Transforming your Supply Chain to a Lean Fullfillment Stream

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Implementing Lean Marketing Systems

Transforming your Supply Chain to a Lean Fulfillment Stream Guest was Robert Martichenko, CEO and Founder of LeanCor

Related Podcast: Do you want to be at the end of a Fulfillment Stream or a Supply Chain?

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Implementing Lean Marketing Systems Robert Martichenko, co-author of Building a Lean Fulfillment Stream was the guest on the Business901 Podcast. Robert is CEO and Founder of LeanCor, the only Third Party Logistics provider (3PL) wholly dedicated to the application of lean principles throughout the supply chain’s functions. Building on 15+ years of experience, Robert Martichenko created LeanCor to drive the next step in the evolution of lean by addressing the unmet logistics needs of Lean Manufacturers, Distributors, and Retailers.

LeanCor designs, implements and manages lean supply chain and logistics networks for any size company. Their three service categories are designed to support companies in their effort to eliminate organizational waste, drive down cost, and increase global competitive advantage.focus on developing solutions with our customer base which requires operational flexibility to go where you need us to go. The solution dictates the geography and they go where it is necessary to implement the right solution, at the right time, in the right place and at the right cost.

Robert’s latest book, Building a Lean Fulfillment Stream builds on the concepts of waste, flow, and pull. This book follows the Lean Workbook format popularized by the publisher, Lean Enterprise Institute. This workbook provides the steps to a comprehensive, real-life implementation process for optimizing your entire fulfillment stream from raw materials to customers. At the upcoming Lean Logistics Summit, June 22nd and 23rd in Cincinnati, OH, Robert leads off the event as the keynote speaker.

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Implementing Lean Marketing Systems Joe Dager: Thanks everyone for joining us. This is Joe Dager, the host of Business901 Podcast. Participating in the program today is Robert Martichenko of LeanCor. Robert, could you tell me what LeanCor does?

Robert Martichenko: Absolutely. And thanks for having me on your podcast, Joe. LeanCor is a third-party logistics provider and supply chain management company that focuses specifically on lean applications. In order to support our customers, we have three value streams: training and education, consulting, and then we're an actual logistics provider.

Joe: You just wrote a book that was published by LEI, or Lean Enterprise, it's called "Building a Lean Fulfillment Stream". Could you tell me what prompted you to write a book?

Robert: Absolutely. I've had the pleasure and honor of being an instructor for the Lean Enterprise Institute, Dr. Womack's organization, for several years now. Helen Zak, Rachel Regan, other folks and I from LEI had talked about a workbook on and off for several years. And then a couple of years ago, we just decided that it was time to do it, to join the series of workbooks that LEI has put out.

So we were willing and able. We also thought it was the right time as well, as organizations who have been embracing lean inside their four walls, for the past decade, are now starting to understand the importance of lean thinking outside of those four walls inside what we are calling the "fulfillment stream". Others may know it traditionally as the supply Transforming your Supply Chain to a Lean Fulfillment Stream Copyright Business901

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Implementing Lean Marketing Systems chain. But we thought that the time was right, and we had the right people to put the book together, so as a team we went and accomplished that.

Joe: Can I ask you a funny question? What makes it a workbook over just a regular book?

Robert: Well the first thing is that the book follows the format that the Lean Enterprise Institute had put together with their other books, starting with "Seeing the Whole", "Making Materials Flow", and so forth. So it is just from a physical format point of view a workbook.

But the other element of that is it's really a how-to book. It's not a textbook. It's not an academic, theoretical book. It's really a how-to, step-by-step approach of how to implement lean thinking inside the company's fulfillment stream.

Joe: I relate the fulfillment stream to the supply chain. Is there a difference?

Robert: Well I guess I need to go back in history. That's a great question. Essentially, when we first started writing the book, the title of the book was "Building the Lean Supply Chain", and that just made sense to everybody. Then, Dr. Womack and I were chatting one day, and he informed me that he didn't like the title. And I asked, "Why not?" And he said, "Well I don't like the words 'supply chain'." Dr. Womack's is not a supply chain professional.

So I said, "You know, Jim, there are a few of us that use that term in the industry. It's a well-known term." He said, "Well nonetheless, I don't like it." We were able to have a philosophical conversation around the words "supply chain". Essentially, what it led to is Transforming your Supply Chain to a Lean Fulfillment Stream Copyright Business901

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Implementing Lean Marketing Systems that if you think of the word "supply", the first thing you picture if you close your eyes and say the word "supply" is something starting upstream and being pushed down towards the customer.

That's not what the book is about at all. The book is about implementing flow and pull. It's not about push. The second word was "chain". It's the idea that a chain is only as strong as its weakest link, the idea that the links only meet for a brief minute, and then they head back off, and chains can get clinked together, and so forth.

We talked about this and realized what we're really talking about is fulfillment. We're talking about consumption starting with the customer and then the fulfillment stream activities happening at the pull of the customer. Then we're talking about flow hence the word "stream."

So while I'm sure it will take us a few years to maybe get some nomenclature changed inside the industry I think that we are fundamentally saying that supply and chain don't quite fit here from a lean point of view.

Joe: I like your definitions of why it is a fulfillment stream. When I read your book I actually related it to other processes that take place within an organization other than maybe just what the book was intended for.

Robert: Well, writing the book was really challenging because unlike say, building a cell inside a factory or changing the line over to mix model, the organization for fulfillment streams or the supply chain are so different. If you just think of a supply chain activity for an automotive company versus let's say a hospital versus a restaurant, they're so Transforming your Supply Chain to a Lean Fulfillment Stream Copyright Business901

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Implementing Lean Marketing Systems fundamentally different. So writing a book that somebody could just pick up and say I could use this inside my supply chain is very difficult.

So the book is about how to but it is also about how to think. It’s about how to take principles that we've outlined and then how do you apply them to your particular situations. So you're absolutely right that it does span you know, from tier two suppliers all the way to your own processes all the way to your customers and every company is going to be very different.

So it's a bit of a good news bad news story. The bad news is that you can't read the book and then just go and say do this do this do this. The good news is that you can read the book and you can get the principles and some very valuable tools that will allow you to go back and critically think through your own process just to see how you can in fact drive lean thinking inside your organization.

Joe: Your guiding principles, your eight steps, is that the same as your lean principles?

Robert: Well that's a good question. Now when we say lean principles there's a little bit of a difference between the principles we've outlined and the eight or seven steps which is you know, starting with the customers and outbound logistics and then receiving and shipping and material handling and then moving up to the handler.

The principles are a little different. And when we say principles first we like to define that.

You know, a principle is something that you just believe that you don't need data to support and that you shouldn't question. You should just believe that this is the right way to do something.

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Implementing Lean Marketing Systems I always use the analogy you know, as parents we have principles as to how we raise our kids. Not all of us have the same principles but these are things that we just believe. Well, in the book we've outlined what we believe to be the lean principles relative to fulfillment stream or supply chain management and those are you know, first make customer consumption visible and manufacturer distribute to that cadence of customer consumption.

Second, reduce lead times because lead times is only made up of two things - value and waste. So if we can reduce lead times assuming that we are not devaluing our processes then we know intuitively that we are reducing waste.

Three, use pull systems. So allow consumption to drive activities as opposed to forecasting and pushing materials into the fulfillment stream.

Four, create velocity and reduce variation by moving smaller shipments more frequently.

So we believe that we need to be focusing on speed.

Five, collaborate and focus on process discipline so this is a guiding principle that we have to be focused on the process and last, but certainly not least, measure and manage total cost of fulfillment.

So you're now taking the total cost approach. A horizontal view of the organization and what is the total cost to the organization. So, to answer your question, well certainly many of these dovetail with traditional lean thinking and lean principles, I think these build upon traditional lean thinking and show how it starts to apply inside the fulfillment stream.

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Implementing Lean Marketing Systems Joe: If a company is not already doing lean, can they effectively supply this to their fulfillment stream? I mean, will they believe in it or do they have to be, already a Lean company?

Robert: I don't think so because when you really look at what we're doing and the things in the book, so much of it is just good basic discipline as well. I'm even under the opinion that organizations can begin their lean journeys with the fulfillment stream work. There's a traditional thought that it has to start inside the factory and my experience leads me to believe that doesn't need to be the case.

Second of all, a lot of our customers don't even have factories. They're industries where they are not even manufacturing. They're distributors, for example. So it doesn't need to be the afterthought and there is a ton of work that can be done in the fulfillment stream activities.

Traditionally, inbound logistics for example is an orphaned process so there is just low lying fruit in those areas. Outbound logistics though not ignored as much as inbound, there's still an incredible amount of opportunity in these processes.

I think an organization can start tomorrow and start to see benefits very quickly.

Joe: Do you really need to be like this big conglomerate that has all this shipping or do these principles apply to a smaller company?

Robert: There's no question that small, medium or large you can get the benefits. In fact, the smaller you are, the faster you can mobilize and the less people you have to convince Transforming your Supply Chain to a Lean Fulfillment Stream Copyright Business901

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Implementing Lean Marketing Systems and the easier it is to see measurable results. So we in particular with lean core, we like to work with smaller companies as well because the improvement and the results can be so visible so quickly and very tangible.

Relative to some of the inventory and velocity and flow areas, certainly you need a little bit of a critical mass in order to really be able to act on something. For example if you are receiving something every week for example and we want to start receiving every week or even every day, there may be a little critical mass that's required so we can continue to manage transportation costs for example. However, that doesn't need to be a showstopper either.

So no, absolutely, it doesn't matter what size your organization is. Living by these guiding principles and focusing on the process will help the organization.

Joe: You advocated using PDCA during a weekly session so that you're on top of the situation rather than just looking at the after effect from the measures. Is that something new or - It reminded me kind of a scrum master, in scrum and software development having the daily meeting so you knew right away what was going on rather than someone telling you, you had a 20% error over there.

Robert: There are a couple of things there. One is that you are talking about the way we talk about managing the inputs as opposed to the outputs, and I don't think that is anything new. The concept of cause and effect has been around for a long time, but we still continue to see it.

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Implementing Lean Marketing Systems For example, the organizations that are measuring rate per mile and cost per case and units of measure that are very economy to scale focused. You are measuring your rate per mile and meanwhile trailers are running around that are only half full. Obviously our eye isn't on the price, where as if we focused on the cube utilization and packaging, efficiency, and reduction of miles then things like rate per mile or transportation cost just by default will reduce.

I don't think that is anything new. The idea of the stand-up meeting with the scrums, well this is just regular PDCA because, in my opinion, your PDCA cadence or your cycle of your plan-do-check-act has to be in the same cadence that the work is being done. Most of our work in our business is logistics, and it's first and ten, do it again work. In other words, we come in and do our work. We run a sequencing center and support our customer for two shifts, and then we go home. The next morning we come back and do it again. What happened yesterday is not on everybody's mind.

Your cadence of your plan to check act has to be every day as well. If your work is every hour, if every hour you are doing another cycle of the same work, then your PDCA should be every hour. The stand-up meetings and the daily scrums are to connect with the cadence of the actual work being done.

Joe: I think cadence is so important anymore in getting that rhythm because that is what really determines your flow and flow works when you have that nice cadence going all the time.

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Implementing Lean Marketing Systems Robert: When we kind of introduced the word cadence in the workbook as opposed to using the word "tact", and certainly we are believers in tact time, but we didn't want to confuse people with "how do I measure tact at every single point of every process?" and so forth.

We introduced the word cadence, and even to simplify the word cadence the way I like to describe it is that there is a dance going on. There is a dance happening in the fulfillment stream between your customer, distributors, wholesalers, manufacturers, suppliers, transportation providers, customs brokers, and all of these parties that are involved in your customer getting what it is that they want. All we are trying to do is to make sure that everybody is dancing the same dance. The customer, AKA consumption, gets to lead the dance. They get to say whether we are doing the tango or two-step, and when they lead via consumption then we want the rest of the fulfillment stream to be dancing at the same pace and dancing the same dance. If we can get that done, we know that fulfillment stream or supply chain will have minimal waste in it.

Joe: Perfect order execution and the eight rights, are they supply chain terms?

Robert: We have got some incredible university universities that have been teaching logistics for a long time now, and there are new schools coming on board. There are graduates coming out with logistics degrees now. In Logistics 101 if you open up any text book in logistics you will learn about the eight rights. I always joke with my colleagues and say I don't know why we think that supply chain management is so difficult. We only have eight things that we need to do. We need to get the right part, to the right place, at the right time, in the right quantity, with the right service, and so forth.

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Implementing Lean Marketing Systems So no, we certainly didn't invent the eight rights, but we do think about them, and we do build upon them, because at the end of the day, those are the eight things that create the perfect order for the customer. So those in fact should be the things that we measure, and those should be the things, that are happening horizontally across the validity stream.

Joe: I noticed in the book, that you talk about the determined pacemaker point. Tell me is that similar to what the bottleneck would be in the Theory of Constraints? Is it the control point, that you base your system or flow on?

Robert: It wouldn't be the bottleneck. When we're talking about the pacemaker setting point, essentially what we're doing there is, we're giving an out, in order to be able to execute principle number one: which is make Customer consumptions visible, and manufacture, and flow to that rate of customer consumption.

For example, from a theoretical point of view, Say a company that services Wal-Mart. We would say, well what do you want to do is you want to know how much of your product is sold off the Wal-Mart shelf every day and then you want to make that, and replenish it in those exact quantities, A.K.A a pull system.

The challenge is that, while that sounds great in theory. The ability to do that from a practical point of view in today's constraints is very difficult.

So we say: OK, well you know what? We're not going to give up on this idea that we're going to only replenish what had been consumed. But we're going to accept defeat right now, that we can't get that information of exactly what was sold off our customers, or consumed by our customers. What we're going to do is, we're going to choose another pay Transforming your Supply Chain to a Lean Fulfillment Stream Copyright Business901

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Implementing Lean Marketing Systems setter. The pay setters being that area, where if there's consumption, then we will replenish, based on that consumption. So if we can't actually do it at the actual customer itself. Then we may say: Well let's do it at the next closing point. Say our distribution center, whence our distribution center as the pace center.

So any consumption out of our distribution center will then drive all of the upstream activities through the pull systems.

Joe: Then you talk about some different times, like sleep times. That's not lean is it?

Robert: Well, that's another great question, and I have a great friend of mine, Richard Hall. I once had a very heated discussion around this. Sleep times refers to trailers sleeping in the yards. Sleep means that they're waiting. They're waiting to hit a dock to be unloaded. By definition, that is waste. Most people would say that trailer should be live on loaded, or live loaded, and hit the doors as soon as it arrives. Why would you drop a trailer, introducing a trailer yard process, and have trailers, and.

Inventory sitting, waiting, or sleeping to be unloaded, and that's a fantastic argument.

However, when we start looking at the total cost of assailment, one of the things that you're going to see very quickly in particular, in a manufacturing assailment stream, is we have to protect the flow of material, into the factory or into the distribution center. That means we have a very discipline receiving schedule, and a very discipline shipping schedule, much like the airlines.

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Implementing Lean Marketing Systems If you think of the airlines, you have an itinerary exactly where you need to be, when you get on your first flight, where you land, when you need to be on your second flight, and so forth. So we want this level of discipline at our facilities, relative to shipping and receiving.

However, transportation systems, even in North America, where they're the best relatively speaking, around the world. We consider transportations as a 98% business. What that means is that there are some inherent instability that exists. If we were going to bank our whole discipline on trucks, showing up exactly on time, and hitting the door exactly when we planned. We know that the system will fall apart, because of the inherent instability on our transportation systems.

So what we do is we introduce this thing called: Sleep time, where you're putting a little bit of a buffer. Say the trucks needs to unload at 11. You have the truck arrive at 10. So it's sleeping for an hour. You put some plan to buffer, in order to maintain the stability, and discipline around your shipping, and receiving schedules.

Joe: OK, so sleep time is a pretty short term time. I mean, we're not talking about three days of sleep time typically.

Robert: Typically no, however for some of the global transportations, for example: Where your transportations transit times in the instabilities, there may be five or six days. Then maybe you're sleep time may in fact be three days, because of containers coming from Asia, and so forth.

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Implementing Lean Marketing Systems Joe: What's some of the biggest surprises, you've ever seen when you evaluated someone's fulfillment stream? Something like WOW, this is happening!

Robert: Well, the first thing which really isn't a surprise, it's almost an expectation, is just the lack of information, the lack of data, and the lack of attention, that certain parts of the fulfillment streams have had. And for a whole bunch of good reasons, it's not from this management, or not wanting to get the things. It's just a fact that it's never been a priority. Some of these areas have not been a priority, that there tends to be a lot of opportunity: for a quick win cost reduction, for inventory reduction, for connecting the rest of the organization and creating visibility, and frankly, for improving customer service.

Joe: You asked for a lean fulfillment manager in there. Is there a difference in just the regular supply chain guy?

Robert: Well, I'm sure there are lots of regular old supply chains, that are very, very good. Something you said there, kind of made me start to see the last 40 years, from our profession, we've gone of distribution people, to logistics people, to supply chain people, and in some respects, some of us have changed, and in some respects, some of us haven't. We're doing the same things, but our titles have changed.

The difference if you're a lean fulfillment stream person, or a lean supply chain person, then the first thing is that: you're thinking total costs. You're thinking horizontal across the organization, and you're not in your silo just looking at your vertical trying to measure, trying to manage your own personal metrics.

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Implementing Lean Marketing Systems The fundamental difference is: you're a sane to the organization. How does this affect the entire organization? To draw an analogy, think of the human body. The human body has logistic functions, the heart pumps blood. The circulatory system does what it does. The respiratory system does what it does. Our body is made up of logistic functions, in the same way that our organizations are made up of logistic functions: transportation, warehousing, forecasting, demand planning, and so forth.

There's a part of our body, whether it's in the brain, or in the soul, that is making our body work in harmony. For example, my heart: I haven't gone to my heart, and said: Your job now is to pump as much blood as you can, 24 hours a day, and I'm going to pay you per pump. I would laugh about 30 seconds. If all of my systems in my body were trying to maximize their output, I would laugh about 30 seconds, before I dropped to the ground. So in the same way that the body is working in harmony, it works a certain way when I'm sleeping. It works a certain way when I'm running, and getting exercise.

In that same analogy, a lean fulfillment stream thinker, or a lean supply chain thinker is one that says. You know what, we want to take all of these functions and we want to optimize the system. We don't want to minimize each area, we don't want to maximum the output of each area, we want to optimize the entire system.

So we are getting the maximum benefit from the entire system based on what the customer wants, based on that initial trigger of customer consumption.

Joe: Do you see how lean and Six Sigma go together or do you think lean is the more appropriate thing for fulfillment stream here?

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Implementing Lean Marketing Systems Robert: Well you know the age old argument right? Lean versus Six Sigma, Six Sigma versus lean. I don't sign up for really any of it. At the end of day as a lean thinker, what that means, is that we are trying to create problem solving cultures. We're trying to create organizations that every day we go in and make problems visible.

Then through thoughtful problem solving we fix those problems. And we do everything we can to fix them at the root cause. And I think certainly all aspects of lean thinking and many aspects of our traditional Six Sigma models and the theory of constraint models, and TQM models, all have elements of that.

So as far as I'm concerned if you are exposing problems and trying to fix those problems, then you are doing the right thing. And what tools you may use, if a tool works for your organization, then that's great. We need to stop getting caught up in the tools. Specifically to Six Sigma, the Six Sigma has a lot of focus on reduction of variation.

Understanding variation, and reducing variation and the house of lean, sits on stability as the foundation. And stability is defined as a minimal variation, a void of variation. So from a lean point of view we are focusing very hard on creating basic stability. Or the lack of variation, so I think there is a lot of really great overlaps, in the thinking of these disciplines.

What we are telling people and what I am being told to tell people, by other people that are thinking a lot about this. Is maybe we need to stop calling it anything, don't call it lean, don't call it Six Sigma just call it being smart. Call it running your business the right way.

And then just apply the principles that we're advocating.

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Implementing Lean Marketing Systems Joe: Robert you talk about, looking at the total cost and supplier collaboration and things like that. But so much of the supply chain is about outside vendors. Is that difficult to manage, how do you pull them into the process?

Robert: It can be difficult, and people always...one of the questions that we always get asked is "well what if our suppliers are huge and we are not one of their big customers" and so there's going to be times where it is very challenging. But what we have found in our experience is that. You're a company is going to have suppliers that are embracing lean themselves and want to collaborate.

They are going to have suppliers that will collaborate only because their customers asking them to. And they are going to have suppliers that simply don't want to collaborate. And you're always going to have those three. And what we say is, lets first focus on the suppliers that are like minded and embracing these principles.

And let’s go and got those supply chains and those fulfillment streams running efficiently.

Then we will go the next group, which are those who are willing to collaborate. But don't see the value themselves yet. And so you can keep yourself busy for a couple of years before you have to worry about those suppliers that aren't interested in collaborating with you.

Joe: You're saying that a cultural fit, is just as important as any other criteria that you may put on there.

Robert: No question, if not the most important thing. If an organization or their suppliers don't see the value in implementing and doing...let’s face it and I'm always told I need to Transforming your Supply Chain to a Lean Fulfillment Stream Copyright Business901

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Implementing Lean Marketing Systems soft sell a little bit. But this is an element of hard work in this; focus on process and create plans for every part, and get good data systems.

To go and eliminate waste requires some hard work from everybody in the organization. If people don't see the value proposition, if they don't understand the ‘what's in it for me,’' then typically that hard work isn't going to get done. If it does get done, it will get done once, and then it won be sustained over the long term.

Joe: You have a logistic summit coming up shortly.

Robert: We do, we are participating, and it’s actually being developed by a gentleman, Jim Huntzinger who is a friend and colleague. It is in the Cincinnati area in June 22nd and 23rd and we are really looking forward to it.

Joe: Are you going to be participating or...

Robert: I am, I have the pleasure of being the keynote, in the morning and a friend and colleague Doctor Tom Goldby will be another keynote, throughout the session.

Joe: Who should attend? Who are you centering the summit on?

Robert: Well with the title of lean logistics summit so clearly, logistics and supply chain.

And our new lean fulfillment stream people should absolutely attend. Really, anybody who is interested in understanding how lean connects to the other parts of the business.

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Implementing Lean Marketing Systems If you have lean manufacturer folks, lean purchasing folks, or anybody that's tying to lead lean initiatives inside an organization. That wants to see how lean and logistics connects together. It would be great for you to attend. Be a great education.

Joe: Would you like to add anything that maybe I've forgot?

Robert: I guess if anything just that I think that there can be some really rewarding work that's done inside the fulfillment stream. I think that the lean thinking, and the principles that we've laid out in the work book, if we take these and we think critically about our organization. I think that you'll find that there is an awful lot of opportunity.

Joe: Well I want to thank you Robert and please mention how someone could contact you. This podcast is available at the Business901 podcast site and also available in the Business901 iTunes store.

Robert: Great, Joe, thanks for your time. They could just send me an email at Robert@leancor.com and I'd be more than happy to hear from anybody.

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Implementing Lean Marketing Systems Joseph T. Dager Lean Six Sigma Black Belt Ph: 260-438-0411 Fax: 260-818-2022 Email: jtdager@business901.com 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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