Lean University -- Lean Articles

Applying Lean to global logistics . . . a tutorial

by Bob Masterson

As United States manufacturers continue to compete in the global market, logistics competency will be increasingly viewed as a competitive differentiator. What follows is a guide to applying Lean principles to a global logistics process.

What's in this for you? Here are examples of waste discovered in the global logistics processes of United States manufacturers. To make this relevant to you, ignore the dollars and apply the percentages against your business.

• $324,000 (87 percent reduction) in courier expense (replaced paper documents with self-service, Web-access electronic documents)
• 7,250 hours (50 percent  reduction) in customer service time (eliminated reactive communication and replaced it with just-in-time communication)
• 7,596 hours (52 percent  reduction) in document preparation time (built a single database and automated output)
• $739,000 (28 percent  reduction) in in-transit inventory cost (implemented communication with customers, daily track and trace, made carriers responsible for on-time deliveries, applied statistical measurements, eliminated safety stock and fear factor)
• 17 days (36 percent  reduction) in throughput time
• 40 percent of logistics process steps (non-added-value)
• 60 percent of handoffs
• two days (66 percent  reduction) in air in-transit time (eliminated routine stop-off at forwarder at origin and destination)
• 43 minutes (76 percent reduction) invested in each order

Applying Lean to your global logistics process will:
• Improve service to your customer (lower cost, better communication, greater reliability).
• Increase productivity of your operations by 20 to 100 percent (remove waste, improve flow).
• Increase throughput by 20 to 100 percent.
• Decrease in-transit inventory by 10 to 50 percent.
• Improve cash flow.
• Measure carrier, forwarder and your process performance (add 20 key performance measures).
• Increase profitability.

The aim of Lean global logistics is the same as the aim of Lean manufacturing: deliver the right goods or service at the right time, place and price, and with perfect quality. This is accomplished by improving flow.

The following 10 steps will guide you in improving the flow of your global logistics process.

1. Set expectations
Commitment from the top management: Lean will not work without a well-communicated, long-term commitment from top management.

Involvement of operational-level, cross-functional employees: Whether it's discovery, process writing, value stream mapping, kaizens or celebrations, the people involved should be from a variety of job functions. This improves communication, knowledge and understanding, and ultimately makes you more successful at Lean.

Give employees tools, a voice, permission to improve their workplace: Good employees want to improve their workplace and become more productive; applying Lean gives them opportunities to do this.

2. Discovery

The purpose of discovery is to uncover the details of a process. Most logistics processes really are not processes; rather, they are many disjointed, random activities within company departments. These random activities include no standard of service for customers, forwarders or carriers. There is most often no standard documentation flow, no statistical tools for management, no global reports, no comprehensive plans to take advantage of technologies and, worst of all, no system of continuous improvement.

This often consists of asking more than 130 questions, depending on air, ocean, import, export, foreign to domestic, and seeks to establish the lowest levels of a process.

3. Document process
Remember, in global logistics we don't have cells or a shop floor, so there is not that type of visibility. The process document is what we all see.

The first process document is created from the results of discovery, written out step-by-step, in clear detail. Each step is defined. Timing, sequence and responsibility are assigned.

Everyone in the process (shipper, carrier, forwarder, consignee, etc.) uses the same process document.

The process document provides shipper, consignee, forwarder and carriers visibility and standard work.

4. "Current state" value stream map
What is your value stream? It might begin in Bangkok with a purchase order being sent to Wisconsin, involves a factory in Wisconsin, a truck between Wisconsin and Chicago, railroad between Chicago and Los Angeles, stevedores in Los Angeles, a cargo vessel between Los Angeles and Bangkok, customs in Thailand, a truck in Bangkok and a warehouse. Each step requires communication and paperwork. Our value stream looks a little bit different than a manufacturer. It includes physical movement, communication and documentation.

Identify every step in the process as value-added, non-value-added or "non-value-added but necessary." To determine if a step adds value, ask yourself, "Is the customer willing to pay for this?"

"Non-value-added but necessary" examples include compliance and hazardous materials management. Measure every step (i.e. operator's time, machine time). Identify manual communication (paper, fax, voice) vs. electronic communication  (paperless). Identify timelines (e.g. manufacturer's lead time, order to shipment time, order to invoice, order to cash, time spanned, time invested). If you're not familiar with value stream mapping, pick up a copy of the book "Seeing the Whole" by Dan Jones and Jim Womack.

Look for Lean tools that will enable your work: standard work, statistics, communication, poka-yoke, rework, setup time, rapid improvement, push vs. pull, time observation, transactional waste, 5-S, spaghetti diagram, flow diagram, visual management, employee involvement, theory of constraints, kanban, leveling, takt time and others.

5. "Future state" value stream map
This is fun! It is a shared vision of what the value stream could look like if it was created by the people who own it.

Having identified non-value-added steps in the current state process, now create a new map without those steps.

Look at the times recorded in the current state and figure out how to reduce them in the future state.

The future state gives people the opportunity to be creative and to challenge one another. It allows people to ask questions (What if? Could we? Does this make sense? Is this really value-added? Would this cost less?)

6. Kaizen list
A kaizen is a small, incremental improvement made by the people doing the work.

This kaizen list primarily represents the gaps between the current and future state value stream maps.

Other opportunities can also be included on the kaizen list (e.g. ideas, things gone wrong, variations).

Publish a kaizen newspaper and communicate current kaizens, open kaizens, percentage completed, waste eliminated and money saved.

7. Sustained
Kaizen event are not complete until proven sustained. Sometimes kaizens can be proved sustained immediately. Sometimes they have to be proved over weeks or months.

8. Update process document
Once proved sustained, update the process document, communicate changes to everyone involved and send them a revised process document.

9. Tie to corporate objectives
Every process improvement must be quantifiable. Whether it is service, dollars, hours or productivity, it must be quantified and then tied to the corporate objective.

Examples of corporate objectives are improve profitability, improve return on net assets and improve cash flow.

10. Celebrate
Recognize and celebrate achievement as often you can! Look for reasons to celebrate! Parties, lunches, bonuses, T-shirts . . . the list goes on and on. Somehow recognize the achievement of the kaizen members.

Once you have finished celebrating, pick another kaizen, get a cross-functional team together and figure out how to improve!

You can continue to cope or continue to improve. The choice is yours.