Lean in Warehousing

Warehousing and Order Fulfilment

Understanding the role of the Order Fulfillment Process should be the objective or mantra of any improvement program and should drive whatever improvement thinking and methodology or direction they adopt. This approach has been clearly demonstrated by the large and influential or strong channel leaders e.g., Coles, Woolworths, Bunnings, Aldi and large industry wholesalers. They have demonstrated the massive opportunities of applying new approaches, technologies, and innovation in the Order Fulfillment Process.

When one considers the impact of organisations such as Uber, Amazon, Airbnb, Apple, Netflix and the like you can see what the opportunity can be in understanding a customer fulfilment approach and living the customer value proposition can mean, and the disruption to laggard industries and supply chains.

The warehouse and distribution operation of the business is a key function of the key business processes – the Order Fulfilment Process. This process starts with the receipt of the customer order and flows through planning, procurement, manufacturing or processing, warehousing, distribution, and invoicing. The customer order flows through all the functions – it ignores and is not interested in the artificial organisational boundaries (functions). Warehousing and distribution are the last physical elements of this chain that engages all functions of the business.

When one reflects the 40 plus years of involvement in and analysis of Warehousing, I have seen significant changes in, and the impacts of technology developments and I see the leaders continuing to apply breakthrough thinking and innovative technologies. All the leading organisations know there is still extensive value in continually applying developing technologies and principles such as Lean.  There are too many laggard organisations in Australia that say, “we have heard about Lean for the warehouse and did some of that a few years ago”.   Lean is not a one hit wonder – it is a journey of learning, seeing, and continually applying new ideas and tools and technologies that provide competitive advantage and massive profitability.   

Lean in Warehousing

Lean is a way of describing what Toyota developed to become one of the most successful organisations in the world. A couple of professors, Jones and Womack, coined the phrase and presented their research and principles in their book, Going Lean.

They presented five principles that are fundamental to the elimination of waste and developing excellence. They are easy to remember (although not always easy to achieve!) and should be the guide for everyone in the organisation who becomes involved in the lean journey.

The five lean principles

1 Specify what does and does not create value from the customer’s perspective and not from the perspective of individual organisations, functions, and departments

2 Identify all the steps necessary to design, order, produce and transport the product or service across the whole value stream to highlight nonvalue adding waste

3 Make those actions that create value flow without interruption, detours, backflows, waiting or scrap

4 Only make or deliver what is pulled by the customer.

5 Strive for perfection by continually removing successive layers of waste as they are uncovered.

The second step is to understand what the concepts of Value and Waste are.

Value

The essence of Value is the understanding of the customers and what they value. Therefore, everyone in the organisation and the supply chain should seek to succeed in fulfilling the value of their offer as required or perceived by customers. It is critical that an organisation knows what their customer values and then to provide an offer to satisfy their needs, and then to know what to do and then improve.

To get your organisation focused on these needs you must define the value streams or processes inside your company and, later, the value streams or processes in your wider supply chain as well. To satisfy customers you will need to eliminate or at least reduce the wasteful activities that your customers would not wish to pay for.

Next you must find a way of setting the direction, fixing targets, and seeing whether change is occurring. You need a framework to deliver value for your customers as well as a toolkit to make the change.

The rationale behind lean is based on creating value. This means eliminating, or at least reducing, all those activities, processes and outcomes that do not create or deliver value.

Waste

The identification and elimination of waste is fundamental to a lean organisation. However, on its own it is rarely sufficient.  Improved customer focus and productivity gains lead to leaner operations, which in turn help to expose further waste and quality problems in the system. The systematic attack on waste is also a systematic assault on the factors underlying poor quality and fundamental management problems.

Waste is anything that does not add value to the customer. These, seven wastes were identified as part of the Toyota Production System. The Japanese call this muda.

• Over - production – producing or doing more than is needed
• Defects - errors and mistakes and poor quality
• Unnecessary Inventory – excessive storage and delay in information and goods
• Inappropriate processing – not using the right tools, information, or processes
• Excessive transportation – excessive movement of goods, information, and people
• Waiting – inactivity and delay of people, information, or goods
• Unnecessary Motion – poor workplace organisation and ergonomics

It might be a worthwhile exercise to review your operation and processes and identify the different types of waste and their impact.

Lean in the Warehouse

When reviewing the performance and operating system of the Warehouse consideration should consider the external factors that influence it operation as well as the internal operating system. Functions and departments such as marketing, sales, planning, purchasing and finance all influence the warehouse and its operation. As do customers and the other members of the supply chain.

Therefore, applying Lean to the warehouse should result in the involvement of each of these entities depending on the aspect or area under consideration.  An example of this may be consideration to the reduction or optimum level of inventory in the warehouse – the level of inventory is the balance of supply and demand so a review should involve all the parties that impact supply and demand.  The warehouse operating system is responsible for the storage, location, movement and recording of inventory.

Warehousing is more than a means of storage. It more often is the means to add value to a product. There are two primary objectives for warehousing:

• Customer Service
• Cost Effectiveness.

In some situations, Customer Service is far more important than cost.

Secondary but very important goals:

• Cycle Time
• Cost of Inventory
• Accuracy

One of the major drivers of these goals is adoption of a Warehouse Management System (WMS) that controls and drives the warehouse. It provides the realisation that the warehouse and its operation go far beyond a “necessary evil” or a cost that adds no value. In its strictest sense, it is the doorway to increased productivity, reduced cost, and improved customer service.

It is the enabler for the addition of the wide range of technologies and devices that will improve the performance capability of a warehouse in terms of service and cost.  A good example of this is the use of radio linked terminals that incorporate bar code or RFID scanning at the point of use e. g. order picking, pallet movement and storage and all the stages of inventory movement.  This is a classic lean solution of eliminating errors at the potential source and assuring quality.

The other key Lean and change opportunity is the engagement of people with the realisation that it’s in the workplace where the value is created and delivered to the customer. The knowledge and skills of value creation and delivery of an organisation’s value proposition is therefore with the people – the people in the workplace.

Engaging people in problem solving and sustainable solution development.

Having identified an issue, problem or process that needs to be addressed or changed the first step is to fully understand, measure and asses the need or reason for the change or improvement.  The proven method developed to best enable this is called PDCA – Plan, Do Check and Act.  It forms the basis of the Quality Systems, Lean, Lean Sigma and Six Sigma methods for continuous improvement.  Every proven and successful business improvement methodology, possibly expressed with different language, will be based on this process.

Summary

In summary to establish a sustainable lean organisation you need to address each of the 5 elements below:

1. Technology, Tools and Techniques
2. Processes
3. Strategy and Alignment
4. Leadership
5. Engagement and Behaviour

They are all the key drivers to implementing Lean as a set of principles and “way of doing things round here” and while they can be applied in single functions the best supplication of Lean is across an organisation and its supply chain.

An example is a Melbourne based timber moulding company that introduced a WMS, bar code scanning with mobile radio linked terminals and Lean 5S or workplace organisation with PDCA problem solving.  The result was increased productivity where 25% more throughput was handled by the same people, 99+% order picking accuracy with better flow through the packing and shipping functions.  The result was their major customer congratulated them on their category leadership in terms of service, accuracy, and quality.

That is what a Lean based integration of technology and Lean methodologies and tools in the order fulfilment process and warehouse and logistics operation will deliver – industry leading value with efficient operations and happy and satisfied customers.

By Andrew Stewart, Business Performance Improvement, astavcs@bigpond.com

Andrew covers proven fundamentals based on his deep experience. Andrew is a leading pioneer in Lean supply chain and led many of the early automated warehouse implementations across Australia.  His extensive experience includes innovative work in Retail, FMCH, Manufacturing, Hardware, Pharmaceutical, Healthcare, Contract Logistics.

This is the proven scientific method of assuring continuous improvement outcomes - identifying the causes of Waste. Providing sustainable solutions.

It incorporates management by fact, learning by doing and project management