Third-Party Logistics and the Lean Warehouse
Steve Banker | Forbes
When companies decide that their own internal warehousing capabilities are lacking, they can decide to select a third-party logistics (3PL) provider to run their warehousing operation for them. Often, a shipper will demand more from a 3PL than it would from itself. This is particularly true when it comes to continuous improvement. However, while lean manufacturing and Six Sigma practices have been widely adopted to improve production activities, this is far less common in the warehouse.
Companies seeking continuous improvements in the warehouse by outsourcing to a 3PL should apply diligence to determine whether that 3PL has a robust continuous improvement culture in place. While many 3PLs will claim that this is the case, it’s likely that at least some of these only dabble in lean and kaizen; mastering the terminology, but not necessarily the true cultural requirements. So, how can a company that wants to outsource its warehousing operations pick a 3PL that really does have strong capabilities here?
Site Visits Imperative
You cannot learn about a 3PL’s lean culture by sitting in a conference room. You have to go to a site, look at the warehouse and talk to workers on the warehouse floor.
Just looking at the site will tell you something. Is it clean and bright? Does the 3PL use visual management techniques?
During the tour of the 3PLs warehouse facilities, the shipper should ask employees on the warehouse floor if they have been involved lean projects and Kaizen events and, if so, how many and how did these work out? Do floor workers know the different forms of waste?
A core concept in lean management is that workers always know exactly what is expected from them. For example, expectations about how many pallets they should be able to pick in an hour should be clearly defined. The workers then need to know how they are doing against those goals over the course of the day using clear visual management techniques.
At a site with more advanced lean practices you would see dry eraser boards placed in highly visible places on the warehouse floor. Managers would post on that board on an hourly basis how each team member in their group is performing to standard by coloring the box next to the worker’s name red, yellow, or green. If a team member had a red box, they would be expected to add a comment to the board. These comments could provide opportunities to improve the flow of the warehouse. For example, if team members post something like, “Congestion in Aisle 4 – five pickers in the aisle,” this might be a good candidate for a kaizen (quick improvement) event. Noncompliance should be viewed as an opportunity for improvement, either for the individual or the warehouse as a whole.
People, The Most Important Asset
3PLs with a lean culture create an atmosphere in which people are the most important assets. If floor-level workers do not understand the problems or take ownership for fixing identified problems, the gains achieved in a kaizen event are apt to be lost after two or three months. It is also important to celebrate successes. Since these are widely known concepts, when reviewing responses to their requests for proposals (RFPs), companies should use care to distinguish between those 3PLs that are just parroting standard lean rhetoric and those that actually employ and believe in the practices. To do this, you need to look for bottom-up engagement.
3PLs use different models to provide warehousing services. In one model, the 3PL takes over a client’s warehousing operations, using the client’s warehouse and people, but assuming management responsibilities. With this model, the 3PL starts the continuous improvement process with a base of existing workers that know the business and already have the basic warehousing skills necessary to do their jobs. Since it doesn’t need to hire new warehouse staff, the 3PL can better engage and motivate the existing staff based on lean leadership.
To accomplish this, every day would start with a shift meeting. Discussion items could include how things went the previous day, a safety message, and the coming day’s specific challenges. In discussing how things went the previous day, floor personnel are asked about what did not go right and how things could be improved to avoid reoccurrence. Once managers have engaged their workers, they have to execute on those suggestions. The suggestions are written on the board, and the manager assigns an owner to that suggestion and get an answer by the end of the week.
In other cases, shippers need to relocate their existing warehouse to be able to respond better to current demand patterns. In these cases, new warehouse staff may need to be hired. Here, the 3PL’s human resources people should be able to explain what types of workers they’re looking for to be able to support lean initiatives and what they need to do to hire these workers.
In the lean warehouse, certain metrics indicate that a 3PL truly “lives” lean:
- How many employee-led kaizen events took place at the warehouse in question? Were those bottom-up or top-down events?
- Does the 3PL run kaizen events outside of the supply chain area? For example, in its internal back office or sales or customer service functions? This is a good indicator of how deeply embedded Lean is into the culture as a whole.
- What were the hard dollar savings associated with these continuous improvement events? The soft dollar savings? The productivity improvements? How were these benefits measured and did the customer sign off on them?
- How many value-stream mapping engagements did the 3PL have with reference clients, and did those engagements reach beyond the warehouse to broader supply chain processes?
Mitigating Risk In The 3PL Cutover Process
A company looking to outsource warehousing should ensure that the 3PL can mitigate the risks associated with transitioning management and oversight of a warehouse operation from the customer to the 3PL. One leading 3PL has a two-day risk-mitigation process based on hundreds of startups (and its own continuous improvement process) to help ensure appropriate due diligence prior to the transition. Key IT, human resources, finance and warehousing personnel from the 3PL sit down with their counterparts in the customer’s organization. For example, HR folks discuss the hours of operations, the pay process, etc. IT people discuss what percentage of shipments are preceded by advance ship notices, the types of RF guns used, whether there is good RF coverage for the whole warehouse, etc.
Selecting a 3PL to outsource all or part of a company’s critical warehousing function to is an important business decision. When looking for a 3PL that can implement continuous improvements in the warehouse, it’s easy to get blindsided by “Lean” rhetoric that does not necessarily reflect a 3PLs true culture and capabilities. Furthermore, assessing a 3PL’s lean capabilities is just one of many areas that should be included in your assessment.
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