Continuous Improvement, Procurement and Logistics

I spoke to Carl Fowler, the Vice President of North American Sales and Engineering at Menlo Logistics, on the topic of continuous improvement and procuring warehousing services.

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Carl Fowler

The question I had in mind was this, suppose you know that your warehousing operations were not what they should be and you wanted a 3PL to manage your warehousing operations for you.  Further, suppose that one criterion that was important was selected a 3PL with expertise in continuous improvement.  How would you know which 3PLs had a strong Lean or Six Sigma culture?  After all, it is very likely that each 3PL would claim to have expertise in this area.

Carl has good immediate answers to that question, but he also had a broader and more thoughtful response about how the existing procurement process can so often lead to suboptimal results.

Carl’s immediate answer was that companies should ask:

  • How many employee-led Kaizen events took place at the warehouse in question? Were those bottom up or top down events? (Companies that live Lean will tell you bottom up is better).
  • Does the 3PL run Kaizen events outside of the supply chain area? For example, in 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?

Carl mentioned that 3PLs that have really embedded Lean into their culture have to hire a different profile of worker.  So often, 3PLs hire warehouse associates for simple functional tasks – inventory put-away, pick and pack, etc.   There is no sense of a greater calling.  3PLs that truly have embedded lean into their culture and processes put engagement and respect for the warehouse worker at the forefront. Workers are given the opportunity and authority to influence the work – through applying their experience and using teachings on how to use lean tools to remove waste.   If you really want employees to function well in this environment, you have to be able to practice “servant leadership” and truly make them the core and the driver of continuous improvement processes — and by sharing the success with them through performance incentives based on efficiency improvement.

And the combination of engagement and incentive pay means that Menlo has much higher warehouse associate retention than the industry as a whole.

But while Carl walked me through the right questions to ask, his perspective was that the traditional 3PL request for proposal (RFP) process was broken.  A potential customer is putting the 3PL into a box through a process that was too prescriptive, and consequently robbing themselves of an opportunity to reengineer their supply chains.

Is what the company wants really just the ability to save half a cent on line orders picked in an hour?  Than fine, the traditional procurement led process – which requires “conspicuous compliance to the RFP” – is just fine.  Noncompliance to all criteria on the RFP becomes an easy way to eliminate prospective 3PL partners.

But if the question is broadened, Is Memphis even the right location for a warehouse based on the company’s demand profile?  Are we looking for improvements to the order to cash process?  This would involve services that go beyond warehousing.

In short, companies should begin by asking themselves how they want to achieve bigger and more fundamental supply chain objectives.  Begin by using a Request for Information that states the problem and asks 3PLs how they think that problem can best be solved.

In providing those alternatives to a potential customer, for the right opportunity, Menlo is willing to incur upfront costs.  They will send in their “lean,” consultants, typically degreed professionals with engineering and operations research backgrounds, who are proficient in network design, to come up with Menlo’s suggested alternative to a problem, at no cost to the customer.

Now it is likely that other 3PLs will come up with different alternatives.  At this point, the customer may want to combine the best ideas of each 3PL into a RFP.  In short, it is an iterative RFP process.  This is a longer process.  Menlo is completely comfortable with a sales cycle that takes 12 to 19 months.  In fact, because they seek to provide creative higher value solutions, a short sales cycle is suspect.

And what seems like a longer process can actually save companies money.

According to Carl, when Menlo and most other major 3PLs lose in a sales cycle, the most common reason is because the company abandoned the search for a 3PL partner.  “Think about all the money and time wasted when this happens.”

Finally, Carl believes that this more free form, higher-value-add style of procurement actually benefits 3PLs with a true Lean culture.  Lean is what allows 3PLs to creatively solve more important value chain problems.

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