The Lean Supply Chain
Paying it Backward

Paying it Backward

As we know, the concept of Lean is pretty pervasive these days in manufacturing...if it’s not part of a company’s culture, it’s at least part of the conversation. In fact, according to Kevin Roach in an article for The Wholesaler magazine entitled “Lean for wholesale distribution,” “an index tracking the world’s 20 largest lean companies called the “Superfactory 20” continuously outperforms the S&P 500.  In 2007, for instance, the Superfactory 20 stocks increased by 22.66%, while the S&P 500 increased by only 3.65%.”

So “as major manufacturing companies move to lean systems, it will require that wholesalers follow to achieve manufacturers’ requirements. Adopting lean processes in their own businesses will also benefit wholesalers through significant improvements in asset utilization, cost savings and profitability.”

As manufacturers and retailers continue to “lean out” their processes and order in smaller and smaller quantities with shorter and shorter lead times, it is critical that middlemen don’t bear the brunt of this effort without improving their own processes. Otherwise we will never have a truly lean supply chain as they will forever be the beneficiaries of what is known as the “Bullwhip Effect” (i.e. the trend of larger and larger swings in inventory in response to changes in customer demand, when going further back in the supply chain for a product).

When discussing this, we need to keep in mind that the wholesale distribution industry is no “drop in the bucket” either, contributing almost $5 trillion and 5.7 million workers to the U.S. economy in 2012.

So to be successful, the application of enabling technology such as Enterprise Resource Planning (ERP) systems must be supplemented with processes improvements by implementing a lean culture and principles. One particular area for lean for wholesale distributors is operations, including warehouse operations as well as the entire order management process, from receipt of an order, to order entry, through to the delivery of products and services.

Wholesalers need to consider, as Mr. Roach points out, that “the savings obtainable through lean distribution is staggering. Entire tasks and processes can be eliminated with the resulting revenue used for expansion or taken as straight profit. The right ERP system can provide wholesalers with the tools they need to embrace lean practices and strengthen their businesses. Lean combined with an effective ERP system, can lead to significant competitive advantages for distributors.”

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