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Lean is quickly becoming the next significant improvement initiative for manufacturing and distribution. Any question of that was erased this past summer when GM and Chrysler emerged from bankruptcy vowing to be leaner companies. James Womack, chairman of the Lean Enterprise Institute and author of several books on lean, reported that "GM and almost all large manufacturers have now accepted lean as a management theory, although the actual practice is always a struggle."

An index tracking the world's largest 20 lean companies called the "Superfactory 20" continuously outperforms the S&P 500. In 2007, for instance the Superfactory 20 stocks increased by 22.66 percent, while the S&P 500 increased by only 3.65 percent.

As major manufacturing companies move to lean systems, it will require that wholesalers follow to achieve manufacturers' requirements. Adopting lean processes in their own businesses will also benefit wholesalers through significant improvements in asset utilization, cost savings, and profitability.

A History of Lean

Lean was developed by Kiichiro Toyoda and Taiichi Ohno in the 1960s for Toyota. They received their inspiration not from the American automotive industry, which at that time was the world's largest industry, but from visiting an American grocery store -- Piggly Wiggly. They were impressed by how the supermarket only reordered and restocked goods once they’d been bought by customers -- the precursor of the just-in-time (JIT) inventory system.

Toyoda, Ohno, and others at Toyota envisioned innovations to both achieve continuity in process flow and a wide variety in product offerings. They dubbed their method the Toyota Production System or "Lean".

For distributors this means having a wide variety of inventory while achieving high inventory turns and profitability -- exactly what wholesalers have been trying to figure out for years.

5 Lean Principles

Lean theory rests on five main principles: customer value, value stream, flow, pull, and perfection. ERP systems are key drivers to impacting all five of these principles.

For wholesalers, value is defined by the customer. It means having the right product, at the right time, for the right price.

The value stream includes the activities that must be performed in order to achieve customer value, such as buying, stocking, and shipping inventory -- all core competencies of distributors.

Flow minimizes waste and maximizes speed through streamlined distribution processes.

For manufacturers, pull means you make only what is needed, only when it is needed and let the customer pull the product through the system. For wholesalers, pull means they use inventory smarter by stocking what customers want and replenish exactly what customers buy.

Finally, perfection requires an organization to continuously improve in all areas.

The Seven Wastes that Impede Lean

In addition to the five principles, lean defines seven wastes: defects, inventory, processing, waiting, motion, transportation, and overproduction.

ERP systems are also critical for driving down waste in distributor processes. Waste can include missed delivery dates, damaged, slow moving or dead stock, over-complicated or time-consuming tasks, time spent searching the warehouse for inventory, and much more. Utilizing modern ERP system tools streamline processes, eliminate wait times and excess processing, and reduce defects.

For example, processes are mapped and redesigned utilizing lean and ERP processes to derive a much simpler process with fewer defects:

Getting Lean

As wholesalers continue their migration to lean, the key to their success will be a lean distribution chain. The good news for wholesalers is that lean is relatively easy, fast, and inexpensive to deploy with quick and high payoffs. The bad news is that it takes tremendous discipline, rigor, and cultural change to succeed.

Wholesalers have to be careful, older ERP systems can inhibit lean activities through wasteful and tedious processes. Newer ERP systems are designed to support lean practices to enable pull and continuous flow for driving out waste.

At its most basic, a lean-focused ERP system provides business intelligence tools capable of providing graphical key statistics on orders, inventory, and costs. ERP systems are the visual source for driving and identifying where distributors are lean or need to be leaned out. This data is absolutely essential for continuous improvement initiatives such as improving workflow, minimizing variation, and improving quality.

ERP systems can also streamline processes. For example, a solution integrated with wireless handheld guns assure correct inventory items are selected and more importantly reduce the steps to pull, pick, or put away inventory by automating once manual processes. Among the hundreds of small processes modern ERP systems can streamline for distributors are automated faxing and e-mailing, receiving confirmations, making collection calls, and generating purchase orders.

They can also assist in minimizing variation and reduction in lead times. This reduction is the key to decreasing inventory while increasing customer service levels. Lean teaches that inventory should be treated like a precious resource, something that wholesalers know instinctively. Great ERP systems optimize inventory levels and drive down replenishment times though effective processes and reporting.

The savings obtainable through lean distribution is staggering. Entire tasks and processes can be eliminated with the resulting revenue used for expansion or taken as straight profit. The right ERP system can provide wholesalers with the tools they need to embrace lean practices and strengthen their businesses. Lean combined with and an effective ERP system, can lead to significant competitive advantages for distributors.

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