Lean Thinking in Distribution

Making an organization lean is a long journey and not an easy one, but distributors who want to be Olympic-class competitors in their markets will find it worth the struggle.

When athletes train, they focus on the fundamentals, first and foremost. They go through a series of concentrated efforts to trim fat, increase flexibility and hone their skills. The result is a lean, agile body ready to take on the rigors of competition. In team sports, the effort must go further. The athletes must work together to prepare for any situation that might crop up during a game.

A similar process applies to all aspects of what we do in wholesale distribution. In those organizations that “get lean,” management works with its team of employees to develop a tightly coordinated system — one that is agile, synchronized and responsive to customers. When put into action, “lean” principles allow companies to serve customers faster, using less space and inventory, at lower transaction costs and with greater accuracy.

Lean practices are not something most of us adopt intuitively. In fact, many wholesale distributors do not know enough about their underlying cost structures — order costs, delivery costs, line-item transaction costs and other key metrics — to know where to begin getting lean. Sometimes, necessary team-building skills and experience may be lacking as well.

If lean is what you want, understand that it will not be an overnight process. Your first instinct may be to throw automation and technology at the problem rather than to manage. But what you'll really need to do is re-evaluate your way of thinking, your management style and most likely your processes.

A Whole New Approach

Based on successful lean and continuous improvement implementations with our clients, we've identified a series of processes that are new to many distributors and pave the way toward a different approach to performance improvement. These are essential to success across the organization and over the long term. They're driven by a desire to improve key company metrics such as order fill rates, delivery costs, warehouse transaction costs and inventory levels.

The lean and continuous improvement process is an extension of the Lean Manufacturing concepts that for several years have provided a framework for improvement at giants such as Toyota and IKEA — companies where less human effort, less capital investment, less time and fewer facilities and inventories are the Holy Grail. Originally known as the Toyota Production System (TPS), the process has morphed into the movement known as Just-In-Time (JIT) and then Lean Manufacturing, the precursor for what has now become Lean Thinking.

Why the new nomenclature? It's not some consultant selling a new bill of goods. Rather, it suggests a different twist: that lean thinking concepts can be applied to a variety of sectors such as warehousing, distribution, retailing, order processing, sales, quoting and service. Our experience indicates that with Lean Thinking in place, performance, as measured by output, improves 30 percent to 50 percent.

What is Lean Thinking Really?

The best starting point is to recognize a small fraction of the total time and effort in any organization actually adds value for both internal and external customers. All non-value activities — or waste — can be targeted for removal, step-by-step. I believe as much as 60 percent of the activities performed add no value at all! Eliminating the non-value-added activities is the greatest potential source of improvement in a distributor's performance.

Further, not all value is provided by your organization alone — think suppliers! The reduction of non-value-added activities has to be pursued throughout the whole “Value Stream” — the entire set of activities across all the organizations and departments, internal and external, involved in delivering product or service. Only then can a distributor understand the real cost structure contained within the value stream and focus on optimizing the whole, ultimately resulting in a “benefit stream.”

Lean thinking is exactly what it implies: the conscious effort, tightly focused, to objectively examine one's workplace and working environment. The goals are searching out waste, increasing productivity, lowering total cost and increasing throughput. As part of this search, one must look for evidence of “capacity-constrained resources” — bottlenecks — which limit output, create unneeded inventory or manpower or use unnecessary resources that get in the way of smooth, accurate and timely operations.

Bottlenecks may seem obvious and easy to spot. Many of them, however, are hidden and unrecognized. What we assume to be a bottleneck may really be an “unconstrained resource” where output is actually thwarted by a complex or slow process, but where the impact never has been fully assessed. Quite often, this type of bottleneck is a bureaucratic, paperwork or procedural issue. It may not necessarily be a physical impediment, just an old practice taken for granted. Using lean thinking as a tool to assess one's shop often generates surprising outcomes and can turn constraints into constructive paths for change. Lean thinking provides an operational foundation for service excellence and low total costs.

Identifying the Barriers: What Are The Root Causes and Effects?

In a recent lean implementation, we introduced our client to Kaizen, meaning gradual and orderly continuous improvement, another innovation from Toyota. The company's teams broke down each and every warehouse/distribution center activity — what I often call the “touch points.” In some cases they actually mapped the processes on paper, and examined each one for value — what it lent to the overall process and how it was conducted. In other words, they began to identify the barriers to improvement, or the root causes. These barriers were prioritized through team consensus, based on their perceived impact. In some cases, we did allow low-hanging fruit to be given higher priority so the team would have an opportunity for some quick wins. Among the first barriers identified were:

  • Lack of personnel training, cross-training and teamwork
  • Too many storage locations for the same product
  • Poorly sized storage locations
  • Too many picking exceptions; i.e., can't find product, insufficient product, wrong product
  • Lack of product security for certain products
  • Inadequate material handling equipment
  • Fast-moving products not easily accessible and poorly located; i.e., long pick-paths
  • Poor vendor transportation and delivery scheduling

As the work progressed, more obstacles were added:

  • Work hours inconsistent with daily workload
  • Lack of timely stock put away and product then misplaced
  • Errors in receiving
  • Too many backorders
  • New products can't be readily located
  • Vendor short shipments

This is not an exhaustive list — in our experience, it's not unusual for each team to be able to come up with 30 to 40 or more barriers!

Develop A Corrective Action Plan: The “Little Miracles”

For each of the barriers, in priority order, the team developed corrective actions. As solutions were sought, tried (and in some cases tried again) and found to be successful, the kaizen approach resulted in several little miracles. These individually, and then collectively, had significant positive impact on overall performance:

  • Changes in the system of warehouse storage
  • Re-slotting inventory in order to shorten picking travel time
  • Rearranging some of the footprint of the warehouse facility
  • Providing improved storage media and materials-handling resources
  • Multiple order-picking process capability
  • Revised personnel assignments and work hours

Where inventory accuracy was a major lean initiative, we started by designating a control group of 10 to 20 products to be counted every day. This simplified finding the root causes of inventory inaccuracy and helped us measure the impact of the corrective actions we applied.

Seldom was significant capital investment required. Where warehouse productivity was the issue, increases in picking productivity were 45 to 50 percent. Inventory accuracy would jump to 90 percent when the identified root causes were eliminated. Most of my clients have an objective of 98-percent-plus accuracy, and they continue to identify additional barriers until that objective is met.

Continue To Measure: The “Visual WorkPlace”

As the team conducted its work and implemented changes, each week a new measurement was taken and compared to the baseline. The results were posted in the warehouse and e-mailed each Monday morning to the entire team and management personnel, in both numerical and graph form. The visual feedback is important. There was often great anticipation waiting for the new measurements and a lot of opportunity for satisfaction. Just as importantly, measuring should not stop after objectives are reached.

As with anything new, some team members and employees were skeptical. But because key people were involved in the processes, and because the company had some quick successes with the low-hanging fruit, the approach won over the naysayers. The participants quickly recognized the quality of company life improves when you share ideas, implement successful change and obtain results.

Some of the companies incorporated in this article have now begun to roll out this lean approach to other areas of their organization: customer service, product procurement, accounts payable, returned-goods processing, credit and collections. Some are working closely with suppliers, grasping the concept that the full benefits of lean thinking cannot be achieved until it reaches suppliers. They are addressing issues related to improving the flow of goods, including inventory replenishment cycle time, order quantities, and transportation. Still others are looking at their relationships with customers and seeking lean opportunities for partnership and collaboration rather than the traditional relationships.


It's difficult to obtain leading-edge performance without technology. Just adding technology doesn't solve anything. While there is certainly nothing wrong with using appropriate technology, processes must be figured out first. You can then determine how technology will help.

Your Company's Mindset and The Lean Distribution Vision

For a successful lean approach, the mindset throughout your company needs to be one of challenging existing practices, readiness for change, jumping on the opportunities as they present themselves and tracking key performance metrics. A lean approach is an acknowledgement that someone can figure out a better way. It's a roadmap you can use to explore operational parameters and maximize flow.

The Lean Distribution vision should be built on a solid definition of desired business outcomes linked to operating process changes. The starting point is assessing, quantifying and agreeing on the barriers to improvement. Nothing should be left to gut instinct. Lean methods avoid the “black-box” approach that hides how change will occur, fails to disclose what the implications to various organizational units will be, or conceals what the business will look like in the future. With lean methodology, the shifts are clear and process approaches are well tested. Transforming organizational structures and reporting relationships becomes less of a challenge. What remains is tailoring your lean practices to your markets and operating environment.

Once the lean shifts are agreed upon, assessing and quantifying the key performance metrics, especially those with the most impact on the business, is key. Understand the importance of the organization in this process. If appropriate levels of the organization are not involved, be prepared for failure. Be prepared for how long it takes to build a lean environment. A true lean-thinking organization doesn't happen in a straight-line fashion. It's a combination of little miracles that fit together.

Lastly, acknowledge when you need help. Look for help in someone with experience in team building and helping a company change — not just someone who knows lean techniques. Maybe you will need an outsider to objectively look at and work with your organization. Olympic caliber athletes all need coaches; the same holds true for companies seeking to be lean.

Howard W. Coleman is principal of MCA Associates, Derby, Conn., a 20-year-old management consulting firm that works primarily with distributors on implementing continuous improvement solutions focused on business process re-engineering, supply-chain management, sales development and processes, information systems and technology, organizational assessment and development, and succession planning. E-mail [email protected] or visit www.mcaassociates.com.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.