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Presented by:

Jim Barnes, President & CEO

How to Apply Lean Principles to a DC

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Implementation and Benefits of

Lean Thinking for the Supply Chain • Lean practices are all too often associated with

manufacturing, when in reality the tools and training are ideal for any environment, including the Supply Chain execution market. Considering that logistics cost as a percent of company sales is on the rise and now over 9%, utilizing the fundamentals of Lean tools can save millions of dollars in operating costs, which will go right to your bottom line profitability.

• This learning session will discuss the uses of Lean tools for the Supply Chain that takes in the range of operations such as warehousing & distribution, transportation, inventory management, and labor.

Takeaways from this session

include: An overview of Lean practices and why they will

work for you

The importance of gaining stakeholder buy-in

Learning why data is the key

Common Lean tools and how to use them

Why implementation doesn’t have to be expensive or complex

Best practice recommendations for Lean project implementation teams

How to plan & execute a Kaizen event

Example savings and case studies

Agenda

• What is Lean & Six Sigma

• Lean Methodology

• Key Lean Tools

• Case Studies

• Q/A

What is Lean?

• Set of Principles to Remove Waste and

Inefficiency from the Process

“…we concluded that Lean Thinking can be summarized in

five principles: precisely specify value by specific product,

identify the value stream for each product, make value

flow without interruptions, let the customer pull value

from the producer, and pursue perfection.”

James P. Womack and Daniel T. Jones: “Lean Thinking”

What is Lean Six Sigma?

• To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. A Six Sigma defect is defined as anything outside of customer specifications.

• Six Sigma at many organizations simply means a measure of quality that strives for near perfection. Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects (driving toward six standard deviations between the mean and the nearest specification limit) in any process – from manufacturing to transactional and from product to service.

“…If you can not measure it, you can not improve it” Lord Kelvin

Evolution of Quality-Timeline

Industrial Revolution

Americans to Japan

Japanese Concepts

Post Japan’s Industrial Success

Lean Principles 1. Base your management decisions on a long term philosophy, even at the

expense of short-term financial goals.

2. Create a continuous process flow to bring problems to the surface.

3. Use “pull” systems to avoid overproduction.

4. Level out the workload (work like the tortoise, not the hare).

5. Build a culture of stopping to fix problems, to get quality right the first time.

6. Standardized tasks and processes are the foundation for continuous

improvement and employee empowerment.

7. Use visual controls so no problems are hidden.

8. Use only reliable, thoroughly tested technology that serves your people

and process.

Lean Principles- cont’d 9. Grow leaders who thoroughly understand the work, live the philosophy, and

teach it to others.

10.Develop exceptional people and teams who follow your company’s

philosophy.

11.Respect your extended network of partners and suppliers by challenging

them and helping them improve.

12.Go and see for yourself to thoroughly understand the situation.

13.Make decisions slowly by consensus, thoroughly considering all options;

implement rapidly.

14.Become a learning organization through the relentless reflection and

continuous improvement.

Kaizen A Kaizen is the organized use of common sense to improve cost,

quality, delivery and responsiveness to your customers needs. Kaizen

assembles small cross-functional teams aimed at improving a process

or problem identified within a specific area in a very short period of

time “Quick Wins”.

Most Kaizen events will drive savings of 10 times and greater the

cost of the event in a very short period of time.

A Kaizen event would focus on:

• What adds value to the end customer

• Consider problems and solutions end to end

• Base all decisions on facts

• Maintain a strong bias toward action

• Use the three actions (People, Place & Process)

Kaizen Event Road Map

Effort

Benefit

.5

1.5

1.0

2.0

2.5

.5

3.0

3.5

4.0

4.5

5.0

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

1 2

3

4

5

8 9

10

7 6

Brainstorm Solutions

Team Training

Final Presentation Action Items Test Plans

What Who When How

Discovery And Observation

Prioritize Solutions

Celebrate

Cause and Effect VA and NVA

Cause & Effect

Tuesday &

Wednesday Wednesday

Thursday

Monday

Friday

Test Plans and Action Items Action Items / Test Plans

What Who When How

What/Problem Statement

Solution/Hypothesis

"What's the plan"

Action Plan/Test Verify/Measure

"What action is being taken" "What results do we expect"

Detail Action Plan Insights/Observations Why/Cause & Effect

Returns - Receiving Observations/Opportunity

• Returns cartons are transported to a

sorting area and then sorted and

counted and scanned before staged

in return lanes.

Possible Solution/Recommendations

• Eliminate the double handling of cases by moving pallets directly to

return lanes.

• Eliminate 1st scan by sorter. If required, scan when placing cartons on

the return rollers maintaining a 24 hour processing standard.

Lean Team Review your facility to identify areas for improvement.

Use Lean Process Improvement Teams (6-10 members)

to support projects that are more complex than a Kaizen

event “quick hits”.

Why a Lean Process Improvement Teams: • To increase participation and buy-in

• To encourage trust, open communications and a spirit of respect and cooperation

• To reduce costs and improve productivity

Lean Team Focus: • Aggressive questioning of all business practices

• The elimination of all non-value added activities (waste, variability, constraints)

• Destroy all barriers that prohibit the pursuit of total customer satisfaction (internal and

external customers)

Lean Filter

Build a culture that involves everybody in a quest for perfection

“Every time the material is handled something is added to its cost but not necessarily its value”

-Henry Royce,

-co founder of Rolls-Royce

Activities that are required by the business but add no real value from a customer standpoint

Activities that are required by the business but add no real value from a customer standpoint

Activities which are not required to meet or exceed customer needs and are not required by the business

Waste

TIMWOOD - 7 Types of Waste

Exercise

• Using the 7-Types of Waste – TIMWOOD

– Pick one process that you understand in your

operations that you believe has some

opportunities

– See if you can come up with one example for

each type

TIMWOOD - 7 Types of Waste

Overproduction

Inventory

Waiting

People

Over-processing

Defects/Rework

• Creating WIP

• Building/buying too much of

a product without need

• Too much for too long

• Waiting for a process to complete

• Waiting for Inventory

• Waiting for calls

• Moving Pallets to various

locations

• Walking to deliver

paper/work

• Moving orders

• Work station with steps/twisting

• Doing more than is

required by the customer

• Finding errors at packing

• Inaccurate product specifications (re-boxing)

• Having a Manager unload a

trailer

Transport/Transportation

Motion

5S

A3 Form and Format

Buffer and Safety Stock

Cellular Layout: U-Shaped Design

Continuous Information Flow

Change Over

Cycle Time

Employee Engagement

Gemba

Heijunka – Load Leveling

Jidoka

Just-In-Time

KaizenKanban (Pull Systems)

Lean Assessment

Lean Basics (Philosophy, History)

Lean Communication

Lean Metrics

Lean Reporting

Line Balancing

Paced Withdrawl

PDCA

Pitch

Poka-Yoke (Mistake Proofing)

Predictable Output

Problem Solving

Process Mapping Pull Systems

Quick Changeover

Resistors and Constraints

Six Sigma

SMED

Standard Work

Story Board

Takt Time

The Scorecard and Goal Display

Tool Management

TPM

Value Stream Management

Value Stream Mapping

Visual Controls

Visual Factory

Waste (Muda)

Work Load Balancing

Lean Tools

Map the Process

Log-In to Defective Menu

Check-in

Obtain product off cart

View label to determine action

required1 RTN?

Place in Q/A cart

Yes

NoScan label & Select

defective dispositionApply label to

productYes

Location for Vendor?

Write Vendor # on label

No

Liquidate?

Place to gayload/pallet

(Soft/Hard & Bulk)

Yes

Place on No location pallet

Start

Is it scrap

No

Place to scrap pallet

Yes

Place to RTV cart by aisle

NoIs RTV cart full?Place on put-a-way

cart Yes

Travel to stock location

Is location full?

Notify RTV Associate

Yes

Start

NoMore to put a

way?

No

Yes No

Start

Layout – Create more of a “U” shape

design to reduce walking to gaylords/

bulk pallet

Have disposition and location printed on

return label

Replace RTV cart by aisle with put-way carts for each aisle

Seven Basic Quality Tools 1. Pareto Analysis

– What are the Big Problems

2. Cause and Effect Diagram Fishbone

– What’s Causing the Problems?

3. Stratification – How is the Data Made Up?

4. Check Sheets – How often Does it Occur?

Seven Basic Quality Tools 5. Histograms

– What is the Overall Variation?

6. Scatter Charts

– What are the Relationships between the

Factors?

7. Process Control Chart

– Which Variations to Control and How?

5-S Layout

Sorting (Seiri)

Stabilizing or Straightening Out (Seiton)

Sweeping or Shining (Seiso)

Standardizing (Seiketsu)

Sustaining the Practice (Shitsuke)

Before Lean Thinking

Door Door

Spaghetti Diagram

After Lean Thinking

Cups Coffee Creamer DoughnutsDoor Door

Please use

other door

Purpose: • A questioning technique for getting beyond

symptoms and uncovering root causes. How it works: • When you are working with a cause-and-

effect diagram and have identified a probable cause, ask, "Why is that true?“

• When you have an answer, ask, "Why is that true?“

• Continue asking “why” five times.

27

LEAN Tools – 5 WHYS Cause & Effect

Cause and Effect • Fishbone Diagrams

Cause & Effect

U-Shape Work Cell

Value Stream Mapping Definition • Special type of flow chart that uses

symbols known as "the language of Lean" to

depict and improve the flow of inventory

and information.

Why Create a VSM? • Many organizations pursuing “lean” conversions have

realized that improvement events alone are not enough

• Improvement events create localized improvements,

value stream mapping & analysis strengthens the gains

by providing vision and plans that connect all

improvement activities

• Value stream mapping & analysis is a tool that allows

you to see waste, and plan to eliminate it

Did we cover the takeaways from

this session? An overview of Lean practices and why they will

work for you

The importance of gaining stakeholder buy-in

Learning why data is the key

Common Lean tools and how to use them

Why implementation doesn’t have to be expensive or complex

Best practice recommendations for Lean project implementation teams

How to plan & execute a Kaizen event

Example savings and case studies

Case Studies are next

• Retail DC/Stores – VSM • Store Delivery Method • Retail Web Orders Network

Retail DC/Stores – VSM Challenge

Response

• Performed an end to end

Network Analysis that

included VSM mapping,

transportation, DC

operations, Demand

Variability & inventory

positioning

• All basic Sku’s are stored at

the DC in pick mods and are

pulled to the stores on

demand

• Singles vs. Cases

• Reorder points adjusted

• Break pack totes are pick by

store zones

• Fluid break pack is picked

by store zones

• (Future) Expanded each

picking operations to a

centralized facility to meet

sku quantity and demand

Result • Moved to a demand driven supply

chain. Moving inventory closer to demand points.

• Reduced store inventories by $30M

• Reduced store labor by $3.5 Million. (replenishment, POGs & break pack)

• Reduced cost to take annual store inventory by $250K

• Increased sales & reduced markdowns by $2.6M

• Warehouse labor increase by $3.2

• Future changes to POG sizes and store layout

• Future upgrade to a underutilized DC to support each picking

• Up to percent 40% of the

product did not fit on the POG

from the truck and must be

returned back to the stockroom.

• Stockroom overstock must be

scanned and located. Then

later auto pulled to the floor.

• The opportunity is to reduce the

stockroom inventory and be

~90% “Store Ready”.

• DC cases arrives at the store

unsorted. The store must

resorted the product into

shopping carts/u-boat/flat

beds/totes by area of the store

DC and Network Analysis

37

DC Locations and Site Count

DC Space and Cube Capacity

Transportation Delivery Method

Transportation Delivery

Frequency

DC Processing Throughput

Inventory Positioning

Demand Driven Planograms

Store Analysis

Inventory Analysis

Demand Variability

Store Operations

Transportation

Analysis

1

2

3

0

1

2

3

4

1 10 100 1000 10000 100000 1000000 10000000

SKU

Vel

oci

ty C

V

Velocity

Bakeware

Bakeware

1a 1b 1c

2a 2b 2c

3a 3b 3c

Demand Variability Demand Variability

104 Total Departments

Sale

s R

evenue b

y D

epart

ment Departments

plotted by CV vs. Demand.

Most Depts. are High CV & Low

Demand

Fluid Break - Extend conveyor down

• Low capital cost option – quick change

Fluid Break HBA #1

Fluid Break HBA #1

Fluid Break Apparel

#2

Fluid Break Apparel

#2

Fluid Break Hard/ Home

#3

Fluid Break CE/Toys

#4

Fluid Break Shoes #5/ Seasonal

#6

Fluid Pallets Staging

6 zones

3C 3D 4A 4B 4C 4D 5A 5B 5C 5D 6A 6B 6C 6D 7A 7B 7C 7D 1E 1F 1G 1H 1A 1B 1C 1D 2A 2B 2C 2D 3A 3B

P P P P

Extend conveyor down or up

32 pallet positions (14 - 16 store zones – A/B)

New sequence of store zones

based on adjacency Sequence Fluid Zone Store Zone Store Zone Description

1 1 1 HBA

2 1 5 Health Aids/OTC

3 6 15 School/Office

4 1 2 Candy/Grocery/Dollar Store

5 1 4 Pet Supplies

6 1 3 Household/Chemicals

7 3 6 Hardware/Auto

8 3 12 Home Décor

9 3 13 Candles

10 3 7 Housewares

11 3 11 Domestics

12 6 8 Furniture/Seasonal

13 6 9 Sporting Goods

14 4 10 Toys

15 4 14 Electronics

16 2 18 Women’s

17 2 20 Jewelry

18 2 16 Children’s

19 2 17 Men’s

20 5 19 Active Shoes

HBA Sequence

Hard/Home Sequence

Electronic/Toys Sequence

Apparel Sequence

Active Shoes

Break Case - Centralized

Small Format

Large Format

Automated Waving to support floor loaded shipping

Store Delivery Method

Challenge

Response

• Test different methods on delivering cases and totes to stores to reduce delivery time

• Deliver cases and totes on pallets

• Deliver cases in carts and totes on dollies

• Work with DC procedures to implement both methods, lean out each process

• Conduct time studies at DC & store level to measure results

Result

• Initial test results resulted in significant DC labor cost to build a trailer.

• DC cost was reduced significantly by observing and using LEAN techniques to improve the process

• Both test (Dollies/Carts and Pallets) reduced the delivery time at stores and store labor

• Delivery on Pallets reduced delivery time to 45 minutes, thus turning the trailer 3.5 hours faster

• Store delivery are live offloads and the trailers are floor loaded and take up to 2 hours to unload

• Driver can only deliver 3 stores per day

• Delivery times vary by day and are highly variable making it difficult for the store to staff the unload

Flow Charting the Process

VA/NVA Analysis Process:

Team Date:

Steps/ElementsVA /

NVA

Time

(Sec.) Freq

Total

Time %

Yes/

No

Time

(Sec.) Freq

Total

Time %

1Pick up shipping schedule, assignment

sheet, and RX signoff sheets NVA 240.0 0.5 120.0 1% Yes 240.0 0.5 120.0 1%

2 Sweep trailer and remove trash NVA 240.0 0.5 120.0 1% Yes 240.0 0.5 120.0 1%

3Prep Trailer - Set-up Cages/ Dollies/

Pallets, etc. NVA 180.0 1.0 180.0 1% Yes 180.0 1.0 180.0 1%

4 Load - Case 9.3

5 Handle / move Case on conveyor VA 3.0 57.7 173.2 1% Yes 3.0 57.7 173.2 1%

6 Scan Case NVA 1.4 384.8 538.7 4% Yes 1.4 384.8 538.7 4%

7 Sort Reg/Distribution NVA 1.0 307.8 307.8 2% Yes 1.0 307.8 307.8 2%

8 Remove case from tray NVA 1.8 38.5 69.3 1% Yes 1.8 38.5 69.3 1%

9 Store tray NVA 1.5 38.5 57.7 0% Yes 1.5 38.5 57.7 0%

10 Walk to cage - Regular - # steps NVA 0.9 200.1 183.7 1% Yes 0.9 200.1 183.7 1%

11 Walk to cage - Distribution - # steps NVA 3.7 146.2 536.9 4% Yes 3.7 146.2 536.9 4%

12 Walk to cage - 3rd Cage - # steps NVA 4.9 38.5 188.4 2% Yes 4.9 38.5 188.4 2%

13 Place case in cage VA 1.1 384.8 415.6 3% Yes 1.1 384.8 415.6 3%

14 Adjust case in cage NVA 3.6 57.7 207.8 2% Yes 3.6 57.7 207.8 2%

15 Walk to conveyor - Regular - # steps NVA 0.9 200.1 183.7 1% Yes 0.9 200.1 183.7 1%

16 Walk to conveyor - Distr. - # steps NVA 3.7 146.2 536.9 4% Yes 3.7 146.2 536.9 4%

Walk to conveyor - 3rd Cage - # steps NVA 4.9 38.5 188.4 2% Yes 4.9 38.5 188.4 2%

Cages & Dollies

Current State Future Sate

Test & Adjust • Work the layout and adjusting

after each test

Or

Dollies

8

6

Wrap Pallets

4

12

4 6

6

4

1 2

3

Dist 5

3

3

Totes 5

4 4

5

5

Totes 6

5

6

All Pallets

Inside Trailer

Reg

Cos

Food

RX

Wrap Pallets

Pallets Pallets

Regular

40 88

Staging 6

18 414

# 6Jack

4

21 2

3 4

DistReg

Totes

Wrap Pallets

Stage Pallets Stage Pallets Stage Pallets

Process Changes Made/Tested

• Placement of pallets to conveyor

• Angle of pallets

• Building pallets inside a trailer

• Defining what sorts were required

• Where to strap totes – Outside the trailer/inside the trailer

• Positioning of conveyor

• Proper staffing

• Flexing the staff

• Types of cages and positioning

• Training of drivers

• Order in which to unload

• Store staffing and support

DC Productivity Leaning out the Process after each test will lead from an unsuccessful test to successful test

Store Productivity Leaning out the Process after each test will lead from an unsuccessful test to successful test

Dollies vs. Pallets - Loading • Dollies took significantly more time to strap

and transport than on pallets Test Cases/Hour

Totes on Dollies 101

Totes on Pallets 169

Observation

Test

Dollies vs. PalletsOverall

Units/Hr Man Hrs

Units/

Hr Man Hrs

Units/

Hr Man Hrs

Units/

Hr Man Hrs

Units/

Hr Man Hrs

Units/

Hr Man Hrs

Units/

Hr Man Hrs

Units/

Hr

Totes on Dollies100 1.1 96 1.8 103 0.6 130 1.8 89

Totes on Pallets (wo Load 8)169 0.9 190 1.1 137 0.6 194

Pallets &

Dollies

Pallets &

Dollies Pallets Pallets

Pallets &

Dollies

Pallets &

Dollies Pallets

Load 7Load 1 Load 2 Load 3 Load 4 Load 5 Load 6

Pallets vs. Dollies Overall • The stores that received all pallets had higher cases per hour than

the dolly & pallets stores

• The All pallet numbers are lowered by load 3 & 4

Test Cases/Hour

Pallets & Dollies 97

All Pallets 106

Method Description Totes Cases Total

Pallets

with

Case

Pallets

with

totes

Dollies

with

Totes Loading Driver Total Loading Driver Total

Pallets & Dollies 530 1,672 2,202 22 - 46 18.4 4.4 22.8 120 503 97

Pallets Only 446 945 1,391 15 11 - 10.7 2.4 13.1 130 586 106

Man Hours Cases/ Hour

Retail Web Orders Network

Challenge

Response

• Develop network costing model to understand network cost and options

• Use ship from store to handle single and non split orders

• Update fulfillment algorithm to ship from the closest store with the highest risk inventory

• Use “Auto Parts” model to move orders from store to store to fulfill multiple units/sku orders to reduce split shipments(Test in high density store area)

Result

• Moved 70% of orders from fulfillment center(peak season) to ship from store.

• Reduced transit days from 2.95 days to 1.4 days

• Improved margin dollars ($ millions) by moving at risk inventory out of the stores

• Parcel cost up slightly which was offset by lower pick and pack cost at stores.

• Store order volume doubled without major labor impact – Used store labor during down time

• Split shipments increased

• Web orders growing at 30% annually supported by 1 fulfillment center & 1 DC

• Holiday period creates a spike in business that is 100% greater than normal weeks

• Customers are demanding/expecting faster delivery time – 1 day service

• What would same day delivery look like and what it would cost

• Free delivery expectations adding additional pressure to reduce fulfillment cost

Network Strategy

25% of the store hours are idle/coverage hours that can be used to fulfill orders

“Auto part” model, cost drops as orders go up

Ship from Store model

50% of the orders are within 20 miles from the store Note that 14% of customers and 6% of orders are outside of 100 miles from stores and are not shown

Peak season doubles/triple compared to avg. week

Understand demand by hour

1-2 Days

1-5 Days

35 min/ order

1.3 hrs./ order

Same Day Delivery

Parcel Delivery Customer Order

Fulfillment Routing

Orders Batche

d

Single Stop

Multiple Stops

Packing

Ship from Store Strategy

For More Information:

jbarnes@envistacorp.com

www.envistacorp.com

Or visit MODEX 2016 Booth #2321