Lean in Distribution (Part 1 of 3): Lean Principles
Imagine a distributorship in which all employees took responsibility for improving the business. A business that continuously worked at eliminating waste and, more importantly, satisfying customers each day. Technology linked into business processes to simplify, automate and implement strategic goals management.
Lean can be the vehicle to unlock profitability, growth, and customer and employee satisfaction for distributors. It is a collection of simple, easy-to-understand concepts that can be applied by any size distributor. Lean is not just a tool, but instead, a culture, philosophy, process and methodology. In its simplest form, it means turning waste into value. More importantly, it involves getting employees thinking and motivated to make processes better. Lean analyzes end-to-end processes and determines how to deliver more to the customer with much less.
Typical improved results from lean distribution include:
- Increased profits
- Higher sales revenues
- Improved delivery performance
- Lower operating costs
- Better customer satisfaction
- Better supplier relations
- Decreased purchasing costs
- Shorter lead times
- Inventory reductions
- Higher inventory turns
- Increased working capital for new projects
- Increased space capacity
- Greater employee morale
Implementing lean requires clarity of principles, so that all decisions made by the distributor favor a lean value stream. Let’s discuss the five lean principles as laid out by Womack and Jones in the book Lean Thinking, and how they fit into distribution.
Value – This involves identifying what customers see as value. For distributors, the value that they provide is having the right items, at the right time (often now), at the right price. Increasing anything that customers see as important will increase value. For example, if a distributor added an extra morning delivery, customers may see that as value because they may be receiving their items faster ‒ which could be a competitive advantage over other distributors.
Value Stream – The value stream includes the activities that a customer would be willing to pay for. For example, picking, packing or order entry are parts of a distributor’s value stream. The value stream is important because it can identify potential waste. The most common and powerful tool for identifying value in processes is a “value stream map.”
Flow – Flow is a logical but slightly less relevant concept for distribution. Flow really refers to continuous flow in very small, or ideally, single piece flow ‒ which means in general, batching should be avoided when possible. A lean flow means orders should be received, picked, packed and shipped all day long, as opposed to having large batches of picks, items for packing and single large shipments. In general, a lean distribution flow would purchase smaller quantities, and receive, put away, pick, pack and ship with such efficiency that batching does not save significant time.
Pull – Pull is a simple but key concept for distribution and supply chain management, outlining how distributors need to plan their inventory and order processing. Pull refers to actual customer usage and replenishing exactly what was ordered by customers. This stands in contrast to most push-type forecasting models. Obviously, this can be problematic with minimum buys, quantity discounts and relatively inexpensive items. Inventory levels, safety stock or buffer stock are reviewed periodically (about every 3-6 months) but, except in rare instances, not changed by actual usage until the regular review cycle.
Perfection – Perfection refers to driving waste out of every process and meeting customer expectations in every way. Perfection is elimination of mistakes in every shipment. It would equate to zero late orders, and having every item that customers need, at a price they are happy with, in stock. Obviously, it is not attainable on every order, but it should be the goal of every distributor. Trying to achieve perfection requires metrics to track the journey, such as fill rates, shipping performance to customer promise dates, wrong shipments and lost orders.
Lean is a never-ending journey ‒ it gets better, but no business can ever be completely lean. Lean becomes a way of life, striving for perfection in every process, customer order, and dollar invested in the business. In our next blog, we’ll discuss tools that can be applied in this journey toward lean.
Posted by Stuart Maxel, Continuous Improvement Manager at Epicor Software Corporation