Applying the Theory of Constraints in a Distribution Center
By David K. Schneider, David K. Schneider & Co.
Herbie is in your distribution center. He could be at the receiving dock. He could be in picking. He could be in put-away. Or he could be on your shipping dock.
Let's push that fat kid out the dock door.
Herbie became a character representing process constraints for manufacturing and material handling engineers with the release of Eli Goldratt's book The Goal in 1995. One of the first of the business novels, The Goal introduced managers to the Theory of Constraints (TOC) and a different way of thinking about process - managing your business by managing flow through the business process constraints.
What is a constraint? It could be a bottleneck in a manufacturing process. It could be the number of doors on your dock. It could be staff, an aisle, a system; almost anything can be a constraint.
In The Goal, the plant manager protagonist takes his son's Boy Scout troop out for a hike in the woods. While the troop starts out evenly spaced on the trail, soon the spacing between the boys stretches out until the lead boy is far ahead of the tail of the line. Along the way, our plant manager thinks about dependent processes and the statistical variance of task completion times. The bottleneck ends up being the fat kid in the troop, Herbie. In the story, our plant manager learns a key to managing bottleneck, moving Herbie's position in the line, eventually placing him in lead.
If you have not read The Goal, you should. It will change the way you think about the mission of your distribution center and give you ideas about how you can increase throughput.
In 2005, our team applied what we learned from reading The Goal. The receiving operations were a serious bottleneck in our distribution centers. Adding additional staff or working overtime failed to clear up the backlog. The DC would work an extra day to clear out the backlog, only to be behind in volume early the following week.
We started to collect inbound delivery data in 2004 including the carrier, the shipments on the deliveries, and the number of pallets. Looking deep into this data for one DC, we discovered that in any given week an average of forty-two different carriers delivered to this DC. Filtering out the TL deliveries, twenty-nine LTL carriers made deliveries. Two of the LTL carriers used a drop trailer program, the rest live unloaded.
Our first suspicion focused on carrier arrival performance. The DC's receiving manager complained that many of the carriers failed to set appointments or would show up late for them. When we dug into the data, we found that while some problem children existed, late arrival for appointment or failure to make an appointment was a minor problem.
The carriers delivered to this DC almost every day, an average of 3.9 times a week, and averaged 1.6 pallets per delivery. On a typical day, twenty-six trucks delivered a total of forty pallets. Each of these truck-to-dock events took about thirty minutes, totaling about fourteen hours of dock time. Our crews could typically turn a full truckload in about forty-five minutes, pulling an average of twenty-four pallets quickly. The receiving teams could not turn the LTL loads faster because of the time needed to spot the truck and complete the paperwork.
The bottleneck had not existed a year before. Our inbound data did not go back past mid-2004, but we could tell from our payroll and incentive program data that the problem was new. We followed up with our inventory management team and learned they made changes in the order size and frequency of many vendors, moving to smaller, more frequent shipments to lower the overall inventory in the network. Many of the vendors were new to our company and used carriers that gave them low rates.
Herbie was on our dock. He rode in with every vendor paid LTL order.
The inventory management change was the right thing to do for the operating cash flow of the company, but it created an unintended consequence - a bottleneck where one did not exist before. Adding additional capacity by adding more dock doors was not the answer. That would have required more building and adding more building was not an option. We could try to book the delivery appointments closer, in twenty-minute slots, but the variable performance of the carriers made that close to impossible.
In The Goal, the plant manager/Boy Scout leader moved the bottleneck to the front of the line, placing Herbie in the lead. This solved the problem of the line stretching out, keeping the troop of boys together. That solution was counter to the need for throughput – with the slowest boy in front, the troop did not move fast enough to reach the campground before nightfall. Eventually the scout leader thought to look inside Herbie's backpack, where he found several pounds of food and a cast-iron skillet. Quickly, the troop distributed the excess weight in Herbie's backpack to the other boys. With the lighter load, Herbie walked much faster and the troop of boys arrived at the campsite in good time.
We were overloaded with too many carriers making very small deliveries. We needed to consolidate the freight onto fewer carriers, carriers that dropped trailers at our site. We could turn the drop trailers faster because we removed the performance variability of the prepaid LTL carriers. We could also process more freight per truck-to-dock interface because moving the freight onto fewer carriers would improve the throughput per load.
This is where we used our supplier compliance system to change the behavior of the suppliers. The vendors chose the carriers to save nominal costs, perhaps as little as $10.00 per pallet delivered. We decided to provide an economic incentive to the vendors to change over to our preferred carriers. The suppliers could choose to use any of our preferred carriers or they could continue to use their carrier, but pay a $50.00 per PO compliance charge for doing so.
There was quite a bit of resistance from the vendors, but the suppliers complied, understanding that we had taken this action to increase the speed in which their merchandise landed on our shelves. In the end, almost all of the vendors elected to become suppliers and switched to our preferred carriers.
Our inbound labor overtime dropped with each conversion until the dock operations in this DC could breathe. We actually got more throughput across the receiving dock and improved our ability to receive and put away. All of our distribution centers benefited from the change – a win any way you look at it.
David K. Schneider, David K. Schneider & Co.
David K. Schneider & Co., Fairfax, VA, is a team of expert supply chain and logistics practitioners focused on healing their clients' operations to create the only true measure of business success: operating cash flow. The team publishes expert advice on logistics and business daily at their blog www.WeAreThePractitioners.com. David can be reached at (877) 674-7495 or firstname.lastname@example.org.