Lean Logistics and Supply Chain Interview with LeanCor CEO

I’m interested in warehouses. I know – it’s weird, but my interest first began at Toyota’s Supply Parts Distribution Center where I spent some time. Then, I spent several years at Amazon as a Lean Six Sigma Black Belt, where I spent a lot of time in Fulfillment and Distribution. Warehousing can get very interesting and what fascinated me then – and still does – are the factory physics characteristics that can become quite mind boggling depending on the supply chain.

To that end, I’m excited to present this interview with Robert Martichenko, Founder, Consultant, and CEO of LeanCor and author of the book Building a Lean Fulfillment Stream. In this interview, you’ll learn among other things:

Why extending Lean beyond the 4 walls of manufacturing and into the supply chain makes sense.
Robert takes us through an example where the principles of a Lean Fulfillment Stream are applied and the results they can achieve.
Why he thinks that when you start writing and teaching, then you become the student and the evangelist – advice for those beginning their lean journey.

Enjoy the interview and be sure to read more about Robert in his Bio and please feel free to check out other lean leadership interviews.

Hi Robert, and thanks for taking the time to speak to my audience. Could you please introduce yourself and your work to my readers?

Sure, my name is Robert Martichenko and I am the Founder and CEO of LeanCor Supply Chain Group. I have worked in the logistics industry for over 20 years, beginning in transportation and warehousing supporting Toyota Motor Manufacturing Indiana. I have focused on my career on learning and implementing lean and operational excellence with a focus on end to end supply chain management. Early on, I recognized the unmet logistics needs of lean manufacturers. Lean had long been utilized to improve manufacturing processes, but I knew it was time to extend these programs and start connecting lean principles to partners within the supply chain. This experience allowed me to begin LeanCor Supply Chain Group for the sole purpose of supporting customers to advance their supply chains.

LeanCor is a trusted supply chain partner that delivers operational improvement and measurable financial results. As a third-party logistics provider, LeanCor offers a unique combination of third-party logistics services, hands-on consulting, and training and education that helps organizations eliminate waste, drive down costs, and instill a problem-solving culture across their supply chains. LeanCor is committed to continuous improvement and fully recognizes performance is measured by real results. In our own operation, LeanCor relentlessly tries to optimize those processes that add value and eliminate those that are wasteful. We capture our own learning and present it as thought leadership to our clients and the at-large logistics community.

Some people in our audience consists of those just beginning their Lean journey. Can you tell us about your personal Lean journey – how did it begin? Was there a specific spark that led you on your journey?

The defining moment of my career was when I got the opportunity to learn about lean principles while supporting the greenfield startup at the Toyota Motor Manufacturing plant in Princeton, Ind. During those years, I got to know leaders in lean thinking such as Dr. Jim Womack, Dan Jones, and John Shook. Dr. Womack asked if I would put together a workshop for lean logistics and lean supply chain. That started my teaching. When you start writing and teaching, that’s when you really become the student and the evangelist.

Ten years ago, I left my corporate role and started LeanCor. Our vision is to advance our customers’ supply chains through the use of lean principles and operational excellence. Putting together the book Building a Lean Fulfillment Stream forced me to synthesize my own thoughts and understand the strategic and tactical elements of implementing lean in the supply chain.

You wrote the book “Building a Lean Fulfillment Stream”. Could you tell me what led you to write that book?

The Lean Enterprise Institute, the publisher of the workbook, had long felt the need to remedy instability in information and order flow to create smoothly flowing streams of products from suppliers to customers. They needed authors with experience in combining a proven approach to this challenge with an understandable process using the concept of total cost of fulfillment.

So they asked myself and Kevin von Grabe, my good friend and colleague, to write it. We drew from our experience designing and implementing the operational relationship between Toyota Motor Manufacturing’s supply base and the plant at its greenfield startup in Indiana. There we had helped to integrate the flow of materials in all of Toyota’s North American plants into a series of cross-docks and transportation routes. This enabled Toyota to implement both level flow and high delivery frequencies as successfully as they had in Japan despite dramatically different geography, transportation systems, and supplier capabilities.

Taichi Ohno says All we are doing is looking at the timeline from the moment the customer gives us an order to the point at which we collect the cash. And we are reducing the timeline by reducing the non-value-adding wastes. That is essentially what our book is about.

Since Building a Lean Fulfillment Stream’s publication, readers of this book have undoubtedly validated its value proposition. For example, we had a company take this book step by step and apply it to its supply chain. The company cut its lead time from 138 days to 12 days by rethinking its supply chain starting at the customer and working backwards, systematically eliminating waste and inventory from the process so that only value remained. Lead time reduction is a major theme throughout LeanCor’s biggest consulting projects. Our clients get closer to their customer and reduce their reliance on forecasting.

You are a recognized leader in Lean Warehousing. I know “warehousing” is narrower than your focus, where you focus on the the larger fulfillment stream. But for the purposes of this interview, let’s hone in on the Warehouse. If given the option to transform, say the manufacturing floor, what are some reasons that Lean should be deployed in Warehousing and Logistics instead?

The great thing is that lean warehousing produces tangible and measurable results. Unlike other areas of our lean work, in the warehouse you can really get your hands around the results. These include labor productivity, equipment and space utilization, and inventory reduction. Also unlike other aspects of the supply chain, these activities can be measured accurately. We can have accurate baselines from which to measure improvement. Therefore, waste reduction and corresponding productivity, and cost reduction will be visible and tangible. Additionally, by focusing on quality-at-the-source, we will reduce the number of defects to the end customer. This results in increased fill rates and a corresponding increase in revenues. It’s the proverbial winwin situation of cost reduction and increased revenues.

In your book, you list 8 guiding principles for creating a Lean fulfillment stream. Can you please elaborate on each one and share a specific example for each?

As leaders and as organizations, we need to establish our principles relative to how we will design, execute and improve our supply chains. These principles are non-negotiable. Lean leaders are aligned around the principles and have collectively decided that this is the way we will do business. This is the way we will run our supply chain. The following principles and examples from Wheelbarrow Bill’s will explain the concept:

Bill is transforming his supply chain into a fulfillment stream, and has decided to apply the guiding principles to his business.

Visibility: Make customer consumption visible throughout the supply chain and manufacturer or distribute to the pace of consumption.

Example: Bill takes a trip down to the local farmer’s supply store and asks the owner to give him visibility to their point of sales data. The owner agrees, and sends Bill a file once a week, this enables bill to plan his fulfillment stream on final consumer demand, minimizing bullwhip effects through his supply chain.

Lead Time: Reduce lead time to get closer to the customer to reduce reliance on forecasting and to enable pull to reduce inventory.

Example: Bill decides to move his assembly plant next door to the store, and improves his assembly process to assemble orders within one week of when they are given. This enables Bill to carry less finished goods inventory, and the store to carry less in their stock-room since they no longer have to forecast several weeks of demand.

Flow: Level the flow of all logistics activities over the entire value stream to reduce variation and enable stability.

Example: Bill realizes that the customer volume fluctuates between 100 and 150 every week, but on average, the sale is 125. Using smoothing techniques, Bill is able to ship 125 wheelbarrows every week while keeping an eye on any trends that would force him to ship more or less.

Pull: Use pull systems where consumption drives replenishment to reduce complexity and over production.

Example: Bill takes the 125 wheelbarrows and puts a pull system in place for handles. Every week Bill produces 125 wheelbarrows depleting his handles inventory by 300, so he places an order for the 300 he used. This is a very simple ordering technique that prevents him from ordering more than what is necessary.

Velocity: Increase velocity by focusing on smaller batches and more frequent deliveries in all processes to drive flexibility to meet customer demand.

Example: Seeing the stability of his supply chain, he asks the store manager to give him daily demand, and begins adjusting his assembly processes and ordering processes to perform daily replenishments. Within weeks he drops the store’s inventory to 30, his finished goods inventory to 30, and produces 25 per day while sending orders and receiving daily shipments from HandleCo for 50 handles. One Thursday he gets a call from the store manager saying he would like to start buying a different color handle, since Bill had changed his production and ordering process, he says absolutely¦I’ll tell my vendor, and start shipping them to you on Monday.

Problem Solving, Collaboration: Build teams, solve problems and focus on process discipline across the extended value stream.

Example: That next week, one of the customer orders come across asking for the old handle color. Bill, wanting to be collaborative, calls the manager and asks if that was intentional. The manager of the farmer supply store says no, but Bill doesn’t stop there. Bill asks the manager if the two of them could meet with the clerk that placed the order to find out the root cause of the mis-order, and put in place a preventative measure to stop misorders in the future.

Total Cost of Fulfillment: Lead and make decisions based on Total Cost of Fulfillment, recognizing that all decisions have unintended consequences.

Example: Bill receives a call from HandlesPlus a competitor to his current handle supplier, HandleCo. HandlesPlus tells Bill they can beat HandleCo’s price by 5%, the problem is HandlesPlus is 2 days transit away, in another country. Bill sits down and documents the cost of material acquisition, warehousing, transportation, inventory carrying costs, assembly costs, distribution costs, and all costs associated with a longer lead-time. This enables Bill to model the consequences of a vendor change, and he finds out that a 5% reduction in piece price will result in a 10% overall increase in the cost of fulfillment, so he politely declines to accept HandlesPlus’ offer.

¦Lastly, by applying these principles we are eliminating waste so that only value remains.

I got my start in Lean at Toyota’s Supply Parts Distribution Center in Hebron Kentucky. I was able to see first-hand how the Toyota Production System is applied to Warehousing and the larger fulfillment stream as you call it. But, even there, by the shear fact that a Warehouse existed, there was waste that was arguably necessary. Will we ever be able to get rid of the Warehouse? Is that the goal?

I suspect many people think the term lean warehousing is an oxymoron. Let’s face it, most lean purists believe that all transportation and warehousing functions are pure waste. Considering my entire career has been in logistics, I become a little defensive at this notion. Many organizations see logistics functions as a way to gain competitive advantage and bring value to the customer. The fact is, particularly with the growth of the global supply chain and extended lead times, warehousing is necessary and plays a critical role in the entire supply chain. The use of facilities for inbound material logistics and outbound finished goods distribution are the bridges that connect all the imbalances and lack of flow in the entire stream. In a perfect world, when we receive an order from our customer, we order what we need from our suppliers, build the product, and ship it to the customer. We would complete this all within a lead time that pleases the customer. In other words, our entire supply chain is faster than our customer expectations. Unfortunately, very few companies live in this world. Most of us are slower than our customers, which creates the need to guess, or forecast, what we might need. This results in possibly pre-ordering raw materials from suppliers and pre-building finished goods. We have to store goods that we simply don’t need yet”hence the necessity for warehousing.

One of the pillars of Lean is Respect for People. Within the context of the larger fulfillment stream, how is Respect for People put into practice? Is there a specific example you wouldn’t mind sharing?

Sure, the following are some principles of Lean Leadership that illustrate respect for people:
We create a safe work environment. We understand the customer’s requirements and “Go and See” to ensure we are creating value and eliminating waste. We listen and are empathetic and support all team members in continuous improvement. We understand and believe in the intrinsic value of all people. We build effective teams. We do, teach, coach and mentor. We understand and appreciate the mental models of all people. We appreciate resistance as a teaching opportunity. Lean Leaders invest time, effort, and resources for team member training and education, and ensure the appropriate curriculum for all levels of the organization.

Suppose a company was engaged in a bottoms-up lean transformation in an area outside of the supply chain, say the manufacturing floor. How can the person on the shop floor partner with the Lean efforts in fulfillment to have a broader effect on the organization?

The individual on the shop floor must think beyond the four walls. It’s important to deliver value and results from the position you’re in, but you have to understand what the impact of your efforts are on the total value stream.

If someone reading this is interested in applying Lean in fulfillment and distribution, what are the specific steps you suggest they do?

I’d suggest they give us a call. As the Building a Lean Fulfillment Stream book says, it’s about applying the principles mentioned above – not following a rigid step by step guide, but customizing principles to your specific supply chain needs.

Thanks Robert. Is there anything else you’d like to share with my audience?

Yes, I wanted to take the opportunity to invite everyone to our Lean Supply Chain workshop with the Lean Enterprise Institute. It’s a Gemba-based learning opportunity for supply chain professionals held three times a year at the LeanCor headquarters in Northern Kentucky. There you will Go and See lean principles being applied to logistics and supply chain processes at our Operations Center and Lean Fulfillment Center warehouse – go here For dates and more information.

About Robert Martichenko

Robert’s entire career has been committed to third party logistics. Beginning his journey in transportation and warehousing supporting Toyota Motor Manufacturing Indiana, Robert has spent over 20 years learning and implementing lean and operational excellence with a focus on end to end supply chain management. Early in his career, Robert recognized the unmet logistics needs of lean manufacturers. Lean had long been utilized to improve manufacturing processes, but Robert realized it was time to extend these programs and start connecting lean principles to partners within the supply chain. This experience allowed Robert to found LeanCor for the sole purpose of supporting customers to advance their supply chains.

In addition to leading LeanCor, Robert is an instructor for the Lean Enterprise Institute and the Georgia Tech Supply Chain and Logistics Institute, as well as a frequent speaker for professional industry groups around the world. Robert has written several lean and supply chain books and articles, most notably the 2013 Shingo Research Award winning book, People: a leader’s day to day guide to building, managing, and sustaining lean organizations (Orloe Group) and the 2011 Shingo Research Award winning workbook, Building a Lean Fulfillment Stream (Lean Enterprise Institute). His other books include Everything I Know About Lean I Learned in First Grade (Orloe Group), and Lean Six Sigma Logistics (Orloe Group). He was recently named a 2014 Pro to Know by Supply Chain & Demand Executive.

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