Steps for Becoming a ‘Lean’ Distributor

The distribution industry has always tried to be at the leading edge of technological innovation. However, technology, at best, will keep an industry at par with national averages with respect to productivity. To excel and exceed national averages, the application of technology must be supplemented with innovation in processes—that is, with the application of business and lean principles.

Reducing the internal operational costs is the only way a distributor can increase its profitability without requiring its customers to support higher prices. By reducing waste, a distributor’s capacity to service its customers will greatly increase while reducing its operational costs. To be a low-cost provider of distributor services, the supplier has to improve its internal costs.

So what are the advantages of becoming lean?

1. Become a more effective company—one that operates with minimal waste and few errors, adding value to the products and services it provides.
2. Continually improve the way you process orders and serve customers—from the time you seek an order, to order entry, and all the way through to the delivery of products and services.
3. Enhanced your profitability: Becoming lean will improve your operational profitability by at least 20% to 30%.

So how does one become lean? First, you have to keep in mind that lean is not a destination, it is a journey, and there are some initial steps that must be taken. Start by discussing the challenges your company is facing in the marketplace. Ask yourself these general questions:

1. What is our company’s mission?
2. What do our customers need?
3. Do we fully understand our customers’ needs?
4. What are our needs?
5. What are our suppliers’ needs?
6. How can we improve our supplier relationships to better serve our customers?
7. What obstacles do we face in achieving our mission and goals?

Then ask these specific questions:

1. How do we add value?
2. What is value from the customer’s perspective?
3. What are the transactions in our processes that the customer does not know or care for?
4. How many transactions do we have to commit to before we satisfy customers’ requests?
5. What is our first-time pass? Do we know our cost of processing orders?
6. What are the costs of errors in our system?
7. How do we lose customers?
8. How do we gain customers?
9. What is the cost of a lost customer?
10. What is the cost of carrying a customer?
11. What is our customer’s point of entry into our system?

Obviously, you can’t just stop your operations to work on the answers to these questions -- nor can you put everything on hold to become lean. Instead, you’ll need to proceed gradually, and methodically. This is where strategic breakthrough process improvement (SBPI) can help. SBPI is a general step-by-step process used to identify and prioritize areas for improvement while keeping your company’s overall vision in mind. You can determine if a specific problem can be solved using SBPI by going through these four general steps:

1. Identification: What is the issue?
2. Characterization: Can its impact be measured? Do we have the measurement? Is it important?
3. Optimization: Solve the issue with the help of a cross-functional team.
4. Utilization: Run a test for application and verify the expected results and improvement; then institutionalize.

Start the SBPI process by gathering your executive team for an initiative start-up. Once you’ve answered the questions above, identify the employees you would select for a cross-functional team to address the issues you’ve identified. Then bring that team together and further brainstorm some issues.

Once your team is in place, you can walk through the eight steps of the SBPI process:

1. Prioritize your list of issues, and then select the top issues to be addressed. Develop a plan for gathering data on those issues.
2. Select the issue you’ll tackle first—the issue for which you’ll develop a PDSA (plan-do-study-act cycle). Then plan your tests.
3. Brainstorm about how you would perform the tests, collect the data, and resolve any issues that may arise.
4. Discuss how you would analyze the data, what criteria you would use for accepting a change to an existing process, and how you would select a pilot.
5. Talk about how you would evaluate the pilot and how, if the pilot was successful, you would expand it into larger pilots.
6. Discuss the “dashboard” you would use to track the pilot; these are tools and measurements. What information should you include in the dashboard? Also, decide who would be in your “quality circle”—the cross-functional team of employees charged with overseeing this particular process/system indefinitely.
7. Describe how you would test the proposed change across the organization. Identify any risks and develop a plan to manage those risks.
8. Figure out how you would incorporate the change in your company’s regular operations. How would you communicate the change—internally and externally to customers and suppliers?

Becoming lean is not something you should take on alone. It’s important to get outside help. But there are some things you can do to prepare for your lean journey. Using the steps above can help you prepare for this new – and important – change in your lifestyle.

Dr. Perry Daneshgari, CEO/president of MCA, Inc., and Michelle Wilsonk, director of research of MCA Inc., are co-authors of Lean Operations in Wholesale Distribution, published by the NAW Institute for Distribution Excellence.