Companies are increasingly realizing the value of streamlined procedures and leaner ways of executing supply chain operations. Knowing the value of lean logistics is important; however, knowinghow and where to eliminate waste and trim down costs is the true benchmark of successful supply chain management.
From initial planning to final execution and maintenance, each aspect of lean logistics operations must be properly integrated and managed to make all resources associated with the supply chain more efficient. According to a recent study by Aberdeen Group, The Lean Supply Chain Benchmark Report, lean logistics was initiated by inbound logistics functions that supported lean production which emphasized frequent delivery, leveling inbound and outbound flow, and cutting inventories. These methods have since infiltrated every aspect of distribution, from shipping to warehousing, picking, packing, and more.
Lean thinking has been discussed and practiced with varying levels of success for decades. In the early 1990’s, James P. Womack, Daniel T. Jones, and Daniel Roos outlined principles of lean thinking in their bestseller The Machine That Changed the World: The Story of Lean Production, which have since been adapted by countless businesses to meet the challenges of increased efficiency and customer-driven response.
More recently, books like Streamlined have expanded upon the findings of Womack et al., presenting seven steps for creating leaner supply chains:
1. Develop Systems Thinking
2. Understand Customer Value
3. Value Stream Mapping
4. Benchmark Best Practices
5. Design to Manage Demand Volatility
6. Create Flow
7. Performance Metrics
While understanding these steps may be simple for savvy operations managers, implementing them in effective supply chain planning can pose a formidable challenge. And, while you focus on your core competencies, the task of finding and fixing issues in your supply chain may not be at the top of your priorities list. For this reason, many companies are choosing to outsource some or all of their supply chain functions to a third party logistics provider.
According to a study by Georgia Tech University and Capgemini LLC, transportation and warehousing continue to be the functions that are most commonly and successfully executed through outsourcing. Other frequently outsourced functions include customs clearing and brokerage, forwarding, shipment consolidation, reverse logistics, cross docking, and many others. The trend towards outsourcing is steadily increasing, as the study reports that fifty percent of businesses that currently do not outsource logistics plan on outsourcing at least some of their operations in the future. The report also found that in the last four years of the study, eighty percent of companies were using 3PL services, an increase of almost ten percent from the first six years.
The cost savings and improved processes that can be realized by a knowledgeable, experienced 3PL partner are substantial. Cross docking is one procedure that can show huge improvements in any supply chain, and is a favorite of experienced 3PLs. Simply, cross docking enables a 3PL to move your inventory from receiving to shipping with no interim storage, drastically reducing storage and warehousing costs. In keeping with lean principles, cross docking strives to eliminate “muda” - a Japanese word for anything wasteful that does not increase value.
Further, cross docking allows 3PLs to facilitate fast replenishment of goods. Cross docking supports just-in-time (JIT) manufacturing efforts by capturing goods from suppliers at the cross dock and delivering them in small batches after sorting by location and schedule. Further, cross docking consolidates inbound production material while capturing and redistributing reusable containers. All of these benefits have shown significant improvements for companies with time-sensitive and intricate logistics operations, such as mass merchandisers, grocers, manufacturers, assembly operations, LTL trucking companies, and cargo carriers.
Another aspect of operations that benefits from the scrutiny and attention of a 3PL is the reverse supply chain. The considerable impact that reverse logistics has on a company’s bottom line has generated a greater awareness of the importance of reverse logistics. Respected financial and business magazine Forbes estimates that US firms spend $100 billion annually on returns and that returns represent up to 7% of a company’s gross sales.
Any company can see substantial improvements on the balance sheet by streamlining processes and cutting unnecessary costs. However, simple procedural changes may not be enough to improve service levels to achieve the best customer satisfaction. Companies are only as good as the relationships they establish with their clients, and the management of customer needs and on-time services are significant contributors to the satisfaction of your company’s clientele.
Choosing an outsourcing partner that works with you and your staff to implement a performance-based culture that will increase service levels while still cutting costs is essential to long term growth and success. The best way to ensure happy customers is by building a healthy, performance-based culture that keeps lines of communication open and minimizes waste in operations. Simply follow these steps.
Step 1: Ask yourself what kind of culture your business has now. This step requires a critical look at how your people view themselves, how they view each other, and how they view the organization. A culture that focuses on lean operations means a business that relies on its people to be as efficient and responsible as possible. Doing this involves encouraging your staff to take pride in their work and be engaged in the culture. This will mean trying new approaches, stretching your abilities, and risking failure. Creating an improved culture starts with you.
Step 2: Organize your toolbox. To create a leaner supply chain through a performance-based workforce, you need both a plan and the tools to complete it. You need a blueprint (a statement of your strategy that provides a view from 50,000 feet) and the appropriate tools (the day-to-day tactics and methods that you use to build a culture that drives effective communication) to get the job done. While you focus on your core competencies, your 3PL partner can get you the tools you need to succeed.
Step 3: Tearing down the barriers to success. Creating incentives is a proven method for encouraging an improved culture and leaner operations. This provides you with an opportunity to make clear the importance of improved communications by putting your money where your mouth is. As you see improvements in communications, you should also begin to see improvements in your bottom line. And using financial incentives allows you to reward people for having an impact, both on the company’s culture and its bottom line.
Companies that depend on lean supply chain operations – such as those responsible for seasonal items, promotional goods, store specific pallets, high volume items, kits, components, basic replenishment, and modules – will benefit substantially from a solid relationship with a qualified 3PL. Outsourcing logistics management to the right 3PL partner allows you to focus on your competencies while your 3PL partner focuses on your supply chain. Finally, an outsourcing partner who is committed to building a performance-based workforce that cuts out waste and improves service levels to your customers will deliver continuous results for your company, year over year.
Ron Cain, author of Lean Lessons in Supply Chain Management, is the President of TMSi Logistics with headquarters in New Hampshire and can be reached at (603) 373-7233 or at ronc@tmsilog.com.
