Supply chain disruptions are the enemy of product businesses. They cause bottlenecks that can slow down your fulfilment processes and bring production to a standstill. The result is high costs and unsatisfied customers.
Lean logistics is a strategy designed to optimise supply chain efficiency by cutting out waste and maximising customer value. Let’s explore how to make it work for your business.
In this guide to lean logistics:
What is lean logistics?
Lean logistics is a method of supply chain optimisation that focuses on eliminating wasteful activities from all checkpoints along the supply chain and increasing value for the customer.
This approach to supply chain management is a child of Lean Thinking – a business methodology that originated in Japan in the late 1980s. In simple terms, the Lean Thinking concept is about creating more value for customers while using the minimum number of necessary resources.
The 5 principles of lean logistics
The five principles of lean logistics are derived from the principles of Lean Thinking. They’ve been adapted to support end-to-end supply chain management.
1. Determine value for the customer
The first task of lean logistics is to identify and define the value you’re aiming to create for the customer. In other words, it’s answering the question: What are my customers’ primary needs?
Specifying the value to provide customers will give you grounds for determining which of your supply chain processes are effective and which are a waste of time and resources.
2. Map out supply chain processes and identify waste
Once you understand what value the customer is looking for, you can start identifying which supply chain processes are aiding in providing that value and which are wasteful (do not add value).
First, map out every process along the supply chain to get a clear picture of where the delays, restraints, and excessive tasks exist. Once identified, these wasteful activities can be eliminated by optimising the process they exist therein.
3. Optimise product flow efficiency
In this step, processes in the supply chain are redesigned to maximise value creation and minimise wasteful tasks. The goal is to make the product flow smoothly towards your customer.
Ideal product flow efficiency is achieved by optimising inventory control, minimising supply chain interruptions, and eliminating downtime. This is the core function of lean logistics, and is commonly referred to as ‘going lean’.
4. Establish a Just-in-Time strategy
To reduce inventory wastage, a pull system – also known as a just-in-time (JIT) strategy – is introduced. This is a process designed to minimise your stock-on-hand levels.
JIT strategies are demand-based: Goods are ordered, produced, and delivered as they’re needed by the customer rather than accumulating inventory. Therefore, information about customer demand must be available through the supply chain for this system to properly work.
5. Strive for continuous improvement
Finally, lean logistics is not a stagnant or one-off process. At its core, this methodology functions as a way of keeping your business accountable and efficient. As such, it should be considered an active and repetitive approach.
Once the principles above have been achieved, your business must continue to improve the fulfilment process – whether that be through regular audits, machinery upgrades, improved policies, or something else.
7 benefits of lean logistics (+ 4 downsides)
Lean logistics cuts out wasteful actions and provides an efficiency injection to your business. But what does that mean when it comes to tangible results?
Below are seven of the biggest benefits of lean logistics.
Minimises inventory risk
Lean logistics reduces downtime so that production lines can flow smoothly. This means products spend less time being held up for prolonged periods. And since it also reduces the quantity of goods being stored, you have less risk of taking a hit should a disaster strike your storage facility.
Reduces excess costs
Optimising your processes means cutting out any unnecessary activities or expenses and slimming down your necessary ones. In this way, the business requires less capital investment to run.
Improved cash flow
When you’ve got all your value locked up in inventory, it’s easy to run dry on spendable cash. The JIT strategy that supports lean logistics ensures you only store the minimum amount of goods required to keep customers happy.
Produce goods and fulfil orders faster
Once you cut out all those surplus activities and systems, your production and fulfilment processes should run much more efficiently. Goods can be produced in greater quantities, faster. And orders can be picked, packed, and shipped in the shortest possible time.
Requires less storage space
Less inventory comes at a lower cost to keep around. You can rely on a smaller warehouse or factory for storing unsold and unfinished products, meaning you save on rent, power, staff, security, and warehouse equipment.
Make your customers happier
Ultimately, the purpose of lean logistics is to give customers more value (and save yourself some cash in the process). When your production and testing processes are optimised for efficiency, your customer has less time to wait for products to get upgrades and orders to arrive at their doorstep.
Creates a cycle for constant improvement
Lean logistics isn’t a quick fix; it’s a complete overhaul of the thinking behind your business activities. This means that once you implement it, it’s always there. Lean logistics becomes the framework for regularly assessing and optimising your processes.
The disadvantages of lean logistics
Since we’re discussing the positives, it’s important to also touch on the downsides of implementing a lean logistics strategy.
Key disadvantages of lean logistics include:
- Requires powerful inventory software. Leanness can only be achieved by pulling accurate historical sales and inventory data, which requires advanced inventory management software.
- Switching strategies can be disruptive. You’ll have to completely overhaul most of your current processes, which can be time-consuming and distracting for staff.
- May require operational changes. It’s possible that, by eliminating wasteful activities, you also create staff redundancies or opportunities to hire new staff. Both circumstances require careful navigation and can be costly.
- Higher risk of cutting things too fine. Factors like human error and environmental conditions can sometimes push lean logistics to a breaking point. And since the minimum reorder quantities and safety buffers are extra low, those unexpected disruptions can mean you run out of stock too soon.
Ask yourself why you’re considering switching to a lean logistics strategy approach. Then determine whether it will help you achieve that target. If the benefits of lean logistics don’t align with your business goals, you might be after a different kind of solution.
How to implement a lean logistics strategy
If you’ve decided that lean logistics is the right approach for you, these steps will help you implement its principles into your daily activities and processes.
Waste comes in many forms.
Whether it’s unnecessary steps taken to fulfil an order, unnecessary raw materials purchased to build a product, or simply staff having too much downtime. There are opportunities to improve efficiency throughout the entire supply chain process.
Before you can reduce waste, you need to know where to find it.
Types of waste include:
These categories of waste can be remembered by the pneumonic, ‘TIMWOOD’.
Once you’ve identified your wasteful activities and bottlenecks, the following steps will help you to eliminate them from your supply chain processes.
Maximise transport efficiency
Transportation waste refers to things like overpriced couriers, inefficient order packing, and extra steps taken to get goods in and orders out the door.
Here are a few tips for maximising transport efficiency:
- Make a list of all the courier companies that service your sales location(s). Get quotes, contract terms, and average delivery times from each so that you can identify and select the provider that’s best for your business.
- Reduce shipping costs and required vehicle storage space by packing goods as tightly as possible (without harming the products). Cut down and resize boxes and tubes if there is a lot of space remaining after an order has been packed.
- Minimise touch points for getting orders out the door. If packed orders can be kept on a moveable pallet or close to the door, it’ll save you a few minutes per day normally spent double handling the goods to get them onto the truck.
- Negotiate better terms with your shipping company. Once you’ve established trust and loyalty with a courier, they won’t want to lose you. Use this to your advantage and try to get better deals and reduced rates in exchange for your continued business.
- Speak to your suppliers about their delivery methods. If the courier companies or shipping processes your suppliers use are unreliable, they might be open to suggestions. Often a vendor won’t have realised there’s a better solution and they’ll be happy to look into any recommendations you have for them.
Eliminate inventory waste
To maintain the optimum min/max stock levels you must have access to advanced inventory data.
You need to know precisely how often and how much to reorder. This can only be achieved through data-driven inventory reporting.
Make sure your business is using sophisticated inventory management software (with reporting features) that speaks to your other systems, such as your eCommerce platforms and accounting software.
Next, identify products and raw materials that sit around longer than most and take up more room than most. These should be your first areas of focus.
Use your inventory software to analyse historical sales data. It can then inform your optimal reorder quantities so that you can avoid overstocking while still keeping up with customer demand.
Optimise warehouse processes
Reducing unnecessary steps in your warehousing processes can save you time and money better allocated elsewhere.
Here are a few processes to focus on improving:
- Receipt of goods
- Order picking
- Space utilisation
- Packing and shipping
- Product transportation
In some cases, there might be a better way of doing things. But it’s also possible to improve warehousing efficiency with better equipment and smarter use of that equipment.
Consider which of your processes can be sped up or automated by upgrading or buying new tools.
Use warehousing metrics and KPIs to evaluate the effectiveness of any changes you make to your processes.
Nothing is more wasteful than doing nothing. And having bottlenecks in your supply chain creates long waiting periods that suck up cash and spit out zero value.
Work with your suppliers to understand how they run their business. If there are steps you can help them to shorten or eliminate, work together to make this happen. Teamwork is essential in supply chain management.
If there’s downtime in your facilities that can’t be helped, look for better ways to use those spare minutes. Allocate this time to the completion of smaller, low-priority tasks like restocking shelves, tidying the workspace, or administrative duties like replying to emails.
Introduce pull systems
A ‘pull’ methodology must be applied to inventory management to achieve lean logistics.
This means that manufacturing and replenishment respond to customer demand. Demand information will therefore need to be communicated and made available across the entire supply chain.
Min and max reorder levels should be set and updated based on the smallest necessary quantities required to fulfil customer orders and minimise cancelled orders.
Improve speed and reduce variation
To counter over-processing and speed up fulfilment times, it pays to minimise the number of variations in your processes. In other words, try to reduce the amount of steps required to complete an action by grouping together similar tasks.
For example, if you’re selling toy trucks and you know that every truck has the same wheels then the assembly task of installing the wheels for all products could be completed in the same area, by the same person. This allows you to increase the speed of production and eliminate double handling of the products.
Remember to test any process improvements to confirm they’re actually saving you time and money – sometimes a ‘shortcut’ can create extra costs that need to be factored in.
Minimise risk of shipping defective goods
Errors that result in returned goods, damaged goods, and repeated processes must be snuffed out.
‘Getting things right the first time’ is a great motto for process improvement and the goals we’re trying to achieve with it. If there are consistent problems with a product you’re selling or producing, try to identify the root cause and mitigate it immediately. This should happen every time you learn about defective stock.
When you produce and ship less faulty products, you receive fewer complaints from customers. But the benefits of preventing defects go beyond customer satisfaction and brand reputation.
By reducing the number of errors, you also reduce the time spent amending them, sifting through batches to find other faulty products, and communicating your empathy to the customer.