F. Barry Lawrence, Ph.D., Texas A&M University

Transcription

1 Keynote Gaining Competitive Advantage Through Lean Distribution The cutting edge in gaining distribution competitive advantage is lean. Many customers and suppliers are implementing lean procedures and are asking their distributors to do the same. The problem is that lean processes have not been well defined for distributors. This session addresses how to implement lean in distribution organizations with practical methods, tools and techniques. This session will use case studies from real distributors to describe and demonstrate lean processes and their value. F. Barry Lawrence, Ph.D., Texas A&M University 3/12/2010, 8:00 a.m.

2 Session Objectives Applying Lean Techniques in Distribution Industry 10-step Lean Implementation Framework How to focus more on Customer Value Add (CVA) activities Utilize Case Studies to Apply Principles Link to ROI 2

3 Return on Investment Opportunity In tough economic times like the current condition every component of the Income statement (Expenses) should be analyzed and optimized ROI Expectations has Increased Due to Perceived Higher Risk and Tightened Credit 3

4 Additional Resources Optimizing Distributor Profitability available from the NAW. Educational Programs from the Thomas and Joan Read Center for Distribution Research and Education at Pricing Optimization Optimizing Distributor Profitability Certificate in Distribution Management Custom Programs Research from the Supply Chain Systems Laboratory tamu 4

5 What do you see? Glass is Half Full Optimist Glass is Half Empty Pessimist I have more space than what I need Lean Specialist 5

6 Introduction to Lean What is Lean? A program designed to: Eliminate Waste Reduce Resource Commitments It draws upon and is supported by other programs: Six Sigma TQM Total Quality Management TOC Theory of Constraints 6

7 The Central Concept Lean is a systematic approach of eliminating waste Waste is any activity it that t consumes resources but adds NO VALUE! 7 7

8 Tenets of Lean Waste Reduction Muda Continuous Flow Just in Time Customer Pull Kanban Lower Cycle Times Lead Time Reduction Increased Profits Service Control Flexibility Agility Zero Defects Never Stock-out on Key Inventory Cont. Improvement Measure & Improve Higher Worker Morale Measuring, Training, to Ensure Success Minimize Variability Wherever Possible 8

9 Relevant Lean Tools KAIZEN TOOLS QUALITY SAFETY PRODUCTIVITY HOUSE KEEPING Value Stream Map p( (VSM) X X 5S / Visual Management X X X X Layout design / redesign X X X X 5 Whys X X Cause and Effect X X 7 wastes X X X X 9

10 Value Stream Mapping (VSM) What is VSM? A material & information flow map that analyses the flow of material & information required to bring a product or service to a customer Why should it be used? Provides a good understanding of the overall process and highlights the areas with biggest improvement opportunities How is it done? Current State / As-Is VSM Future State t / To-Be VSM 10

11 Building Blocks of VSM Customer Value Add (CVA) Activities Activities that add value to customer s product/service Customers are willing to pay for these activities Strive for competitive advantage What we want to do Business Value Add (BVA) Activities Business required activities that do not add value to customer s product/service Identify potential for automation to reduce activity time What we have to do Non Value Add (NVA) Activities iti Activities that generate Waste Need to be eliminated What we do not want to do 11

12 Sample VSM Cycle Counting Start Time 7.50 am Recount Items & Enter Qty End Time 9.38 am No Generate Cycle Count List & Notify W/H ppl Automatic Cycle Count Notification Scan Employee ID & Choose Cycle Counting Job Cycle Count List Shown Scan Item Barcode, Count Items and Enter Qty Qty Matches? Yes Run Variance Report Check Reports & Identify Root Cause for Variance Resolve & Put Item Back on Shelf Adjust & Update Inventory in System Sign Cycle Count File Cycle Count Ticket Print Variance Report P/T = 0 min P/T = 10 sec P/T = 60 min P/T = 10 sec P/T = 5 min P/T = 15 min/line P/T = 12 min P/T = 1 min P/T = 30 sec Resp Inv Ctrl Resp W/H ppl Resp 4 W/H ppl Resp W/H ppl Resp W/H ppl Resp Opr Mgr Resp W/H ppl Resp Inv Ctrl Resp Br Mgr & W/H ppl P/T = 1 min Resp W/H ppl Wait Time 0 min 1 min 0 min 0 min 5 min 0 min 1 min 7 min Process Time 0 min 10 sec 60 min 10 sec 6 min 15 min 12 min 1 min 30 sec Legend Outside Sources Process Box Data Box No of items on cycle count ticket - 69 No of items recounted - 15 CVA 61 = = 56.4 % 108 Inventory/Batching Goods to Cust Wait Time Transportation Manual Info Flow Process Time Push System Electronic Info Flow No of items with variance - 2 Process Time - 94 min Wait Time - 14 min No of people involved 4 W/H ppl + Inv Ctrl + Opr Mgr BVA NVA = = = = 30.5 % 12.9 % 12

13 The 10-Step Lean Implementation Framework A structured approach to lean initiatives Steps could be eliminated/added based on initiative Helps in maintaining consistency of lean initiatives across the organization Key Points Incorporates lean tools VSM, Process Flows, etc. Addresses Key Performance Indicators (KPIs) Helps prioritize improvement opportunities for implementation based on a Weighted factor decision model Facilitates Best Practice identification and bench marking for other locations 13

14 Identify focus areas & key parameters Address Key Perf. Indicators (KPIs) As-Is Value Stream Mapping (VSM) To-Be Value Stream Mapping (VSM) Quantify benefits & impact on KPIs T h e 10 S t e p t 5 L e a n I m p l e m e n t a t i o n F r a m e w o r k Repeat steps 2 to 5 for all focus areas Prioritize & implement improvements Document improved processes Share best practices Select new major process 14

15 As-Is Process Flow Cycle Counting 15

16 Cycle Counting A Lean Perspective 16

17 As-Is Process Flow Activity Flow Diagram Wait Time between act Activity Time Activity Start Time Inv Control Mgr 4 W/H operators Operations Mgr Branch Mgr 15 sec 3 min 1 min 9:38 am 9:41 am Key in recount values in sys Rerun Var report 15 sec 1 min 9:42 am Reprint Var report 5 min 5 min 8 min 15 min 9:48 am 9:56 am Check reports Identify root cause of Var 0 min 1 min 13 min 10:11 am Resolve & put item on shelf 5 min 6 min 2 min 10:24 am 10:31am Adj & Update Inv in system Sign off tickets 2 min 5 min 10:33 am Sign off tickets 5 min 0 min 10:38 am File tickets Total: 168 min # of tasks = 13 # of tasks = 3 # of tasks = 4 # of tasks = 1 17

18 Cycle Counting To-be Process Future State VSM Perform Inventory Stratification to identify A,B,C and D items Highlight h A&Bi items when generating pick ticket and put away ticket Task Interleaving (Combining multiple tasks) Employee will count ticked items during put away and picking processes This practice ensures high levels of inventory accuracy for fast moving items without any substantial investment in counting time Regular cycle counting procedure will be performed on C & D items only No formal cycle counting procedure will be performed on A&Bitems 18

19 To-be Process Flow Cycle Counting Start Time 7.50 am Recount Items & Enter Qty End Time 9.38 am No Generate Cycle Count List & Notify W/H ppl Automatic Cycle Count Notification Scan Employee ID & Choose Cycle Counting Job Cycle Count List Shown Scan Item Barcode, Count Items and Enter Qty Qty Matches? Yes Run Variance Report Check Reports & Identify Root Cause for Variance Resolve & Put Item Back on Shelf Adjust & Update Inventory in System Sign Cycle Count File Cycle Count Ticket Print Variance Report P/T = 0 min P/T = 10 sec P/T = 60 min P/T = 10 sec P/T = 5 min P/T = 15 min/line P/T = 12 min P/T = 1 min P/T = 30 sec Resp Inv Ctrl Resp W/H ppl Resp 4 W/H ppl Resp W/H ppl Resp W/H ppl Resp Opr Mgr Resp W/H ppl Resp Inv Ctrl Resp Br Mgr & W/H ppl P/T = 1 min Resp W/H ppl No of items on cycle count ticket - 69 No of items recounted - 15 No of items with variance - 2 Process Time - 94 min Wait Time - 14 min No of people p involved 4 W/H ppl + Inv Ctrl + Opr Mgr 19

20 To-Be/Future State VSM A Lean Perspective Cycle Counting Start Time 7.50 am Recount Items & Enter Qty End Time 9.38 am No Generate Cycle Count List & Notify W/H ppl Automatic Cycle Count Notification Scan Employee ID & Choose Cycle Counting Job Cycle Count List Shown Scan Item Barcode, Count Items and Enter Qty Qty Matches? Yes Run Variance Report Check Reports & Identify Root Cause for Variance Resolve & Put Item Back on Shelf Adjust & Update Inventory in System Sign Cycle Count File Cycle Count Ticket Print Variance Report P/T = 0 min P/T = 10 sec P/T = 60 min P/T = 10 sec P/T = 5 min P/T = 15 min/line P/T = 12 min P/T = 1 min P/T = 30 sec Resp Inv Ctrl Resp W/H ppl Resp 4 W/H ppl Resp W/H ppl Resp W/H ppl Resp Opr Mgr Resp W/H ppl Resp Inv Ctrl Resp Br Mgr & W/H ppl P/T = 1 min Resp W/H ppl Wait Time 0 min 1 min 0 min 0 min 5 min 0 min 1 min 7 min Process Time 0 min 10 sec 60 min 10 sec 6 min 15 min 12 min 1 min 30 sec Legend Outside Sources Process Box Data Box No of items on cycle count ticket - 69 No of items recounted - 15 CVA 61 = = 56.4 % 108 Inventory/Batching Goods to Cust Wait Time Transportation Manual Info Flow Process Time Push System Electronic Info Flow No of items with variance - 2 Process Time - 94 min Wait Time - 14 min No of people involved 4 W/H ppl + Inv Ctrl + Opr Mgr BVA NVA = = = 30.5 % = 12.9 %

21 As-Is Vs. To-Be Process Flows Cycle Counting AS-IS PROCESS Start Time 7:50 AM End Time 10:38 AM Start Time 7.50 am Recount Items & Enter Qty TO-BE PROCESS End Time 9.38 am No Generate Cycle Count List & Notify W/H ppl Automatic Cycle Count Notification Scan Employee ID & Choose Cycle Counting Job Cycle Count List Shown Scan Item Barcode, Count Items and Enter Qty Qty Matches? Yes Run Variance Report Check Reports & Identify Root Cause for Variance Resolve & Put Item Back on Shelf Adjust & Update Inventory in System Sign Cycle Count File Cycle Count Ticket Print Variance Report Start Time End Time 7:50 AM 9:38 AM 21

22 Performance Metrics Performance Metric Cycle Count Accuracy Impact On Time Delivery Over Stock Stock Out Customer Wait Time Gross Margin Return on Inventory Investment Earnings Before Interest and Tax Cycle Count Time 22

23 Cycle Counting Process Improvement Results As-Is To-Be % Category Process Process Change Cycle Count Process Time 168 Min 108 Min -36% CVA 66 Min 61 Min -8% BVA 49 Min 33 Min -33% NVA 53 Min 14 Min -74% Total # of tasks % # of tasks - Inv Ctrl Mgr % # of tasks - WH Operator % # of tasks - Ops Mgr % # of tasks - Branch Mgr 1 1 0% # of Bar Code Scanners 0 4 Employee Productivity Metric No Yes 23

24 Lean 10-step Implementation Summary Process Times in Minutes 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% % 3% 13% 17% 19% 32% 33% 24% 32% 45% 31% 19% 29% 8% 26% 78% 83% 73% 56% 47% 48% 39% 42% As-Is To-Be As-Is To-Be As-Is To-Be As-Is To-Be NVA BVA CVA Order Cycle Receiving Receiving Picking Counting Prod Type 1 Prod Type 2 24

25 Warehouse Efficiency (Order Picking & Receiving) Basic Input Parameters EBITDA Growth Efficiency Additional Revenue P&L and Bal. Sheet # of Lines Handled d RONA Resource Availability 25

26 Financial Statements Typical Distributor Financial Statements Current Income Statement Fixed Variable Net Sales $ 148,265, % Cost of Goods Sold $ 110,902, % 0% 100% Gross Margin $ 37,363, % Employee Compensation - Outside S $ 9,059, % 25% 75% Employee Compensation - Others $ 9,385, % 90% 10% Warehouse Expenses $ 4,477, % 50% 50% Delivery Expenses $ 4,536, % 20% 80% Other Operating Expenses (G&A) $ 2,194, % 25% 75% Total Operating Expenses $ 29,653, % 0% Operating Margin $ 7,709, % Other Income $ - 0.0% Other Expenses $ - 0.0% EBITDA $ 7,709, % Financial Statements Current Balance Sheet Assets By Total Assets Inventory $ 17,470, % Accounts Receivables $ 18,829, % Cash & Marketable Securities $ 1,990, % Other Currrent Assets $ 1,978, % Total Current Assets $ 40,268, % Fixed & Non-current Assets $ 6,153, % Total Assets $ 46,421, % 0% Liabilities & Net Worth By Total Liabilities & Net Worth Accounts Payables $ 9,884, % Notes Payable (Short-term Debt) $ 1,427, % Other Current Liabilities $ 2,404, % Total Current Liabilities $ 13,716, % Long-term Liabilities $ 4,991, % Net Worth Or Owner's Equity $ 27,714, % Total Liabilities & Net Worth $ 46,421, % 26

27 Financial KPIs Typical Distributor Financial KPIs Current CASH FLOW DSO 46.4 DPO 32.5 DOI Cash Conversion Cycle 71.3 Working Capital as a % of rev 17.9% PROFITABILITY Gross Margin % 25.2% EBITDA Margin % 5.2% Personnel Productivity Ratio (PPR) 0.49 GMROI % 214% % change in EBITDA $ GROWTH Revenue Growth % 5.3% ASSET EFFICIENCY Asset Turnover 3.19 Receivables Turnover Inventory Turnover 6.35 RONA (EBITDA/Net Assets) 23.57% 27

28 Impact on Income Statement Profitability Analysis - Income Statement Income Statement Current Scenario By Sales % Fixed Variable To-Be Scenario Formulae Column A B C D E Net Sales $ 148,265, % $ 153,009,795 New Net Sales Cost of Goods Sold (COGS) $ 110,902, % 0% 100% $ 114,451,327 (A * C) + (New Net Sales * B * D) Gross Margin $ 37,363, % $ 38,558,468 (New Net Sales - COGS) Employee Compensation - Outside Sales $ 9,059, % 25% 75% $ 9,276,435 (A * C) + (New Net Sales * B * D) Employee Compensation - Others $ 9,385, % 90% 10% $ 9,415,259 (A * C) + (New Net Sales * B * D) Warehouse Expenses $ 4,477, % 50% 50% $ 4,549,263 (A * C) + (New Net Sales * B * D) Delivery Expenses $ 4,536, % 20% 80% $ 4,653,067 (A * C) + (New Net Sales * B * D) Other Operating Expenses (G&A) $ 2,194, % 25% 75% $ 2,246,992 (A * C) + (New Net Sales * B * D) Total Operating Expenses $ 29,653,176, 20.0% $ 30,141,016, Operating Margin $ 7,709, % $ 8,417,452 Gross Margin - Total Operating Expenses Other Income $ - 0.0% $ - Other Expenses $ - 0.0% $ 141,682 Interest expense for additional accounts receivables and 12% EBITDA $ 7,709, % 5.2% $ 8,275,

29 Impact on Balance Sheet Profitability Analysis - Balance Sheet Balance Sheet Current Scenario To-Be Scenario Formulae Assets By Total Assets Inventory $ 17,470, % $ 18,030, Days Inventory Outstanding * (New COGS / 365) Accounts Receivables $ 18,829, % $ 19,451,108 Days Sales Outstanding * (New Net Sales / 365) Cash & Marketable Securities $ 1,990, % $ 1,990,029 Other Currrent Assets $ 1,978, % $ 1,978,468 Total Current Assets $ 40,268, % $ 41,449,609 Fixed & Non-current Assets $ 6,153, % $ 6,153,034 Total Assets $ 46,421, % $ 47,602,643 Liabilities & Net Worth By Total Liabilities & Net Worth Accounts Payables $ 9,884, % $ 10,190, Days Payable Outstanding * (New COGS / 365) Notes Payable (Short-term Debt) $ 1,427, % $ 1,427,456 Other Current Liabilities $ 2,404, % $ 2,404,335 Total Current Liabilities $ 13,716, % $ 14,022,663 Long-term Liabilities $ 4,991, % $ 4,991,618 Net Worth Or Owner's Equity $ 27,714, % $ 28,588,36288 Total Liabilities & Net Worth $ 46,421, % $ 47,602,643 29

30 Impact on Financial Metrics Key Metrics Current Potential Revenue Growth (Growth) 5.3% 8.3% RONA (Asset Efficiency) 23.6% 24.6% EBITDA (Profitability) 5.2% 5.4% 30

31 Potential Profitability Typical Distributor 35% Potential Profitability Curve STORE & SHIP RONA Minimum % RONA Typical Distributor RONA Maximum % 30% 29.33% 28.05% 28.62% 26.81% 27.20% 25% 25.64% 24.12% 24.27% 23.81% 23.95% 23.75% 24.00% 25.04% 24.20% 25.44% 23.57% 20% Base Case Rec/Stag/Putaway Space Utilization Cycle Counting Transportation Pick & Delivery 31

32 Potential Profitability Typical Distributor Impact of Impact best practices of STORE on & SHIP EBITDA best practices % - Typical on Distributor Return On Net Assets (EBITDA %) Typical Distributor Combined Practices 7.2% Pick & Delivery 5.5% Transportation 6.2% Cycle Counting 5.2% Space Utilization 5.8% Rec/Stag/Putaway 5.3% Base Case 5.2% 32 32

33 Action Plan Step 1: Form a process improvement team Step 2: Apply 10-step lean implementation framework. Step 3: Document the cost savings. Step 4: Determine impact on shareholder value Step 5: Share best practices. 33

34 Summary To be completed 34

35 Thank You For Attending Keynote Gaining Competitive Advantage Through Lean Distribution F. Barry Lawrence, Ph.D. Please submit the Session Feedback Form To receive NASBA credits, please be sure to complete the Session Feedback Form and sign the class roster in the back of the room Total Solutions For Industrial Distributors and Manufacturers Thank You! For more info please visit: 35