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Implementing a Lean program on the Manufacturing floor, in a Warehouse operation, or in a Distribution Centre is challenging enough.  There are a series of process steps in which materials are transformed or moved in some fashion.


And your Lean program has at its core the objective of making these operations as efficient as possible. But when you try to apply these same Lean principles to the support organizations, or the back office, you are likely to experience a wide range of reactions.


So why is it so difficult to implement, and sustain, a Lean program in the Back Office of your organization?




In one company I was a part of no one knew what Lean was.  However they knew that their business processes needed to be transformed.  And on the promise that application of Lean techniques would facilitate this transformation, the deployment of Lean in the Back Office areas began.


The success of the Lean deployment varied over time.  In some areas there was great, sustained enthusiasm for the program.  People got it, embraced it, and took ownership for ongoing practice in the Back Office.  However in other areas the program slowed down, if not stalled out altogether.


In another company I joined there was general knowledge as to what Lean was.  Yet it was generally viewed as something to be deployed in Operations or Supply Chain.  As such when it came to using Lean techniques in the Back Office the initiative was generally given lip service. It felt like pushing rope up hill.


Yet in both cases the Lean program flourished on the shop floor, in the warehouse, and in the direct employment areas.


What were some of the factors which made the introduction, practice, and sustenance Lean in the Back Office so difficult to keep going?  And what are some of the signs you need to look out for to ensure that your Back Office Lean program stays on track?



Landmines and Hurdles


Executive Buy-In and Ongoing Support

First of all if you don't have Executive Buy-In you are dead in the water.  Especially if the leaders of the Back Office functions that need to be changed are not on board.  The commitment to change, to staff the efforts, to measure the progress, and to make the necessary investments will be lacking.  This will be readily visible to the employees.  And most of the time any enthusiasm they had will fade.



Perceived Inapplicability

Some employees will have a view that a Lean program is only applicable to areas such as Manufacturing because the tasks are repetitive, and transactional, and the processes are explicitly defined.  These operations are highly visual.



They view the Back Office functions as areas wherein the processes are highly fluid, where subjective judgements are made constantly and are dynamic.  Their jobs often involve phone calls and computer interaction and a lack of repetitiveness. As such they can not conceive of how the same techniques can be applied to the Back Office.



Lack of Leadership

Deploying Lean requires a level of expertise.  You can not just read a book and start practicing it sight unseen.  You should have someone on board who has real experience in deploying Lean specifically in Back Office functional areas.


And this person should not just be fluent in knowing how to use Lean techniques.  They need to be a Leader.  They must be a Change Agent.  For they have to be able to work at all levels of the organization.  They must be able to persuade people, to rally them, to motivate them, to address concerns, and to push the organization forward.


In my experience finding this particular skill is very difficult.  Yet it is a cornerstone requirement for Lean in the Back Office.




Generally the processes on your manufacturing floor are likely measured in great detail.  Metrics on quality, throughput, speed, waste and variations on all the above are likely captured precisely at every step of your operation. Yet in the Back Office many of the processes that are running may not have  been measured in that way at all.


Aside from measurement of activity levels (eg. number of orders processed or number of invoices paid) there may be very little measured in terms of how productive these processes are. Either the lack of metrics, or a perceived inability to implement greater measurement, can create a false perception that improvements can not be made.



Not Invented Here and Dissenting Opinions

I'm sure we've all experienced this.  I've seen it at the Executive level.  Sometimes people who are not familiar with Lean, and the change that it embodies, will resist it.  It's not that they are not good people.  It is often that it was not their idea.  Or they may feel there is a different, better approach or ideology.


A failure to address these concerns, whether real or perceived, can be fatal for a Lean program.




One of the largest concerns I have heard is that Lean is being implemented to eliminate jobs.  Certainly there can be a fear of the unknown.  As such people may be reluctant to participate in the program that they perceive may result in the loss of their own job.


If the company is not clear about the objectives and mandate of Lean, or any improvement initiative, then these fears will persist.  Honesty is the best policy about the objectives.



Lack of Training

The use of Lean techniques requires not only classroom training but real life application of those techniques.  If your program only entails a rudimentary introduction to 5S, and that is it, then people will quickly become disenchanted.


And this requires constant use of the Lean tools.  Just using them once in a while will not breed familiarity and comfort.




While there are many landmines to be negotiated, and hurdles to be jumped, all of these issues can be addressed in the Back Office.  It is important to understand these issues and have a strategy to prevent their occurrence or stop their continuance.


Lean is equally applicable everywhere.  People who propagate the misperception that Lean doesn't work in the Back Office are the kind of blockers who will put a monkey wrench in any change you choose to undertake.


There is no doubt that there are specific challenges with introducing Lean in the Back Office.  But having an explicit strategy to address these will help pave the way for a successful, and sustainable, Lean implementation in your organization.




Check out   Global Process Excellence (Part 7!) – 10 Signs You Should Reboot Your Lean Program!

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We had the "Call To Action" from the CEO.  The business needed to be transformed to support growth.  And the business needed to be financially stronger and much more productive.


With the mandate established we had named the change initiative that we were about to launch.  We had enlisted leaders from every functional organization.  And we had began to roll out our communication strategy.


This project involved every employee, every function, and every process in the company.  We needed a simple way to prioritize all of the projects that we were about to undertake.



The project mandate required that we "Attack On All Fronts".  That meant we were going to be looking at every aspect of the company.  We were also going to solicit input from every dimension of the organization:

  • Business Processes
  • Employee Ideas
  • Customer Feedback
  • Financial Performance

We also had to face the reality that the company still had to operate each and every day.  That meant that while we would have some dedicated resources we were going to be asking people to apportion a part of their time to our cause.  And this affected every function.  Yet everyone still had a "day" job.


Further we knew that every idea and area to address would have varying degrees of impact.  Some could be improved and implemented immediately with little effort and cost.   Other areas requiring improvement would be implemented over a much longer time period involving a lot of resource and capital investment.


We needed a project prioritization strategy.  It had to be a practical vehicle enabling us to make decisions.  This strategy also had to fit in with our communication needs.  As such we could quickly and easily show status and progress to all levels of the organization.



Project Prioritization Matrix

We decided to use a simple project prioritization matrix:


Project Prioritization 1


Behind the 4 quadrant matrix we would have a tracking spreadsheet with much more detail.  This detail would include the amount of resources, time and capital investment required for every activity.  And it would show a return on investment for each project.


We chose cost savings impact and process complexity as our high level factors.  This aligned with our corporate mandate to support growth by transforming our business processes.  And it supported our corporate mandate to drive significant improvements in productivity and financial performance.


Depending on your objectives you can certainly pick other factors, or even add more.  But these suited our needs.  Every other metric could be boiled down in to one of these two factors.

The simple visualization tool would also serve our purpose in communicating status and progress at all levels.  It would enable us to make quick management decisions and set priorities.  And we could always consult the greater level of detail whenever needed.



Project Prioritization Matrix - Applied

We knew that there were more than a dozen business processes that we needed to transform.  We had begun to solicit improvement ideas from employees and they were coming in by the hundreds.  And we had a lot of customer feedback to roll in and shape our direction.


We plotted all of these ideas and plans on our project prioritization matrix.  Every idea or project was represented by a different "bubble".  It was not difficult to do this mapping which was a good sign.  Everyone was aligned as to our objectives.


Project Prioritization 2


Again while simple the visualization was profound.  It enabled us to work with our project teams and management.  We determined how we could best deploy limited resources especially when there were competing demands on their time.


Plus we could define how best to achieve Quick Wins while at the same time making the longer term investments for more profound changes.


We could also present this mapping at any level of the organization.  People could more easily understand where we needed to focus our time and attention.  They could also see our starting point.  And over time they could see how we progressed in advancing and implementing each of these projects.




Any change management initiative that you undertake likely has a lot of moving parts.  Everyone has an idea and their own view of what is most important to attack first.


You need some way to harness all of these inputs.  Plus you need to represent them in a way which allows you to discuss and set priorities.  Further you must be able to communicate this clearly at all levels of your company.


The simple tool we have described here can work very effectively.  Depending upon your objectives you can choose different factors to drive your project prioritization.  We picked cost savings impact and process complexity and impact.  You may pick something else.  And you can add additional dimensions.  We certainly had more dimensions behind the visual representation.


A key message is to keep the representation simple.  When you are leading a change management project there is a time and place for details and there is a time and place for a simpler, higher level representation.




Check out Change Leadership (Part 5) – Unleash Your Employees’ Ideas to Truly Change the Game! 

#Change #Lean #SupplyChain

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Having come from a company wherein we were selling Freight management services I was curious about Freight spend at this new company.  But I could find no one answer to my question.

"How much were we spending on Freight?"


The fact that no one knew the answer raised the first alarm bell.  The answers that I got raised a whole slew of other alarm bells.


This was going to be an area that was full of opportunity!




Hidden Freight Costs

The reality is that there are freight and logistics costs in every step of the Supply Chain.  Part of the problem was that no one had taken, or was responsible and accountable for, a holistic view of freight costs.  As such there were a large number of people who affected various elements of freight cost.  And they knew nothing about each other.


Hidden Freight Costs In The Piece Price

The first alarm bell sounded when I was told by one business area leader that his freight costs were buried in the piece price of his goods.  He had reached an arrangement with a Far East supplier whereby all of his freight costs were included in the bottom line price he was charged.  He had no visibility as to what the true portion of his freight costs were.


But he was happy with the arrangement.  For him he only paid one price.  He didn't have to negotiate with carriers and manage the entire shipping process.  He merely agreed on the price and told the supplier what quantity of items he wanted delivered and on what date.  And the goods usually arrived on time.


Interestingly he was also responsible for the profitability of this product line.  So why was he so unconcerned with improving his profitability?  First he did not have a background in freight and logistics.  And there was no expert support organization around to take care of this area.  As such he was blind to what was actually going on around him.


The supplier had done a good job on delivery.  And the base unit price of the goods was competitive.  However when the business owner agreed to have the supplier manage the total cost, including delivery, he had unknowingly given away a tremendous amount of margin and control.


Further there was no one in either the Finance or Logistics function who could see behind the pricing curtain.  When the supplier sent in an invoice it was never itemized.  Invariably there were a number of hidden freight costs that were buried in the invoice.


Hidden Freight Costs


Customs and Duty charges were usually split out.  Everyone knew that this   garnered different accounting treatment.  However there was no focus on ensuring that the proper duty charges were made based on correct product classification.


But other charges were not visible.  Handling fees, rate increases, penalties, and brokerage fees were not clearly denoted or managed.  Carrier rates, insurance, and expediting fees were unclear.

So when invoices came in it was an exercise in forensic science to try to determine if they were correct or not.  It was beyond anyone's ability to figure it out.


And because there was no control or oversight all ability to leverage the freight spend was gone.  The total freight bill was huge.  It was one of the top 10 expenses in the company.  Yet it wasn't managed at all.


Lost Freight Optimization Opportunities

The loss of control not only means that you are giving away margin but you also are not optimizing your freight.  And this optimization often requires your perspective, not that of your suppliers.


There are many considerations for reducing freight costs and your carbon footprint.  Selecting the proper shipping mode is a pivotal decision.  Planning your freight needs and working in advance with your carriers is essential.  And tactical decisions around scheduling, palletization, order management, load consolidation, and delivery timing are critical.


E-Commerce is one area where you really need to control your freight.  There are considerations in optimizing packaging, cross docking and drop shipping for instance.  Your suppliers are not usually best positioned to optimize this on their own.


One response I've heard before is that "Finance will know what the freight costs are."  While all invoices will come in to Finance that does not make them technical experts in this field.  It is true that Finance is a critical partner.  You need them to help with reporting and analysis.  But they are not your go-to Freight management team.


And you require this visibility.  I have seen cases where people make isolated decisions in authorizing premium shipping for instance.  In doing so they have squandered the entire profit for the products they are rushing in the door.  In the past these premiums were a part of the hidden freight costs.  As such all accountability was lost.  And thus bad decisions were being made.




There are freight costs of some fashion in every part of your Supply Chain.  Whether it is inbound shipping, internal processing, or outbound shipping, you are incurring freight costs.  And your freight costs are NOT just the rates that your carriers are charging you.  There are many, many different and additional fees that are a part of the equation.


While you may want to give a supplier control of your logistics giving them ungoverned control can be problematic.  This should be a conscious decision made with cross-functional representation in your organization. And it should be made with a view to the entire cost of freight.


Having the financial reporting in place and organizational responsibility assigned is key.  This will allow for a single, holistic view of your total freight and logistics costs.  And with that you will make much better decisions.


There should be no hidden freight costs!


Check out Freight and Logistics (Part 2) – Do you have a Freight Management Strategy or are you Spinning your Wheels? 

#Freight #Logistics #SupplyChain

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The theory is simple! If you can increase spend levels through centralized spend aggregation across entities then you increase your leverage in negotiations. This leverage should translate to lower costs and better terms and conditions.


These entities may be different departments or facilities within your own company. They may be different companies under common ownership. They may be disparate companies within an industry. Or they may be unrelated companies spanning many industries.


The benefits seem clear. So why is there so much resistance when it comes to trying to aggregate spend across these entities?




When you run a central Procurement organization you are trying to get the best deal for your company. The best deal includes lower prices for the goods or services you are buying. It also includes better terms and conditions. But to be able to get these benefits you need the formal and informal authority to negotiate against all of that spend.


However there can be a lot of obstacles put in your way. There may be rogue buying in your company. Some departments or remote facilities may want to keep managing negotiations on their own. If your company is either acquiring another company or being acquired this issue may arise. And Group Purchasing Organizations (GPOs) are specifically designed to deliver benefits from Spend Aggregation. Yet they are a completely separate entity.


Procurement people are proud professionals. And they often don't trust that someone can negotiate better than they can even if their spend levels are lower.


Before we can address these landmines and hurdles we need to understand what they are. So what are the issues on the Spend Aggregation Obstacle Course?


Spend Aggregation



Everyone is an Expert

One of the key issues in having areas give your Procurement team spend control is expertise. Everyone believes they are an expert and that they can get a better deal. This is a prevalent issue particular in common areas such as business travel. Everyone believes that they have a better website or a better contact.


Lack of Trust

People can be very protective about their department or operation or company. And rightly so. So when someone outside of that organization comes in and states that they will be now negotiating on their behalf, people can be distrustful. The Procurement team needs to take measures to show that they understand and are accountable to the local teams. Without proper communication distrust will remain.


Loss of Control

People like to control their spend. And they don't easily give up that control. Especially if that spend has been managed locally for a long period of time. It may be a perceived loss of relationships with suppliers. It may be a perceived loss of control over that which impacts their financial results or service levels. In any case this is a large concern for many entities.


Job Loss

This may or may not be the case. If spend aggregation is done as a part of an effort to streamline the procurement organization there may be job redundancies. Certainly if someone faces the prospect of losing their job they may not be open to turning over spend control.


Lack of Skill

As mentioned previously Procurement people are very proud. They are often career professionals. And there is a tremendous amount of skill and experience required in Procurement. If someone from a central corporate organization explains that they are going to take control then local Procurement people are going to want to know that they have the skills to back it up.



Naturally it should follow that with spend aggregation there should be the opportunity to lower costs and improve terms. However there are also other factors that come in to play in getting better results. Being bigger is not always best. I have seen many cases where smaller companies can get better rates on some type of good or service. Negotiating skill and relationships can play a big part. And local knowledge can make a huge difference.


Loss of Margin

I've visited many companies trying to sell a spend aggregation capability. The premise is simply that if the company turns over their spend control you will deliver savings greater than anything they have ever accomplished. And this is backed up by detailed analysis.


Often however these companies don't see the greater savings they will get. They get consumed by the amount of margin you are going to make. And many companies won't proceed because they believe they can somehow now get that greater savings without you. (But they never do.)


Core Competency

Depending on your organization Procurement may be a core competency. Procurement is always a critically important role. But if you are in a Software company for instance, chances are your core competency is programming not procurement. Some organizations may believe this is a core competency which can create an obstacle to proceeding with an outsourced spend aggregation solution.



It may go without saying but often people don't like change. It doesn't matter what it is. When the prospect of spend aggregation is offered up it is a departure from the way things have always been done. Without a proper Change Management program this can often be the greatest obstacle of all.



Spend Aggregation has tremendous potential. Intuitively the rewards should be enormous. However there are many real and perceived obstacles to making it successful.

Whether they are landmines to be avoided or hurdles to be overcome, these obstacles must be addressed for any Spend Aggregation initiative to succeed.


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A High Performance Organization is one in which there is tremendous alignment among and commitment by the team members. And as a result this motivated team is able to achieve superior results. The level of collaboration and innovation they demonstrate is remarkable.


There are many characteristics of the culture which allows such teams to be high performing. And when they set out to drive change and make improvements it is those cultural characteristics which allow them to succeed.



So what are some of those characteristics? If you are trying to lead a game changing project it is important that you engage those attributes or ground rules in your team.


And it is critical that these ground rules are explicitly communicated, discussed and ratified by your team. If people understand what is expected of them, and what the rules of the game are, they will rise to the challenge.


Keep these ground rules posted on walls in your business. Remind people about these expectations every day and throughout your change management process.



High Performance Organization



Leave Your Egos, Roles and Titles at the Door.

Employees can be highly intimidated when the Boss is around. Or for matter anyone else who throws around their authority by virtue of their title or sense of self worth. If you want to drive game changing results you must explicitly state that in any improvement project that titles and egos are to be left outside of the meeting room. If employees see that you are participating equally then they will open up and share their tremendous ideas.



All Ideas are Welcome.

At some point everyone has been afraid to ask a question for share an idea for fear of being shot down. Or their idea may be so radically different from the current state they may not sense the organization is ready to hear it. You must explicitly declare that any, and every, idea is a good one. There are no boundaries. There will be time later to filter out the ideas but when you are brainstorming you need every idea to surface.



Avoid Status Quo Thinking. Embrace All Possibilities.

The definition of insanity is doing the same thing as before and expecting a different result. If you want to make change you need people's thinking to be unconstrained by the status quo. Most everything can be changed. It merely takes human resolve and decision making. There should be no sacred cows. If you want to achieve game changing results you should expect it will be difficult. That is because you are challenging old ways of doing things. But the sense of accomplishment when you break through these barriers will be highly rewarding.



Focus on what's right for all. Avoid Politics.

When people join a project their intentions should be true to achieving the project objectives. Whenever someone tries to advance their own agenda, or play politics, it becomes apparent to all. Everyone will be looking over their shoulder and question what is going on. And at that point the project will suffer. High performance teams operate with the team's objective in mind.



Get out of your Comfort Zone. Break Barriers.

Many people are comfortable in their jobs or in their organizations. If you are leading a project you need people to get out of that comfort zone. You want people to think outside of their silos and their paradigms. It is critical to create the environment that allows for this broader thinking. Your project will be better for it. And your participants will develop personally in a very meaningful way.



Get to Results!

It is great to be able to complain about the current situation. And it is great to brainstorm ideas to make things better. But things will truly only change if you and your organization make decisions to make things better. A problem can be analyzed ad nauseum but at some point you need to stop the analysis and make a decision. It is often better to make a decision even if the information you have is not perfect. If the result is not quite what you expect then make another decision. You only move forward if you take a step.



Be Disciplined!

Any effort to drive change requires time, attention, and resources. It requires your and your team's mindshare. Without a very concerted focus everyone will become distracted with all of the other demands on their time. It is important to have a process of governance and review which enables you to ensure that issues are addressed in real time. Without this discipline your project will derail. Change does not happen by itself.



Eliminate Waste and Excuses!

The core of Lean process improvement thinking is the unrelenting focus on eliminating waste. It makes sense to automate a bad process for instance. The essence of change in a high performance organization includes the elimination of waste. Further a high performance team does not waste time on excuses. They recognize problems and get on with fixing and preventing them.



Trust! Get rid of any baggage!

When you work in an organization where trust does not exist between employees you find that the team doesn't function well. The lack of trust becomes the basis for a lot of highly unproductive and destructive behaviours. This behaviour in turn negatively impacts any changes that you want to make or results you want to achieve.


You must get to trust. If you have any baggage with another person then deal with it head on. Proactively raise the issue with that person. Ask them to identify any issues they have with you. Then clear the air. With that done you have the basis to move forward on a foundation of trust. And trust is a critical part of a High Performance Organization.




A High Performance Organization will consistently beat it's competitors. It will break through barriers that stop others in their tracks. And it is able to do so because it operates with a culture that is, by definition, designed to outperform expectations. The distinct behavioural norms we have discussed make that possible.


It doesn't matter what the size of the project or change is that you are driving. For if you deploy the ground rules that we have discussed you will start your team on the journey of making remarkable changes.


And yours will be a High Performance Organization.




Check out High Performance Organization and Culture (Infographic)

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Retailers with Brick and Mortar stores continue to be under tremendous pressure.  Competition is intense in the fast growing Omnichannel E-Commerce world.  Every week there seems to be news about how one Retailer or another is closing more of their stores.


And very few Retailers with Brick And Mortar stores have been able to make a profit in E-Commerce.  Competitors who only sell online without physical stores appear to have an advantage with lower overhead costs.


So how can Brick And Mortar Retailers turn their stores into a competitive advantage plus a source of greater profitability?



What Challenges do Brick and Mortar Retailers Have?


Markdowns, Discounts and Lost Sales

When a store can't sell the goods that have been shipped to them they have two choices.  They can either markdown the goods or they can return the items back to the DC.  In either case they are adding expense and reducing profitability.


When a store sells out of goods, and those same items are still on the shelves of a different store in the network, most likely the Retailer has lost that sale.  If a customer can not seamlessly be offered that item from a different store they are likely to go elsewhere.  Or they will abandon the sale altogether.



Delivery Speed and Cost

E-Commerce customers want the flexibility to choose their point of delivery.  They want free delivery.  But when faced with the choice of delivery speed and a shipping fee, most customers will opt for slightly longer delivery times in exchange for a lower fee.  Still Amazon is offering free same day-next day delivery in more and more cities.   Retailers need to be able to respond in kind.


In order to compete many retailers need to offer a free shipping option.  It clearly cuts into their gross margins.  The ability to negotiate lower carrier rates can be limited.  A lack of any significant spend leverage across the innumerable small parcel shipping addresses is problematic.


Additionally fulfilling E-Commerce orders from your DC is likely to be slower, and more expensive.. You can't be in every geography.



Distribution Centre Capacity and Location

Any Retailer that uses their own, or a contracted Distribution Centre(other than perhaps Fulfillment by Amazon), is faced with the reality of DC capacity limitations.  That capacity may be measured in storage space, equipment, or staffing.


During the Black Friday/Cyber Monday shopping window for a very small period of the year you need dramatically higher capacity.  Your costs of adding this capacity can be extensive.  And your likelihood of having delays and poorer productivity are large.


Unless you are Amazon you are going to have a number of Distribution Centres geographically located, or perhaps just one DC that is centralized.  But even if you have numerous DCs chances are you are not located to allow delivery the same day to every  geography.  Your DCs are not as dispersed as your Brick And Mortar stores will be.



Inventory Visibility and Omnichannel Availability

Many Retailers began their E-Commerce business as a separate endeavour from their Brick and Mortar store channel.  As such they may have separate systems.  The result is a lack of integrated visibility to their entire inventory of goods across all channels.


With the advent of Omnichannel customers want access to all of your inventory equally.  And they don't care whether it is in a DC or in a Store or at a Supplier.


As a Retailer you also need that inventory visibility.  Otherwise you are likely to be understocked in some locations and overstocked in other locations, for the same skus.



Fulfillment and Replenishment Accuracy

The ability of many retailers to guess exactly what quantity of each sku should go in to each store is limited.  The reality is some stores will sell items at a slower or faster pace than other stores.  Again customers don't care where that inventory is.  They just want visibility to it and they want it when they want it.


Unsold goods sitting on store shelves are being discounted or returned to the Distribution Centre (adding even more cost).  While in other stores that have sold out of those same goods,  they have lost sales.  In net the company loses both sales and profitability.  Stores need the ability to fulfill orders for other stores



Turning your Brick and Mortar Stores into E-Commerce Distribution Hubs


So how can you address these challenges?  One approach is to leverage the advantage that is inherent in your Brick And Mortar stores.  Their physical proximity to your Customers is that advantage!


You will never be able to have Distribution Centres everywhere that your Stores are.  And most of your Online only competitors, excluding Amazon, are never going to have a fulfillment solution as close as your Stores are to your customers.


There is a competitive advantage that you can create if you use your Brick and Mortar stores as Distribution hubs.  And with Omnichannel inventory availability and fulfillment you will derive significant value.


The advantages are numerous:


Brick and Mortar


Next Steps


E-Commerce customers want to buy what they want when they want.  And they want it delivered how they want.


There are certainly challenges in setting up your Brick and Mortar stores as Distribution hubs.  And there are many different models of fulfillment that can be considered (eg. Ship From Store, Pick Up In Store).  We will discuss these in later blogs.


Additionally you will need clear system integration and business process synchronization across your network.


But there are many tremendous advantages.  None of this means that Retailers may not have to rationalize their physical footprint.  But if executed correctly you can create a point of competitive differentiation in the Omnichannel E-Commerce marketplace.


Check out World Class E-Commerce Fulfillment Design Principles (Infographic)

#Omnichannel #Retail #ECommerce #SupplyChain

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Does anyone like being stuck in a Traffic Jam?


Prior to one Holiday season several years ago the volume that was coming into the Distribution Centre receiving area was unprecedented and unpredicted.   We were out of room on the docks and we were out of storage space but trucks kept on coming.  And we were still weeks away from being able to ship product to stores to relieve the pressure.


We were gridlocked.  We kept inching our way along but we were very, very close to having this traffic jam of activity shut us down.




The Traffic Jam Supply Chain Model

Consider each of the nodes (suppliers, operations, distribution centres, stores) in your Supply Chain as being a "highway".  Consider also that all of the goods that you are moving along these nodes are the "vehicles" travelling on those highways.  Your business growth means that more and more vehicles are going to be moving on those highways.  And those highways only have so much capacity.


Traffic Jam Model


And unless you plan and manage your Supply Chain well you are going to end up with Traffic Jams on those highways especially at "Rush Hour".  The Black Friday/Cyber Monday period is a great example of a Rush Hour.  This Rush Hour period will stretch your capacity to the limit.  You will be out of capacity and everything will grind to a halt.


Any traffic jam will slow your Supply Chain, and your Company, to a snail's pace, if not stop it altogether.



Managing the Highways

As your business grows you are moving more and more goods throughout your Supply Chain.  Your supplier base is likely increasing and becoming more geographically diverse.  Your operations will be increasingly stretched trying to cope with the heavier volume of activity.


Again let's consider each of the nodes in your Supply Chain to be "highways".  By definition any highway only has so many lanes.  It may be possible to add lanes, that is capacity, but this takes planning, time and resources. Those highways merge onto other highways.  If you do not manage the transition well traffic will slow as you move from one highway to the next.


So how do you help prevent having a traffic jam on any of your highways? There are many techniques to consider within this model:


Add Another Highway

With enough planning, resource, and the need, you can add a new Distribution Centre for instance.  You may also be able to have your Suppliers drop ship products directly to your customers.  And if necessary you may want to dual source some of your supply with more than one supplier.  Any of these techniques add highways, which increases capacity.


Add More Lanes To Your Current Highway

You may be able to add more capacity in your current facilities.  This may mean adding a new shift, more equipment, or more staffing.  It could also mean renting more storage space on a short or long-term basis.  Adding capacity is like adding lanes to your highway.


Also consider "No-Touch" techniques such as cross-docking.  It's like adding a fast-moving carpool lane to your highway.


Remove The Potholes On Your Current Highway

Lean out your operation to increase efficiency, increase capacity, and reduce the time required to move goods through your facility.  Focus on reducing defects and removing wasteful activities that slow down your operation.  A more efficient highway means faster moving vehicles.


Avoid Lane Closures

If you lose capacity because a key piece of equipment is down, or you don't have enough staffing, effectively you are losing a lane on your highway.  It's critical to have enough planning and contingency in place to deal with any issues quickly to avoid lane closures.  Or if you do have a lane closure you need to get it back open fast!



All of these techniques will have the effect of increasing the number of vehicles you can handle on your set of highways.



Managing the Vehicles

All of your goods are the "vehicles" on those highways.  Your company may be adding more parts, more finished goods, or taking many more customer orders. And your consumers, especially in E-Commerce, can number in the hundreds of thousands anywhere in the world.  And the more vehicles you add to your highways the more congestion there will be.


So how can you improve the movement and flow of those vehicles to ensure an efficiently moving Supply Chain without interruption?


End To End Visibility Of Those Vehicles

If you do not have any planning or visibility to the vehicles that are, or will be, moving on your highways then you are driving blind.  Having a Transportation Management System with electronic connectivity showing you where your goods are at any point in time gives you the ability to manage your product flow.  Similarly an integrated Order Management System, Shop Floor Control System and Warehouse Management System are critical capabilities to provide you with that visibility.


These systems and that visibility will serve as traffic monitoring and control.  An overall Control Tower for the Supply Chain will further allow you to schedule and modulate the movement of these vehicles.


Scheduling The Entry Of Those Vehicles On To Your Highways

The coordination of the timing at which vehicles enter your highways can make a huge difference in flow.  You often do not need to have all of your vehicles enter the highway at once at Rush Hour.

Scheduling techniques such as Just-In-Time delivery or Line Balancing/Scheduling can make a huge difference in determining the timing and rate at which vehicles enter your highways.


Tow Broken Vehicles Off Of Your Highway Quickly

If you have goods that are defective you need to deal with them quickly and effectively.  Dealing with broken vehicles on the highway means you need to work like a NASCAR pit stop to avoid traffic backing up.


Otherwise you need to move the vehicles off of your road to a repair station.  But you do need to fix those vehicles quickly because they must get back on to the highway.


Rush Hour Management

You will certainly face busy times of year.  Black Friday/Cyber Monday is a prime example of a "Rush Hour".  The timing is set, you can't change it, and a phenomenal number of vehicles (customer orders) are going to enter your highways in a very short period of time.


Many retailers tell customers when they should expect delivery of their product.  Similarly many highways have overhead, electronic signage which tells vehicles how much time it will take to get to the next exit.  Or the signage may have other important messages.  It is important wherever possible to communicate expectations to your customers (vehicles).  It may not mean that there are no rush hour delays but the awareness will hopefully reduce the amount of honking on the highway.


The key is to modulate when and where vehicles enter and move along and between your highways.  Keep the flow going and address any issues quickly.  And all of the techniques you use to manage your highways will help the movement of your vehicles.



The Traffic Jam Supply Chain Model Considered

You have to keep the traffic in your Supply Chain flowing uninterrupted at a very high-speed.  If you have any kind of capacity constraint, interruption or slow down in your flow then traffic will become congested.  It can in turn become a traffic jam which at its worst will cause your entire operation to become gridlocked.


There are many techniques which you can apply to improve the conditions of your highways and the flow of your vehicles.  We have enumerated some of these techniques here.

Most importantly you need to proactively plan and manage your Supply Chain.  That will give you the best chance of minimizing traffic jams and disruption to your business.


Check out Freight and Logistics (Part 4) – Do You Have Hidden Freight Costs? 

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Company 1

The CEO came in to my office carrying a product and said, "The label is off centre on this item.  It has a quality defect."  I responded, "Is that actually a quality defect?  Quality is a measure of conformance to a standard, and we have no standards."  The CEO didn't quite understand the distinction.  Certainly the item was mis-labelled.  But there was absolutely no Quality management process in the company.



Company 2

I toured all of the company's facilities around the globe.  It seemed like we had a tremendous amount of resource working on quality.  But they were spending 100% of their time on inspection.  A report subsequently  confirmed my concerns.  Over 10% of our entire direct workforce was spending the vast majority of their time doing 100% inspection.   We had a Quality management system but it's only principle was to inspect in quality.


Whichever the situation was, proper Quality management objectives required something to change in both cases!




The Starting Points

Both of these companies knew of the word "Quality".  But their views of what it meant were diametrically opposed.


In Company 1 if you asked anyone what quality was they would describe the aesthetic characteristics of an item.  They considered an item as defective if it didn't look as nice as every other similar item.  However they had no concept of "Quality Management".


In Company 1 there were absolutely no Quality controls, no Quality metrics, no Quality standards, and no Quality processes.  Further there was no one in the entire company that had "Quality" in their title.  No one was accountable or responsible for ensuring the delivery of Quality products.  The only measure which came close was some tracking the Legal team was doing on customer complaints of poor quality.  But who wants their Quality Management program to begin and end with the Legal Department?


In Company 2 management and many employees understood that we had to inspect in the quality we delivered.  Many people did have the word "Quality" included in their titles.  But Quality Management manifested itself in an extensive program of inspection, touch up and repair, and re-inspection.


There were no comprehensive or globally ratified programs in Company 2.  This included preventive or corrective action and doing the analysis to take a problem to root cause.  Also addressing the issues at the source or point of origin and reducing opportunities for error needed strengthening.  Further error-proofing the process, and holding all parties responsible for building in quality in the first place was key.


Creating a Proactive Quality Management System

In Company 1 my focus began with education.  We needed to create a Proactive Quality management program.


Quality Management


The first step was to hire a Quality leader in to the company to spearhead this program.  Unfortunately it took some time to convince the CEO and the Executive team that we needed this role.  The product line was changing and we were entering space which made Quality management essential.


When we got our new Quality leader we began implementing our new Quality management program.  We had to put in place all of the basics.  We created a new Quality manual.  A set of appropriate metrics was established.  We started tracking performance and reporting to the appropriate constituents within the company and with our suppliers.


Our entire Supplier program was reinvented.  We had to create a Vendor manual and communicate our expectations to vendors.  Also a review of our vendor base and a new vendor selection/ratification process was established.  Additionally vendor audits began and tracking of their corrective actions started.


All products were subject to a stringent testing and qualification process.  Vendors were informed of issues and held accountable for corrective and preventive actions.


Our facilities were educated on issue identification, reporting, and management of customer feedback.  They were educated on standards of measurement and communication with customers.   And they were advised of action status with our suppliers and designers.


And overall we began a weekly and monthly reporting process to ensure that we were regularly reviewing results.  We also had a real-time alert process set up as well to handle issues requiring immediate attention.


In short, we put in place the beginnings of a proper Quality management system.  There would be much more to do but we had put the basics in place.



Fine-Tuning an Intelligent Quality Management System

Company 2 already had a Quality management program in place.  People were educated on what quality was.  And there were metrics in place.  Plus we tracked performance with both suppliers and customers.  The major  problem was that we spent most of our time inspecting in quality.


First we raised awareness that we had 10% of our direct workforce inspecting in quality.  Then the Quality leadership team took some time to get their heads around this.  At first they were concerned that if we didn't do the same level of inspection then we were compromising quality.  They had to come to their own self-realization that there was a more efficient way to achieve our quality goals.  And with this realization the team very quickly shifted its focus to designing a more intelligent Quality management system.


We began in Receiving.  Here we were inspecting all of the parts coming in the door.  By completing an analysis of quality performance by sku we could quickly identify which skus never had quality issues.  Further we could determine what dppm (defective parts per million) was acceptable.  And we also engaged suppliers and communicated their quality performance to them.  We expected our suppliers to build in quality at their end as well so that we didn't have to inspect it in.  As such all of this enabled us to implement an intelligent inspection sampling plan (including direct to line delivery) in Receiving.


We applied the same principles to the processing areas.  And we started measuring first pass yield on the process steps.  Defect tracking by process step and by operator was institutionalized.  Employees were educated on preventing and catching defects instead of building up piles of product for repair.


All of the Quality standards, metrics and controls were reviewed and agreed on Globally.  Thus from that point forward there would be only one interpretation of Quality.  With that standardization and alignment we would ensure we had a consistently high quality process any where around the globe.


A strengthened Kaizen program was put in place to provide the forum to address quality improvement.  From there we targeted areas where repair and touch-up were done in the process.  The focus was on defect reduction if not elimination, and reducing the opportunities for error.  And the Kaizen also provided a platform for ongoing skills training and reinforcement.


This enhanced Quality management system was ratified globally as a part of the Global Process Excellence program.  As a result Our Quality levels improved even further and defects continued to decline resulting in Best In Class Quality performance.




It doesn't matter what your starting point is or what industry you are in. Any organization requires a robust, proactive quality management system. 


Your employees will prefer this approach.  Your customers will be very pleased with the results.  And your company will benefit in every possible way from maintaining a tremendous focus on quality!


Check out Quality Management (Part 2) – Design in Quality First!

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