The Biggest "Losers"

The current focus of lean implementations in the warehouse - whether it be wholesale/retail warehouses, distribution centers (DCs) or the finished goods inventories of manufacturers - is the elimination of waste and the changing of business processes. However, applying a lean flow distribution strategy is about more than just eliminating waste. It is also about creating a replenishment strategy that focuses on pull, uses a statistical approach to sizing the right inventory levels and ensures the business reacts quickly to changes in demand. Implementing these types of lean flow principles to inventory models can greatly improve operations, inventory days of supply and much more.

Before proceeding, let's answer what seems like a basic question: What is the purpose of a DC or warehouse?

• To be able to ship product when it is sold. You can't sell it if you don't have it or quick access to it.

• To supply it to customers when they want it. This means high service levels, fill rates and on-time delivery performance.

• Converting to Pull

  To keep costs low. Any cost of distribution or shipping is non-value added and takes profit directly from the bottom line. What is the biggest expense in the warehouse/DC? It's all of the finished product ready to sell, i.e., the inventory.

How does a warehouse/DC improve performance to achieve these purposes? One way is to employ a lean flow distribution strategy. However, with many traditional lean implementations in warehouses, there is so much focus on the elimination of labor waste and improving business processes that there is little attention paid to the improvement of service levels, the assurance that product is available and keeping the largest cost (inventory) as low as possible.

The focus needs to be on the lean flow distribution strategy. This strategy addresses all of the above items and also focuses on where the largest financial opportunity exists\m>reducing inventory while improving service-level performance.

Implementing a lean flow distribution strategy first requires the input of goods into a DC to progress from the traditional push to a pull process. Traditional push of product into a warehouse/DC is most often driven by a forecast or a sizing methodology that is marginally tied to what occurs in the DC. Therefore, when product stops being consumed, the input from the supplier may or may not change based upon how planners/buyers react. As a result, inventory is going to pile up somewhere, whether it's in the DC, in the pipeline, or at the supplier (see Figure 1, “Push Analogy”).

Choreographing Change

Planners/buyers may assume that the failure to sell something is an anomaly or that the rapid consumption of a product is not real demand and therefore should be ignored. What information are they using when they make these assumptions? Reams of data, statistical charting/graphing of demand patterns, mathematical comparisons between the forecast and actual sales? No, more often than not, they rely heavily upon their experience.

Although the experience of planners/buyers is invaluable, the process of spending thousands or millions of dollars to replenish a DC may require a little more analysis and analytical tools than planners/buyers have available. It has been my experience that often planners/buyers are trying to do the right things to keep inventory low, but they are so overwhelmed that they make the safe decision, based on the long-held belief that “if we don't have it in stock, we can't sell it.”