by Daniel T Jones of the Lean Enteprirse Academy shown at the Lean Logistics Conference, Wroclaw Poland on 21st February 2006

1. Lean Enterprise Academy www.leanuk.org1
Why Responsiveness Matters:
Getting Products to Customers
Quickly
Daniel T Jones
Chairman
Lean Enterprise Academy
Lean Logistics Conference
Wroclaw, Poland 21 February 2006

2. Lean Enterprise Academy www.leanuk.org2
The Problem
• Logistics like to fill trucks by keeping
stocks in warehouses at either end
• Planners like to dream that they get best
utilisation by planning, controlling and
scheduling every shipment in every truck
• Operations like to create focused factories
for each activity and to plan every product
or batch through every step
• Finance likes to source these activities in
the lowest cost location

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The Result
• Long supply chains with many steps –
inventories everywhere - 300 plus days
throughput for 3 hours of value creation
• Many decision points send chaotic orders
upstream – constantly changing plans,
extra inventories and capacity and
endemic fire-fighting
• Optimising the pieces rather than the flow
– poor utilisation of assets and trucks
• Poor availability and responsiveness and
higher than necessary costs

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The Remedies
• The instinctive reaction is buy a better
planning system – squeeze suppliers – and
move to a lower cost location
• The right answer is to learn to see the
whole value stream, to rethink the way it is
planned and directed, to improve the
performance of each activity and to
synchronise them in line with demand
• And then to redesign the value stream to
compress it in time and distance in the
right location

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The Challenge
• Traditional logic and practice is not only
fundamentally flawed
• It is also being challenged by two
developments: -
• Significant changes in consumer
behaviour and in retailing in the
developed countries
• Intensified competition between low
cost locations
• This creates opportunities and threats for
Polish businesses

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Changing Consumption
• Consumption is also an ongoing process
for solving consumer needs
• Managing household consumption is
increasingly complex – with more choices,
more decisions and more things
• Consumers are better informed and short
of time – so they are demanding better
availability and greater convenience
• Products have got better and cheaper –
the next revolution is retailing and service

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Changing Retailing
• Every product is now being sold through
supermarkets – clothing, pharma etc.
• Some lean retailers have begun a revolution
in convenience retailing and home shopping
• Seven-Eleven in Japan
• German Discounters
• Tesco multiple formats in the UK
• Others are pioneering quick response
• Zara, H&M, Benetton
• Availability and responsiveness are key

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Supply Chain Performance
• Levels of Fulfilment are poor in most
systems: -
• 98.5% service level means 55% fulfilment
for a basket of 40 items in the store
• 80% availability for the shoe with 150 day
order window leads to 40% being
remaindered
• 52% of consumers get the cars they
wanted on time and 64% of service jobs
are completed RFTOT

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Toyota’s Lean Strategy
“Brilliant process management is our
strategy.
We get brilliant results from average
people managing brilliant processes.
We observe that our competitors often
get average (or worse) results from
brilliant people managing broken
processes.”
Lean Thinking is Process Thinking

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Lessons from Toyota
• Toyota spent 30 years developing lean in house
and spreading it up and down its supply chain
• The most impressive example is aftermarket parts
distribution – supplying 500,000 SKUs to dealers
• It operates as a series of tight replenishment loops
• Dealers call off parts from Distribution Centres every day
• These shipments trigger daily orders to be picked up from
suppliers the next day
• Most of whom can also make every part that is required in
a day every day
• The result is the highest availability, lowest stock
levels and the smoothest order signals

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0
50
100
150
200
250
39
42
45
48
51
1
4
7
10
13
16
19
22
25
28
31
34
37
Week No.
Total RDC Stock EPOS Supplier Shipment
MARKET
DEMAND
DEMAND
AMPLIF-
ICATION
SUPPLIER
ORDERS
Uncovering Amplification

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Lessons from Tesco
SupplierSupplier RDCRDC StoreStoreNDCNDC
ContinuousContinuous
ReplenishmentReplenishment
FlowFlow
ThroughThrough
StoreStore
FlowFlow
ThroughThrough
ProductionProduction
LeanLean
SchedulingScheduling
CustomCustom
StoreStore
RangingRanging
LoyaltyLoyalty
CardCard
DataData
HomeHome
ShoppingShopping
MultiMulti--
FormatFormat
ConvenienceConvenience
FlowFlow
ThroughThrough
WarehouseWarehouse
PrimaryPrimary
DistributionDistribution
ContinuousContinuous
ReorderingReordering
ConsolidationConsolidation
WarehousesWarehouses

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Rapid, Reflexive Replenishment
• Toyota distinguish between cognitive and reflexive
decision making systems
• They separate capacity and materials planning from
production and shipping instructions
• Lean, rapid, reflexive replenishment is based on
four key principles:-
• Only one scheduling point or pacemaker
• Greatly increased frequency of replenishment
• Replenish only exactly what was sold
• Where possible compress the vale stream
The objective is to optimise the flow not each asset

17. Lean Enterprise Academy www.leanuk.org17
The Dynamics of Lean
To only one
pacemaker
process
With just the right
Standard
Inventory of:-
Cycle stock
Buffer stock and
Safety stock
Uninterrupted
flow back to the
customer’s
point of use
No warehouses,
only Cross-Docks
and Mixed-model
Milk Runs
FIFO
Reflexive
Pull all the
way back to
raw materials
Every
Product
Every
Interval
capability
Separate
capacity planning
from production
instructions
Production
pulled from
every
upstream step
Every step is:-
Valuable
Capable
Available
Flexible
and Adequate
Combine steps
where you can
to flow
Demand signals
direct from the
customer’s
point of use
No created
demand
amplification
Levelled and
released in
small quantities

18. Lean Enterprise Academy www.leanuk.org18
A Lean Factory
• How responsive could a factory be?
• Guideline – less than 1 hour value creating time
should be completed within 1 day
• By creating flow through your plant linking:
• Capable steps (6 Sigma)
• Available equipment (TPM)
• Adequate capacity (right sized equipment)
• Flexible operations (Every Product Every Cycle)
• By eliminating short term plan changes by levelling
the workload and moving to replenishment pull
wherever possible

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Where and How to Flow?
Sequential PullSKUs Volume
Replenishment Pull

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Current State
44d
55m
73
8
Steps
Time
Steel
DELTA
STEEL
Stamping
GAMMA
STAMPING
Warehouse Cross Dock
Wipers
BETA WIPERS
Assembly
Dist. Centre
Cross Dock
ALPHA MOTORS
Amplification
F E D C B A
%
40
30
20
10
0
F E D C B A
Quality & Delivery
ppm
2000
1500
1000
500
0
F E C A
%
10
5
0
AssemblyWipersStamping
Steel
Dist. Centre
16d
55m
39
8
Steps
Time
Amplification
F E D C B A
%
40
30
20
10
0
Quality & Delivery
ppm
2000
1500
1000
500
0
F E C A
%
10
5
0
F E D C B A
DELTA
STEEL
GAMMA
STAMPING BETA WIPERS ALPHA MOTORS
Future State 2
Flow and Pull between Plants
TimeTime
reducedreduced
from 44 tofrom 44 to
24 days24 days
Ideal State
Value Stream Compression
Dist. Centre
3d
55m
30
8
Steps
Time
Amplification
F E D C B A
%
40
30
20
10
0
Quality & Delivery
ppm
2000
1500
1000
500
0
F E C A
%
10
5
0
F E D C B A
Steel
EPSILON
STEEL
Assembly
ALPHA MOTORSSUPPLIER PARK
Wiper
Cell
Stamping
Cell
Time reducedTime reduced
from 24 to 3from 24 to 3
daysdays
Across the
Value Stream

21. Lean Enterprise Academy www.leanuk.org21

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The Logic of Location
• Value stream compression eliminates storage at
the plant, at the container port, customs delays,
storage in DC, entire cost of the store, overstocks,
lost sales, remaindering – touch labour a tiny
fraction of costs
• Make customised products close to customers
and make standard products within the region of
sale – using trucks – not boats that always lead to
planes
• No one has an adequate cost of location model
across functions to make these decisions

24. Lean Enterprise Academy www.leanuk.org24
Where to Produce What
• Calculate “factory gate” costs at different locations
• Germany, Romania and China?
• Calculate freight costs to supply the factory and to
reach all your customers
• Including all the expedited shipments!
• Add in all the overhead costs of:
• Management and engineering time and travel
• Quality (warranty costs etc.)
• Extra inventories, lost sales, out-of-stocks, write-offs, etc.
• Currency and country risks
Then decide what to make where – which might
also change over the product life cycle

25. Lean Enterprise Academy www.leanuk.org25
Challenges for Poland
• Your advantage is being part of a growing
market in Central Europe
• And being within trucking distance of
Western Europe
• Companies here need to cooperate to
reshape logistics systems, to consolidate
loads and deliver to customers every day
• Little and often through cross docking
operations works better than big batches

26. Lean Enterprise Academy www.leanuk.org26
Why Responsiveness Matters:
Getting Products to Customers
Quickly
Daniel T Jones
Chairman
Lean Enterprise Academy
Lean Logistics Conference
Wroclaw, Poland 21 February 2006