Lean Fulfillment or a Supply Chain

Business901 Podcast Transcription
Implementing Lean Marketing Systems
Transforming your Supply Chain to a Lean Fulfillment Stream
Guest was Robert Martichenko, CEO and Founder of LeanCor

Related Podcast:
Do you want to be at the end of a Fulfillment Stream or a Supply Chain?

Robert Martichenko, co-author of Building a Lean Fulfillment
Stream was the guest on the Business901
Podcast. Robert is CEO and Founder of LeanCor,
the only Third Party Logistics provider (3PL)
wholly dedicated to the application of lean
principles throughout the supply chain’s
functions. Building on 15+ years of experience,
Robert Martichenko created LeanCor to drive the
next step in the evolution of lean by addressing
the unmet logistics needs of Lean Manufacturers,
Distributors, and Retailers.
LeanCor designs, implements and manages lean supply chain and
logistics networks for any size company. Their three service
categories are designed to support companies in
their effort to eliminate organizational waste, drive
down cost, and increase global competitive
advantage. Focus on developing solutions with our
customer base which requires operational flexibility
to go where you need us to go. The solution
dictates the geography and they go where it is
necessary to implement the right solution, at the
right time, in the right place and at the right cost.

Robert’s latest book, Building a Lean Fulfillment Stream builds on
the concepts of waste, flow, and pull. This book follows the Lean
Workbook format popularized by the publisher, Lean Enterprise
Institute. This workbook provides the steps to a comprehensive,
real-life implementation process for optimizing your entire
fulfillment stream from raw materials to customers.
Copyright Business901


Joe Dager: Thanks everyone for joining us. This is Joe Dager,
the host of Business901 Podcast. Participating in the program
today is Robert Martichenko of LeanCor. Robert, could you tell me
what LeanCor does?
Robert Martichenko: Absolutely. And thanks for having me on
your podcast, Joe. LeanCor is a third-party logistics provider and
supply chain management company that focuses specifically on
lean applications. In order to support our customers, we have
three value streams: training and education, consulting, and then
we're an actual logistics provider.
Joe: You just wrote a book that was published by LEI, or Lean
Enterprise, it's called "Building a Lean Fulfillment Stream". Could
you tell me what prompted you to write a book?
Robert: Absolutely. I've had the pleasure and honor of being an
instructor for the Lean Enterprise Institute, Dr. Womack's
organization, for several years now. Helen Zak, Rachel Regan,
other folks and I from LEI had talked about a workbook on and
off for several years. And then a couple of years ago, we just
decided that it was time to do it, to join the series of workbooks
that LEI has put out.
So we were willing and able. We also thought it was the right
time as well, as organizations who have been embracing lean
inside their four walls, for the past decade, are now starting to
understand the importance of lean thinking outside of those four
walls inside what we are calling the "fulfillment stream". Others
may know it traditionally as the supply chain. But we thought that
the time was right, and we had the right people to put the book
together, so as a team we went and accomplished that.

Joe: Can I ask you a funny question? What makes it a workbook
over just a regular book?


Robert: Well the first thing is that the book follows the format
that the Lean Enterprise Institute had put together with their
other books, starting with "Seeing the Whole", "Making Materials
Flow", and so forth. So it is just from a physical format point of
view a workbook.
But the other element of that is it's really a how-to book. It's not
a textbook. It's not an academic, theoretical book. It's really a
how-to, step-by-step approach of how to implement lean thinking
inside the company's fulfillment stream.

Joe: I relate the fulfillment stream to the supply chain. Is there
a difference?
Robert: Well I guess I need to go back in history. That's a great
question. Essentially, when we first started writing the book, the
title of the book was "Building the Lean Supply Chain", and that
just made sense to everybody. Then, Dr. Womack and I were
chatting one day, and he informed me that he didn't like the title.
And I asked, "Why not?" And he said, "Well I don't like the words
'supply chain'." Dr. Womack's is not a supply chain professional.
So I said, "You know, Jim, there are a few of us that use that
term in the industry. It's a well-known term." He said, "Well
nonetheless, I don't like it." We were able to have a philosophical
conversation around the words "supply chain". Essentially, what it
led to is that if you think of the word "supply", the first thing you
picture if you close your eyes and say the word "supply" is
something starting upstream and being pushed down towards the
customer.
That's not what the book is about at all. The book is about
implementing flow and pull. It's not about push. The second word
was "chain". It's the idea that a chain is only as strong as its
weakest link, the idea that the links only meet for a brief minute,
and then they head back off, and chains can get clinked together,
and so forth.

We talked about this and realized what we're really talking about
is fulfillment. We're talking about consumption starting with the
customer and then the fulfillment stream activities happening at
the pull of the customer. Then we're talking about flow hence the
word "stream."
So while I'm sure it will take us a few years to maybe get some
nomenclature changed inside the industry I think that we are
fundamentally saying that supply and chain don't quite fit here
from a lean point of view.

Joe: I like your definitions of why it is a fulfillment stream. When
I read your book I actually related it to other processes that take
place within an organization other than maybe just what the book
was intended for.
Robert: Well, writing the book was really challenging because
unlike say, building a cell inside a factory or changing the line
over to mix model, the organization for fulfillment streams or the
supply chain are so different. If you just think of a supply chain
activity for an automotive company versus let's say a hospital
versus a restaurant, they're so fundamentally different. So
writing a book that somebody could just pick up and say I could
use this inside my supply chain is very difficult.
So the book is about how to but it is also about how to think. It’s
about how to take principles that we've outlined and then how do
you apply them to your particular situations. So you're absolutely
right that it does span you know, from tier two suppliers all the
way to your own processes all the way to your customers and
every company is going to be very different.
So it's a bit of a good news bad news story. The bad news is that
you can't read the book and then just go and say do this do this
do this. The good news is that you can read the book and you can
get the principles and some very valuable tools that will allow you
to go back and critically think through your own process just to

see how you can in fact drive lean thinking inside your
organization.

Joe: Your guiding principles, your eight steps, is that the same
as your lean principles?

Robert: Well that's a good question. Now when we say lean
principles there's a little bit of a difference between the principles
we've outlined and the eight or seven steps which is you know,
starting with the customers and outbound logistics and then
receiving and shipping and material handling and then moving up
to the handler.
The principles are a little different. And when we say principles
first we like to define that. You know, a principle is something
that you just believe that you don't need data to support and that
you shouldn't question. You should just believe that this is the
right way to do something.
I always use the analogy you know, as parents we have principles
as to how we raise our kids. Not all of us have the same
principles but these are things that we just believe. Well, in the
book we've outlined what we believe to be the lean principles
relative to fulfillment stream or supply chain management and
those are you know, first make customer consumption visible and
manufacturer distribute to that cadence of customer
consumption.
Second, reduce lead times because lead times is only made up of
two things - value and waste. So if we can reduce lead times
assuming that we are not devaluing our processes then we know
intuitively that we are reducing waste.

Three, use pull systems. So allow consumption to drive activities
as opposed to forecasting and pushing materials into the
fulfillment stream.


Four, create velocity and reduce variation by moving smaller
shipments more frequently. So we believe that we need to be
focusing on speed.
Five, collaborate and focus on process discipline so this is a
guiding principle that we have to be focused on the process and
last, but certainly not least, measure and manage total cost of
fulfillment.
So you're now taking the total cost approach. A horizontal view of
the organization and what is the total cost to the organization.
So, to answer your question, well certainly many of these dovetail
with traditional lean thinking and lean principles, I think these
build upon traditional lean thinking and show how it starts to
apply inside the fulfillment stream.
Joe: If a company is not already doing lean, can they effectively
supply this to their fulfillment stream? I mean, will they believe in
it or do they have to be, already a Lean company?

Robert: I don't think so because when you really look at what
we're doing and the things in the book, so much of it is just good
basic discipline as well. I'm even under the opinion that
organizations can begin their lean journeys with the fulfillment
stream work. There's a traditional thought that it has to start
inside the factory and my experience leads me to believe that
doesn't need to be the case.
Second of all, a lot of our customers don't even have factories.
They're industries where they are not even manufacturing.
They're distributors, for example. So it doesn't need to be the
afterthought and there is a ton of work that can be done in the
fulfillment stream activities.

Traditionally, inbound logistics for example is an orphaned
process so there is just low lying fruit in those areas. Outbound


logistics though not ignored as much as inbound, there's still an
incredible amount of opportunity in these processes.

I think an organization can start tomorrow and start to see
benefits very quickly.

Joe: Do you really need to be like this big conglomerate that has
all this shipping or do these principles apply to a smaller
company?
Robert: There's no question that small, medium or large you
can get the benefits. In fact, the smaller you are, the faster you
can mobilize and the less people you have to convince and the
easier it is to see measurable results. So we in particular with
lean core, we like to work with smaller companies as well because
the improvement and the results can be so visible so quickly and
very tangible.
Relative to some of the inventory and velocity and flow areas,
certainly you need a little bit of a critical mass in order to really
be able to act on something. For example if you are receiving
something every week for example and we want to start receiving
every week or even every day, there may be a little critical mass
that's required so we can continue to manage transportation
costs for example. However, that doesn't need to be a
showstopper either.
So no, absolutely, it doesn't matter what size your organization
is. Living by these guiding principles and focusing on the process
will help the organization.
Joe: You advocated using PDCA during a weekly session so that
you're on top of the situation rather than just looking at the after
effect from the measures. Is that something new or - It reminded
me kind of a scrum master, in scrum and software development
having the daily meeting so you knew right away what was going


on rather than someone telling you, you had a 20% error over
there.

Robert: There are a couple of things there. One is that you are
talking about the way we talk about managing the inputs as
opposed to the outputs, and I don't think that is anything new.
The concept of cause and effect has been around for a long time,
but we still continue to see it.
For example, the organizations that are measuring rate per mile
and cost per case and units of measure that are very economy to
scale focused. You are measuring your rate per mile and
meanwhile trailers are running around that are only half full.
Obviously our eye isn't on the price, where as if we focused on
the cube utilization and packaging, efficiency, and reduction of
miles then things like rate per mile or transportation cost just by
default will reduce.
I don't think that is anything new. The idea of the stand-up
meeting with the scrums, well this is just regular PDCA because,
in my opinion, your PDCA cadence or your cycle of your
plan-do-check-act has to be in the same cadence that the work is
being done. Most of our work in our business is logistics, and it's
first and ten, do it again work. In other words, we come in and do
our work. We run a sequencing center and support our customer
for two shifts, and then we go home. The next morning we come
back and do it again. What happened yesterday is not on
everybody's mind.
Your cadence of your plan to check act has to be every day as
well. If your work is every hour, if every hour you are doing
another cycle of the same work, then your PDCA should be every
hour. The stand-up meetings and the daily scrums are to connect
with the cadence of the actual work being done.


Joe: I think cadence is so important anymore in getting that
rhythm because that is what really determines your flow and flow
works when you have that nice cadence going all the time.
Robert: When we kind of introduced the word cadence in the
workbook as opposed to using the word "tact", and certainly we
are believers in tact time, but we didn't want to confuse people
with "how do I measure tact at every single point of every
process?" and so forth.
We introduced the word cadence, and even to simplify the word
cadence the way I like to describe it is that there is a dance going
on. There is a dance happening in the fulfillment stream between
your customer, distributors, wholesalers, manufacturers,
suppliers, transportation providers, customs brokers, and all of
these parties that are involved in your customer getting what it is
that they want. All we are trying to do is to make sure that
everybody is dancing the same dance. The customer, AKA
consumption, gets to lead the dance. They get to say whether we
are doing the tango or two-step, and when they lead via
consumption then we want the rest of the fulfillment stream to be
dancing at the same pace and dancing the same dance. If we can
get that done, we know that fulfillment stream or supply chain
will have minimal waste in it.
Joe: Perfect order execution and the eight rights, are they
supply chain terms?
Robert: We have got some incredible university universities that
have been teaching logistics for a long time now, and there are
new schools coming on board. There are graduates coming out
with logistics degrees now. In Logistics 101 if you open up any
text book in logistics you will learn about the eight rights. I
always joke with my colleagues and say I don't know why we
think that supply chain management is so difficult. We only have
eight things that we need to do. We need to get the right part, to

the right place, at the right time, in the right quantity, with the
right service, and so forth.

So no, we certainly didn't invent the eight rights, but we do think
about them, and we do build upon them, because at the end of
the day, those are the eight things that create the perfect order
for the customer. So those in fact should be the things that we
measure, and those should be the things, that are happening
horizontally across the validity stream.
Joe: I noticed in the book, that you talk about the determined
pacemaker point. Tell me is that similar to what the bottleneck
would be in the Theory of Constraints? Is it the control point, that
you base your system or flow on?
Robert: It wouldn't be the bottleneck. When we're talking about
the pacemaker setting point, essentially what we're doing there
is, we're giving an out, in order to be able to execute principle
number one: which is make Customer consumptions visible, and
manufacture, and flow to that rate of customer consumption.
For example, from a theoretical point of view, Say a company
that services Wal-Mart. We would say, well what do you want to
do is you want to know how much of your product is sold off the
Wal-Mart shelf every day and then you want to make that, and
replenish it in those exact quantities, A.K.A a pull system.
The challenge is that, while that sounds great in theory. The
ability to do that from a practical point of view in today's
constraints is very difficult.
So we say: OK, well you know what? We're not going to give up
on this idea that we're going to only replenish what had been
consumed. But we're going to accept defeat right now, that we
can't get that information of exactly what was sold off our
customers, or consumed by our customers. What we're going to
do is, we're going to choose another pay setter. The pay setters

being that area, where if there's consumption, then we will
replenish, based on that consumption. So if we can't actually do it
at the actual customer itself. Then we may say: Well let's do it at
the next closing point. Say our distribution center, whence our
distribution center as the pace center.
So any consumption out of our distribution center will then drive
all of the upstream activities through the pull systems.
Joe: Then you talk about some different times, like sleep times.
That's not lean is it?
Robert: Well, that's another great question, and I have a great
friend of mine, Richard Hall. I once had a very heated discussion
around this. Sleep times refers to trailers sleeping in the yards.
Sleep means that they're waiting. They're waiting to hit a dock to
be unloaded. By definition, that is waste. Most people would say
that trailer should be live on loaded, or live loaded, and hit the
doors as soon as it arrives. Why would you drop a trailer,
introducing a trailer yard process, and have trailers, and.
Inventory sitting, waiting, or sleeping to be unloaded, and that's
a fantastic argument.
However, when we start looking at the total cost of assailment,
one of the things that you're going to see very quickly in
particular, in a manufacturing assailment stream, is we have to
protect the flow of material, into the factory or into the
distribution center. That means we have a very discipline
receiving schedule, and a very discipline shipping schedule, much
like the airlines.

If you think of the airlines, you have an itinerary exactly where
you need to be, when you get on your first flight, where you land,
when you need to be on your second flight, and so forth. So we
want this level of discipline at our facilities, relative to shipping
and receiving.

However, transportation systems, even in North America, where
they're the best relatively speaking, around the world. We
consider transportations as a 98% business. What that means is
that there are some inherent instability that exists. If we were
going to bank our whole discipline on trucks, showing up exactly
on time, and hitting the door exactly when we planned. We know
that the system will fall apart, because of the inherent instability
on our transportation systems.
So what we do is we introduce this thing called: Sleep time,
where you're putting a little bit of a buffer. Say the trucks needs
to unload at 11. You have the truck arrive at 10. So it's sleeping
for an hour. You put some plan to buffer, in order to maintain the
stability, and discipline around your shipping, and receiving
schedules.
Joe: OK, so sleep time is a pretty short term time. I mean, we're
not talking about three days of sleep time typically.
Robert: Typically no, however for some of the global
transportations, for example: Where your transportations transit
times in the instabilities, there may be five or six days. Then
maybe you're sleep time may in fact be three days, because of
containers coming from Asia, and so forth.
Joe: What's some of the biggest surprises, you've ever seen
when you evaluated someone's fulfillment stream? Something
like WOW, this is happening!
Robert: Well, the first thing which really isn't a surprise, it's
almost an expectation, is just the lack of information, the lack of
data, and the lack of attention, that certain parts of the fulfillment
streams have had. And for a whole bunch of good reasons, it's
not from this management, or not wanting to get the things. It's
just a fact that it's never been a priority. Some of these areas
have not been a priority, that there tends to be a lot of
opportunity: for a quick win cost reduction, for inventory

reduction, for connecting the rest of the organization and creating
visibility, and frankly, for improving customer service.

Joe: You asked for a lean fulfillment manager in there. Is there a
difference in just the regular supply chain guy?

Robert: Well, I'm sure there are lots of regular old supply
chains, that are very, very good. Something you said there, kind
of made me start to see the last 40 years, from our profession,
we've gone of distribution people, to logistics people, to supply
chain people, and in some respects, some of us have changed,
and in some respects, some of us haven't. We're doing the same
things, but our titles have changed.
The difference if you're a lean fulfillment stream person, or a lean
supply chain person, then the first thing is that: you're thinking
total costs. You're thinking horizontal across the organization, and
you're not in your silo just looking at your vertical trying to
measure, trying to manage your own personal metrics.

The fundamental difference is: you're a sane to the organization.
How does this affect the entire organization? To draw an analogy,
think of the human body. The human body has logistic functions,
the heart pumps blood. The circulatory system does what it does.
The respiratory system does what it does. Our body is made up of
logistic functions, in the same way that our organizations are
made up of logistic functions: transportation, warehousing,
forecasting, demand planning, and so forth.
There's a part of our body, whether it's in the brain, or in the
soul, that is making our body work in harmony. For example, my
heart: I haven't gone to my heart, and said: Your job now is to
pump as much blood as you can, 24 hours a day, and I'm going
to pay you per pump. I would laugh about 30 seconds. If all of
my systems in my body were trying to maximize their output, I
would laugh about 30 seconds, before I dropped to the ground.
So in the same way that the body is working in harmony, it works

a certain way when I'm sleeping. It works a certain way when I'm
running, and getting exercise.

In that same analogy, a lean fulfillment stream thinker, or a lean
supply chain thinker is one that says. You know what, we want to
take all of these functions and we want to optimize the system.
We don't want to minimize each area, we don't want to maximum
the output of each area, we want to optimize the entire system.
So we are getting the maximum benefit from the entire system
based on what the customer wants, based on that initial trigger of
customer consumption.
Joe: Do you see how lean and Six Sigma go together or do you
think lean is the more appropriate thing for fulfillment stream
here?
Robert: Well you know the age old argument right? Lean versus
Six Sigma, Six Sigma versus lean. I don't sign up for really any of
it. At the end of day as a lean thinker, what that means, is that
we are trying to create problem solving cultures. We're trying to
create organizations that every day we go in and make problems
visible.
Then through thoughtful problem solving we fix those problems.
And we do everything we can to fix them at the root cause. And I
think certainly all aspects of lean thinking and many aspects of
our traditional Six Sigma models and the theory of constraint
models, and TQM models, all have elements of that.
So as far as I'm concerned if you are exposing problems and
trying to fix those problems, then you are doing the right thing.
And what tools you may use, if a tool works for your organization,
then that's great. We need to stop getting caught up in the tools.
Specifically to Six Sigma, the Six Sigma has a lot of focus on
reduction of variation.


Understanding variation, and reducing variation and the house of
lean, sits on stability as the foundation. And stability is defined as
a minimal variation, a void of variation. So from a lean point of
view we are focusing very hard on creating basic stability. Or the
lack of variation, so I think there is a lot of really great overlaps,
in the thinking of these disciplines.
What we are telling people and what I am being told to tell
people, by other people that are thinking a lot about this. Is
maybe we need to stop calling it anything, don't call it lean, don't
call it Six Sigma just call it being smart. Call it running your
business the right way. And then just apply the principles that
we're advocating.
Joe: Robert you talk about, looking at the total cost and supplier
collaboration and things like that. But so much of the supply
chain is about outside vendors. Is that difficult to manage, how
do you pull them into the process?
Robert: It can be difficult, and people always...one of the
questions that we always get asked is "well what if our suppliers
are huge and we are not one of their big customers" and so
there's going to be times where it is very challenging. But what
we have found in our experience is that. You're a company is
going to have suppliers that are embracing lean themselves and
want to collaborate.
They are going to have suppliers that will collaborate only
because their customers asking them to. And they are going to
have suppliers that simply don't want to collaborate. And you're
always going to have those three. And what we say is, lets first
focus on the suppliers that are like minded and embracing these
principles.

And let’s go and got those supply chains and those fulfillment
streams running efficiently. Then we will go the next group, which
are those who are willing to collaborate. But don't see the value

themselves yet. And so you can keep yourself busy for a couple
of years before you have to worry about those suppliers that
aren't interested in collaborating with you.
Joe: You're saying that a cultural fit, is just as important as any
other criteria that you may put on there.
Robert: No question, if not the most important thing. If an
organization or their suppliers don't see the value in
implementing and doing...let’s face it and I'm always told I need
to soft sell a little bit. But this is an element of hard work in this;
focus on process and create plans for every part, and get good
data systems.
To go and eliminate waste requires some hard work from
everybody in the organization. If people don't see the value
proposition, if they don't understand the ‘what's in it for me,’'
then typically that hard work isn't going to get done. If it does get
done, it will get done once, and then it won be sustained over the
long term.
Joe: You have a logistic summit coming up shortly.
Robert: We do, we are participating, and it’s actually being
developed by a gentleman, Jim Huntzinger who is a friend and
colleague. It is in the Cincinnati area in June 22nd and 23rd and
we are really looking forward to it.
Joe: Are you going to be participating or...
Robert: I am, I have the pleasure of being the keynote, in the
morning and a friend and colleague Doctor Tom Goldby will be
another keynote, throughout the session.
Joe: Who should attend? Who are you centering the summit on?

Robert: Well with the title of lean logistics summit so clearly,
logistics and supply chain. And our new lean fulfillment stream

people should absolutely attend. Really, anybody who is
interested in understanding how lean connects to the other parts
of the business.
If you have lean manufacturer folks, lean purchasing folks, or
anybody that's tying to lead lean initiatives inside an
organization. That wants to see how lean and logistics connects
together. It would be great for you to attend. Be a great
education.
Joe: Would you like to add anything that maybe I've forgot?
Robert: I guess if anything just that I think that there can be
some really rewarding work that's done inside the fulfillment
stream. I think that the lean thinking, and the principles that
we've laid out in the work book, if we take these and we think
critically about our organization. I think that you'll find that there
is an awful lot of opportunity.
Joe: Well I want to thank you Robert and please mention how
someone could contact you. This podcast is available at the
Business901 podcast site and also available in the Business901
iTunes store.
Robert: Great, Joe, thanks for your time. They could just send
me an email at Robert@leancor.com and I'd be more than happy
to hear from anybody.



Joseph T. Dager
Lean Six Sigma Black Belt
Ph: 260-438-0411 Fax: 260-818-2022
Email: jtdager@business901.com
Web/Blog: http://www.business901.com
Twitter: @business901
What others say: In the past 20 years, Joe and I
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Joe Dager is President of Business901, a progressive company providing
direction in areas such as Lean Marketing, Product Marketing, Product
Launches and Re-Launches. As a Lean Six Sigma Black Belt,
Business901 provides and implements marketing, project and performance
planning methodologies in small businesses. The simplicity of a single
flexible model will create clarity for your staff and as a result better
execution. My goal is to allow you spend your time on the need versus the
plan.

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