."
Following the trail backwards, the team identified the root causes of damage, and identified potential solutions that would make the biggest difference. "For instance, maybe we use a process where we shouldn't be double-stacking products, or we should only stack them three high, not four," Arndt says. "Or maybe we have to go back to the packaging department and request a different kind of corner post, because the one we're using isn't strong enough to support the product in that container."
By attacking a widespread problem one root cause at a time, the Lean team can eventually cut damage in half—say, from $20 million annually to $10 million. But the effort doesn't end there. "Maybe a few months later, we'll go back to see if we can get that $10 million in damage down to $5 million," Arndt says.
Maintain the Gain
Any company can focus on a problem area and create a success story. "But if a company really wants to become world-class, it has to maintain those gains and use that success as an opportunity to explore the same area again," Arndt says.
Also, involving front-line employees in Lean initiatives is crucial. Implementing workers' suggestions increases the chance of sustaining the improvements gained.
"Because they do the work every day, and they're part of the team, front-line employees ensure that their ideas stay in place because they didn't come from senior management," Arndt says.
Even if one section of your operation is as lean as a champion greyhound, excess flab in an adjacent function can harm your entire business.
That was the case for one customer of Kenco Group, a Chattanooga-based 3PL. The customer's plant in Chihuahua, Mexico, applied a range of Lean tools to keep components flowing to the production line just as they were needed. And the facility was exceptionally neat. "You could eat off the floor," says Jason Minghini, Kenco's vice president of best practices.
But during a visit to that plant, when Minghini stepped through a gate into the inventory storeroom, he couldn't believe he was still in the same building. Product moved in and out without regard to logical flow, and visual systems to help manage the work were not in place.
"A telltale sign is when you walk through a warehouse and you notice expedite labels on boxes," Minghini says. "And when you open a box, only one or two parts have been removed." Clearly, the plant was wasting money playing a constant game of catch-up.
Parts shortages kept shutting down production. "Up time and on-time delivery rates were low," Minghini says. "And premium freight costs were through the roof."
So Kenco and its customer started applying the same Lean principles to the parts warehouse that were used in production.
Within the enterprise resource planning (ERP) system, they set up an electronic version of a kanban—a visual signal to indicate when it's time to bring in more materials. "As materials were pulled from the warehouse, a replenishment cue was generated and sent to suppliers," Minghini says.
Kenco and the customer worked with suppliers to keep product arriving in a steady stream, rather than in fits and starts, and they reduced the lead time on those orders. They also reorganized the warehouse and added visual management tools.
As a result of those changes, the company increased up time on its production line, cut its use of expedited freight, and boosted on-time deliveries. The improvements spilled over to Kenco's DC in Louisville, Ky., which sends shipments to the manufacturer's customers.
"As we increased on-time delivery at the manufacturing center, on-time delivery from the distribution center improved as well," Minghini says. That, in turn, boosted customer satisfaction.
The Lean principle of standardized work was the focus of a project that supply chain consultant Paul Myerson, managing partner of Logistics Planning Associates, Matawan, N.J., once led for a toy retailer. Standardized work maintains that there is one best way to perform a task. To make sure employees follow this procedure exactly, the employer provides detailed, documented instructions and visual aids.
Standardized work is especially important for reducing waste at the start of a shift. "In any operation, startup usually is slower and workers don't get going as quickly as possible," Myerson says.
Myerson's client wanted to improve productivity on a large DC's loading dock. To achieve that goal, the company needed to provide clear instructions for loading and unloading trucks, and to stage all the equipment exactly where workers needed it.
First, Myerson worked with the company to determine the best way to do the work. Then, team members produced step-by-step instructions in both English and Spanish, illustrated with photos. They also organized the work space to promote efficiency, putting markings on the floor to show the right locations for various equipment and supplies.
"They used mobile desks equipped with everything from a calculator to tape and reports," Myerson says. "Every item was in the same spot on each desk. All the equipment and supplies were there for startup, so unloading was quick and easy, and done the same way every time, no matter who did it."
Once a company implements a standard process, employees must continue to adhere to that standard. But there's no easy answer to how you sustain a Lean practice once it's in place. "It's cultural," Myerson says. "You need top-down support from management, as well as good training for employees."
Some companies designate a Lean coordinator to oversee all Lean activities; others just keep following up to make sure improvements stay in place.
One key is making a serious commitment. "Many U.S. companies look for a home run, and if they don't hit it, they quit," Myerson says. But Lean is an incremental process.
"Companies might only make small improvements at first, but over time they make significant improvements," he adds. "Those are the companies that succeed."
If you want to see Lean in action, look at a NASCAR pit. "When a driver pulls in, the pit crew changes four tires, wipes down the windshield, adds fuel, gives water to the driver, and boom—he's out of there in 11 seconds," says Joe Perillo, senior director of supply chain operations, logistics, and lean enterprise at PTR Baler and Compactor, Philadelphia.
Lately, Perillo and his team have been turning a narrow, cluttered parts warehouse into something more like a pit at a Sprint Cup race, using the Lean tool known as 5S: Sort, Straighten (or Set in Place, or Stabilize), Shine, Standardize, and Sustain.
When workers needed to pull a part from this warehouse for production, they used to spend not 11 seconds, but 45 minutes searching the space and hauling other items out of the way. Workers asked for more help, but what the space really needed was vertical shelving and a good cleanup.
"We had to get rid of unnecessary items, sort through the materials, then identify and put in place a process to maintain the space that way," Perillo says. "Every part has a home, and the cues are visual, so workers know exactly where it goes, by location and by part number."
The 5S team originally chose one method of organization, but after consulting with the material handlers, it shifted some product to different spots. Like Arndt at Ryder, Perillo says it's crucial to include front-line workers in a Lean initiative. "They are the people who are doing the job; they live it every day," he says.
A well-organized warehouse makes better use of available space. "As the company grows, we're not building new buildings; we're using the space we have," Perillo says. Workers can find the parts they need, and if inventory runs low, the gap on the shelf provides a clear visual cue.
The 5S embodies an important principle: "Creativity before capital," says Perillo. Rather than spend $1 million on a new warehouse to store PTR's growing inventory, he and his team pushed to get more use from the existing space.
"We tripled our storage capacity and improved efficiency," he says. "It now takes only 10 minutes to find a part, pull it, and get it out of the building."
Seven Miles of Spaghetti
Another Lean practitioner who likes to tap the wisdom of front-line employees is Charlie Jacobs, director of process improvement at APL Logistics, a global 3PL with U.S. headquarters in Scottsdale, Ariz. "One of the most powerful benefits of Lean is that you're not bringing in experts," he says. Instead, you're teaching the people who work in a process every day to use Lean tools to eliminate waste.
Some years back, a tool called a spaghetti chart helped workers who received and picked product for one APL customer, a motorcycle manufacturer, become vastly more efficient.
"Workers were bumping up against each other," recalls Jacobs. Because the loading dock was cluttered with inbound and outbound freight, employees picking new orders had to line up the bikes in the aisles. When the dock cleared, they'd move the product again to stage it for shipping.
After drawing all their movements on the chart, which looked like snarled strands of pasta, workers saw how much redundant effort they made driving product around the warehouse.
"We don't want workers going back and forth on the same paths," Jacobs says. "We want them to go down each path one time, and that's the only time they make that trip for processing an order or receipt."
Once they realized how knotty the process had become, workers could untangle it. "They moved receiving to another shift, so the dock wasn't always congested," Jacobs says.
They also redesigned workflows to reduce the number of times product stopped in its progress from storage to truck. "Continuous flow improves efficiency and reduces the costs associated with the process," Jacobs says. It also reduces opportunities for errors and delays.
Ultimately, the Lean project saved the operation seven miles of travel per day. That made for a big improvement in time savings and the fuel consumed on the equipment to drive those seven miles.
When employees conduct a project like this, often the solution seems so simple they wonder why they never thought of it before. But when you're working in the thick of things each day, it's hard to see the larger patterns. A Lean project gives employees a chance to step back. "They can look at their operations from a different perspective," Jacobs says.
At manufacturer MACtac, a new piece of equipment made it possible to slim down part of the transportation network.
Based in Stow, Ohio, MACtac makes pressure-sensitive adhesive products used in label printing, packaging, manufacturing, and other industries. Traditionally, bulk adhesives arrived at its plants in tank trucks. But in 2007, supply chain manager Chris Barushak and freight and logistics manager Frank Andrulis decided to try something different—a flexible tank, or "bladder," mounted on a reel inside a standard 52-foot trailer.
Tank trucks create several kinds of waste. "If you're waiting to offload adhesive within a certain time after the arrival, you'll pay demurrage charges," Barushak says. "You'll also have to wash out the tank every time, whether product sticks to the sides or not."
And returning the tanker costs money. "You have to pay for empty miles," he notes.
To confirm that the flexible tank could cut that waste, Barushak and Andrulis mapped the process from end to end. Then they imagined a future state: "If we received product with the flexible tank, how would that process look?" Barushak says.
With one flexible tank, they found that savings would kick in only if the plant took three to four adhesive deliveries per week—no fewer and no more. So they had to apply the new process to an adhesive that MACtac consumed at the right frequency, then smooth out production levels to match that schedule every week.
They also had to find a supplier willing to use the flexible tank. To sweeten the deal, MACtac changed its shipping terms from freight on board (FOB) destination to FOB origin. "If MACtac took responsibility for the adhesive once we loaded it, then we could get a discount," Barushak says.
To make sure the new process would go well, MACtac conducted some 5S projects inside the truck and at the unloading site, then used a Lean tool called Poka-Yoke to error-proof the process. The team also practiced loading and unloading the bladder with water before moving on to adhesive.
Not only did the new process eliminate empty-mile charges for the tank truck, but using a flexible tank helped MACtac win better transportation rates. Once it offloads the adhesive and rolls up the bladder, the company loads the trailer with outbound freight.
"The more round trips we do, the lower the cost," Barushak says. The carrier provides a dedicated team of drivers to make all the deliveries and pick up all the outbound freight.
The first adhesive deliveries using the new process started in 2009. "Over the past three years, we saved more than $750,000," he adds.
Some Lean projects such as MACtac's deliver measurable savings. Some improve key performance indicators. And for some, the best measure of success is a blood pressure cuff: when you eliminate waste, you handle fewer emergencies and suffer much less stress.
The payoff from any one Lean initiative might be modest, like the single pound you lose the first week you give up desserts. But pounds add up, and so do the benefits you gain as you find new ways to trim fat from the supply chain. With a devotion to Lean principles and continuous improvement, a logistics operation can grow slender, powerful, and fast.