Lean for Distribution Logistics

Rapidly increasing order volumes look great on the balance sheet, but they can stretch facility resources to the max.

That had been the case recently at third-party logistics (3PL) provider New Breed Logistics. Based in High Point, N.C., New Breed manages more than 50 DCs in the U.S. Boeing is one of its key clients. New Breed receives orders from the aerospace giant, packages the material and then waits for approval from the U.S. government and Boeing.

When Boeing began rapidly increasing orders for its V-22 aircraft program, New Breed added a second shift at its Swedesboro, N.J., DC and authorized weekend overtime to fill the additional orders. Despite the increased labor, output still was not keeping pace with demand.

Volumes exceeded projections for more than 24 months, and that negatively impacted the facility's performance metrics. Specifically, on-time delivery rate decreased 23%.

Several factors contributed to the decline in this critical metric. In addition to high levels of unplanned order activity, the company was also coping with orders that had higher priorities than were anticipated. On top of that, order mix was skewed toward items with strict packaging guidelines, and revised packing plans required more time to complete due to the need for high-end packaging configurations. Because bottlenecks in the packaging process interrupt total logistics flow, New Breed's packaging metrics greatly influence on-time delivery rates.

Improvement Goals

New Breed management called on Sherif Mahdi, director of business performance excellence and a Lean Six Sigma Black Belt, to help the facility increase on-time packaging rates, throughput and packaging efficiency; reduce waste; and improve product flow to support increased throughput.

Mahdi assembled an improvement team consisting of 11 employees representing New Breed and Boeing. As project manager for the new Lean Six Sigma improvement team, Mahdi set high standards for the operation. The goal was to increase throughput from 167 orders to 240 orders per day and modify warehouse layout to accommodate a volume increase of 40% to 45%. In an unconventional application of Lean Six Sigma, the warehouse would be redesigned to reduce waste in New Breed's overall distribution logistics process.

The team also planned to adjust the performance metrics used as customer requirements. The key measurement would change from 98% on-time delivery to 98% on-time packaging. Boeing had been using on-time delivery rates to measure 3PL performance, but those numbers were out of New Breed's control.

“Our on-time delivery is essentially looking at packaging,” explains Mahdi. “On-time packaging is something that we can control as well as something value-added for both Boeing and the government.”

Uncovering Root Causes

The improvement team began by using cause-and-effect analysis to identify root causes of the reduction in on-time metrics. Current and future states of the process were documented by gathering all potential outcomes of process improvements and identifying customers with increasing volumes.

Many other quality tools were employed, including trend analysis for key performance indicators (KPIs), “5 Whys” for root-cause analysis, run charts for data analysis and 7S as a baseline for the improvement process.