Lean Supply Chain and Logistics Management, page 10
Packaging optimization—We work with customers to explore the use of returnable containers for repetitive shipments to factories. For finished goods, we can study packaging sizes to uncover ways to increase pallet and trailer utilization. Small changes in carton sizes can facilitate better storage utilization and lower transportation costs. [www.con-way.com, 2011] Furthermore, Menlo emphasizes the use of mistake-proofing tools such as:
Making it easy to do things right and making it hard to do things wrong
Easy-to-read visual controls
Radio-frequency devices coupled with bar-code technology
System-directed cycle counting at our warehouses
Utilization of Six Sigma and SPC
ISO processes
Electronic data interchange (EDI)
Standardized processes
Implement repeatable, standardized processes
Establish one best way to perform each task
Visual documentation of processes
Correct any activity that causes rework, unnecessary adjustments or returns
Organized workplace (5S) [www.con-way.com, 2011]
All of this results in benefits to their customers such as better service, lower costs, higher availability, higher customer satisfaction, and more reliable deliveries.
This isn’t just “talk” either, as was pointed out by Gary Forger in Menlo Gets Lean. It describes how Menlo Logistics operates a 250,000 facility in Michigan that had recently shipped 8,000 orders in a 2 week period with no errors and according to a recent audit has inventory accuracy of 99.99 percent.
This site was the “pilot” site for their Lean program (along with a dozen other Lean warehouses at the time) with a goal to reduce the cycle time and increase productivity of various resources by eliminating waste. Menlo focuses their metrics on service, quality, delivery, cost, and employee morale. Warehouse operators work in 20-minute segments or small “batches” similar to what was mentioned earlier in this chapter. That maximizes flexibility and allows labor to help minimize response time to orders.
Items are slotted according to size and velocity, and workers are assigned certain aisles to keep neat and organized (and must sign off on a checklist).
Team leaders “own” their processes, supervisors and managers remove “road blocks,” and bonuses of hourly team members are tied to metrics and improved processes (a real key to success, I believe). Besides weekly departmental meetings to discuss performance and improvement, every month a kaizen event is held in which as many as six workers concentrate on improving an operation. [Forger, 2005]
Peter Bradley in “The Skinny on Lean” stated that “Menlo Worldwide reports that warehouse productivity improved 32 percent between January and November last year, measured by gains in lines per hour. Defects, measured as the error rate, dropped by a whopping 44 percent. The on-time percentage for shipments was north of 99 percent in every one of those months, hitting 100 percent in eight of 11 months. And those involved think they can do more.” [Bradley, 2006]
Another major 3PL player, Ryder Logistics, highlights their “Five LEAN Guiding Principles” on their Web site (www.ryder.com), which “provide the foundation for operation excellence, continuous improvement and supply chain efficiency.” The guiding principles are: people involvement, built-in quality, standardization, short lead time, and continuous improvement.
Ryder also mentions using a variety of Lean tools in their business, such as workplace organization, visual management, work cells, standardized work and even a Lean Academy. They not only include Lean applications in the warehouse operations, but start with determining the optimal distribution network design, which can significantly reduce waste in the overall supply chain network. They take this very seriously.
A Ryder case at the site describing how they took over Whirlpool’s service operation shows how continuous improvement activities reduced costs, improved shipment accuracy and order cycle time, and boosted overall efficiency. The first thing they determined was that it was more efficient to consolidate Whirlpool’s various service facilities into one location. After that, they implemented a variety of continuous improvement efforts, including the creation of an inventory profile that identified the best storage location for each part to improve efficiency of order picking, improved workflow processes leading to more efficient use of labor, and collaboratively enhanced the existing WMS system that enabled them to streamline the operation further.
Ryder then keeps track of five key performance indicators (KPIs) on a monthly basis (the first four of which are also measures of waste): shipment accuracy, inventory accuracy, order fill rates, order cycle times, and budget performance. [www.ryder.com, 2011]
The point of these examples is to show that not only is the warehouse an ideal place to start a Lean supply chain and logistics journey, but that it can give you real results and a competitive advantage in the marketplace.
CHAPTER 9
Lean Global Supply Chain and Logistics: The Long and Winding Road
The trend in global outsourcing, which started in the 1980s and continues today, has made our supply chains much more complex and challenging. There are, of course, other reasons to globalize, such as private labeling strategies or to take advantage of the rise of business and consumer markets in China, India, and other markets around the world. All of this adds time and distance to your supply chain, which can result in higher cost, complexity, and risk.
The risks can be economic (the “great recession”), environmental (oil prices, earthquakes, and tsunamis), or political (war, revolts, and trade barriers) and, as a result, you can understand that there might also be opportunities for a leaner and more agile supply chain and logistics process.
The Logistics of a Global Supply Chain
In fact, an IBM Global Services white paper, “Five Reasons Why Global Logistics Is Moving from the Basement to the Boardroom,” found that as global sourcing has become more prevalent, logistics planning, specifically on a global scale, has risen in importance. As a result, executives look to international logistics to gain a strategic competitive advantage and also to obtain value—both areas where Lean can help. The white paper points out that executives have noticed and now focus on inventory, working capital, service, and Lean Manufacturing issues. The “five reasons” given for global logistics increasing importance are:
1. Managing rising logistics costs—at 10 percent of total costs now, and as they increase, they diminish some of the advantages of global sourcing.
2. Lean Manufacturing—logistics must support the goals of a Lean Manufacturing program. While inventories have decreased as a result of Lean, the longer lead times and transit times of global sourcing put added pressure on the logistics function to also be agile and Lean.
3. Operating as an on-demand business—as more companies move to a “mass customization” requiring a very flexible, collaborative type of approach, the logistics operations must follow suit.
4. Cross-functional sourcing decisions—the increase in global sourcing and outsourcing requires detailed logistics information. Changing a vendor or manufacturing location has potential huge impacts on logistics cost and performance. The same can be said about tapping into new markets.
5. Supply chain management—detailed, timely, and accurate information is needed to make the right transactional, planning, and scheduling decisions for all areas of the business. This information includes access to optimized logistics costs, predictable delivery times, visibility, carrier performance, and automated data and analytics. Many times, companies ship via air freight thinking they will get better transit times for premium shipping fees. However, delays in customs or other areas can reduce or eliminate the benefits of premium air freight services. You need to look at the entire journey as one “value stream” to help make the best decisions for your company. [Taylor, 2006]
All of these areas can be better managed and improved using Lean concepts.
Value Stream Mapping to Identify Waste
As we know, the supply chain is a global network that is used to deliver products and services from raw materials to end customers through the flow of information and physical distribution, and as a result, there are plenty of opportunities to identify wastes. The most efficient way to identify these wastes is by VSM. But where are the best places to look for waste in global supply chain and logistics process?
Areas of Potential Waste in the Global Supply Chain and Logistics Network
Transportation and inventory play vital roles in domestic and international supply chain management. Transportation cost can be drastically reduced if the frequencies of transportation are reduced or minimized. In most systems, transportation costs are volume dependent and by utilizing efficiently the trucks’ capacities, transportation costs are minimized. Economies of scale will result from system-wide safety stock being reduced whenever decentralized inventories are centralized into fewer locations. As previously pointed out, inventory levels are often the cause of increased costs and cover waste in companies.
When dealing with global logistics, an extraordinary number of parties are involved in the process. They can include customs, freight forwarders, banks, ports, transportation (rail, truck, and ocean), etc.
As there can be as many as 15 parties or more involved, the collection of data for a value stream map can be quite a challenge. Tom Craig, president of LTD Management (www.ltdmgmt.com), points out in his article “International Lean Logistics—Beyond the Four Walls” that, “a supplier in Shanghai whose key component comes from Thailand must participate actively in the mapping since all this is part of the process. This is not an option. or look at a customs broker who does not directly touch the product or the shipping container. He acts with the information and documentation to facilitate the movement of the product. But the linkage among the importer, customs broker, ocean carrier/air forwarder and delivering rail or trucker can create waste, by adding times and by stopping product flow.”
Mr. Craig demonstrates in his “current state” value stream map of a typical international logistics move (Fig. 9.1), that the entire cycle can take up to 126 days when including the demand planning, supplier, and logistics performance functions and that, in many cases, companies tend to push most of the waste onto third parties. It takes real collaboration to reduce this waste.
Figure 9.1 International logistics current state value stream map.
A thorough analysis points out areas of potential waste in all areas of the current process such as the fact that:
…more than 25% of purchase orders are not shipped as planned or are not delivered as planned. This significant statistic presents a real opportunity to reduce waste. Supplier performance and supplier lead times are important areas for potential waste reduction and process improvement.
Also, the distribution network may be outdated. It may have been built years before with different store or customer configurations, different products, and other topics. It may have been built when the focus was on storing inventory in warehouses, unlike now when inventory velocity is emphasized. Touching the product to store it often adds only time—a waste result, not value (see map at bottom of facing page).
Bypassing warehouses with cross dock or other transfer facilities at ports can remove time and inventory. Supply chain execution technology can give visibility from the purchase order through to delivery order. It can provide the way to allocate product in transit. Making this part of the new process reduces two key wastes—time and inventory.
Global supply chain management has significant “built-in” time because of the distance involved. This runs counter to domestic supply chains. The extended time can, in turn, create uncertainty and the need for many companies to build and carry additional inventories. Yet time and inventory are two areas of waste for lean to improve. So, Lean international logistics faces an additional challenge because of its inherent scope and the impact throughout the supply chain, especially within the company.
As a result of this type of analysis and collaboration, the global supply chain can be looked at as one process, not many different ones (i.e., purchasing, transportation, customs broker, freight forwarders, etc.) to ensure proper flow and minimal waste. In the previous example, the total cycle time can be reduced to as little as 97 days through applying Lean concepts (see Fig. 9.2). [Craig, 2011]
Figure 9.2 International logistics future state value stream map.
The use of simulation tools in conjunction with VSM can also help identify gaps between expectations and potential outcomes before implementation.
Areas to Reduce Waste
A 2006 survey from McKinsey and the U.S. Chamber of Commerce of Western companies importing products from China entitled “The Challenges in Chinese Procurement” found that the most of respondents felt that they were behind their competitors in such outsourcing areas as quality, sourcing cycle time, and other key supply chain metrics. [Hexter and Narayanan, 2006]
So that leads to the question of why this occurs. According to a 2006 Supply Chain Digest white paper entitled “The 10 Keys to Global Logistics Excellence,” there is a tendency to overestimate the savings in the first place or perhaps the savings were lost because of poor execution. [www.scdigest.com, 2006]
The cost could be miscalculated because of a number of things, including higher-than-anticipated transportation costs or more buffer inventory required because of longer replenishment times.
Poor execution can easily occur in the world of global logistics. The expertise required to handle the various languages, currencies, duties, tariffs, etc. can be overwhelming for even someone with a lot of experience in this area. Lack of appropriate technology can also be a detriment in this area.
Keys to Global Logistics Excellence
Most if not all of the 10 keys to global logistics excellence mentioned in the 2006 Supply Chain Digest white paper pertain to Lean and should be considered when looking for waste in this area. They are:
1. Total delivered cost management—There are a plethora of logistics costs when sourcing and shipping globally. They include domestic and international transportation and distribution costs by product and route. You also need to include duties, tariffs, and other customs costs. Having automated systems to track and measure performance this information helps, of course.
2. Global logistics process automation—The more automation the better, especially in terms of visibility. Also, a lack of automation results in too much time being spent on manual activities instead of planning. Global logistics execution is complex with as many as 25+ handoffs in one shipment with multiple parties. Many ERP and logistics systems do not support global logistics as well as is required by the users.
3. End-to-end visibility—Global visibility and event notification are critical to minimizing waste in your supply chain. This is not only useful for tracking but also spotting and reacting efficiently to exceptions. Timeliness and accuracy are extremely important when managing your global supply chain. Examples include EDI with ocean carriers, web portals to 3PL providers, and custom brokers. This allows companies to make the most of their internal labor and other global overhead resources while being in control of their outsourced global supply chain.
4. Supplier portals and advance ship notice (ASN) capabilities—Even though you may have adequate transportation visibility, you may still be lacking the status at the foreign factory or the details of what is on each container. That is where ASNs and supplier portals help you to get early notification for this type of information, thus giving the incoming distribution center advance notice and helping to plan inventory better (and thus reduce waste). Many companies still receive this information via fax, and in many cases they cannot be 100 percent sure of accuracy until opening the container.
5. Total product identification and regulatory compliance—Security, import/export restrictions, customs, and other safety and regulatory requirements hinder the continuous flow of the global supply chain both slowing and adding cost to it. Technology can assist in this area, such as the use of RFID systems and software that works with denied screening and other regulatory requirements.
6. Dynamic routing—Even on repeated routes, for both cost and agility, shippers now look for different combinations of carriers, routes, and freight forwarders similar to how it has been done domestically for years. They not only get lower rates, but can have a more agile supply chain with more dynamic alternatives (such as direct ship, drop ship, cross dock, etc.). This can also lessen risk, such as the recent earthquake and tsunami in Japan in which it would have been ideal to have a backup supplier of semiconductors with all the logistics costs and processes known in advance.
7. Variability management—As we know, variability is a contributor to waste and has a huge impact on both inventory and customer service, and in the area of international delivery times, it is even more prevalent. By using performance measurements and tools, such as root cause analysis, supply chain managers can attempt to minimize the variability for better, more predictable global supply chain and logistics performance.
8. Integrated international and domestic workflow—Until recently, there were not transportation management systems (TMS) that integrated domestic and international logistics, almost forcing companies to look at them as two separate shipments. There is still a lot of room for improvement on this front, that will eventually allow for more centralized international logistics similar to what has existed on the domestic side for years.
