Lean is quickly becoming the next significant improvement enterprise for both manufacturers and distributors. This took place when General Motors and Chrysler emerged from bankruptcy vowing to adapt all aspects of Lean methodology. Whether or not these companies and others merely adapt the theory of Lean as opposed to the actual practice is still open for debate and question.
A Lean index tracker called the “Superfactory 20”, which focuses on the top 20 Lean companies, observed that these stocks outperformed those of Standard & Poor’s by approximately 22%. As major players in the manufacturing field move towards Lean, wholesalers and distributors will be required to follow suit. This “following” will allow distributors and wholesalers to benefit in the following ways:
- Asset Utilization
- Cost savings
Perhaps a short history of Lean would help. Lean was developed by Kiichiro Toyoda and Taiichi Ohno in the 1950’s in Japan. Japanese industry devastated by World War II needed to be rebuilt and revived. This was the way. They received the vision from the most unlikely place – not from American automobile industry but from a visit to Piggly-Wiggly, an American grocery store chain. They observed that replenishment occurred only when items were purchased by the customers.
Toyoda and Ohno adapted this method to their own companies in Japan and achieved continuous flow of goods and a wide variety of product offerings. For distributors and wholesalers a whole new world opened up. It meant for them; a wide variety of inventory and a high inventory turns and profitability.
Lean methodology or theory rest on five principles or pillars:
- Customer Value
- Value Stream
For wholesalers and or distributors value is characterized by customer value – having the right product, for the right time and right price. The value stream includes actions that must be performed to achieve customer value:
- Shipping Inventory
Through streamlined distribution processes companies will attain a constant flow of products.
For manufacturers “Pull” is make only what is needed, only when it is needed and allows for the customer to put the product through the system. For distributors “Pull” is slightly tweaked to perform in this manner:
- Stocking only what the customer wants
2- Replenish what the customer buys
Perfection merely means allowing the continuous improvement in all areas of a company.
In addition to the five principle or pillars of wastes Lean defined and put into the methodology eight areas of wastes that require constant attention. It can best be remembered with this acronym – DOWNTIME.
D = Defects
O = Overproduction
N = Non-Value Added Processing
T = Transportation, Internal or External
I = Inventory Excess
M = Motion
E = Employee Underutilization
Other wastes can and sometimes include: missed delivery dates, damaged or slow moving inventory, over complicated tasks and time spent searching the warehouse for inventory. On the surface each waste seems to be simple enough to understand but discussing each waste in further detail, which I hope to do in future articles, will focus on the difficulties they can expose a company to.
As distributors continue the journey towards Lean they will discover good news and bad news. The good news is that Lean will be relatively easy, fast and inexpensive to implement and the high payoffs. The negative aspect of Lean is that it requires tremendous discipline, strictness and a complete cultural makeover for success.
The savings attained through Lean is astounding. Entire task and processes can be eliminated with the wealth of revenue saved can then be used for expansion or right to the bottom line. Lean combined with an effective upper management and engaged employees will lead to significant competitive advantages for distributors.