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Lean Distribution: Concept, Constructs, And Practices
Conference Paper · June 2013
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Lean distribution concept, constructs and practices
Amr Mahfouz
[Link]@[Link]
College of Business
American University of the Middle East (AUM)
Egaila, KUWAIT
Amr Arisha
3S group, College of Business
Dublin Institute of Technology (DIT)
Dublin2, IRELAND
Abstract
In today’s competitive market, applying lean thinking provides supply chain the ability to
produce and deliver products in a timely and cost effective manner. To date, little research
addressed lean distribution concept as an effective approach for improving supply chains.
This caused a level of ambiguity regarding the concept’s dimensional structure and its
practices. This paper aims to explore the antecedents of lean distribution concept and identify
its constructs and practices using a data driven analytical approach (i.e. exploratory factor
analysis). Findings show that enhancing communication with customers, optimising
transportation activity, people participating in problem solving procedures and increasing the
reliability of distribution operations are critical dimensions of lean distribution paradigm.
Keywords: Supply Chain Management, Lean Distribution Dimensional Structure,
Exploratory Factor Analysis
Introduction
Competition between enterprises is growing at an ever-increasing rate. Managers realize that
competition is no longer limited to enterprise against enterprise rather than supply chain
network versus supply chain network (Li et al., 2005). Distribution centres play a key role in
improving supply chain performance, however shortened products life cycle, variations in
customer demand, and extending supply chains across the globe drastically increase
distribution uncertainty and variability (Frazelle, 2002). Given these pervasive challenges,
successful distribution companies have to achieve high customer service level while reducing
cost and waste to remain competitive.
Since lean thinking seeks to eliminate the sources of waste or at least mitigate their
impact on companies’ performance, it is counted as a necessary ingredient for improving the
competitiveness of the distribution companies (Reichhart and Holweg, 2007). Despite this,
lean as an industry standard is not clearly defined with a specific regard to the distribution
process. There is a lack of publications that address the theoretical logic and the underlying
factors of lean distribution. This paper aims to fill the research gap through two main steps;
Identify lean distribution dimensions and their corresponding practices through an
extensive literature review on lean logistics and supply chain articles.
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Statistically validate the identified dimensions and practices using exploratory factor
analysis approach.
Lean distribution literature review
While lean manufacturing literature began to grow in 1950s and were extended to suppliers
operations in 1970s, lean distribution started to attract academic attention in 1980s (Ohno,
1988). The concept has captured the attention of the practitioners who are seeking better
ways to do business, and the researchers who see the topic as a research gap (Hines et al.,
2004). It presents an extension of the Just in Time (JIT) concept – replenishing items only
when they are ordered by the end customer – (Reichart and Holweg, 2007). It is also defined
as the ability to reduce both movements and waste in distribution centres while still keeping
high customer service level (Jaca et al., 2011). Each distribution function – from receiving
customer orders to products delivery – can benefit from the lean principles which lead to high
process quality, minimum levels of waste, cost cutbacks, and increasing productivity (Wang,
2008).
Whereas the principles of lean management are relatively constant for all application
domains, specific lean dimensions were addressed in the quest of creating value in
distribution centres (Kiff, 2000). Managing demand variability, facilitating orders
replenishment, optimizing products flow, simplifying distribution networks structure,
enhancing workforce leadership, and controlling inventory and operations cost are important
lean distribution dimensions that were mentioned by (Jones, 2002; Baker, 2004; Hopp and
Spearmman, 2004). In other study, three lean distribution concepts were investigated and
considered crucial for reducing material costs as well as facilitating their flow; (1)
investigating the root causes of parts damaging in the picking process, (2) managing storage
spaces effectively, and (3) establishing robust communication between people (Manrodt et
al., 2008). Myerson (2012) noted that in order to make distribution centres waste free
warehouse orders should be assembled in the most efficient manner, optimizing storage space
and minimizing non-value added activities. The author added that lean manufacturing
techniques (e.g. 5S, value stream mapping, team building, Kaizen, problem solving and error
proofing) can be effective in supporting lean distribution implementation. Establishing
effective partnership and collaboration with suppliers was also defined as a necessary
requirement for developing capabilities of JIT orders replenishment and delivery (Helper,
1991). Unlike traditional distribution systems, where price is the dominant factor in selecting
suppliers, suppliers are selected in lean systems based on a combination of different factors
such as quality, reliability, and delivery performance (Ellram, 1995).
Zylstra (2006) provided a comparison of the traditional forecast-based distribution
management against lean distribution philosophy, as shown in Table 1. A lean distribution
framework was presented by the author containing five main factors that form the solution to
a lean transformation including customer service policies, buffer strategy, replenishment
cycle, pull approach, and operating and sourcing capabilities. Lean distribution was also
described using the SCOR (Supply Chain Operations Reference) by identifying the sources of
waste in the Plan, Source, Make, Delivery, and Return functions (Myerson, 2012). Taylor
(2006) has introduced lean logistics and distribution through other dimensions including
transportation management, inventory control, distribution network structure, and
management information system.
In conclusion, lean distribution is viewed as a configuration of interacted practices, tools,
and tightly related factors. Applying lean thinking on the distribution elements individually
cannot remove the whole system’s waste. All distribution activities need to be looked at, from
customer orders back to product replenishment from suppliers, and forward through all the
successive activities of packaging, shipping and delivery to the customer.
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Table 1 Lean distribution versus traditional distribution management
Distribution Traditional Management Approach Lean Distribution
Elements
Should be strived to be more accurate. It is utilized
It has limited accuracy and used only for
Forecasts in both long-term aggregate planning and short-
long-term and aggregate planning.
term operational scheduling.
Should be consolidated at the source and
Should be close to customer in order to meet orders
Inventory redirect flow quickly according to the
lead time.
changing in replenishment needs.
Not explicitly embedded in the planning process. Taken into consideration as all lean
Systems
Variations upset the plans and cause continuous practices work on isolating systems
Variations
resetting for them. variation
Forecast-driven, changes with the changing in It is driven based on customer demand and
Transportation
orders forecasting. delivery conditions.
Lean distribution theoretical logic
A significant field work has been carried out in order to define how lean distribution is
designed and provide a clear illustration on how its multiple facets linked together. A senior
member and a shaper of strategies in the Irish distribution industry was interviewed to gather
information about distribution companies and the characteristics of its supply chains, as well
as an overview of the current awareness of lean distribution concepts and practices. A
number of interviews were then held with seven distribution industry professionals from
Ireland, UK and Portugal, followed by two observational visits to distribution companies in
Dublin and Birmingham, aiming to identify the most relevant factors and constructs of lean
distribution paradigm. Seven lean constructs are defined based on the literature review,
managers’ interviews, and site visits, Figure 1. The seven factors combined to form a
cohesive distribution system. To achieve a high distribution leanness level, a collection of
lean practices have to be defined and implemented in an integration fashion rather than a
series of disjoined cost reduction attempts.
Customer Item Buffer Workforce
Suppliers Items Flow
Satisfaction Replenishment Strategy Management
Process Quality
Figure 1 Lean Distribution Constructs
Customer satisfaction:
Understanding and precisely identifying customer needs is important for the lean
transformation journey (Womack et al., 1991). The full identification of customer demand
allows managers to leverage the knowledge of their customer preferences and hence
improves the accuracy of the forecast plans and service quality level (Reichhart and Holweg,
2007). It also allows decision makers and distribution planners to create more efficient
replenishment strategies, buffering control, items delivery schedules and distribution network
structure (Kiff, 2000). Customer demand management is also a pivotal factor toward
increasing customer value and service level (Chua and Katayama, 2009). Demand levelling –
by offering discounts to customers according to the time by which they are willing to
postpone their orders – is employed to minimize customer demand variability and increase
the potential of customer retentions (Jones et al., 1997). Customers segmentation,
postponement, cross-docking and mass customization distribution are addressed as common
improvement initiatives to increase distribution flexibility and decrease orders cycle time
(Baker, 2004).
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Items Replenishment:
The faster the products can flow from the source to the destination with less uncertainty, the
higher the possibility to satisfy customer orders on time (Jones et al., 1997). Establishing an
effective pull approach requires a speed and consistent replenishment process. Pull
replenishment is closely relying on three significant factors; customer service policy,
replenishment strategy and buffer placement (Enns, 2007). The right combination of these
factors results in smooth replenishment process and fast response to the changes in demand.
It is also necessary for the lean replenishment to tighten the linkage between customers
demand and items upstream flow by eliminating the waste and non-value added activities
(e.g. supplier negotiation, replenishment orders review and approval) (Holweg and Pil, 2004).
Several lean practices and strategies were applied to reduce the waste and isolate the
variability from the replenishment activities including demand levelling, controlling
inventory level and facilitating items flow across the distribution network (Zylstra, 2006).
Buffer Strategies:
Buffers are required to isolate the performance of distribution operations away from the
fluctuation of customers demand and suppliers delivery. The buffers may be in the form of
inventory, resource capacity or time (Zylstra, 2006). In lean environment, distribution
companies should keep zero inventory level and replenish their goods directly against
customer orders (i.e. pull systems). Nevertheless, lean distribution cannot simply be defined
as stockless distribution or build-to-order, but an efficient inventory control, yet responsive to
customers demand (Baker and Halim, 2007). Replacing traditional distribution role – holding
inventory and breaking bulk for customer orders – to act as cross-dock or configuration
centre (i.e. postponement) eliminates inventory excess and maintains high customer service
level (Baker, 2004). Class-Based Storage policy (CBS) (Storing items according to their
types into specific storage classes) was presented as critical lean distribution practice
(Petersen and Aase, 2004). CBS provides easy tracking for the stored items and increasing
the efficiency of the storing and picking operations.
Installing automated warehouse equipments (e.g. automated conveyors and storing
systems) is also essential to support lean distribution implementation given their ability in
directing finished products rapidly into warehouse areas without the goods ever being stored
(Van Hoek et al., 2001). According to Zylstra (2006), inventory should be placed as far back
as possible in the supply chain because of the fluctuation of demand for a single item at the
customer site is much higher than the fluctuation for a group of customer demands for the
same SKU. The closer the buffer to the sources (i.e. suppliers or manufacturers) the better the
response to demand swings (Apte and Viswanathan, 2000).
Suppliers:
Suppliers with effective replenishment mechanism and fast response to demand fluctuation
can effectively add value to customers. Honda America applied successful project to improve
the quality of delivery for its suppliers (MacDuffie and Helper, 2002). Ford Motor Company
has also successfully implemented JIT distribution approach by establishing a cost-effective
supplier relationship (Christensen, 1996). The author mentioned that accurate data
exchanging between distribution companies and their suppliers encourages the mutual
planning and problem solving efforts in the supply pipeline. Other practices such as supplier
partnership, collaboration and long-term commitment were suggested in different
publications to strengthen buyer-supplier relationships (Gentry, 1996; Jayaram et al., 2008).
Items Flow:
Warehouse layout design, storage and picking operations, and transportation efficiency are all
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important factors that influence the internal and external items flow within the distribution
system (Chua and Katayama, 2009). Creating an efficient layout for the warehouses is a
complex process since it aims to satisfy contradicted objectives (e.g. space minimization,
easy products picking, efficient items flows, safe working environment, minimum material
handling cost and high throughput rate) (Mulcahy, 1994). Generating an optimal utilization
for the warehouse space (i.e. receiving, storage and shipping spaces) is a significant factor
toward achieving a smooth item flow (Frazella, 2002; Hudock, 1998).
Selecting a proper transportation mode (e.g. rail, truck, air or ship), the types of carriage
(i.e. common, contract or private) and shipment capacities (i.e. full truck load, half-truck load
or flexible) are also key decisions that influence items flow (Narus and Anderson, 1996). For
example, using half-truck load may result in higher transportation costs compared with full-
truck load capacity; however it is a better option regarding the product lead time and entire
distribution cost.
Workforce Management:
Lean philosophy is not only a collection of tools and practices to improve firms performance,
but is also a set of new cultural issues that people need to embrace in order to achieve a
sustainable lean performance. It is important to address three fundamental issues before
adopting major culture-changing initiative like lean; leadership, workers motivation and
problem solving (Wilson, 2010). Many lean implementation attempts have failed because
leaders have not the ability to articulate clear plans to their people and do not have the
courage and character to make difficult decisions in the right time (Ignizio, 2009). The lack
of support and involvement of managers also results unsuccessful lean implementation
process. Leaders have to motivate workers in order to reinforce the lean implementation
process and accept its associated changes (Achanga et al., 2006). The clear communication
between managers, engineers and supervisors with the workforce by periodic meetings,
discussions and the exchange of information is important (Armistead, 1999). Supply chain
partners, from upstream suppliers to the downstream distributors, also have to collaborate as
a team to provide a value to the end-customer (Manrodt et al., 2008). The author stated that
the Chief Operating Officer at Turtle Wax has emphasized that companies got it wrong when
they put too much attention on the tools, and not on the people. Training, sharing mutual
values between group members, improving communication channels and developing human
capital ensure the growth and wellness of the employee (Chua and Katayama, 2009).
Process Quality:
The quality function is a continuous process applied on all supply chain activities to ensure
efficient operations performance. Acquiring a quality culture in addition to the successful
implementation of its practices are essential to achieve reliable and consistent services, short
delivery lead time, operating at low cost and flexibility in accommodating system changes.
Quality concept in distribution includes aspects like employees training and empowerment,
customer focus, top management commitment, continuous improvement, problem solving
methodologies, quality verification, operations reliability, inspection procedures and
corrective actions process (Bhasin and Burcher 2006; Nabhani and Shokri, 2009). Providing
an efficient and error free transaction for information has also significant influence on
operations efficiency and system’s level of quality (Chen et al., 2005). JIT in distribution is
fostered by the technological development, especially by improving information and tracking
technologies (e.g. bar-code and sales-based ordering systems) (Christensen, 1996).
Information technologies such as Enterprise Resource Planning (ERP), warehouse and
transportation management systems play vital role in providing high quality lean
implementation in distribution (Frazelle, 2002).
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Based on the review of lean distribution dimensions’ literature, a preliminary list of lean
distribution factors and their correspondent practices was developed in Table 2.
Table 2 Initial set of Lean Distribution constructs and their corresponding practices
Distribution Practice
Practice Description
Elements Code
Cust_1 Clear customer service agreements are issued containing (e.g. service lead time, replenishment strategy).
Cust_2 Comprehensive identification of customer needs and expectations is done.
Customers Cust_3 Change customer service agreement according to customer's condition, value and requirement
Cust_4 Customer feedbacks are used to enhance operations performance.
Provides customers the ability to follow-up the replenishment process and get information about
Cust_5
replenishment problems.
Rep_1 Reduce the number of customer orders that are consolidated into a single replenishment order
Rep_2 Access to actual customer consumption and uses it as a trigger to the replenishment process
Items Rep_3 Company's replenishment strategy is flexible subject to customer requirements, conditions and values
Rep_4 Take steps to simplify its distribution network in order to decrease shipments lead time and cost
Replenishment
Rep_5 Line balancing approach is used to reduce bottleneck in product flow
Rep_6 Place replenishment orders in high frequency with small lot sizes
Rep_7 Customer demands are levelled to reduce variability and enhance the planning process
Emergency stocks are kept near to the sources (i.e. Manufacturer or main distribution centre) in order to
Buff_1
deal with unexpected or rush orders
Buffer Strategy Buff_2 Employing automated warehouse tracking technology
Buff_3 Products flow are managed in consistent small batch sizes throughout the daily work activities
Buff_4 Products with similar characteristics are stored at same location
Buff_5 Products buffer between the internal operations (i.e. Work in Process) are minimised
Supp_1 Getting up to date information about suppliers problems
Suppliers Supp_2 The company's suppliers are involved in setting the replenishment policies and strategies
Supp_3 Establishing continuous cooperation with key suppliers to resolve customer issues
Flow_1 The quality of the transportation activity is frequently reviewed, aiming to increase the efficiency
Items Flow Flow_2 Select freight companies that offer flexible capacities for the shipment process
Flow_3 All mechanical handling equipment are maintained regularly
Flow_4 Employ layout design solutions in order to minimise the internal travel distance and time
Sort-out, organises and visually represents the equipment and tools that are needed in the workplace to
Staf_1
maximise workers utilisation
Staf_2 Establish a clear communication channels between people in the distribution facility
Staf_3 The workplace is kept clean, clear and free of debris
People Staf_4 Employees feedback and concerns are encouraged and included before making changes and taking actions
Managers, supervisors and employees are involved in determining facility goals and their achievement
Staf_5
feasibility
Daily work activities are organised into teamwork functions in order to enrich work environment and
Staf_6
enhance problem solving activities
Staf_7 Employees participate, initiate and lead problem-solving activities autonomously
Standard operating procedures are provided to the company's operators, aiming to standardise operations
Qu_1
steps
Qu_2 Identify and regularly discusses the best practices of its operations
Apply statistical process control procedures (e.g. six sigma) to insure the reliability of the distribution
Qu_3
operations
Quality Advanced technology systems are installed to standardise and simplify the processes, and to reduce the
Qu_4
redundancy and transaction errors (e.g. ERP)
Qu_5 Develop continuous improvement plans to sustain and improve distribution performance
Qu_6 Utilize structured problem solving methodologies (e.g. 5 whys) in order to apply root cause analysis
Qu_7 Quality verification and inspection procedures are created for each distribution function
Qu_8 Develop corrective action procedures in order to rectify quality problems
Qu_9 Clear goals and key performance indicators (KPIs) are identified
In order to incorporate the identified lean practices to the real life distribution functions,
face and content validity processes were taken place through several interviews with
distribution managers and supply chain academics along with a number of site visits for a
number of distribution centres based in Ireland.
Research methodology
Since lean distribution philosophy is still in its early stage of empirical inquiry, a data driven
analytical model (i.e. exploratory factor analysis (EFA)) were developed to identify its
dimensional structural and examine its reliability and validity. The model was based on a
survey for more than 700 distribution companies in Ireland and UK. A quantitative
questionnaire – based on numerical scales – was developed to ascertain the extent to which
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the proposed lean practices were implemented in the surveyed companies. It relied on a
careful review of literature, deep discussions with distribution academics and practitioners
and a clear conceptualization of the formulated research objectives. The responses were
measured on a 5-point Likert scale with ‘1’ equated with no implementation of the practice
and ‘5’ equated with a full implementation. A packet containing a cover letter, copy of the
survey and introduction of lean distribution was sent to the surveyed companies by post and
online. After two weeks, follow-up phone calls were conducted for all participating
companies followed by three reminders sent by e-mail as suggested by (Dillman, 2000). After
the follow-up calls, the companies were decreased from 700 to 600 due to companies shutting
down and changing activities. The majority of the 150 respondents (about 85%) were from
manufacturing companies and wholesalers. Over 70% of the respondents were technical
senior managers (i.e. distribution managers, warehousing managers and purchasing
managers) while the rest were top-executives and directing managers.
The exploratory analysis started with conducting a missing item analyses on the survey
responses with eliminating the records that have missing data. Following that, corrected item
total correlation (CITC) scores were calculated for each item to assess their reliability. CITC
refers to the correlation of an item with the composite score of all the items forming the same
latent variable. The item is usually a candidate of elimination if its correlation has recorded
0.3 or below indicting that item measures something different from the scale as a whole
(Shah and Ward, 2007). Three reliability analysis iterations were conducted and 12 practices
with CITC values below 0.30 were removed (cust-3, rep-1, rep-6, buff-1, Buff-2, buff-3,
supp-1, supp-2, supp-3, flow-1, flow-2, and staf-4).
Following reliability assessment, EFA was conducted to determine the number of latent
variables that cover the complete set of items and provide explanation for the variations
among the original variables. Three iterations of EFA were conducted and 7 practices were
eliminated as their cross-section loading exceeded |0.4| with more than two factors. Table 3
presents the final list of eigenvalues with 5 factors exceeding 1 and representing 67% of the
variance. Before the final decision concerning the number of factors is taken, the retained
items loading were checked.
Table 3 Significant factors with eigenvalues > 1.00 for the final EFA iteration
Initial Eigen value Extraction Sums of Squared Loadings
Factors
Variance % of Variance Cumulative Total % of Variance Cumulative
1 6.583 31.346 31.364 6.583 31.346 31.364
2 2.553 12.158 43.504 2.553 12.158 43.504
3 2.296 10.934 54.438 2.296 10.934 54.438
4 1.618 7.706 62.144 1.618 7.706 62.144
5 1.439 6.852 68.995 1.439 6.852 68.995
9 .638 3.040 84.015
10 .588 2.798 86.813
11 .523 2.492 89.304
Kaiser-Meyer-Olkin Measure of sampling Adequacy 0.743
Bartlett’s Test of Sphericity Approx. Chi-Square 696.702
Df 210
Sig. 0.00
Extraction Method: Principal Component Analysis
As illustrated in Table 4, all items loadings on the five factors are above 0.4 with only one
factor. The five factors were labelled based on the items loading and the understanding of the
lean distribution theoretical logic. First factor embraces qu_1, qu_7, qu_8, qu_9, staf_1 and
staf_3 which are all related to Quality construct and hence factor 1 is labelled ‘Distribution
Quality’. Factor 2 is identified as ‘Customer’ since it embraces three practices focus on
reducing the demand variation and increasing the robustness of communication channels with
customers; cust_1, cust_2 and cust_4. Factor 3 is labelled ‘Item Replenishment’ with 4
7
practices (rep_2, rep_5, rep_7 and buff_5). A combination of practices aim to provide
effective improvement and planning tool to increase the reliability of distribution operations
as well as managing the distribution labours and employees (qu_3, qu_5, staf_2, staf_5 and
staf_7) were involved in factor 4 which labelled ‘Workforce and Planning’. Decreasing
transportation cost and time along with simplifying distribution network were the targets of
(flow1, flow2 and rep4) practices, creating the fifth factor ‘Transportation’. Figure 2
illustrates the five main factors of lean distribution and their correspondent practices.
Table 4 Correlation coefficient of the lean distribution variables in final EFA iteration
Principle Component
Independent Variable
1 2 3 4 5
Qu_9 .841
Qu_8 .831
Staf_1 .667
Qu_7 .663
Qu_1 .583
Staf_3 .545
Cust_4 .853
Cust_1 .817
Cust_2 .659
Rep_5 .845
Buff_5 .805
Rep_2 .752
Rep_7 .746
Qu_3 . .798
Qu_5 .785
Staf_7 .737
Staf_2 .639
Staf_5 .546
Flow_1 .869
Flow_2 .853
Rep_4 .554
Figure 2 Exploratory structure of lean distribution concept (Source: Author).
Conclusion
This paper aimed to contribute to the lean distribution knowledge area by defining the
concept’s dimensional structure. Out of 40 lean distribution practices representing the initial
strategic and operational space surrounding the lean distribution concept, 21 practices were
extracted using exploratory factor analysis. The exploratory technique is considered the
8
stepping stone for further analysis phases like confirmatory studies. Confirmatory factor
analysis (CFA) is recommended to confirm the exploratory lean distribution model by more
rigorous statistical techniques.
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