Eng. Rogério Garcia Bañolas, MsC.
09/18/2006 rev. 11/20/06
Lean Logistics– some primary concepts
Introduction
The paper “Uma proposição de análise para transformação dos sistemas
1
logísticos” [Bañolas e Souto, 2006] , suggests an analisys of the logistics
systems in order to gather that problem in its totality. Lean Thinking [Womack,
2003] was chosen to improve value addition and to decrease inefficiencies,
although there are other choices that would meet such goal. Herein, the scope
encompasses the concepts and a tacit indication of what to do . Analisys of Lean
Thinking principles and concepts should, always, precede choices of
management tools, assuming that the concepts – tacit or not – dictate the
behavior of system’s actors. Concepts are more important than tools as such as
a knife doesn’t work properly as a chisel to shape wood. Misunderstanding the
concepts is similar to solve the right problem with a wrong tool.
Talking about lean paradigm in eleven pages is not enough, of course, to
cover what is described in hundreds of books and papers, and takes around five
years to consolidate. On the other hand, it is worth trying to streamline the
explanation of underlying logic of Lean Thinking, keeping in mind that deeply and
carefully reading of the authors referenced at the end of this paper – as well as
other good books not mentioned.
Stating that is feasible to reduce delivery times to a fourth and costs to a
third might not be likely. Saying, as well, that is possible to run operations with
less inventory, more flexibility and enhanced customer service – altogether –
requires that a cohesive logic, sometimes amazingly simple, be shown.
Lean Logistics, it seems, hasn’t yet been established, though it may be
appropriate to name it so, as an natural extension of Lean Production.
In oposition to traditional supply chain, with high stocks and tolerant to
many inefficiencies, lean logistics chases maximizing value stream, shrinking
waste and flaws, aiming at perfection as the reference. Perfection is unattainable,
however taking it as a goal drives us to constant enhancement and leads to
transformation of existinf systems and, rather than it is thought, keeping simplicity
whenever is possible.
Being simplicity a primary part of Lean Logistics, sometimes lean won’t fit.
In all the other cases, keeping simple is a matter of adopting a new way of
thinking – which should challenge dominant mindset. Wheter this hurdle is
overcome – understanding lean systems and commit to change – gaining
remarkable performance can only be obstructed by sudden and unexpected
changes in enviroment or by the inherent difficulty in organizational shifts.
Organizational changes, though crucial, won’t be covered herein, since it
is out of scope of this paper. As well as managerial lean methods won’t be
exploited because understanding underlying concepts to Lean Logistics are more
1
An analisys proposition to logistics system transformation.
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relevant and should precede the deployment of any method, which aren’t
capable itself to run the transformation of lean systems. Value stream,
elimination of waste (and flaws) and being in tune with demand are the core of
this paper.
Added value
First, it’s necessary to understand what value is. It doesn’t mean cost
neither price directly, it means value assigned to products and services by
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customers. Base on the value perceived that customers asses wheter he or she
is willling to pay the price for products and services. When manufacturing goods,
value is created when raw materials are transformed into products. Any others
activities that doesn’t contribute to transform materials can be considered as non
value adding activities (or waste). In logistics, value is added by time and place,
in other words, by transporting goods closer to the consumer (or customer) and
by availability just in the moment they are needed.
Put in the right words, transporting adds value of place (placing products
where the customer wants to consume it) and stocking adds value of time
(having the product available when the customer wants to consume it) [Ballou,
2005]. Perhaps, value addding is one of the most controversial and important
aspects between Lean Production and Lean Logistics and calls for a study that
clearly differentiate them. In production, inventories usually hide waste; in
logistics there is a portion of inventory that add value and other that is waste
(doesn’t add value). Therefore, differentiate between value and waste in logistics
demands a deeper understanding about value.
From consumer viewpoint, value may be defined, trough the six principles
of lean consumption [Womack, 2006]:
Solve my problem completely;
Don’t waste my time;
Give me exactly what I want;
Deliver value to where I want;
Provide value when I want;
Reduce number of decisions I need to take to solve may problem
An opposite example to value adding helps to explain value from customer
viewpoint: wonder a customer that want to have his car fixed; that had to call
several times to the garage office to get an answer; whose car was drop at his
house two days later although he had asked it be delivered at his work site; had
to decide between several parts and respective prices; and finally, after a week
the problem was back again. In this example, little value was delivered to
customer!
Whether customer is a firm, value may be generally be defined as
delivering products in right quantity, in right quality, in right time at a acessible
cost. There are costs associated when value isn’t delivered to customer: usually
customers lose sales or stocking costs are incurred to prevent supply problems.
2
Lean thinking is suitable either to services. However, from now on this text refers only to
products as a meaning for both services and products.
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Inventory
Usually seen as assets by companies, excess stock is seen as waste in
Lean Logistics. That is because stocks fold some kinds of waste and
inefficiencies. When a supplier fails in servicing at right time, the right mix and
right quantity, customer tries to protect with excess stock.
When a supplier deliver a high rate of defective products, customer has to
buy aditional quantities to guarantee continuous operations and, also, may have
high rates of return. In this case, exceeding inventory means higher costs. So, in
Lean Logistics excess inventory is considered as waste instead of value.
Otherwise, in logistics, is said tha inventory means value through
availability. However there are other alternatives to get availability, for instance:
1)
offering more choices to customers trading off with an
acceptable lead time (higher than immediate availability). Car
manufacturers and computer assemblers let the customers
configurate products via internet, in exchange for a pre-defined
delivery time;
2)
postpone definition of final product configuration to the last
moment prevent mantainance of stocks with multiple
combinations.
When inventory is low, grabbing these choices is difficult if planning,
programming and its execution fail. However, the alternative option is worse:
persisting on the same insufficient performance level and continually tolerating
waste.
Waste
Lean Thinking is very specific in relation to waste. Taiichi Ohno [1997]
presented a set of seven wastes in production. Similarly, in logistics, this wastes
may be translated in six types of waste plus one, that will be called here P waste:
1) Overoffer for quantity;
2) Overoffer for antecipation;
3) Wait;
4) Defects;
5) Movement waste;
6) Process waste;
7) Waste P (planning, programming, all related with forecasts and lead
time).
What was called here as overoffer is a inventory waste. In production it is
called overproduction. One can ask: “which is the value added by products (in
the time before consumption) made available before the moment they are
desired to be consumed?” From consumer viewpoint no value is added! These
products are nothing but inventory.
Overoffer for quantity is the quantity stocked in cupply chain that
exceeds the customer need. Usually, lots or “economic” quantities account for
overoffer for quantity.
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Overoffer for antecipation is the quantity delivered toward customer in
antedcipation to the moment of consumption. Usually, forecasts ou “pushing”
inventories account for overoffer for antecipation.
Waiting is the waste that occurs when a product waits for a resource to be
processed or when a resource waits for a product to process. A truck waiting in
line to unload or a product waiting to be loaded are examples of waste.
Defects are obvious wastes. Damaged products during transportation and
failures of equipments are examples of defects
Movement waste is caracterized by useless movements of products.
What is the value added in putting away products when they are picked right
after?
Process waste are failures intrinsic to the logistics process. This type of
waste, along with P waste, is problably the most difficult to be seen. Disposable
packages, counting of products and paper checking are examples of waste.
P waste is caracterized by artificial variation on the needs. It was named
so by author, because it is related to two P’s: planning and programming and
refers, aditionally, to forecasts and lead times. 3
In forecasting, an associated error usually exists. This error causes a
disturbance on a demand level. Also, planning and programming usually amplify
quantities needed (in relation to real needs) through minimum production and
transport lot criteria. Longer lead times make replenishment quantities bigger
than that necessary in shorter lead times.
A quick analisys shows the existence of two phenomena related to waste:
reinforcement or tradeoff. For instance: machine failures increase waiting and
lead times; in some extent, small waste for antecipation decrease waiting time of
resources.
Identifying waste results in a pragmatic behaviour: some can be
eliminated right away (Type 2 waste) and others are inherent to the present
technology level of the process (Type 1 waste). The last one, depends on
reconfiguration of the process to be reduced.
Value stream
In any case, when there is waste, the work flow tends to interruption
and/or to have a lumpy behavior. As in a river full of rocks, if its depth is small,
stream will be turbulent. In logistics, irregular flow reflects on end of periods
overtime (at delivery, for instance) and usually costs are incurred (premium
transport, overtime e aditional capacity is required).
If along of a river course there is deep passages, speed of flow will slow
down. This is what happens when there are high inventories through the process,
flow is interrupted ou slowed down several times, resulting in longer lead times.
When products flow in a desired manner and time, at acceptable cost to the
customer, customers are getting value.
Value stream is understood as the value adding to customer that products
gain in time and space. The idea of flow is directly connected to minimizing of
3
Herein, it might be deliver lead time or overall lead time total, because both account for
making response time higher.
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flaws and to increasing o value added to customer, resulting in higher, faster and
flawless stream.
A foolproof system é able to flow smoothly. Products cross the logistc and
production system faster gettting ealier to customers and with improved quality.
Customers, usually, want to get products in right quantities, at acessible cost, at
the right time, with right quality, without annoyance after buying. Therefore, this
package of value is defined by the customer and not from what the firm thinks the
will of customer is.
Value is defined by customer – the one who pays costs and margins of all
companies from that point backward in the chain. Any quantity of product
manufactured before the moment desired by the customer is being pushed
dowstream and risks, when available, not be bought. Any extra quantity more
than required by customers, may be considered as quantity that is being pushed
towards customers. Whether customer is satisfyied in right amounts and quality,
liquid value obtained by customer is much higher. The firm may try to guess what
customer wants (forecast) or service customer based in real comsumption. If the
customer (firm) decides to replenish the quantities consumed only after they the
consumption, it’s said that customer is pulling demand. Wondering a supply
chain where demand is pulled by the consumer, no repelenishment movement
happens before consumer have made the transaction.The implication is that
companies will have lower inventories and, therefore, lower obsolescence risks.
Summarizing, whether customer demands a certain quantity of a product and be
fulfilled exactly with that quantity and, aditionally, the firm decides to replenish
only after consumption takes place, value is being pulled by customer. However,
flaws should be eliminated (or diminished) across the value stream.
Cutting inventories as a way to identify waste
If in a river, level of water is enough to cover the rocks, it flows reasonably
in a regular way. Nevertheless, the rocks (problems) are covered by water. If
level of water lowers, rocks will appear.
In the previous sentence, if the words were replaced: river by logistic flow,
rock by waste and level of water by level of inventory, one can conclude that one
wanting to identify waste could lower the level of inventory.
In practice, lowering level of inventory before is somewhat risky. This is
the reason why identifying and eliminating waste before reducing level of
inventory is recommended. Those, however, that admit the utilization of the first
choice (lowering stocks first) show intense commitment with waste elimination.
Those who ignore this possibility tend to be loosely commited, and therefore
,would achieve ordinary performance.
Constant improvement
Process improvement might be of two types: 1) improvement or 2)
innovaton. The first, usually called kaizen in lean language, is caracterized by
continuous perfecting moves. Innovation (kaikaku) is caracterized by
enhancements leaps.
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From management point of view, distinction between these two types of
improvements is less important than the attitude taken in relation to
improvements: promote continuous improvements. In Toyota Production System,
from where lean systems came, improvements are supported by especific
instruments. One instrument of continuous improvement is autonomation
(autonomy + automation). Autonomy is the hability of stopping the process to
solve the problem as soon as it occurs. The tacit objective is to eliminate the
causes of the problem in order to avoid its reoccurrence. Autonomation means,
also, automating the detection of a problem and the stoppage of the process to
cease right away the production of defects. A good example is a machine which
in a given moment starts to make defective parts. In that very moment, it should
be stopped, otherwise more defective parts would be produced.
Other enhancement instrument is poka yoke, a foolproof device that
prevent that failures be generated. Conceptually, poka yoke is more effective
than sampling inspection, since even 100% inspection is not a warranty against
flaws. One example is the safety buttons that only permit turning on of a machine
if the operator is pushing both buttons at the same time, avoiding free hands go
under the tool.
In logistics, autonomation applications are not so straight as in production.
It might be easier employ automation than autonomy. Theorethically, definite
solution problems wouldo precede automation, by simple reason that, without
attacking the causes of the problems, automation would increase the production
rate of problems. Bar code systems, wheter correctly designed, are examples of
poka yoke because prevent: storing in wrong places, exchange of products,
mistakes on orders and misled operations. The AS/RS systems (automatic
storage and retrieval systems) are examples of automation.
When exploring a lean operation, this instruments are seen subordinated
to a set of attitudes of managers and operators, which if not in place there will be
no transformation.
Managers and employees attitudes
It’s of paramount importance that Lean Thinking be comprehended by
everyone. When the first improvements are done, aligned with Lean Thinking, it
becomes obvious that more can be accomplished with less resources. Top
management have to provide that no one will be fired due to improvements.
Whether dismissals to adjust excess workforce are to be done, they should
happen before enhancement implementation to put clear that enhancements
guarantee jobs.
Indeed, in normal conditions, a lean organization should grow and absorb
workforce that is being liberated. Soon, the equipments show higher capacity
than it was thought, cause they don’t make products that do not add value.
Alignment of capacity and demand, in short term, though dismissals would be a
serious upset to future improvements initiatives, which could be impossible. A
good way to solve this and leverage the process improvements is to transfer the
acknowledged workers to improvement teams. Assumption is that the firm will
increase its margins by reducing costs and value adding to customers.
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Aditionally, the very first improvement project should be picked carefully to
have a quick and significant impact on results in order to incentive subsequent
improvement projects.
So, quick feedback, will help to motivate everyone. On the other hand,
management has to be prepared to give autonomy to employees: soon many
improvements initiatives will be more and more decentralized.
There is a subject that many organizations might neglect, but for which,
unfortunately, there is no conciliation: managers who insist in resist to changes –
openly or tacitly, whatever the reason – can’t remain in business unit where
transformation takes place. If the message from top management is clear enough
(whithout threat or punishment bias), many problems would be avoided.
Some assumptions underly such improvements. The first is that employee
is no more variable cost. He or she becomes a fixed asset, and as such, has to
contribute with his/her best: more than muscles and obedience. Now with ideas,
motivation and inteligence. The second is that he becomes multifuncional,
broadening his knowledges and abilities. There are other important assumptions,
that summarized in one sentence is: lean thinking calls for old thoughts be
replaced by value adding mindset, by waste elimination and by the ability to see
flows.
Lot-and-queue
One thought that shall be abandoned is lot-and-queue. In traditional
processes, inventory is high and flow is poor. This is due to decisions in
traditional operations are taken base on a wrong assumption that higher volumes
mean low costs. So, what is seen is slow response and rigid operations. The
main cause for that are big lots and queues.
There are lots and queues everywhere. In the supermarket, replenisher
brings a full pallet (lot). In producion, operator only processes in lots. At the
office, clerk tries to group a quantity of same job before starting working (input
orders after all quotations are made, only post after all mail is printed, etc.). In
services, customers are grouped together by type and “stocked” in queus in
order “to be more productive”.
In all these examples, any individual activity will lengthen its process time
proportionaly to the size of queue in front of it. Part x that is necessary, has to
wait for all parts of its lot in front of it and for all lots to be made before. A
purchase order y will only be processed after all orders that are before it in the
queue. And the letter number 5.000 ought to wait for 4.999 before it be printed.
So, total time of a task will be proportional to the queue and lots length.
Therefore, reducing lots causes shrinking in lead times (to one fourth, for
instance). Impacts in response speed and in customer service might be
impressive.
Lots are present in most of processes and operations, whether in
services, production, distribution or logistics. In production, frequently happens
that volume produced is too far more than necessary due to economy scale. It is
said itsn’t worth to produce less than economic order quantity, cause shifting
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from one product to the next (set up time4) in a machine takes productive time.
Taking this thought further, if a plant produced one product part each time
(unitary lot) there would have many set ups that troughput would fell severely and
unitary costs would extremely high. However, this is the absolute goal of lean
production: to make possible to produce unitary lots. In order to get smaller lot
sizes, it is needed a shift in minset: instead of higher lot sizes to tradeoff set up
costs, one should to shrink set up time and cost to get smaller lot sizes.
In logistics, it’s harder to make that mind shift, because transportation is in
place. The smaller the lot sizes, more frequently are the product movements.
Perhaps, this explains why present thinking is to mainly consolidate loads to
reduce transportation costs, for example. In warehouses, moving smaller lots
(smaller pallets, for instance) demands more movements. However, if the layouts
are adequate and pick up and truck loading times are shorter, in what extent lots
should be shrinked and response speed would increase?
This is a major challenge to Lean Logistics that can be accomplished up to
a certain limit, in most of logistic processes. There are tools available for that, but
to mine all potencial benefits of it is necessary to deeply comprehend Lean
Logistics concepts.
Knowing deeply the relationship between planning and forecasting,
programming and response time is crucial to run a lean operation. Forecasts are
less accurate the longer is the forecast horizon (is going to rain today? Is going to
rain in the day next year?). In most of organizations forecasts are input to
customer service and capacity planning (medium term). Set the resources to
meet customer orders day-to-day is a task of programming. However, if planning
(or forecast) fails to provide required resources to execute the plan, firm will pay
through higher costs and/or poor service. Since the length of lead times relates
directly with forecast accuracy, with planning and with programming, in any
supply chain, the length of lead time influence forecast uncertainty. For instance,
assume that a supermarket takes a month to get a certain product, it should be
able to foresee the demand one month before. In a traditional queue-and-lot
supply chain, the choice would rest only in trying to enhanced forecast accuracy.
A lean supply chain would try hard to shrink lead times.
Along shorter lead times and stable demand is possible, in the
supermarket case, for example, replenish only the quantities consumed in the
previous day, what significantly reduces inventories and lost sales related to lack
of stocks. Consumer demand over a broad region (country, state or even a
town), usually behaves regularly. So, why the operations in the beggining of
supply chain suffer with lumpy demand?
The answer is in the way logistics system holds these operations and in
forecasting, planning and programming methods. In mosto f cases it is possible
to smooth demand through planning, what cut the demand peaks accountable for
unexpected costs and/or delays in customer service.
4
Set up time is the time to change from one product to the next. For instance, when a
printer changes to other product tint and molds has to be changed. Whitin this period of time,
machine is not operating.
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A system highly variable in volume and inproduction/distribution mix and
with long lead times, it’s difficult pulling value from customers. For that reason,
ways to reduce lead times should be studied. Leveling the needs also require a
new sight over production and logistics system.
Reviewing paradigms
Maybe, the major challenge is to understand that note ver high volumes
mean scale economies. However, the idea that big quantities of same things,
made at the same time are cheaper and more produtive remains. This
caracteristic thought is called lot-and-queue, since the implementation result is
the production and transporto of larger lots. And, processing larger lots, always
imply in longer waiting times.
Sometimes, a product desired by customer stay at the end of a queue,
composed of products that are not necessary in that very momment to the
customers. Queues, depending on kind of operation, can account for 3/4 of total
processing time. This means that production and distribution time can be
reduced about 75% in that cases, at the same time inventories decrease.
Why many companies didn’t do it so far?
The answer may be found in the organizational change topics, taking into
account the especific phenomenon of lean transformation. Among them, there is
an increase in responsibility of employee, who run more processes than before. If
the amplitude of analysis cross interorganizational borders, it will become clear
that many of those oscilations concerned to the market or economy are
manageable by integrating planning of the organizations in both sides of border.
Easier to be accepted by managers and employees is the fact that
inventories are waste, since the portion of inventory that adds value be
distinguished from the portion that cover waste. The last one is account for
incurred costs that could be avoided. Nevertheless, it is usual that organizations
cut first the variable costs (more apparent than fixed costs), among them is job
floor workers, the portion of workforce that adds more value. Meanwhile, are paid
less attention to fixed costs. If this logic is persistent, in an enviroment that a firm
are not able to become competitive quickly enough, the firm breaks. In this
particular situation, when the firm cut variable costs but can’t cut proportionally
fixed costs, it loses capacity to mantain margins and invest in improvements.
This firm plunges. In spite of being aware of it, many companies treats workers
as variable cost (or as a portion of fixed cost to be eliminated). Few of them act
really and sincerely as workforce is what it really is: an asset. Being considered
as essential, they are fixed assets. And fixed assets should add maximum value
and wealth. For these reason, should not be dismissed unless irreconciliable
internal factors or external unavoidable factors hit the organization.
Finally, shifting from present paradigm to lean could be summarized in
one expression: learn to improve continuously the value stream.
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A Lean Logistics approach
This short text suggests that a superior performance can be achieved by
companies through deployment of Lean Logistcs concepts. The results include
higher margins, lower costs, less flaws and waste, less inventory, shorter lead
times, more flexibility, reduced dependence on forecasts, meanwhile higher
customer service level is obtained.
When exploiting these concepts, it becomes clear that they fit straight to
the firm processes and operations.
In a lean organization internal processes are designed to provide value to
customers – as consumers or as customer-companies – through five principles of
Lean Thinking [Womack, 2006]:
1.
Provide the value wanted by customers. Don’t think that what
you provide is what customer wants;
2.
Identify value stream for each product. Eliminate the non-value
adding steps ;
3.
Set the remaining steps in a continuous flow. Eliminate waiting
and inventories to cut response times;
4.
Let the customer pull value from organization. Reverse push
methods;
5.
Restart form step 1. Chase perfection, continuous improvement,
zero inventory, zero waste.
Looks like simple. However, the simplicity principle, intrinsic to lean
paradigm, does not ignore the complexity of logistics systems, since there is a
set of concepts and tools – not described here – that permit understanding of
theses systems and indicate some possible solutions. Comprehension of lean
systems let transformation easier, but not less complex, since it implies in
reviewing strong beliefs, in perfect comprehension of concepts and in a radical
shift in attitude of actors involved in the transformation.
Finally, there are many hurdles in logistics systems transformation, but if
there are sucessfull lean organizations one can think why hurdles would be
greater than the will to get superior performance through logistics systems?
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Conclusion
Lean Logistics isn’t a expression as knwon as Lean Production. However,
the deployment of the principles and concepts of Lean Thinking to logistics can
facilitate the achievement of superior results to companies.
Higher margins, enhanced customer service, flexibility, shorter lead times
could be obtained through lean logics, that assumes the elimination of waste and
value adding to customers.
However, the transformation of traditional logistc systems to lean logistc
systems is not easy, since it demands shifts in the way of seeing, thinking and in
the attitude of managers and employees.
References
BALLOU, R. Gerenciamento da Cadeia de Suprimentos. 5 ed. Porto Alegre: Bookman, 2005.
BAÑOLAS, R. SOUTO, R. Uma proposição de análise para transformação dos sistemas
logísticos. Published at NewsLog, www.intelog.net , on 03/08/06.
OHNO, T. O Sistema Toyota de Produção: além da produção em larga escala. Bookman, Porto
Alegre, 1997.
WOMACK, James T. JONES, Daniel T. Lean Thinking: banish waste and create wealth in your
corporation. New York, Free Press, 2003.
WOMACK, James T. JONES, Daniel T. A máquina que mudou o mundo. 12ª ed. Rio de
Janeiro, Editora Campus, 1999.
WOMACK, James T. JONES, Daniel T. Soluções enxutas: como empresas e clientes
conseguem juntos criar valor e riqueza. Rio de Janeiro: Editora Campus, 2006.
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