Shingo Research and Professional Publication Award recipient
Building a Lean Fulfillment Stream will change the way you think about your supply chain and logistics networks. Even better — it gives you a way to act using lean principles to transform and continuously improve these two key flows. This workbook demonstrates how lean logistics increases value while reducing costs.
In this pioneering workbook, lean logistics veterans Robert Martichenko and Kevin von Grabe explain step-by-step a comprehensive, real-life implementation process for optimizing your entire fulfillment stream from raw materials to customers, including practical insights into two critical concepts: calculating the total cost of fulfillment and collaborating across all functions and firms along the fulfillment stream.
Your company, like most, probably calculates costs at different points within departments, such as the piece price paid by the purchasing department to a supplier. Few companies figure the total cost associated with each major function across the whole supply chain model. Calculating total cost, which most executives find surprisingly large, lets you measure the impact of your improvement efforts on operational performance and overall income.
Martichenko and von Grabe also give you guidance and tools for collaboration. Using the example company ABE Corp. as their model, the authors illustrate how the lean conversion process is a win-win for every company along the supply chain. And an accompanying analysis illustrates the financial benefits and shows you how to apply the metrics.
The narrative, supported by 41 charts and illustrations, including value-stream maps, shows you:
- How to apply the eight guiding principles for implementing lean fulfillment, even when all the data and variables are not known.
- The seven major types of waste in logistics and supply chains.
- How a fulfillment-stream council of representatives from internal departments, customers, suppliers, and transportation providers gives critical guidance and support.
- The “eight rights” for assessing perfect order execution.
- What lean metrics to use, such as why average days on hand of inventory is a better measure than inventory turns.
- How to identify and eliminate waste in shipping, receiving, and yard management.
Learn how to use lean management principles to convert supply chains and logistics networks into smooth, fast-flowing fulfillment streams.
Robert began his lean journey working at Toyota Motor Manufacturing Indiana and has over 15 years of lean supply chain and third-party logistics experience. He sits on the editorial advisory board of Logistics Quarterly magazine and is a trained six sigma black belt. A past president of the Cincinnati Council of Supply Chain Management Professionals (CSCMP) roundtable, he now serves as a regional advisor to a group of CSCMP roundtables. He recently co-authored the business management book Lean Six Sigma Logistics. Robert also wrote the leadership handbook Success in 60 Seconds and the lean primer Everything I Know About Lean I Learned In First Grade. Robert also teaches global business at Saint Louis University's John Cook School of Business.
Kevin von Grabe
Kevin has focused his career on materials management, transportation, consulting and third party logistics. This experience includes multiple operational launches, including the “green field” start up at Toyota Motor Manufacturing Indiana. Kevin’s experience has provided him with several international experiences. These include operational start ups for Jabil Circuit at green field and brown field manufacturing plants in both Hungary and China. Kevin complements his years of logistics experience with a Bachelor's Degree in Logistics Management from Central Michigan University. Born in Detroit Michigan, Kevin currently resides in Kentucky with his wife Jeanette and son Kirk.
A Conversation with Robert Martichenko and Kevin von Grabe, authors of Building a Lean Fulfillment Stream: rethinking your supply chain and logistics to create maximum value at minimum total cost
Download the pdf or read the entire Q&A below.
Q. Why do you use the term “fulfillment stream” instead of the more common term “supply chain”?
Businesses traditionally have referred to this supply and shipping of materials to and from companies and customers as their supply chain. But the idea of a chain suggests something heavy, inflexible, and prone to jamming and kinking. It’s a static image, rather than a dynamic one. Within a chain it’s easy for managers to lose sight of the flow of value from start to finish, and instead focus on optimizing their one link of control, whether it’s a process, department, or even an entire firm.
To capture the lean concept of smooth flow, we prefer to envision a stream of materials flowing to the customer, with the firms and facilities along the way serving as tributaries. We call this flow of parts and products a lean fulfillment stream. It’s the flow of items from the beginning of the value-creating process all the way to the end. It includes all of the activities that move raw materials and information from materials suppliers to end customers.
Q. Why is it so important to focus on total cost of fulfillment?
We need to recognize that any business is a system of different departments, functions, and processes. In the absence of looking at the total cost of the system we will no doubt make decisions that minimize costs within a subset of the entire system. If we do not understand the implication of these decisions to the total cost of the system, we will likely sub-optimize and not minimize total cost.
Q. Why do you advocate using the inventory calculation of average days on hand, instead of inventory turns, which is used by many companies?
We use average days on hand as opposed to inventory turns because in order for us to calculate inventory carrying cost we need to understand our average days on hand (ADOH). Also, average days on hand provides us with better visibility to see opportunities. For example, if we are carrying 20 days on hand of Part 6789 but our lead time for this part is five days, it becomes visible that there is an opportunity to carry less inventory but still protect our production lines.
Regardless of the measure, it is important to look at inventory turns or average days on hand at the SKU level. Different SKUs should have different goals relative to inventory levels, different replenishment intervals and different ordering strategies. It might be perfectly acceptable for a low running, highly volatile SKU to have an ADOH of 25 while our goal for a high volume SKU with low volatility to have an ADOH of 3.
Q. What are a couple examples of common wastes in supply chains and logistics that most managers miss?
Trailer utilization: Most supply chain and logistics managers are told either that their trailers are full or “know” for themselves that their trailers are full. Often times they are not being fully utilized. When a trailer does arrive to their dock fully utilized it is typically a result of a “push” supply chain where the last 10% or 20% of the trailer is considered “free” and material is sent downstream regardless of a signal or trigger from the customer.
Q. What’s a milk run?
A milk run is a transportation move that uses dedicated equipment but has either more than on shipper or more than one consignee. It resembles a Truck Load move in that it uses a dedicated piece of equipment but is more complex in that it will not contain just one origin and destination. This transportation strategy enables supply chain and logistics managers to increase velocity within their supply chains without using the Less Than Truckload network.
Q. Why do you think companies have applied lean to internal manufacturing processes but been slow to use them in the supply stream?
I think there are two reasons why companies have been slow to apply lean concepts to their supply chains. First there is typically an absolute ton of work to do within the four walls of their factories. They are able to see significant improvement just by focusing on areas that are completely within their control. But, at some point on their lean journeys they will become constrained by their supply chains. In order for them to continue, they will need to apply lean principles to their supply chains and introduce their supply chain partners to lean.
Second, supply chains are complex. Often times we do not have good visibility to what is actually happening day in and day out within our supply chains. Supply chain partnerships are often short in length and agreements and contracts do not lend themselves to collaboration.
Q. In your experience, what are the biggest mistakes companies make when trying to improve supply chain and logistics?
The single biggest mistake that we typically see is making decisions in absence of understanding total cost. Companies often work on projects, initiatives, and blitzes that focus on a small portion of total cost. For example we often see companies focus on transportation costs by shifting modes from LTL to Truck Load without fully understanding their inventory carrying cost, the impact of increasing lead time, and the impact of reduced scheduling flexibility.