Lean: Winning Strategies for Cutting Waste
With Lean tools and processes at your command, you're well on your way to gobbling waste from your supply chain operations. Wakka wakka!
Imagine a supply chain working in absolute harmony, with the perfect amount of raw materials arriving on the factory floor just in time to make the exact number of products needed to meet customer demand. Finished materials are then swiftly transported to their final destinations without wasted time spent idling along the way.
Engaged employees oversee the entire process, eyes peeled for inefficiencies needing to be addressed, because continuous improvement—as opposed to one-time process changes—is integral to Lean success. If workers spot any waste, they chase it down and obliterate it.
This ideal scenario may be difficult to achieve, but companies operating by Lean principles work toward it daily. Lean's roots lie in manufacturing, with Toyota pioneering the idea in the 1950s. The philosophy has spread into supply chain management, transforming companies along the way. The changes often result in smaller batch sizes, more communication internally and with suppliers, and increased adaptability to market conditions.
"Lean is all about eliminating waste," says Eric Lail, vice president of client services and continuous improvement for Transportation Insight, a third-party logistics (3PL) provider based in Hickory, N.C. Specifically, Lean highlights seven areas of waste—defects, overproduction, transportation, waiting, inventory, motion, and processing.
Consider Rotary Corporation, a Glennville, Ga.-based manufacturer and distributor of outdoor power equipment components that sought Transportation Insight's help to trim excess. The company adopted Lean principles, changed its manufacturing process, and reduced lead times by 60 percent, among other improvements.
The change was initiated after Rotary's leadership completed a value stream map, a flow chart frequently used in Lean to visualize a company's processes and identify inefficiencies.
The map uncovered significant time wastes in the company's batch processing, which delayed quality control until the end of each process, leaving workers to sift through entire batches while checking for defects. Rotary switched to one-piece flow, allowing workers to catch defects much sooner, and reducing rework.
To sustain its efforts, Rotary hired Lean coordinators to oversee distribution and manufacturing. The positionsare integral for continued success. "Once the value stream map is completed, it becomes the improvement plan; it's just a question of how deeply to dig into each process," says Donald Fountain, vice president of operations for Rotary.
Carmakers Drive Lean Success
Lean's main philosophy guiding process change involves just-in-time operations—making only the type of product needed at the time it's needed, in the amount needed.
The automotive industry perfected these ideals with its just-in-sequence system, says Michel Baudin, a Palo Alto, Calif.-based Lean consultant and author. If Toyota needs a white Corolla with beige seats, for example, it begins building the car and, at the same time, notifies its supplier of the need for beige seats in, say, 220 minutes. The seat supplier starts making the seats, then delivers them to the Toyota plant precisely when they're needed for installation.
Although this method works exceptionally well in the automotive industry, others could also apply it, Baudin says. Achieving such seamless production requires coordinating with suppliers, treating them as partners, and sharing as much information as possible.
"This kind of collaboration implies mutual commitment," Baudin says. Companies that attempt to strong-arm suppliers into making changes will likely be disappointed. Instead, Baudin recommends approaching the partnership as a long-term business relationship, talking to vendors about why changes are necessary, and showing them alterations the company has made internally.
"When you want to work upward in the supply chain, you need some significant achievements of your own," Baudin says. "Otherwise, you can't demonstrate your commitment."
Despite Lean's focus on producing what is needed at any given time, forecasting is integral to reaching that ideal. "Some analysts say Lean does not involve forecasting, but that's untrue," Baudin says. "It involves different levels of forecasting. The question is what decisions you make with that data."
Products might not be manufactured on medium-range forecasts, but companies should give suppliers all the information they have, Baudin says. That way, for example, if business expands, suppliers can adjust shift patterns, hire more people, or buy additional raw materials.
"Gradually, as the term draws near, forecasts become more specific," Baudin adds, with production beginning as late as possible to reach the just-in-time ideal.
Properly zoning and slotting incoming items for storage and retrieval inside a plant is another important factor in efficient manufacturing. Baudin advocates categorizing materials into one of three categories—runners, repeaters, and strangers—before assigning storage locations.
Runners are items used so frequently that products can't be built without them. They are a warehouse's permanent residents, and occupy dedicated, easily accessible spaces close to production.
Repeaters are like hotel guests—welcomed regularly enough to be managed on a replenishment basis, and given accommodations in the warehouse, but not the same space every time.
Strangers are items that show up occasionally for special orders. They visit the warehouse sporadically, and are not assigned special spaces.
For a plastics company Baudin worked with, repeaters included pellets and resins. As the company's team walked through the manufacturing process, they realized these key components were stored in hard-to-reach upper shelves on a pallet rack, while the bottom level was full of brooms and other cleaning equipment not central to production.
Each time the manufacturing line needed replenishing, a specially trained worker had to use a forklift to move the pellets and resins down to the lower level. By permanently moving the raw materials to the lower level, production operators could move the materials with an ordinary pallet jack.
"It was a simple solution," Baudin says.
For the plastics company, changing material locations made a difference in other ways. The company had a rule:receive all materials on one side of the facility, and ship from the other side.
In addition to selling items produced in-house, the company also sold finished products manufactured by other companies. The blanket in-one-end, out-the-other rule resulted in finished products dropped off on the receiving end, unnecessarily moved by workers through the facility, and delivered to the shipping side.
To make the process more efficient, the company changed its rules so finished products were delivered on the outbound side of the facility.
Efficient process flows are important for creating Lean warehouses. At Rotary Corporation, changing the path pickers took through the warehouse ultimately boosted productivity by 33 percent. To evaluate the flow, managers used a spaghetti diagram to analyze the existing path and the proposed new one.
"Imagine how spaghetti looks on a plate," says Lail, the company's consultant, referring to a diagram that uses lines to represent worker movements through the warehouse. Once managers understood the paths taken, they began to identify a more efficient route.
Tried and Tested
To compare the existing route to the proposed one, managers followed pickers through the warehouse, timing them. Then, management showed the data to the pickers, demonstrating how much time the new path saved. "If we explain the reasoning behind our decisions, we get greater employee buy-in," says Ric Schreihofer, Lean manufacturing coordinator at Duramatic, Rotary's manufacturing arm.
Other Lean warehousing solutions involve ensuring space is used as efficiently as possible. Rotary, for example, held a kaizen event in its packaging area. A Lean tool that promotes continuous improvement, kaizen events are designed to evaluate a specific issue and find a solution.
During Rotary's packaging kaizen event, managers asked workers if they used the objects stored in a particular area, only to find out the items hadn't been used in years.
"I assumed employees were using them," admits Josh Powell, distribution Lean coordinator for Rotary. Even though he walked by that area every day, he did not question the items because they were ingrained in the routine.
By reorganizing tables and shelving, the company freed 3,200 square feet, creating an area for staging materials and completing other, more valuable tasks.
Lean initiatives frequently involve reduction—saving time and resources—but the philosophy ultimately promotes growth. "Lean is about freeing up resources so you can do more with what you have," Lail says. "Lean tools and systems represent about 30 percent of a successful Lean operation. The other 70 percent is culture."
To sustain all its Lean improvements, Rotary implemented monthly evaluations for each shift and department to review safety, quality, delivery time, and cost. The evaluations are part of a special Lean support method called 5S: Sort, Straighten, Shine, Standardize, and Sustain.
Sort requires that only items currently needed for production be located in the workspace. Straighten posits that all items should be labeled and easily accessible, while Shine dictates that all items and areas be clean. Standardize encourages companies to establish protocols, while Sustain recognizes that steps must be taken to ensure improvements stick.
"Many companies don't realize what an opportunity they have to improve processes, because they run the same business every day," says Steve Hopper, a Lean consultant in Atlanta.
Standardizing flow and labor procedures is critical to a Lean operation. Companies can increase productivity by up to 20 percent through adopting labor standards, Hopper says. Labor, along with inventory, are the biggest cost drivers in warehousing. The two areas must work in concert to reap the benefits of Lean, he adds.
Warehouse managers sometimes don't have control over key factors, such as the amount of inventory they must store. "Look at what you can control," Hopper says, such as efficient ways of managing the inventory on hand, and the labor used to receive and pick it.
"Optimizing inventory often means aligning with other areas of the organization," he notes.
For example, a consumer electronics company Hopper worked with wanted to build a new distribution center because its existing facility had reached capacity. "In one area of the facility, multiple aisles were stocked with the same widescreen TV," Hopper says. "I asked why they were keeping so much product there."
The company told Hopper the TV purchase was an opportunity buy—a chance to acquire a large quantity of product at a discounted rate. "We have to store the product until we're ready to sell it," the company told Hopper. Companies can avoid this type of scenario by establishing methods for different divisions to communicate.
In this case, the conversation would have revealed the impact of the opportunity buy—maxing out warehouse capacity—and led to an informed discussion about its true cost. "If the distribution and buying organizations aren't in synch, they sometimes make the wrong decisions," Hopper says.
Smoother Sailing with Lean
Hopper also cites a cruise line that was experiencing capacity issues in its receiving area. About 40 percent of the month's total inventory receipts were arriving in the same week. Looking deeper, the company discovered that the first week of each month bore the brunt of capacity issues because the budget for each department—hotel, entertainment, and food and beverage—operated on the same schedule, resulting in synchronized buying times. "The divisions were siloed," Hopper says. "No one talked to each other."
By staggering buying times for each department, the cruise line leveled out its receipts, and avoided maxing out receiving capacity.
Calculating how much inventory or material to purchase is also key to Lean operations. One Lean approach is kanban—a stock replenishment method inspired by supermarkets, and first used by Toyota in manufacturing. Kanban involves buying and storing only what companies believe will sell.
An equation for calculating reorder times involves multiplying lead time by usage, then adding the safety factor. This method works particularly well for companies with a wide variety of merchandise and lead times, Lail says.
Consider bread in a home pantry. Count how much bread is typically consumed in one week—perhaps one loaf. The lead time would be the amount of time it takes to replace the loaf of bread—in this case, the number of minutes needed to drive to the store, purchase a new loaf, and drive home.
The safety factor, a measure of reliability, is designed to insulate replenishment from customers' varying order patterns. So, someone might purchase a new loaf of bread when two slices are left in the pantry to ensure the product is replenished in time.
To create a trigger for replenishment, a company might create a card with two slices of bread pictured, and incorporate the simple reminder into the standards of operation contained in its 5S program. "This approach involves applying the principles in a simple way so the user knows exactly what to do," Lail says.
Kanban helps companies trim the quantities it purchases while avoiding the worry of running out. To avoid waste, companies employing Lean principles typically buy fewer products and materials. "Lean principles connect companies to customer demand as closely as possible to eliminate the waste of inventory," says Robert Martichenko, chief executive officer of LeanCor, a Florence, Ky.-based 3PL.
In addition to quantity, purchasing decisions should consider total logistics costs—such as transportation—not just unit cost, Martichenko adds. Despite a global economy that has for decades led companies to purchase materials and labor in lower-cost countries, Lean principles encourage companies to evaluate their supply chain in totality.
Although materials may cost less in another country, the expense of shipping them, in addition to the lead time added by waiting for goods to arrive, must be considered to make the best decisions.
"If a company is going to sell to the Chinese market, it should build in China," Martichenko says. If companies applying Lean principles plan to sell in the United States, they should build and acquire materials domestically for maximum efficiency.
Transportation marks another area that requires a broader view for companies wanting to adopt Lean principles. "There's a misconception that transportation companies are a commodity. That's not true," Martichenko says. "The real measure of a trucking company is executing the plan." That means arriving at promised times, offering robust shipment tracking, and providing notice about transit interruptions.
"The strategy of beating up transportation providers to get lower rates doesn't work long-term," Martichenko says. Instead, Lean values solid, long-term partnerships with providers, including carriers.
Ironing Out the Overlap
Increasing demands on transportation, such as driver and capacity shortages, make good planning even more critical. Establishing dedicated routes, as opposed to random schedules, supports Lean transportation goals.
With materials moving all over the world, arriving to and departing from distribution centers and factories, companies in search of a Lean supply chain should recognize the abundant waste that occurs where supply chain functions overlap. "Waste doesn't necessarily exist inside each function; it exists at the interfaces," Martichenko says. "Variability breeds inefficiency."
Some companies find integrated software systems help manage overlapping areas of the supply chain. "Every hand-off has the potential to be a fumble," says Adam Kline, director of product management for Manhattan Associates, an Atlanta-based supply chain software company. "Every time one system hands off to another system, information may be lost."
One beverage manufacturer that Manhattan Associates worked with adopted a seamless technology platform linking its transportation, warehousing, labor, and yard management systems. In practice, before a trailer even enters the yard, algorithms have pre-selected the orders the truck will carry away.
The algorithm considers factors including order profile, trailer capacity, origin and destination pair, along with opportunities for consolidation. The factors are evaluated against the goals of reducing mileage and limiting fuel costs.
Once the trailer enters the yard, the warehouse management system alerts workers, who begin picking the appropriate orders. "The outbound pallets merge with the trailer at the door, enabling a just-in-time, fluid loading process," Kline says. "Workers don't have to pick up a walkie-talkie. The process is system-driven within the Manhattan Associates application through data sharing."
Because the sheer act of transporting goods is considered a waste in Lean, "anything that reduces transportation costs ultimately makes the supply chain more lean," Kline says.
Technology can make processes more efficient, but managing culture and people is an integral part of a Lean supply chain. "Lean is not a destination, and it's not just an activity," says Mike Buseman, chief global logistics and operations officer at Avnet, a Phoenix-based electronics distributor and logistics provider. "Lean never ends; it is part of an ongoing journey toward operational excellence."
Sustaining Lean initiatives is critical because even good processes become less efficient over time. Today's solutions might not work for tomorrow's problems, and companies that continually seek improvement will have the best success with Lean.
At Avnet, the Lean culture incorporates events ranging from daily quick wins to periodic overhauls that revisit the value stream maps and reimagine operations issues.
"Quick wins happen all the time," Buseman says. They're those small adjustments employees make daily to work more efficiently. Teaching employees Lean principles, and empowering them to make those changes, is part of Avnet's culture.
"Avnet employs 20,000 team members worldwide," Buseman says. "If those 20,000 people feel compelled and empowered to contribute to Lean efforts, that's where the magic starts."
With your team onboard and a clear understanding of Lean tools, you're well on your way to banishing waste from your operations.