Third Party Logistics Provider

Lean Thinking and the Third Party Logistics Provider

The recent past has been challenging for many of us in industry. The bold truth is regardless of our age or experience level, most of us have never been down this road before. Economists now feel we have at last hit bottom, whatever that means, and what logic are they are using to reach this conclusion anyway? The cold truth is we don’t quite understand the past, we are reasonably unsure of where we are today in the present and we have no idea of what the future will hold. Other than that, everything is pretty good.

As a leader of a third party logistics company focusing on lean principles, I am now used to a common question. “Robert, this Third Party Logistics Providereconomy must be good for business as people will be looking to drive lean and eliminate waste in order to remain competitive?” While this seems logical, the answer is “it depends.” What it depends on is the organization and their mental paradigm about current economic conditions.

I have always tried not to be a person that says “there are two kinds of people in this world,” but… “there are two kinds of companies in this world." The first is the organization that has put on their helmet and they are hunkered down in the trenches waiting for the economic bombardment to stop. These organizations have the harsh reality of reducing their workforces, closing facilities and delaying new product development initiatives. For most, these reactions are necessary as their balance sheets dictate this as the path for basic survival. It is a category five tsunami and survival is their strategy at this point. The second type of company is one whose financial situation allows them to see these times as an opportunity. The paradigm is one of “what can we do to get stronger so we are prepared when the economy rebounds?”. They see the sun shining and it’s time to fix the roof. These are the organizations that are now embracing lean. These are the organizations that will lead their industries as volumes begin to increase. All of this begs a question from the Third Party Logistics (TPL) corner…”So What”? What does lean have to do with me, how would lean help me and what does my customer care whether I am lean or not?

The Paradox of Lean and the Third Party Logistics Provider

One of the major tenants of lean is the elimination of waste. The king of waste is overproduction, defined as building more than customers are demanding or buying more than we need at that exact time. Overproduction is the king of wastes because it creates the waste of inventory, transportation and storage. Herein rests a paradox for the third party logistics provider. Is our job not to manage and execute inventory processes, transportation and distribution? Does this mean our job is to manage waste? If so, do we really want our customer to get their proverbial act together and become models of operational excellence? Do we really want our customers focusing on stability, standardization, quality at the source and inventory reduction? What if they get so good they don’t have excess inventories that need transporting or storing? What exactly is the role of the third party logistics provider in the new age of lean?

Lean and the TPL

Connecting lean and the third party logistics provider has two vantage points. One is internal and the other external. The internal view for the TPL asks “what can lean do for my organization to drive increased revenues, reduce costs and improve profitability?” The external perspective asks “if my customers are implementing lean, what do I need to know and do to remain part of the value proposition?” Let’s deal with the internal first.

Third Party Logistics and Looking Inward

Third party logistics providers have an incredible opportunity in front of them to drive operational excellence internally. In our education work with TPL’s (yes, we willingly train our competitors), we recognize an opportunity to implement fundamental lean principles. These include strategy deployment, standard work, error proofing processes, time and motion analysis, visual management and organized workplace (the 5 S’s ) disciplines. In addition, very few TPL’s have succeeded in building a problem solving culture. This latter point is the largest opportunity that exists. The TPL environment is one by design that is largely made up of unskilled and skilled team members, floor supervisors, team leaders and floor managers. In other words, the majority of employees working in the TPL induThird Party Logistics Provider stry are driving down the road or on the floor engaged in “real work”. Yet, as leaders, we are not engaging them! Taichii Ohno, the famed engineer who led the development of the Toyota Production System, called this lack of engagement a “terrible waste of humanity”. These team members live the problems, see and feel the problems (and at times cause the problems), yet we continue to ignore the potential the entire organization brings in solving problems at the root cause. This is step number one for any TPL looking to begin the lean journey.

But beware! When we do begin engaging the workforce to identify and expose problems, it will only create more grief in the short term! Why ? Because in TPL University, they brainwash us to believe that the root causes of all our problems are created by our customers. If only our customers could level their shipments! If only the customer could label the boxes properly! If only the customer could load our trucks faster! If only we could get accurate data! And so the story goes, if it wasn’t for our customers, we would be the billboard for operational excellence! This level of arrogance will not survive the new economy. Economic volumes will come back, but not to the levels we have known in the past. We will see growth, but it will be gradual and relatively flat. Rest assured there will be a host of TPL’s competing for fewer opportunities. This will truly be survival of the fittest. And the fittest will be those who check their ego at the door, take a good look in the mirror and realize their operations are riddle with waste that has nothing to do with the customer or other external forces. As the great philosopherPogo once said “we have seen the enemy and the enemy is us”.

Third Party Logistics and Looking Outward

Jim Womack and Dan Jones, leading thinkers and authors in lean describe the Enterprise as

“A continuing agreement among all firms sharing the value stream to correctly specify value from the standpoint of the end customer, remove wasteful actions from the value stream, and make those actions which do create value occur in continuous flow as pulled by the customer”.

Nobody is so naive to think that this is not a very tall order. However, we do know something from the last two years that will prove useful. Organizations that continue to create and tolerate process waste will not survive in the new world. Operational excellence is not a nice to have, it is a must have. Let’s examine why.

Prior to the economic collapse, many organizations were riding the wave. Business was great and we couldn’t move product fast enough. We built factories and distributions centers. We hired people on mass and the last thing we needed to worry about was waste reduction. Then the tide changed and we reversed all the growth decisions by closing, reducing and eliminating. The virtual roller coaster. As volumes come back, organizations will be faced with a very tough question. Do we build, hire and increase again knowing what we now know? The question of all questions is” how do we grow steadily and not add infrastructure cost?”. The only way to accomplish this is to focus on lean principles, as described as eliminating all wasteful activities and only doing those things that add value for the customer.

Let’s go back to fundamentals. There are only three types of processes:

  1. Value Added: those things that are critical to service the customer and the customer is willing to pay for these things. (think transforming products or services to meet customer expectations).
  2. Business Value Added: those things the customer does not care about but we must do anyway. ( think homeland security, DOT regulations ).
  3. Non Value Added: those things the customer is not willing to pay for and serve only to drain money and resources from the organization. ( think rework, storage, obsolescence ).

When organizations do not focus on operational excellence, growth only serves to grow all three types of processes. We have all lived it in the TPL industry. We get a new customer which serves as a 10% growth in revenue and we necessarily add 10% more people, space and overhead. The revenue curve and the cost curve flow as parallel vectors. What if we could bring on new customers and not add resources in a linear fashion? This can be accomplished by replacing non value added activities with value added activities. In other words, let’s stop doing the dumb stuff and only do the smart stuff. This will be the new world.

What an amazing opportunity for the TPL industry to participate in this new awaking that our customers are heading towards. Our roles will not be to transport and store, but rather to identify problems, implement solutions and add value in a myriad of service offerings. Who better to brainstorm about waste in the supply chain then your friendly neighborhood TPL? We feel, know and live the effects of much of the undisciplined processes that create the waste. The goal is to become a leader in the solutions to eliminate this waste from the supply chain from a Lean Enterprise point of view.

Sustaining for the Future

Lean is in vogue. Some believe it is just another program that will gradually disappear. I personally struggle with this. First, lean thinking has been around for centuries. Second, lean is about knowing what the customer wants, knowing what steps in your process provide these things and then only doing those things. In the process of doing this, we engage our team members, treat people with respect and create a learning environment through continuous problem solving. How can these basic guiding principles be considered a program or flavor of the month?

The truth is it really does not matter what we call it, lean, TQM, Six Sigma, ISO. What we are talking about is having a relentless commitment to continuous improvement in order to eliminate wasteful activities in order to remain competitive. Arguing about the virtues of this strategy is no longer a option. Survival of TPL customers will rely on lean thinking and therefore our own future will hinge on our commitment to lean thinking both internally and externally.

Written by Robert Martichenko, CEO of LeanCor

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Posted by LeanCor Supply Chain Group

LeanCor Supply Chain Group is a trusted supply chain partner that specializes in lean principles to deliver operational improvement. LeanCor’s three integrated divisions – LeanCor Training and Education, LeanCor Consulting, and LeanCor Logistics – help organizations eliminate waste, drive down costs, and build a culture of continuous improvement.

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