Trucks and Trains and Boats and Planes... and sometimes Packaging - Paging Dr. Lean for Logistics Savings

In the Paging Dr. Lean series, Patricia E. Moody asks lean experts to answer your lean questions. This forum allows industry leaders to speak to the lean issues or questions you come across each day.Dear Dr. Lean:

My back hurts and my arms are numb. I work as a logistics supervisor in an old-school operation. We do a lot of expedites, premium shipments, workarounds, and heavy lifting but somehow we manage to always make our quarterly ship goals. I just don't think we can go much longer doing it this way.

Our company makes premium snack foods — we mostly ship in the United States but we've picked up some global customers too. I have a feeling there is a better way to manage shipping. We could do some lean kaizen events to pick the low-hanging fruit, but I'd like to understand when my guys are unnecessarily costing us money by not being a little more flexible with our requirements. And we want to stop jerking around our shipping providers.

Can you help us?

Very truly yours,

Sore and Tired in Westboro, MA

Dear Sore and Tired:

I can certainly sympathize with you. Shipping is usually the last line of defense when servicing the customer. I agree, meeting monthly and quarterly sales goals does not always equate to the most favorable P&L. If you are hitting your numbers through brute force, then you are experiencing unpredictability and inefficiency in your processes that can be costly to your business. Symptoms of such a problem are exactly what you have described: expediting, workarounds and premium shipments. Although these symptoms are at times unavoidable in a manufacturing environment, they should be the exception and not the rule. In order to ease your pain, I would prescribe the following “lean” remedy that needs to occur upstream in your business processes.

The most common root cause of unpredictability and inefficiency is a lack of planning and, secondly, visibility to the plan. How does one eliminate unpredictability? It’s quite simple: You need a plan! A tool that facilitates effective planning is Sales & Operations Planning or S&OP. S&OP is an integrated business planning process led by senior management to collaboratively develop a single operating plan. The S&OP plan can be created by aggregating current sales orders in your ERP system and sales projections to meet the sales profit plan. You can start putting this plan together in Excel then evolve to something more sophisticated. Done correctly, S&OP will govern all activities within the enterprise while stabilizing flow and optimizing your shipping process.

From the S&OP plan, weekly production plans should be derived and developed around your constraint areas by program or product line. The plan level-loads demand, which can then be visually managed in a Kanban replenishment system at the finished goods level and/or a heijunka box/board to schedule the shop floor. The Kanban and heijunka board will then become your key performing indicators (KPIs) that can be shared and tracked daily to measure schedule attainment during your gemba walk.

Lastly, the S&OP and weekly production plans should be loaded into your ERP system to drive material demand. Procurement will then have visibility to production

requirements and work with the supply base to support the plan. Operations including Shipping can then plan and flex their workload and workforce with greater confidence. Finished goods will be available as needed for Shipping to fill orders and ship. With finished goods on the shelf and visibility to the S&OP plan, you can establish a milk run with your carriers to pick up and deliver products to your domestic customers or ship via consolidated shipments to your global customers. The need to expedite, pay premium shipment fees or do workarounds will begin to diminish and eventually go away.

But most importantly, all functions are now working toward a common goal of manufacturing quality parts on-time every week, which makes for happy customers and causes less stress to you and your team.

Very truly yours,

Aily Nguyen

Global Director of Supply Chain and Strategic Sourcing

KAMAN Composites

Aily Nguyen is global director of supply chain and strategic sourcing for KAMAN Composites, a division of KAMAN Aerospace in Bloomfield, CT. She was previously site manager of supply chain at ITT Power Solutions in West Springfield, MA, a division of Geospatial Systems; lean logistics manager at SARGENT Manufacturing, a division of ASSA ABLOY in New Haven, CT; strategic supply chain manager for Gems Sensors and Controls, a division of lean pioneer Danaher Corp and various Operations roles at Orquest Inc, Xoma LLC and Nidec America Corporation.

Dear Sore and Tired:

Your hunch is right — the key to saving your sanity and budget is to get in sync with your carriers. Let's imagine ourselves in their position and see if we can align their interests with yours so that everyone is better off.

First, what do carriers want?

For carriers, the key to making money is asset utilization. If their trucks and drivers are sitting for too long or driving too many empty miles, they're not making money. No reasonable amount of extra volume or price premium can make up for idle assets.

So, the key to being an efficient shipper is to help carriers maximize their asset utilization. But how?

Here are three actions to consider that should help:

1. Utilize the spot market for a larger portion of your freight.

The spot market is the business that moves with carriers on contracts/prices that apply only to a single load. The contract market is the business that moves on pricing tied to longer term contracts. Except for very regular freight that moves with a predictable cadence in predictable lanes, most loads can be more efficiently moved on the spot market. The reason is that it's easier to find a carrier that happens to be where you need them when you need them and interested in going where you want them to go than it is to find a carrier in advance that knows that they'll want that type of load sometimes. While most shippers will need to use brokers to reach the spot market, broker markups have come down significantly, making them a much better option. Plus, websites like ours (http://buytruckload.com) provide instant rate quotes that make it much easier to shop for spot capacity than it used to be. We "guess" at what it will cost us to move a load on the spot market and set our prices based on that. No matter what it actually costs us, the customer gets the price that we offered.

2. Be flexible on pickup and delivery dates, especially for partial truckload quantities.

The more rigid your timing requirements, the more likely it is that a carrier will need to layover their truck at origin, destination or both. When that happens, or even when the carrier thinks that it may happen, your price goes up. While there are good reasons to want to schedule stops, just use common sense. If you can find a way to be flexible, it'll help you. You're paying a lot for timing certainty.

3. Increase the number of carriers that you deal with, both directly and through brokers.

The right number of carriers to deal with is more than the current number that you're buying from. Both directly and through brokers, increase your supply base to reduce your costs. The administrative benefits that come from concentrating your spend with relatively few carriers are more than offset by the savings that come from a larger carrier base and dealing with brokers for the right portion of your spend.

Sincerely,

Sean Devine

Co-owner

buytruckload.com and Partage

Sean Devine was vice president of strategy and transportation purchasing at Echo Global Logistics, vice president of pricing and engineering at Con-way Freight, vice president of enterprise engineering at Con-way, vice president of consulting at Emptoris (now IBM) and vice president of products and services at CombinetNet. Connect with him on LinkedIn or send an email to seandevine@gopartage.com.

Dear Sore and Tired:

Your situation sounds like that of a great many manufacturers that have a clinical condition known as “Quarter-end-goalitis.” This horrible disease has been driving non-value

               Cartoon published courtesy of buytruckload.com.