Lean for Distribution Logistics

Aug. 1, 2009
Boeing's 3PL used a unique application of Lean Six Sigma to cope with sky-high order volumes from the aerospace giant.

Rapidly increasing order volumes look great on the balance sheet, but they can stretch facility resources to the max.

That had been the case recently at third-party logistics (3PL) provider New Breed Logistics. Based in High Point, N.C., New Breed manages more than 50 DCs in the U.S. Boeing is one of its key clients. New Breed receives orders from the aerospace giant, packages the material and then waits for approval from the U.S. government and Boeing.

When Boeing began rapidly increasing orders for its V-22 aircraft program, New Breed added a second shift at its Swedesboro, N.J., DC and authorized weekend overtime to fill the additional orders. Despite the increased labor, output still was not keeping pace with demand.

Volumes exceeded projections for more than 24 months, and that negatively impacted the facility's performance metrics. Specifically, on-time delivery rate decreased 23%.

Several factors contributed to the decline in this critical metric. In addition to high levels of unplanned order activity, the company was also coping with orders that had higher priorities than were anticipated. On top of that, order mix was skewed toward items with strict packaging guidelines, and revised packing plans required more time to complete due to the need for high-end packaging configurations. Because bottlenecks in the packaging process interrupt total logistics flow, New Breed's packaging metrics greatly influence on-time delivery rates.

Improvement Goals

New Breed management called on Sherif Mahdi, director of business performance excellence and a Lean Six Sigma Black Belt, to help the facility increase on-time packaging rates, throughput and packaging efficiency; reduce waste; and improve product flow to support increased throughput.

Mahdi assembled an improvement team consisting of 11 employees representing New Breed and Boeing. As project manager for the new Lean Six Sigma improvement team, Mahdi set high standards for the operation. The goal was to increase throughput from 167 orders to 240 orders per day and modify warehouse layout to accommodate a volume increase of 40% to 45%. In an unconventional application of Lean Six Sigma, the warehouse would be redesigned to reduce waste in New Breed's overall distribution logistics process.

The team also planned to adjust the performance metrics used as customer requirements. The key measurement would change from 98% on-time delivery to 98% on-time packaging. Boeing had been using on-time delivery rates to measure 3PL performance, but those numbers were out of New Breed's control.

“Our on-time delivery is essentially looking at packaging,” explains Mahdi. “On-time packaging is something that we can control as well as something value-added for both Boeing and the government.”

Uncovering Root Causes

The improvement team began by using cause-and-effect analysis to identify root causes of the reduction in on-time metrics. Current and future states of the process were documented by gathering all potential outcomes of process improvements and identifying customers with increasing volumes.

Many other quality tools were employed, including trend analysis for key performance indicators (KPIs), “5 Whys” for root-cause analysis, run charts for data analysis and 7S as a baseline for the improvement process.

The “5 Whys” exercise began with a question: “Why are we not keeping up with increased volumes?” The five answers were: not enough floor space, improper lighting levels, not enough product staging, resources not available to keep up with increased volumes and equipment not available to support increased volumes.

Based on this exercise, the team concluded increasing order volumes could not be supported by New Breed's current processes or equipment because the warehouse layout could not support additional equipment.

Through value-stream mapping, a Lean technique that analyzes the flow of materials and information required to bring a product or service to a consumer, Mahdi discovered the most significant bottlenecks were occurring in packaging because of the different packaging requirements involved. Other root causes uncovered by quality tools included resource allocation and packaging method times. Training and audits also were exposed as unforeseen root causes.

The team developed a PICK chart to categorize potential solutions into four quadrants: Possible, Implement, Challenge and Kill. The graphical tool helped the team brainstorm and ultimately select the solution with the biggest payoff.

Maximizing Flow

The improvement team came to a final conclusion: Additional space had to be created in the existing facility through a warehouse redesign that would maximize flow, improve lighting and help employees meet customer packaging requirements.

The project took four months and involved adding new floor space as well as moving racks and inventory and modifying electrical wiring. A variety of new equipment was added, including mobile security workstations and computers, packaging carts, scales, heat sealers, scanners and printers.

Behind the scenes, KPIs were modified to measure on-time packaging rather than on-time shipping. New ergonomic equipment, such as mobile workstations and anti-fatigue matting, reduced the risk of employee injuries, and efficiency increased dramatically.

New Breed lowered its overtime requirements by at least 30% while boosting employee morale. Employees felt more involved in the company's success since they had input into potential solutions. Overall, the project fostered better collaboration and communication and built a work environment based on honesty and trust.

The benefits of using Lean Six Sigma to eliminate waste and reduce process variation were numerous:

  • Throughput increased from 167 to 240 orders per day;

  • Ability to accommodate increasing customer volumes improved from 40% to 45%;

  • Shipping accuracy steadily increased, reaching 100% after one year;

  • Errors decreased from 9,903 parts per million (ppm) to 9.4 ppm after one month.

Pleased with the results, Boeing rewarded New Breed with more business.

New Breed's Lean Six Sigma-based warehouse redesign was so successful that the Swedesboro, N.J., improvement team was named a 2008 finalist in the International Team Excellence awards presented by the American Society for Quality (ASQ).

Looking back on the four-month project, Mahdi says he was impressed by how employees came together as a team to accomplish the end results.

Applying Lean Six Sigma methodology to distribution logistics was challenging, Mahdi admits. “It wasn't your traditional manufacturing environment,” he says. “We're in a transactional business. We had a toolbox of Lean Six Sigma tools, so we could select what would and wouldn't work for our business.”

Janet Jacobsen is associate editor of the American Society for Quality's Journal for Quality and Participation and a freelance writer specializing in quality and compliance topics.