Lean fulfillment is not new. Decades ago, Toyota Motors refined the idea that the lowest total cost of fulfillment is also one with a very short lead time. The ideal fulfillment condition is where manufacturing is a reflection of consumption. Based on Toyota’s now famous just-in-time production system, elite manufactures have spurned the traditional “push” methodology that seemed to optimize resources all be it at the expense of the consumer. Surely bigger batches must be better? Bigger orders are less expensive, right? The truth is, there are significant amounts of waste in order fulfillment systems which are predicated on the idea that maximizing resources is less expensive.
When we look at order fulfillment from a value stream perspective, we find significant opportunities for improvement in cost reduction, delivery, and lead time. Taking a total cost-of-fulfillment perspective is ultimately a function of lead time. In other words, the longer it takes to process orders, the more finished goods a brand must carry in order to buffer an extended lead time. Long fulfillment lead times are often accompanied by other hidden costs such as forecast error, shrinkage, obsolesce, warehousing, inventory insurance, and the finance fees associated with carrying finished goods. All of these costs, ranging from 22% - 28%, add no value to the consumer or the brand. Conversely, shorter fulfillment lead times all the way through the supply chain offer refreshing alternatives where manufacturers can more closely match production with consumption.
Lean is a better way. For example, take the concept of “small and frequent orders” as better than “large and infrequent orders.” Brands today don’t want the risk and costs associated with finished goods inventory. Wrong mix, wrong quantity, wrong timing, and wrong location are errors brands try to minimize. Low cost means little finished goods and rapid replenishment. That being said, it means producers and consumers have to think and work together differently than in times past. When successfully applied, lead times can be reduced by 75%, inventories cut in half, and on-time delivery will significantly improve. Less is truly more.
How is this possible? In simple terms, when we remove the non-value added components of fulfillment we are left with drastically compressed lead times. The hidden costs associated with forecasting error, warehousing, and demand amplification are also minimized. By applying the principles of “lean thinking,” all members of the extended supply chain experience significantly improved fulfillment performance in quality, cost, delivery, and lead time.
Visit www.genysisgroup.com to learn more about how lean thinking can help your brand.