extending lean supply chain thinking

Business901 Podcast Transcription

Implementing Lean Marketing Systems

Extending Lean Supply Chain Thinking

Copyright Business901

Extending Lean Supply Chain Thinking Guest was Paul Myerson

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Paul Myerson has been a successful change catalyst for clients and organizations of all sizes. He has more than 25 years of experience in supply chain strategies, systems, and operations that have resulted in bottom-line improvements for companies such as General Electric, Unilever, and Church and Dwight. He is currently Managing Partner at Logistics Planning Associates, LLC, a supply chain planning software and consulting business (www.psjplanner.com). Lean Supply Chain and Logistics Management provides explanations of both basic and advanced Lean tools, as we as specific Lean implementation opportunities. Real-world

examples and case studies demonstrate how to effectively use this powerful strategy to realize significant, long term improvements and

bottom-line-savings.

This practical guide reveals how to identify and eliminate waste in any organization's supply chain and logistic function. Paul is a leading supply chain and logistics management expert with consulting, teaching, training and industry experience. He combined all aspects of Lean - Lean tools, methodologies, keys to success, and provides complete coverage of all functional areas of supply chain and logistics

management, to enable the reader not only to begin the Lean SCM journey but sustain it into the future, where the ultimate rewards of increased competitiveness and profitability are attained.

http://www.psjplanner.com/

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Transcription of the Podcast

Joe Dager: Welcome everyone! This is Joe Dager, the host of the Business901 podcast. With me today is Paul Myerson. Paul has recently authored a book, "Lean Supply Chain and

Logistics Management," where he uses his 25 plus years of experience to provide explanations of specific Lean implementations and opportunities. Paul, I would like to welcome you. Could you tell the audience about yourself and what prompted you to write the book?

Paul Myerson: Sure, Joe. It's great to be here today. My background - I have a lengthy background in supply chain and logistics. I've an undergraduate degree in logistics from Penn State University, MBA in distribution from Temple University. I've worked with many large companies in the supply chain and logistics area - General Electric, Unilever, Church and Dwight, which is Arm and Hammer, worked in Big five consulting with KPMG. Back in the late '90s, I started my own supply chain software and consulting business. Along the way, I got heavily involved in Lean manufacturing, training and implementation, and some consulting. In the last five to seven years, Lean first moved into the administrative area. In the last three to five years, it's moved heavily into the supply chain and logistics area, which is a great fit.

Around that time period, I came up with the idea that I had used a lot of Lean simulation games for Lean manufacturing. I thought, "Well, there's not one for Lean supply chains." I came up with one. It's now published at enna.com. After I did that, I thought, "Well, why not write a book on it?" I came up with the idea for a book. I had some contacts at





McGraw-Hill and some other publishers through my teachings as an Adjunct Professor. I got a couple offers to write the book, so I went ahead and picked McGraw-Hill and that's where we are today.

Joe: What I noticed about your background, I thought, what a perfect fit for a Lean guy.

You have been as much of a teacher as you have been a consultant.

Paul: I have a very diverse background. Through my career, I've worked in every aspect of supply chain and logistics at the corporate and at the manufacturing level. I have a lot of experience in that field. I've also done teaching, as you mentioned. I've been an Adjunct Professor at Kean University, at New Jersey City University and a couple others in the past. I've also been involved in consulting. I've been a practitioner, a trainer; I actually sell software as well as design it in the supply chain area. I really have touched on so many areas. I did a lot of Lean work in manufacturing. As I said, I've started in the last number of years to actually do it in supply chain and logistics, as well as Lean office.

Joe: Can we start out with a basic question and define the commonality and the differences between supply chain and logistics, just for the sake of this conversation?

Paul: Sure. As I write in my book, there's even in the academic circles, but certainly in industry, there's some confusion. Many people will take the definition of supply chain as procurement. They think of it as purchasing or procurement. Some people will understand that it includes logistics, in other words, inbound and outbound transportation and distribution. I tend to like to refer to it as supply chain and logistics management just so people get a full feel and don't think it's just procurement and purchasing. In my book what I did to take it even further, I liked the SCOR® model, which is, if you're not familiar





with that, that defines supply chain in areas, breaks it up as plan, source, make, deliver and return. That really gives you a broad feel for supply chain and logistics. I also include areas that maybe some people might consider manufacturing, the forecasting, planning and scheduling. But I include that partially because that's my background, but I also feel that's part of the supply chain job is to make sure everything flows and is in sync all the way along the supply chain.

Joe: I think that's one of the big secrets. Let me put it this way. I think that you can have a great supply chain, if you've got a great forecast, right?

Paul: Right! Like I said, all forecasts are wrong; you just want to minimize the variability. I was talking about that in my class the other day, that's a key thing. Forecast drives an organization in so many ways -- strategically, operationally and tactically -- at all levels the details. That's really a driver. To me, that's part of that supply chain process.

Joe: When we think about lean, we always think about pull. Is forecasting the pull for a supply chain? Paul: The combination of forecasts and customer demand are the “pull”. I became involved in this in the early ’90′s, with what they call “Quick Response.” which is now typically referred to as “CPFR” (collaborative planning forecasting and replenishment),

which is basically working with your customers to develop accurate forecasts by getting to actual point of sales data, warehouse withdrawals, etc., and using that information to have a much improved forecast. My thinking is, if you can get your top 20 customers going through some kind of Quick Response/CPFR program, you’re at least collaborating on the





forecast and improving its accuracy, in addition to managing their inventory of your products and even placing orders for them. That top 20 customers could be 80 percent of your forecast. You could then minimize what they call the “bullwhip effect,” where things get magnified upstream in the supply chain causing disruption. You can help to get closer to actual demand and build that into your forecast and have a much more accurate forecast. That’s one major step to becoming leaner because we know inventory is used to cover a lot of things, including variability in demand and lead time. Joe: You’re saying the secret to good supply chain is getting deeper with your customers?

Paul: Right. It’s very important to have an efficient supply chain which can give you a competitive advantage, and with technology today, it’s a lot easier to accomplish. These days, you hear a lot of the terms like “visibility” and “collaboration.” It’s critical to have visibility downstream in your supply chain towards the customer and upstream with suppliers. Maybe it’s not a secret anymore because a lot of people are doing it, but I think some organizations still look at it as more of a cost center where “our customer wants us to collaborate or work with them on forecasts or manage or place their orders for them.” You have to look at it as a competitive advantage, a strategic choice to go that route to

improve not just your process with your customer and make them happy, but to improve your process and also your suppliers’ processes.





Joe: The one thing you mention is the customer's downstream. I've always noticed that in a supply chain, that's the terminology used, but really shouldn't the customer be at the beginning?

Paul: Well, yes! Basically, that's why, it's like I said, some people talk about the demand

chain. It's all really part of the same. It's actually the customer buying the product off the shelf is the start of it, through a true pull system. They use the example, in manufacturing, of Dell computers being a mass-customization. That's a true pull system, at least the online system they have, when you place an order within 24 hours they assemble and test and ship the product. They have suppliers located nearby that basically; they talk hours of supply not days or weeks of supply. That's the ultimate in a pull system, so it's very Lean.

Joe: I think about it from a marketing perspective -- this may be a little off subject, but it seems to fit in right now -- I have always thought that re-shoring and things would happen as a supply chain needed to be shortened. Part of that is that that philosophy of getting close to the customer, allowing the options and variability to be part of the customer demand, meaning that you have to strategically located resources to respond to that or local, not necessarily in a sense, but local in the global sense. Are you seeing any of that? Is there any truth in that?

Paul: I'm not sure I fully understand your question, but I know operations or supply

chain, there are a couple options. You have demand options and supply options to meet your capacity constraints, in the case of demand options, to smooth the demand out. One of them is I know, Proctor & Gamble years ago, co-located something like 200 employees at Wal-Mart in Bentonville, Arkansas, to basically collaborate on forecasting. They basically





tried - I don't know if they eliminated, but they reduced -- they went to every day pricing because heavily promoting products, you basically create your own bullwhip effect and seasonality, if you will. Working with the customers, as I said, to not just predict demand, but actually influence it can really be a great marketing tool, as well as help you strategically and tactically in your operations.

Joe: How does Lean enter into all this?

Paul: I take a broader definition of Lean. I think in manufacturing it's pretty clear what Lean is. It's a team-based approach to continuous improvement, where you're focusing on value as defined by the customer in trying to minimize non-value added activities in your processes -- things that don't add value to the customer, but actually take up most of your cycle. In the supply chain area, it's the same definition. Its identification and elimination of waste or non-value added activities. As they say, all work is a process, so it's not that much different for supply chain than for manufacturing, but there are nuances.

For example, in an office, an admin type application, time between each step in a process... In Lean in manufacturing, you'll inventory in terms of days of supply as being met with the waste or covering up for some of the waste. In an office, it might be dwelt on how long it takes to process an order.

If it takes a full day to go through the four or five steps in an office and it's done in batches, what can we do? It fits in between each step in someone's in box. You look at, what can you do? Why is it being batched? What can you do to get the one-piece flow, so the orders can come through much quicker? Even if you just cut off a half hour, it's that much quicker the order can get out to the warehouse to ship, and you get paid that much





quicker, it can get even greater from one day to a half a day, that's even a bigger improvement.

It's about continuous improvement. It applies to so many areas of the supply chain. Historically, companies fought within the four walls of their manufacturing plant. Now, in

Lean Supply Chain, you look beyond that into your office, your warehouse, your customers and your suppliers.

Joe: Is it easier to be doing Lean in manufacturing before you start utilizing it in the supply chain?

Paul: I don't want to say it's easier. It's been done for a longer time, obviously. But, absolutely, you first want to get your act together within your four walls of your facility or your manufacturing process. Historically, they have a thing called value stream mapping. It's like a process flow map, but in Lean terms it actually breaks up the value-added and the non-value added steps in a process. Historically, companies look at from when they receive material into the plant to when they produce it and it goes into inventory or ships to a customer. Maybe, at the most, supply chain was viewed as one little box on that value stream map as a warehouse, so now, it's expanded beyond that.

Once you get your act together within your four walls, then you can start looking in more detail at the warehouse at both the out-product flows through the warehouse, the receiving, put away, picking, shipping, loading trucks, the routing of trucks, the information in terms of tracing and shipping, going backwards to your suppliers, the same thing.





You even have to help your suppliers in terms of training to help them. If you Lean out your own manufacturing process, and then you start working with your suppliers, if you don't do it properly, you're just passing on your problems to them. You're going to say, "OK, we're ready to now take smaller quantities more often because we're Leaner," but then your manufacturer, your supplier, is basically stuck holding more inventory for you. In some cases, you have to work with them, so that they can produce in smaller lot sizes and ship more frequently and run in smaller production cycles.

Joe: Can you incorporate that same thinking that you have with vendors, with customers, too?

Paul: Oh, absolutely! That's primarily, when we talked about the CPFR, working with customers, that's how I view it. In terms of working with customers to be Lean, it depends on what kind of customer. If your customer is a retailer, obviously, it's a little different. You can work with them, in terms of their warehouse. I remember years ago, when I was with Arm & Hammer. This was early in the quick response business, where we had visibility into what inventory they had in their warehouse and what their point-of-sales data was for Arm & Hammer products, we basically had to place.

You think of a store. They have hundreds of thousands of SKU's, so they couldn't possibly do a good job managing it. They only make pennies on the dollar, so we worked with; in

this case, it was a Wakefern Shoprite. We looked into the warehouse and we could actually see; they had Arm & Hammer products. Some items, they had a year's supply. Other items, they were out of stock.





Once we took over, we were able to actually manage it so much better. We had a better presence of our product. We were never out of stock. We carried two, three, four weeks of supply. We were placing the orders before them. In effect, we were helping them become Leaner and have less inventory, less quality issues, less out of stock, things like that. It's kind of a win/win situation with our customer, in that case.

Joe: It sounds like a great opportunity for sales and marketing people to really expand on by getting deeper with the customer. Those are significant relationships you build up by doing it that way.

Paul: Oh, absolutely. Quick response started in the apparel industry, I think, in the late '80s. So some people are already doing this kind of thing and they don't need to think of it as Lean. Again, I take a lot of the thoughts and concepts and things that have been going on and kind of put them under this Lean umbrella. But it's certainly a competitive advantage. I think the key thing is that companies, like a manufacturer, have to think about and say, "Well, maybe I have to have a few more planners. I have to create a structure where marketing and sales and operations work together as a team to go to the customer and try to sell this as, 'Hey, we can help you manage your inventory better.'"

It's going to cost you something in the short run in terms of maybe I have to have an extra planner or have some more meetings or effort or travel time. But in the long term, as I

said, it reduces that bullwhip effect so your customer gets Leaner, you get Leaner, and everybody wins.

Joe: Why is Lean so popular in the supply field? There are Theory of Constraints, Demand-Driven planning but Lean seems to be the popular methodology out there.





Paul: As I said, I think it's relatively new in supply chain in the last, let's say, five years where it's taken off. If you think back, historically, the term "supply chain" didn't even come about until the early '80s and that was a result of, if you remember the '80s, that's when U.S. manufacturing was drying up and people were outsourcing both manufacturing and if not the whole manufacturing process but supply . Their outsourcing ended up getting materials and components from South America, China, Asia, etc. That made the supply chain much lengthier, complex. Around then came the '90s and you started getting tools -- ecommerce and the Internet and ERP systems -- you started getting tools to help deal with that complexity but still there's a lot of waste in that process. There's a lot of risk in it, too.

I think people see that historically it's an opportunity, because of that, to improve it and make it better. That's one aspect of it, I think. That's why it's become more an area that

you want to focus on.

Just in general, if you think about it, most companies, manufacturers, their supply chain logistics costs are 50 to 70 percent of their sales dollar. So that's the natural place you look for to reduce costs.

But the thing is, people have always focused on cost and they only get so far. If you use the Lean perspective you go beyond just cost and you start looking at the processes and

what adds value to the customer. You end up, maybe, with lower costs because you have a more efficient supply chain with less waste in it. But instead of just focusing on cost and negotiating a lower and lower price where you get to a point where you just can't get more





blood out of a stone versus if you look at the process and try to take the waste out of that you can make some radical improvements.

Joe: I probably have a lot of listeners that are familiar with the “Theory of Constraint principles." Can you tell me how a Lean supply chain might be a little different then... or

what you talk about in your book is that any different than the drum, buffer, rope of the Theory of Constraints?

Paul: I think you can apply it to that. With Theory of Constraints you look at bottlenecks and that limits your capacity or throughput. I think you have to look at your supply chain the same way. There might be a bottleneck. The bottleneck might be how many vehicles you can get and if you have your fleet, or how much throughput you can get through a warehouse and, well, I'm at capacity with my warehouse so that's kind of a bottleneck. So most people think, "I need to expand my warehouse or move it into another area or rent out extra space or what have you" instead of saying "Why do I have so much inventory in the first place?" because if I go to that warehouse most of its sitting there for quite a while.

I think you can apply the same concepts of bottlenecks and the drum, buffer, rope, and all that to it. It's just a little different. You've just got to look at it a little differently. But I think it certainly applies.

And then, within a facility, whether it's an office or a warehouse, for example, there are bottlenecks and things that limit your capacity. Whether it is people, equipment, or material you have to look at it and see what you can do to remove the non-value out of activities or the things you can do with a bottleneck to adjust it.





Joe: You're a major partner of a supply chain planning company and the software you have is PSI Planner, I believe. Is technology the answer in developing a better process?

Paul: What I always say is technology enables a process. You have to have a good foundation, a good process, to begin with. That's usually the first thing you should look at.

And again, Lean can help you to do that. You start looking at your process and where there are waste and non-value activities. You also have to bring in best practices and they have to work for you. You just can't copy what other people do. That being said, if you have this process or you want to change your process to a best practice the software technology can help you to get there. You don't want to just have a bad process and try to slap some technology on it. It's probably not going to work too well.

Joe: Do people become too reliant on the software sometimes?

Paul: I've seen cases of this. Nike is kind of an example. People that treat this software as a black box, almost magical, and just let it run. For forecasting, for example, forecasting and planning, at Nike there was a classic example a ways back. They basically bought, I think, I2 software and they kind of let it run like a black box and they ended up writing off, I think, $160 million worth of sneakers and they blamed the software. They sued I2. But the reality is you have to have a good process to begin with. You also have to fit the right software to your process because all software is not the same. You have to do the proper

job of selecting the software and that's often not the case, determining what our functional requirements are.

Then you have to do the proper training and implementation. If people aren't trained and software, even though it's user friendly, there's a lot of switches and settings and if you





don't understand the theories behind those settings and how to manage it and you just let the system run it's not going to give you, necessarily, good ends. Catch it, like in Nike's case, when it's too late.

Joe: We talk about supply chain and we always talk about measurements. I hear about

the lagging measurements which are already too late. I hear people say you've got to put leading measurements in. But leading measurements are tough to define sometimes. Can you name a few of them that would be in the supply chain?

Paul: There are plenty of measurements. The SCOR model, for example -- with the plan, source, make, deliver, return -- they've actually developed a model, within that model metric, for each of those activities. I guess when you talk about leading I think it's as much companies that have dashboards that are up to the minute, knowing what's going on currently, today, and more real time. That lets you have a better handle on the situation. When you're able to then drill down into that dashboard which has kind of summary data, whether it's on-time deliveries, inventory turns, those kinds of things. Warehouse cases, it might be cases per hour. You've got to be on top of it and measure it.

I've been to some companies, at least in manufacturing, where you see a lot of measurements that they collect and you look on the boards and the paper is all yellow and the data is months old. That's not going to help you. That just doesn't help you.

On the other hand, you don't want to go to the extreme of paralysis by analysis where you over measure. You've got to pick the right measurements that apply to each situation and get them as real time as possible.





That's the advantage of systems these days. A long time ago it used to be a lot of work to do that. These days, you can grab the data that's close to real time, if not real time, easily and quickly in any area of supply chain that you want to look at. That's what's important to me.

Joe: You can practically get data as they scan it coming off of the cash register aisle, can't you?

Paul: Oh, absolutely. Yeah. In fact, companies like Wal-Mart use what's called RFID, Radio Frequency Identification. That's to track data when trucks come in so you can move the product through your warehouse; they call it cross docking, quickly. I've read that Wal-Mart is now looking to put these RFID's, which are computer chips, at the vendor when it ships. So they'll even have more detailed data before it even ships that they can grab and check the data, not just the barcode but much, much more data on an RFID chip. So that's the way to go.

Joe: What are some of the other newer trends in supply chain thinking?

Paul: I think it's not so much trends. I think technology is driving a lot of it. You hear about cross docking. I was at a client up in north Jersey. They are a major toy retailer and 30 to 40 percent of what they do is cross docking where product, within 24 to 48 hours, comes in the door and goes out to the stores. The rest of it sits there for who knows how many weeks or months. But cross docking is -- I don't know about a trend, I think it's been around a while. I think it's picked up steam. Wal-Mart does it a lot. It increases the velocity of inventory through the supply chain. But using technology like RFID to help improve that flow and get control and know where product is and where it is going helps you to do that.





As I said, the CPFR is still moving along. I don't know that it's moved as fast. I think a lot of companies need to understand that it's to their advantage; it's just not like a cost center. It's actually an advantage to collaborate with customers, at least your larger customers. And again, technology can help you with that as well.

With this international supply chain, being able to track and trace and control and measure online, there's a big trend, I guess, in technology that's what they call cloud software. It's a rent software instead of own it. It's based on the Internet, the software, so you don't have to install or maintain it. You can use that for, these days, any application. ERP systems or it can just be supply chain planning systems or for international transportation management systems.

So that's kind of a trend. I think that hasn't taken off as fast as some people thought cloud software, probably largely because of the security issue people think there is. I'm not quite sure it's as big an issue as they think but that's probably a big issue. So cloud software is something that I think is going to keep growing.

Joe: What's the first step in applying Lean to your supply chain? What would you recommend someone taking a look at?

Paul: In all Lean programs, or even continuous improvement approaches to improving a process, the first step is you have to have management buy-in; it can't just be a fad. We all know Lean has been around a long time. Maybe it wasn't called Lean but Just-In-Time and a lot of the different tools. So you can't treat it as a fad. You have to understand that it's a long term thing. Americans tend to think, "Well, it's going to be a home run." You can't think that way. It's continuous improvement. You're going to make incremental





improvements so you have to have that management support. You want to get training to as many people in your organization as possible so you can kind of build that groundswell of support; basic Lean training to everybody.

Then you want to build a Lean structure. You want to have people that are known as Lean

champions. A Lean champion, you might just have one for your company, who kind of coordinates things. You might have Lean coordinators.

Typically, the first step after that basic stuff like that is to do, what I recommend is doing a Lean opportunity assessment. I've done many of these, hundred, in manufacturing but you can also do them in your supply chain because that's kind of "OK, now we have all this training and we're really excited, now what?" Whether you have consultants or trainers come in to help you facilitate that or you do it yourself.

In my book I have some downloads of slides for training of Lean supply chain but also a download of an example of a template, an XL template, for Lean supply chain opportunity assessment.

You can talk about what are the processes. Is it this warehouse? Is it the loading trucks? Is it the order management? You maybe go out and you'll actually measure and see where you stand, kind of benchmark it. Then you can pick the areas that have the most opportunity for improvement and start there.

Joe: What were you hoping for someone to get out of your book?

Paul: The comments I've gotten back in reviews and comments from magazine reviews and also reader reviews is that a lot of people talk in language that we don't understand





and make it too complex. They use words we don't know. Most people that have read it, in the reviews say that it's very easy to understand. I tend to break things down into their simplest terms. Some people use the term "handbook," that it's a good handbook, a reference book. I would like people to say this is something that's an easy read and then it's something I can go back to and I can actually use it to implement Lean in my company. It's got some slides that I can do some training. It's got some Lean assessments I can use. It explains how I do a value stream map in some simple terms and, in supply chain, what are some opportunities. It really gets you thinking and gives you the basic tools to get going right away.

Joe: Where is your book available, Paul?

Paul: It's, of course, at McGraw-Hill professional. Amazon.com is probably the best place to get it. You can just look up "Myerson" and "Lean" and it'll bring up the book for you. It's available as an eBook as well.

Joe: I would like to thank you, Paul, for your time and your efforts. "Lean Supply Chain Logistics Management" book is available, like you said, on Amazon. This podcast will be available in the Business901 iTunes store and the Business901 blog site. Thanks again.

Paul: Thank you. I enjoyed it.





Joseph T. Dager

Lean Marketing Systems

Ph: 260-438-0411 Fax: 260-818-2022

Email: [email protected]

Web/Blog: http://www.business901.com

Twitter: @business901

What others say: In the past 20 years, Joe and I have collaborated on many

difficult issues. Joe's ability to combine his expertise with "out of the box" thinking is unsurpassed. He has always delivered quickly, cost effectively and

with ingenuity. A brilliant mind that is always a pleasure to work with." James R.

Joe Dager is President of Business901, a progressive company providing direction

in areas such as Lean Marketing, Product Marketing, Product Launches and Re-Launches. As a Lean Six Sigma Black Belt, Business901 provides and implements marketing, project and performance

planning methodologies in small businesses. The simplicity of a single flexible model will create clarity for your staff and as a result better execution. My goal is to allow you spend your time on the need versus

the plan.

An example of how we may work: Business901 could start with a consulting style utilizing an individual from your organization or a virtual assistance that is well versed in our principles. We have capabilities

to plug virtually any marketing function into your process immediately. As proficiencies develop,

Business901 moves into a coach’s role supporting the process as needed. The goal of implementing a system is that the processes will become a habit and not an event.

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extending lean supply chain thinking

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