Lean distribution:
Why should I know about it?

by Dr. Perry Daneshgari
CEO & President, MCA Inc.

Does lean apply to the wholesale distribution industry? Knowing my company’s success in applying business and lean principles across other, diverse industries, my answer is a very clear “yes.” My book, Lean Operations in Wholesale Distribution, newly published by the NAW Institute for Distribution Excellence (available at www.naw.org/leanops), gives a good answer as to why you should know about lean distribution.

The distribution industry has always tried to be at the leading edge of technological innovation. However, technology, at best, will keep an industry at par with national averages with respect to productivity. To excel and exceed national averages, the application of technology must be supplemented with innovation in processes—that is, with the application of business and lean principles.

Lean Operations in Wholesale Distribution describes how becoming a lean distributor by reducing the internal operational costs is the only scenario in which a distributor can increase its profitability without requiring its customers to support higher prices. By reducing waste, a distributor’s capacity to service its customers will greatly increase while reducing its operational costs. To be a low-cost provider of distributor services, the supplier has to improve its internal costs.

So why should you know about lean? Among the many reasons are:

1. Becoming lean means becoming a more effective company—one that operates with minimal waste and few errors, adding value to the products and services it provides.

2. Becoming lean means continually improving the way you process orders and serve customers—from the time you seek an order, to order entry, and all the way through to the delivery of products and services.

3. A lean distributor is a profitable distributor. Becoming lean will improve your operational profitability by at least 20%-30%.

Now that we have a few good reasons to become lean, the next question in your mind is probably going to be: “How do I become lean?” Once again the answers can be found in Lean Operations in Wholesale Distribution. Lean is not a destination; it is a journey, and the steps through that journey are outlined in the book and briefly identified here:

Talk about the key challenges your company is facing in the marketplace. Ask yourself these general questions:

1. What is our company’s mission?

2. What do our customers need?

3. Do we fully understand our customers’ needs?

4. What are our needs?

5. What are our suppliers’ needs?

6. How can we improve our supplier relationships to better serve our customers?

7. What obstacles do we face in achieving our mission and goals?

Then ask these specific questions:

1. How do we add value?

2. What is value from the customer’s perspective?

3. What are the transactions in our processes that the customer does not know or care for?

4. How many transactions do we have to commit to before we satisfy customers’ requests?

5. What is our first-time pass? Do we know our cost of processing orders?

6. What are the costs of errors in our system?

7. How do we lose customers?

8. How do we gain customers?

9. What is the cost of a lost customer?

10. What is the cost of carrying a customer?

11. What is our customer’s point of entry into our system?

You can’t just stop your operations to work on the answers to these questions, nor can you put everything on hold to become lean. Instead, you need to use Strategic Breakthrough Process Improvement (SBPI) in an ongoing system. The importance of SBPI is that in an ongoing operation such as distribution, the SBPI process can be done on a small scale first. The SBPI allows lean to be introduced in ongoing processes through its main building blocks of:

1. Identification: What is the issue?

2. Characterization: Can its impact be measured? Do we have the measurement? Is it important?

3. Optimization: Solve the issue with the help of a cross-functional team.

4. Utilization: Run a test for application and verify the expected results and improvement; then institutionalize.

You can start the SBPI process by gathering your executive team for an initiative start-up. Once you’ve answered the questions above, identify the employees you would select for a cross-functional team to address the issues you’ve identified. Then bring that team together and further brainstorm some issues.

Once your team is in place, you can walk through the eight key steps of the SBPI process:

1. Prioritize your list of issues, and then select the top issues to be addressed. Develop a plan for gathering data on those issues.

2. Select the issue you’ll tackle first—the issue for which you’ll develop a PDSA (Plan-Do-Study-Act cycle). Then plan your tests.

3. Brainstorm about how you would perform the tests, collect the data, and resolve any issues that may arise.

4. Discuss how you would analyze the data, what criteria you would use for accepting a change to an existing process, and how you would select a pilot.

5. Talk about how you would evaluate the pilot and how, if the pilot was successful, you would expand it into larger pilots.

6. Discuss the “dashboard” you would use to track the pilot; these are tools and measurements.

What information should you include in the dashboard? Also, decide who would be in your “quality circle”—the cross-functional team of employees charged with overseeing this particular process/system indefinitely.

7. Describe how you would test the proposed change across the organization. Identify any risks and develop a plan to manage those risks.

8. Figure out how you would incorporate the change in your company’s regular operations. How would you communicate the change—internally and externally to customers and suppliers?

Becoming lean is not something you should take on alone. It’s important to get outside help. However, there are some things you can do to prepare for your lean journey. Remember that lean is a journey, and, like a good diet, must become a lifestyle change; you shouldn’t go on and off it if you want to be successful.

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