Supply Chain

Figure 1, ___

An integrated, world-class operating system that delivers your offerings seamlessly across all of your markets is the ultimate vision.  But there are many challenges and complexities to successfully linking service and manufacturing operations to the delivery network.  Supply Chain Design extends the System Design building blocks of VOC, Flow Simplification and Value Stream Analysis across your entire delivery enterprise.

LFS was asked to help the leading eCommerce company in Korea, Coupang, improve its Supply Chain.  This company dominated the market in its home country and was growing rapidly.  Their Fulfilment Centers (FC’s) and Supply Chain Distribution channels were getting overwhelmed with demand and were wrought with waste and inefficiencies.

LFS came in and conducted a deep dive analysis of the companies operations with the goal of adopting a new business model to hold as many products as possible to serve their focused markets.  Over a two month span network SKU capacity had to grow 66% and pick productivity had to increase 150%.  At the time the company was operating 5 FC’s.  LFS started with the largest FC to run improvement tests and build a model that would be cascaded to the other FC’s.

Figure 2, Current State

Figure 3, Target State

Figure 2 above shows the current state material and information flow.  A series of Receive Stations processed products coming from the Inbound Dock.  This product was stored in a series of Bulk locations.  Fork Trucks routinely delivered products to the Picking Areas.  A team of pickers would get their pick tickets, walk to the box area, assemble their boxes and pick parts.  These parts were delivered to Outbound Verify Stations to verify the product, add dunnage, tape the box and put the orders on a conveyor to be delivered to the Outbound Dock.  Truck Drivers would transfer their orders to the dock floor until they had the majority of their packages, then they would load the packages on their trucks and drive off to their assigned Camp (eg. Depot Station).

There were a number of issues with this process:

  • Pickers had considerable walking distance to get pick sheets
  • Pickers spent time making boxes under poor ergonomic conditions
  • Pickers constantly bumped into each other because workflow was not designed to be simple and linear
  • SKU’s were not organized in the Pick Face
    • No ABC classification analysis considered in the layout
    • No flexible dividers to clearly delineate sku locations
    • Replenishment times were infrequent, causing some sku’s to be overstocked and other sku’s to stock out
    • There was a great deal of air (wasted space) in the pick face
    • SKU affinities were not thoroughly considered in the layout
  • There were frequent log jams at Outbound Verify, where large piles of orders would back up
  • Drivers had excessive waste in the form of wait time and box rehandling
  • There was no organization of the packages in the trucks, leading to long cycle times at the camps sorting products to the right delivery trucks

Figure 3 shows the Target State design.  This design resolved the issues identified in the Current State.  Some of the features:

  • Bulk Storage and Bulk Gold Zone to facilitate more frequent pick face replenishment
  • Hand jacks and delivery trains rapidly replenish the pick face; this would reduce the space per sku, increase the pick face sku capacity and reduce picker walk time while also improving safety by greatly reducing fork truck traffic in the pick area
  • ABC S/X analysis was used to better organize sku’s and utilize product affinities
  • A Box Making Cell was implemented to eliminate picker cycle time and improve ergonomics
  • A Heijunka box was used to level the volume and variety of picks; this allowed better visualization of ahead/behind, eliminated much of the picker bumping and allowed for better planning of picker staffing
  • Multiple Outbound /Verify/Pack Stations would level out the load on this area and eliminated order backups
  • Product was organized into rolling carts by camp and delivery truck to streamline delivery truck loading at the camps

Kaizen Events were organized and run to teach some of these lean tools and test improvement ideas.  Following are some before and after photos and videos illustrating the improvements made.

Before Box Making

Poor Ergonomics, Time Consuming, Operator Bumping

After Box Making Cell

Ergonomic and Efficient

Before Truck Depot Optimization

Operators Waiting, Poor Ergonomics, Excessive Sorting

After Truck Depot Optimization

No Operator Wait Time, Better Ergonomics, Orders Sorted By Truck Into Cages

Network Design

We were asked to do an end-to-end supply chain analysis for Watts Water Technologies, a leading manufacturer of water regulation and control equipment.  The company was facing the dual challenge of shortening customer lead times and reducing inventory and transportation costs.  They were plagued with frequent regional stock-outs and multiple line item shipments to complete an order.  Their transportation costs were high because they often resorted to expensive 2 day UPS shipments across the country due to the stockouts to meet customer lead time expectations.

LFS started the engagement by conducting a Voice of the Customer (VOC) analysis (SEE VOC EXAMPLE for details).  The key takeaways from the VOC:

  • Unpredictable Leadtimes (inconsistent)
  • Losing sales by not having stock (long lead times)
  • Too many split shipments of orders

LFS’s deep dive analysis of the Watts supply chain resulted in the following observations:

Customer Lead Time Expectations

  • Stock Orders:  3 days
  • Emergency Orders:  Same Day/Next Day
  • Non-Stock Orders:  5 to 10 Days

Supply Chain

  • Regional DC’s held only approximately 13% of the total SKU’s
  • Total network inventory turns was 3.0
  • Inconsistent Stocking Policy – “Tug of War” between Watts and Agents on inventory
  • Item ABC classifications and stocking policy in disarray
  • Excessive inventory throughout the system driven by large batches/low-frequency replenishment
  • Long manufacturing Changeover times (2.5 to 4.0 hours per part)
  • Low-Frequency DC/Agent Replenishments (1x to 2x’s per week)

Distribution Centers

  • Sub Optimal SKU layout
  • Manual pick sequencing
  • No Cross Dock Capability
  • Blocked isles due to excessive inventory and early picks

LFS’s complete a target conceptual system design and did a deep dive analysis of the West Region DC.  The estimated improvements by implementing the target design are summarized below.

Improvement Metrics

Increase SKU Coverage by 58% (from 60% to 95%)

Reduce Split Shipments 50%

Reduce Customer Lead Time 50%

Reduce Transportation Costs 18%

Increase Sales and Market Share