In Lean, inventory is often viewed in a negative light. Indeed, inventory is one of the 7 deadly wastes. Is the traditional position of Lean justified in thinking so negatively against inventory and the warehousing that goes along with it?
There are at least 3 critical items that allow you to reduce costs and increase service level in warehousing:
- Tight and Necessary Warehousing Processes
- What Warehouse Metrics do you have in place to help you determine if your processes are going well or not.
- You warehouse location is optimal in the first place to meet service level commitments.
- These together will help you reduce costs in your warehouse.
Single Piece Flow, while an ideal state for a company to be at, is not realistic when it comes to warehousing. Why? Well, there is a fixed cost any time product is transported. This is especially high when the carrier is ship or plane or train; and to amortize this fixed cost it is necessary to fill the carrier to capacity. Consequently, a distributor may consolidate shipments from vendors into large shipments for downstream customers.
Similarly, when shipments are consolidated, then it is easier to receive downstream. Trucks can be scheduled into a limited number of dock doors and so drivers do not have to wait. The results are savings for all involved in the supply chain.
Put another way, suppose there’s a large retailer with thousands of suppliers. Imagine if those suppliers replenished each retail store directly. That scenario would mean that each trailer would leave the supplier mostly empty or Less-than-truckload (LTL). The model might be illustrated as follows:
In the example where each supplier replenishes each store directly, we achieve the following transportation plan:
Vendors v * Stores s = # of direct shipment transportation runs.
And, each direct shipment will likely be less than truckload and the consequent costs will be much higher.
The alternative is to have a consolidation warehouse. In this scenario, we have Vendors or Suppliers that have inbound shipments to a consolidation warehouse, then that warehouse delivers direct to the stores. The result is the following transportation plan:
Vendors v + Stores s = # of direct shipment transportation runs.
In this scenario, the costs incurred is much lower and the shipments will likely be larger with lower fixed costs. This model might be illustrated by the picture below:
So, despite the negative attitude toward inventory and the field of warehousing in general, lean advocates need to understand the warehousing can be strategic and can actually reduce the overall landed costs in the supply chain.