organization. If the warehouse is optimized for receiving rather than for pulling, I would say at least 30 percent to 40 percent of the warehouse capacity is wasted. The process is about identifying the waste and the cause so you can fix the problem. Though it seems simple, there are a lot of things in this book that just aren’t intuitive. It’s not to be breezed through; it’s a tool to help get you where you want to be.
The idea that a lean operation -one that continually identifies and eliminates wasteful activities to reduce internal costs -can be a more profitable one has long been accepted by manufacturers. Distributors are now starting to apply that idea to their operations. Dr. Perry Daneshgari, president of MCA Inc. and co-author of Lean Operations in Wholesale Distribution, now available from the National Association of Wholesaler-Distributors (www.nawpubs.org), recently spoke with MDM about how the distributor mindset is changing.
MDM: Is lean is something that you’re seeing a lot more of in distribution?
Perry Daneshgari: I see more sparks of interest, but is it being applied more? Not yet, but there are more CEOs and executives who are seriously looking at this now as compared with 10 years ago. Getting them to recognize the benefits was an uphill battle because they didn’t think they needed it. They thought they were lean.
MDM: How much of an impact can lean have on the bottom line?
PD: From what we have seen in the last 15 years, the first two years you can see 20 percent to 30 percent improvement. And, within four years, it could be somewhere between 200 percent to 300 percent improvement on the bottom line.
MDM: What has triggered an increased interest by distributors?
PD: Certain things have happened in the distribution industry. From what we have seen in the data, larger distributors and retailers have started to partner more with the customers than with the manufacturers. Historically within the distribution channel, the distributor would be a representative of the manufacturers. But, a lot of those manufacturers have now moved offshore, and that tie isn’t as strong.
There are also a few large consolidated companies, both in retail and in distribution, that have been able to use lean to become more efficient. In turn, they have been able to reduce their prices and their cost. And, their size has allowed them to tell the manufacturers what to produce based on what their customers are buying, giving these companies more control over manufacturer inventory.
Manufacturers have been leaning their processes for the last 20 years. They now operate with very limited inventory. Square D only maintains a four day supply of finished good inventory. In order for distributors to be able to get what they need when they need it from the manufacturer, they have to understand what their customers want.
MDM: What does your book provide for people who may be looking at starting a lean program?
PD: The book introduces the principles of lean. It emphasizes that lean is not a one-time deal; rather, it’s a journey, a mindset. It walks you through what it would take to put a program place. It identifies what it would take to put it in place as you are operating. It teaches you the tools of running tests before you go spend a lot of money on it. And, it teaches you how you can create your organization to support it.
The idea is to use the success of other industries, like banking and automotive, to learn how to identify waste in your own company. You can translate the principles behind those successes but you have to be able to create your own model targeted for your own company.
MDM: What the first step toward translating the principles from other industries?
PD: The first step is using them to identify your own waste. Waste is anything that is not seen as a value from the customer’s perspective. For example, how many people touch the product? If too many people touch it, it increases time, and it increases cost.
MDM: What is one of the most repeated wasteful activities that is simple to change?