Paging Dr. Lean: Prescriptions for Efficiency, Speed and Lower Spend

In the Paging Dr. Lean series, Patricia E. Moody asks lean experts to answer your lean questions. This forum allows industry leaders to speak to the lean issues or questions you come across each day.

Dear Dr. Lean:

My back hurts and my arms are numb. I work as a logistics supervisor in an old-school operation. We do a lot of expedites, premium shipments, workarounds, and heavy lifting but somehow we manage to always make our quarterly ship goals. I just don't think we can go much longer doing it this way.

Our company makes premium snack foods — we mostly ship in the United States but we've picked up some global customers too. I have a feeling there is a better way to manage shipping. We could do some lean kaizen events to pick the low-hanging fruit, but I'd like to understand when my guys are unnecessarily costing us money by not being a little more flexible with our requirements. And we want to stop jerking around our shipping providers.

Can you help us?

Very truly yours,
Sore and Tired in Westboro, MA

Dear Sore and Tired:

I can certainly sympathize with you. Shipping is usually the last line of defense when servicing the customer. I agree, meeting monthly and quarterly sales goals does not always equate to the most favorable P&L. If you are hitting your numbers through brute force, then you are experiencing unpredictability and inefficiency in your processes that can be costly to your business. Symptoms of such a problem are exactly what you have described: expediting, workarounds and premium shipments. Although these symptoms are at times unavoidable in a manufacturing environment, they should be the exception and not the rule. In order to ease your pain, I would prescribe the following “lean” remedy that needs to occur upstream in your business processes.

The most common root cause of unpredictability and inefficiency is a lack of planning and, secondly, visibility to the plan. How does one eliminate unpredictability? It’s quite simple: You need a plan! A tool that facilitates effective planning is Sales & Operations Planning or S&OP. S&OP is an integrated business planning process led by senior management to collaboratively develop a single operating plan. The S&OP plan can be created by aggregating current sales orders in your ERP system and sales projections to meet the sales profit plan. You can start putting this plan together in Excel then evolve to something more sophisticated. Done correctly, S&OP will govern all activities within the enterprise while stabilizing flow and optimizing your shipping process.

From the S&OP plan, weekly production plans should be derived and developed around your constraint areas by program or product line. The plan level-loads demand, which can then be visually managed in a Kanban replenishment system at the finished goods level and/or a heijunka box/board to schedule the shop floor. The Kanban and heijunka board will then become your key performing indicators (KPIs) that can be shared and tracked daily to measure schedule attainment during your gemba walk.

Lastly, the S&OP and weekly production plans should be loaded into your ERP system to drive material demand. Procurement will then have visibility to production requirements and work with the supply base to support the plan.

Operations including Shipping can then plan and flex their workload and workforce with greater confidence. Finished goods will be available as needed for Shipping to fill orders and ship. With finished goods on the shelf and visibility to the S&OP plan, you can establish a milk run with your carriers to pick up and deliver products to your domestic customers or ship via consolidated shipments to your global customers. The need to expedite, pay premium shipment fees or do workarounds will begin to diminish and eventually go away.

But most importantly, all functions are now working toward a common goal of manufacturing quality parts on-time every week, which makes for happy customers and causes less stress to you and your team.

Very truly yours,
Aily Nguyen
Global Director of Supply Chain and Strategic Sourcing
KAMAN Composites

Aily Nguyen is global director of supply chain and strategic sourcing for KAMAN Composites, a division of KAMAN Aerospace in Bloomfield, CT. She was previously site manager of supply chain at ITT Power Solutions in West Springfield, MA, a division of Geospatial Systems; lean logistics manager at SARGENT Manufacturing, a division of ASSA ABLOY in New Haven, CT; strategic supply chain manager for Gems Sensors and Controls, a division of lean pioneer Danaher Corp and various Operations roles at Orquest Inc, Xoma LLC and Nidec America Corporation.

Dear Sore and Tired:

Your hunch is right — the key to saving your sanity and budget is to get in sync with your carriers. Let's imagine ourselves in their position and see if we can align their interests with yours so that everyone is better off.

First, what do carriers want?

For carriers, the key to making money is asset utilization. If their trucks and drivers are sitting for too long or driving too many empty miles, they're not making money. No reasonable amount of extra volume or price premium can make up for idle assets.

So, the key to being an efficient shipper is to help carriers maximize their asset utilization. But how?

Here are three actions to consider that should help:

1. Utilize the spot market for a larger portion of your freight.

The spot market is the business that moves with carriers on contracts/prices that apply only to a single load. The contract market is the business that moves on pricing tied to longer term contracts. Except for very regular freight that moves with a predictable cadence in predictable lanes, most loads can be more efficiently moved on the spot market. The reason is that it's easier to find a carrier that happens to be where you need them when you need them and interested in going where you want them to go than it is to find a carrier in advance that knows that they'll want that type of load sometimes. While most shippers will need to use brokers to reach the spot market, broker markups have come down significantly, making them a much better option. Plus, websites like ours (http://buytruckload.com) provide instant rate quotes that make it much easier to shop for spot capacity than it used to be. We "guess" at what it will cost us to move a load on the spot market and set our prices based on that. No matter what it actually costs us, the customer gets the price that we offered.

2. Be flexible on pickup and delivery dates, especially for partial truckload quantities.

The more rigid your timing requirements, the more likely it is that a carrier will need to layover their truck at origin, destination or both. When that happens, or even when the carrier thinks that it may happen, your price goes up. While there are good reasons to want to schedule stops, just use common sense. If you can find a way to be flexible, it'll help you. You're paying a lot for timing certainty.

3. Increase the number of carriers that you deal with, both directly and through brokers.

The right number of carriers to deal with is more than the current number that you're buying from. Both directly and through brokers, increase your supply base to reduce your costs. The administrative benefits that come from concentrating your spend with relatively few carriers are more than offset by the savings that come from a larger carrier base and dealing with brokers for the right portion of your spend.

Sincerely,
Sean Devine
Co-owner
buytruckload.com and Partage

Sean Devine was vice president of strategy and transportation purchasing at Echo Global Logistics, vice president of pricing and engineering at Con-way Freight, vice president of enterprise engineering at Con-way, vice president of consulting at Emptoris (now IBM) and vice president of products and services at CombinetNet. Connect with him on LinkedIn or send an email to seandevine@gopartage.com.
 

Dear Sore and Tired:

Your situation sounds like that of a great many manufacturers that have a clinical condition known as “Quarter-end-goalitis.” This horrible disease has been driving non-value added spending across many industries for a very long time. The key question to consider in this situation would be: “Is my organization’s ability to deliver rapid quarter-end deliveries valuable to our customers?” In some cases, this differentiation is a key function of the company, and if this is so, the operations processes need to be designed to respond to that demand without straining capabilities or supplier relationships. The more likely case is that this rush to deliver quarter-end results stems from your company’s own internal goals.

To really lick this one, it’s going to take a whole lot more than just us supply-chain types. The issue may span the whole company, potentially getting its start in the executive wing, with finance and sales goals being driven close behind. The key here is to understand the true cost of the activities associated with the quarter-end surge as it relates to your area and then expand from there.

Expedited shipping and workarounds deliver a blow directly to the company’s bottom line. I’m sure you’ll be able to get the attention of your management by gathering some key statistics, such as:

• How much extra does it cost to expedite a shipment and at what frequency are they occurring?
• What are the workarounds and how do they reduce overall shipping efficiency?
• What does shipping staffing look like at quarter end versus an average day?
• What impact does the reliance on premium shipments and short notice changes have on your relationship with your shipping providers? Are you paying higher rates? Wearing out your welcome?

If possible, try to engage multiple levels of the organization or get access to someone who can. It is possible that the surges are causing chaos in production, higher levels of inventory and bullwhip effects all across the supply chain, and all those costs make your case to end the quarter-end shipping nightmare even stronger. Good luck and keep on fighting the good fight.

Best,
Donnie Weissberg
Director of Supply Chain
Trinity Packaging

Donnie Weissberg is a supply chain and technology expert with more than 15 years experience working in executive roles in the packaging, fast-moving consumer goods, consulting and transportation industries. Weissberg is director of supply chain at Trinity Packaging in Armonk, NY, where he manages the consumer products supply chain. His specialties include supply chain strategy, process optimization, systems implementation, organizational design and leadership. He has an MBA from Penn State's Smeal College of Business, a BA from Lehigh University and is certified in Transportation Business Management by the University of Arkansas. 

Dear Dr. Lean:

I work as a warehouse manager in an automotive distribution center in Indiana. We have thousands of SKUs coming in from U.S. suppliers and some global. The volumes are increasing and so far we've been able to keep up with it by overtime, but we know we can't keep this up forever.

Lately, the number of premium shipments and expedites have been rising too.

In terms of our strategic objectives, we know we are on track to make growth rates, but we are running over projections for overtime labor costs and our loss/damaged goods numbers have been going up. Although the assembly plant maybe running at level rates, the mix seems to change and that throws off our kit schedules.

There are three areas we could use some help with:

1. Supplier Quality: For inbound parts shipments, we have some suppliers that are performing in the 95 percent category, some others that are getting close to that, but a few that miss delivery dates by one to three days, or deliver early. We don't know all the reasons but we think there is a problem with shippers.
2. We need more space quickly, which may mean opening another warehouse. What can we look at internally to hold off on going after more high-rent square footage?
3. There are two issues that we feel inbound small suppliers have problems with, packaging and information flows. We know that packaging generates waste that our plant has to deal with. And information flows still need to support a pull system. Could you give us a couple ideas to help attack packaging waste without increasing waste. We need help to look at what types of information they need to generate to support pull systems.

Thanks Dr. Lean,
DC’d in Indiana

Dear Indiana:

Regarding your first question, it’s always challenging to get supplier OTIF (On Time In Full) where it needs to be, which should be 100 percent. There are a few things we can review and do to help with this issue.

First, make sure you are not part of the problem. Ensure you are giving suppliers clear orders and shipping instructions and make sure you are sending suppliers orders within negotiated lead times. Next, implement an ASN (Advanced Shipping Notice) process. This is visual management around suppliers’ intention of shipping before they even ship the material from their dock. This way you can correct any deviation from OTIF performance prior to the shipments leaving the supplier. Lastly, implement a daily PDCA call with all suppliers who are not achieving OTIF performance goals. Problem-solve around each and every shipment that is a deviation from the plan.

Regarding your second question, the need for additional space is typically because of improper inventory management processes and a lack of velocity in the supply chain. I suggest two initial approaches.

First, ensure that you are only holding inventory that is providing value to the business and your customer. Purge all dead stocks and obsolete inventory, and implement a 5S program with the remaining inventory in order to optimize what space you have available.

Then, focus on inventory velocity to reduce overall inventory levels and space requirements. The key aspects of this are lot-size reduction, increased delivery frequency, and level flow of materials into your facility. Whatever your current velocity is — double it. So, if you are receiving material once per month, change to twice per month. If you are receiving material once per week, change to twice per week. This will drive your inventory and space requirements down by as much as 50 percent. Don’t forget to actually reduce cycle, buffer and safety stock levels as you increase delivery frequency.

Regarding your third question, packaging waste is a problem for many organizations. In particular, organizations that are focused on safety and the environment are seeing a need for new strategies around packaging.

Here are two proven best practices:

Analyze your current packaging relative to part protection, amount of dunnage required, lot-size quantity and package standardization opportunities. Minimize the complexity of inbound packaging by standardizing the number of different packs or containers. Work to reduce packaging lot size in order to increase delivery frequency as mentioned above. Eliminate all dunnage that is not adding absolute value to the container.

Utilize a “returnable container cost calculator” to better understand the implication of moving to returnable or multi-use containers. Returnables will completely eliminate disposable packaging waste, although you will need to understand the cost implications of implementing a returnable container program. This can include container cleaning, round trip transportation and management of the returnable containers.

Good luck with this, Indiana!

Yours truly,
Robert Martichenko
CEO
LeanCor Supply Chain Group

Robert Martichenko is the CEO of LeanCor Supply Chain Group, a trusted supply chain partner that delivers operational improvement and measurable financial results. Martichenko’s entire career has been committed to logistics and end-to-end supply chain management, with a focus in lean and operational excellence. He has become an internationally recognized thought leader and hands-on practitioner with a solid reputation for delivering results. Martichenko is also a senior instructor for the Lean Enterprise Institute and the Georgia Tech Supply Chain and Logistics Institute, as well as a frequent speaker for professional industry groups around the world. He authored the 2011 Shingo Research Award-winning workbook, Building a Lean Fulfillment Stream (Lean Enterprise Institute), and his latest book, PEOPLE: A leader’s day-to-day guide to building, managing and sustaining lean organizations was published in May 2012.