Warehouse and Distribution Center Lean Initiative: Value Stream Mapping

Warehouses and Distribution centers play a critical role in maintaining supply chains efficiency, flexibility, and reliability. Given the limited financial and physical resources of today’s businesses’ distribution and warehouse enterprises have begun to embrace the far reaching value of lean paradigm. Value Stream Mapping (VSM) is prescribed as a part of lean implementation portfolio of tools. It is employed to visually map value streams’ material and information flows seeking to identify the sources of waste and non-value added activities. Integrating simulation with VSM introduces a whole new dimension for lean implementation and assessment processes given its ability to dynamically model systems complexity and uncertainty.

Distribution Centers (DC’s) and Warehouses often perform more than a single function in supply chain networks including make-bulk/break-bulk, consolidation, cross docking, drop ship, product fulfillment (kitting), and reverse logistics (return goods). Given these pervasive challenges, successful distribution and warehouse companies have to achieve high customer service levels while reducing cost and waste to remain competitive. Managers realize that competition is no longer limited to enterprise against enterprise rather than supply chain network versus supply chain network. The high expenses provoke the challenge for achieving low cost warehousing and distribution with a high level of customer satisfaction at the same time. However, under the influence of factors like ecommerce, supply-chain collaboration, globalization, and new management techniques such as JIT and lean operations, successful warehousing and distribution is heading towards tighter inventory control, shorter response time and a greater variety.

Since lean thinking seeks to eliminate the sources of waste or at least mitigate their impact on company performances, it is counted as a necessary ingredient for improving the competitiveness of the distribution and warehouse companies. Despite this, lean as an industry standard is not clearly defined with a specific regard to the distribution process.

VSM is a powerful tool to help with lean and improve quality by reducing errors. Due to the amount of resources required for implementation the effect on productivity and efficiency is rather positive than negative; because of that warehousing and distribution organizations have to define their value proposition before applying lean practices. If a warehouse/distribution is focused on cost reduction and efficiency lean is the appropriate management philosophy to adopt.

Lean warehousing/distribution should lead to improvement in the delivered added value towards customers and the performance of internal processes. Eventually an organization with a lean philosophy reduces non-value adding processes to a minimum, which increases the amount of resources available for value adding activities. So, how can lean thinking and warehouse/distribution practice merge and create lean warehouse/distribution operations? And, which tools can be used to support lean? How can lean warehousing/distribution influence the performance of a warehouse/distribution operation?

The objectives of warehouses and distribution centers are to support the efficiency and smoothness of the supply chain operations by providing materials and supplies in a timely and cost effective manner. The two major objectives for keeping a warehouse are to earn profit and provide customer service. To achieve these objectives several activities are necessary, these are maintained and improved.

Some of the objectives may include the following:

• Maximize storage utilization, warehouse equipment and warehouse staff.
• Determine and maintain an inventory of Stock Keeping Units (SKU’s) so that it can provide the requested quantities of stocked commodities needed by users.
• Maintain an inventory of critical SKU’s so that zero levels of the latter do not occur.
• Reduce SKU’s handling, maintain SKU’s accessibility, and assure the designed SKU rotation or turns.
• Minimize the company’s operating expenses.

• Maximize the warehouse storage utilization (either in 2-D or 3-D space).
• Maximize the utilization of the warehouse equipment
• Maximize the utilization of the warehouse staff
• Minimize the company’s operating expenses
• Assure the protection of the company’s assets

The key is to reduce the non-value added steps as much as possible and to improve velocity and flow. So, where do you start? In order to understand where to start the implementation of lean concepts is to develop a value stream map. The value stream is the set of all specific actions, both value added and non-value added, the value stream map follows the path from beginning to end and shows a visual representation of every process in the operation such as receiving, palletizing, put-away, order picking, order staging and preparation, truck loading, and shipping. Improvements can be easily developed to eliminate extra material handling, excessive travel time, and time spent looking for products. Various lean improvement techniques such as material flow analysis, quality improvement, and application of the 5Ss can be also used.

Value-stream mapping is the set of all the specific actions required to bring the operation through the three critical management tasks of any business, which are:

1. Problem-solving tasks
2. Information management tasks, and
3. Physical transformation tasks

 A Lean initiative is constructed on five foundational areas:

1. Business analysis and profiling
2. Process analysis, modeling & redesign
3. Automation & Material Handling design
4. People -Engineered labor standards & performance measurement
5. Business Case developmentConsequently, the value-stream extends beyond individual businesses to upstream and downstream enterprises which are to work cooperatively as a system across organizations to maximize value and eliminate wastes throughout the supply chain.

The typical elements of the VSM procedure are as follows:

1. Identifying the function or service to map: the value stream to be improved is determined, with its start and end points;
2. Drawing the current state map: the current situation (state) of the flow of material and information in the value stream is described, including all available information (tasks, costs, time for each task, delays in between stages of the process, etc.). To produce the current state map, a team observes the warehouse/distribution processes and documents facts (cycle times, buffer sizes, personnel requirements, etc.) which are described in the map with standardized icons
3. Assessing the current state map: the procedure analyzes qualitatively whether each process activity is adding value, so that the system anomalies are identified. In particular, the so called Key Performance Indicators (KPI) is introduced as relevant metrics to measure both the material and information flow (e.g., lead time, inventory, etc.). The detected imperfections in the flow (i.e., non-satisfactory values of KPI) are signalized by means of icons called bombs and evaluated quantitatively using several matrices and vectors that are described in the sequel.
4. Drawing the future state map: the subsequent step is to re-design the overall picture of the system eliminating (a number of) the identified non-value adding activities. Hence, the future state map is drawn, describing the ideal future state of the system and showing the desired way in which the process in the stream should look in the future after the elimination of the (top) critical points;
5. Updating the value stream: the identified improvement plans are implemented in the system, so that the envisaged future state can be obtained. Obviously, to ensure continuous improvement and to verify the implementation plans, the VSM procedure is continuously iterated, i.e., it is recursively repeated at least annually.

When the future state value stream map is completed, an implementation plan must be developed to convert the current state into the future state. Once the improvements are identified, a time-sequenced list of improvement projects can be made. A brief goal and the expected improvement should be show for each project. The projects should be given a relative priority so that the most important projects can be scheduled first. The plan should be established to complete the majority of the projects within three to six months. Organizing the warehouse improvement projects in this manner can make it easier to include them in the capital planning process if new process equipment is required.

Lean concepts can be successfully applied to a warehouse/distribution environment. Value stream mapping can be a valuable tool for developing and implementing warehousing and distribution lean improvement projects. The process of creating the value stream map helps to train the warehouse team on lean techniques and to reveal opportunities to reduce waste. Once the value stream map has been developed, the waste in the warehouse process can be easily identified and eliminated using:

• Improved order processing and tracking
• Reduced material handling
• Improved inventory organization
• Cross training
• Quality tracking

Using lean concepts can lead to significant reductions in order processing time and lead time while improving inventory and order processing accuracy. Lean philosophy is not only a collection of tools and practices to improve performance, but also a set of new cultural issues that people need to embrace in order to achieve a sustainable lean performance. It is important to address three fundamental issues before adopting major culture changing initiative like lean; leadership, workers motivation and problem solving.

Many lean implementation attempts have failed because leaders do not have the ability to articulate clear plans to their people and do not have the courage and character to make difficult decisions in the right time. The lack of support and involvement of managers also results unsuccessful lean implementation process. Leaders have to motivate workers in order to reinforce the lean implementation process and accept its associated changes. The clear communication between managers, engineers and supervisors with the workforce by periodic meetings, discussions and the exchange of information is important. Supply chain partners, from upstream suppliers to the downstream distributors, also have to collaborate as a team to provide a value to the end customer. Companies that put too much emphasis on the tools and not on the people get it wrong. Training, sharing mutual values between group members, improving communication channels and developing human capital ensure the growth and wellness of the employee.