I’m on my way back from this year’s The Logistics & Supply Chain Forum, and although attendance seemed a bit down this year (understandably so, considering the economy), this is still one of the best networking events out there. About 50 logistics executives attended my workshop on “Technologies That Tomorrow’s Industry Leaders Are Investing in Today,” and nobody walked out or bobbed their heads trying to stay awake, so I consider it a success.
This year I managed to attend some of the other sessions, and my favorite speaker (aside from the keynotes, Jim Lovell and Gene Kranz of Apollo 13 fame, and Dr. Barry Asmus, a very opinionated and entertaining economist) was Joseph DeSantis, Senior Director of Supply Chain Operations at Office Depot. His talk-”Reducing Costs through Cutting Out the Waste in Your Supply Chain”-was right on target, especially in this economic environment where “cost reduction” is every CEO’s mantra. If you’re well versed in “lean” principles, there was nothing particularly new in his presentation. But since relatively few companies apply lean principles and methodologies in their logistics operations, it was great to hear how Office Depot-a retailer!-is doing it.
The message that struck a chord with me was a simple and well-known one: companies should focus on reducing waste, not costs, because focusing on the latter often creates more costs due to increased defects, increased rework, more over time, or loss of business. For example, when DeSantis first started at Office Depot, he was asked to use less packaging material in shipping as a way to reduce material costs. Although the company saved money on shipping materials, it lost money overall due to an increase in damaged products and lost business/customers.
Simply stated, “The Law of Unintended Consequences” often comes into play when CEOs issue top-down edicts to reduce costs across the board.
DeSantis provided a few more anecdotes that I can’t recall precisely (I’m not very good at taking notes), but this one I wrote down: By using lean principles and techniques, Office Depot reduced its “defective orders” rate from 3 percent to 0.5 percent, resulting in seven-figure dollar savings-at just one DC! The company is currently in the process of training more associates and managers in lean to capture similar benefits at other DC locations.
There is a strong connection between lean and performance-based outsourcing, a topic I’ve written a lot about lately. For companies to succeed at either, these principles, and waste reduction in particular, must circulate through their corporate veins and define their work cultures. It strikes me, however, that many companies fall short of this ideal by treating lean as merely a set of tools or a framework for executing projects, and PBO as just another type of contract. I’m not implying this is the case with Office Depot, but I also got the sense from DeSantis’ comments that the company isn’t far along in its lean journey.
How do you know you’ve reached the Promised Land? When your CEO challenges everyone at the company to reduce waste, not costs, by 10 percent in the coming year.
Jim Rice at MIT is taking the opposite approach to inventory and the recession. He believe many companies, after significant downsizing, will not have enough inventory when the economy picks up.
giles
The lack of understanding of what is meant by waste is a major challenge to those of us who pursue business improvement using lean techniques. I think that one of the issues is the cost and financial accounting systems which are the fudemental measuring sticks of business. It is very easy for a CEO to challenge everyone to a 10% reduction in any element of cost. And the determination of achievement is readily apparent each month by looking at the financial accounts (packing materials, labor, etc.) However it is more difficult (requiring understanding and time) to measure the reduction of waste and its total impact. We need to begin to educate the financial community on the concept of waste and solicit their assistance in measuring and reporting the successes of lean.
Great point. We need more focus on LEAN at CEO Roundtables and Conferences to clearly show the benefits both Short-term and Long-term that a culture of CPI and LEAN can deliver for their companies.