The Biggest "Losers"

The lean flow distribution strategy approach uses historical usage data to statistically size the ROP to ensure:

• Sufficient inventory to meet variations in demand to prescribed service levels. This will allow a DC to keep the minimum inventory necessary to meet customer demand but have enough to meet the desired service level. This will also allow the DC to rapidly change ROPs to increasing or decreasing demand patterns and anticipate future demand based upon statistical projections.

• Very high service levels are met or maintained. Anyone can easily reduce inventory to any level management requests by arbitrarily controlling the total dollars purchased and received, but reducing inventory while improving customer fill rates or service levels is what the lean flow distribution strategy achieves and where the return on investment will be created.

• MOQs are set to provide adequate on-hand inventory and determine the frequency and quantity of product delivery. The MOQ provides a consistent quantity to be purchased but requires a variable delivery schedule with a consistent supplier lead time. If demand is down, on-hand inventory will not drop below the ROP, and no material will be replenished. If material is consumed at a higher rate than normal, then the ROP will signal for replenishment more often than normal, asking for more material. Product requested uses a pipeline of replenished materials (pull analogy) in transit to the DC.

When there is a long lead time between the supplier and the DC, the inventory received needs to be shipped periodically in smaller quantities rather than all shipped at once. This is especially true of materials with longer than four-week lead times. To receive nine weeks or more of something in today's fast-paced global market reflects poor use of cash, space, labor and betting the next nine weeks' sales on a crystal-ball projection of what has been placed in inventory.

Dramatic Reduction

There are many examples of companies that have used lean flow pull principles to achieve success in improving or maintaining high service levels while dramatically reducing inventory in their warehouses and DCs.

To properly implement a lean flow distribution strategy, the statistical ROP will need to be resized frequently to ensure that trends in demand are properly applied to the ROP. This means that A items should be resized at least once per month, B items quarterly and C items every six months. To achieve this ability to resize the kanban trigger efficiently, a robust interface between the MRP/inventory/ROP repository software and the lean flow tool used to create the statistical ROP will be required. This needs to be considered when planning the implementation of the statistical kanban trigger.

Receiving benefits from a lean flow implementation of a pull system in a warehouse or DC will probably not require a huge rearrangement of facilities, no new foundations for machines, no large changes to the physical processes of receiving, material handling, picking orders and shipping product. In fact, some additional savings beyond the potential inventory reductions include:

• With less inventory, less distribution space is required. This could allow the use of the space made available to be sold, leased or used for other business purposes.

• With less excess inventory in the warehouse/DC, some of the new space could be made available for more efficient storage of items, so there is no stacking item A on the floor in front of B, then digging item B out when needed. This reduces labor waste and therefore costs.

• With less material coming in large batches, there is less labor needed to cover peak demands and therefore less overall labor required.

Can any warehouse or DC take advantage of a lean flow distribution strategy? Absolutely. So, what are you waiting for?

Preston J. McCreary is a founding partner at FlowVision, based in Dillon, Colo. He has been educating companies and implementing lean flow manufacturing concepts for more than 17 years, in such industries as power generation, aerospace, railroads, machine tools, compressors, construction equipment, foundries, high-tech, air-conditioning equipment and vitreous china.