Get In Shape

Lean and mean. Lean management. The average distributor might confuse the two. The first term connotes a bare-bones approach to business — low overhead, doing more with less. The quintessential lean-and-mean operation more often than not is a euphemism for an enterprise that’s underfinanced and understaffed. “Lean management” aficionados, on the other hand, are entrepreneurs schooled in the fine art of streamlining business operations. Lean management has its roots in Toyota’s efforts to effectively compete with its Western competitors in the mass production of automobiles. Over the years, the concept has found its way from the the manufacturing sector to the service sector.

According to the Center for Lean Business Management, Hartford, Conn., lean management results in “improved cost, delivery, quality and product or service performance.” Fast Company magazine recently contended that lean management actually requires more rules and more structure but the payback is a more focused, innovative and responsive organization. Similarly, while lean is often associated with cutting back, lean management might call for pumping more resources into a business.

Once an organization is in fighting shape, it’s much less susceptible to unfavorable economic influences. Lean businesses are traditionally more resilient than their competitors. The goal is the same whether you’re fine-tuning assembly lines or product sales and distribution: increase efficiency at every level, regardless of the size and location of any given distribution operation.

From the Top Down
Dr. Wayne Eisenhart, an executive business consultant and speaker with the Entrepreneurial Development Group, Santa Rosa, Calif., says that leadership is one of the first things distributors should analyze when it comes to building a lean organization. An agile management team or CEO is vital in making the necessary changes to make a business lean.

“Businesses need a captain on the bow of the ship. They need someone who’s thinking, planning and developing strategies,” he says. “Many think just being busy and working hard is sufficient. The key is to learn how to delegate more — delegate to a lower level so you can be at your highest level of function.”

For example, one of Eisenhart’s current clients is a family-owned business. On any given day, he says, one executive is changing toilet paper and the other is driving a forklift. They’re anxious to set a good example and get the job done, but they’re not performing the highest function of their ability, Eisenhart says.

“Every day, every hour, ask where you are the most valuable and how you can make the most money,” he advises.

The moral? “It’s critical to take time to work on your business, not just in your business,” Eisenhart says.

Leadership is critical, but so is timing. Distributors — like many other businesses — often wait to review lean strategies until business is down. But those that are best at employing lean practices know that upkeep is vital to their continuous success at staying lean.

What are they fighting? “Fat.” And it’s present in every business.

“Business processes that exist in distribution are no different than other businesses’ processes in that they create a lot of waste that can be eliminated if people begin to look at the process,” says Bob Emiliani, president of the Center for Lean Business Management, a management consulting and executive education firm interested in helping companies firm up their business functions. Thinking lean is an ongoing, intensive process that aims for continuous improvement.

“[Clients] will say that they’ve tried solving a problem before. A frequent thing we see is that their solutions turn out to be a flavor of the month. They’re looking for solutions to their problems rather than just the Band-Aids,” he says.

Why Tailor-Made?
So how can distributors in the jan/san industry apply the tenets of lean to their own businesses? Simple: start with your business’s framework, and work upwards from there.

“Each and every element of the transaction needs to be scrutinized,” says John Muthe, CEO of the Cary, N.C.-based American Sanitary Inc. (AmSan).

One of AmSan’s approaches is identifying and using best practices to attain optimum operating efficiency. “It’s an ongoing process,” he says.

Others have sought to dissect business processes, from sales to delivery to product offerings.

Jeff Gilliam, president of Lovan Industries, an industrial and sanitary supply distributor in Dallas, has made some fundamental changes in his business over the past couple of years — he added two new salespeople and brought in a new system for running the warehouse. The five outside salespeople, and three people in the warehouse are flexible and willing to take on new and different responsibilities, which has helped Lovan balance the load and increase efficiency.

One change was the introduction of a “floating” warehouse staffer.

“We can’t justify the cost of three large trucks, so the third [driver] stays in and runs the warehouse,” Gilliam says. The three drivers alternate — every day one is at the warehouse doing “hot shots,” or just-in-time orders. The company has the ability to get orders to customers in an hour. “It improves our responsiveness.”

To get lean, Lovan also revamped incentive plans for some of its employees. Although the true definition of lean does not advocate layoffs, Lovan lost a salesperson. Gillian targeted a poor performer, and gave him the tools and a chance to improve his performance, but it wasn’t enough. The salesperson quit.

“Even when the economy was good his sales were flat,” says Gilliam of the former employee. So Gilliam devised an incentive plan that would allow the salesperson to make more money — he simply had to make more sales. “The program worked well as long as his sales were strong,” Gilliam explains. However, the employee’s sales didn’t improve and he quit. Gilliam cut the “fat,” which made room for more aggressive salespeople.

The way Gilliam handled the poor performer was the right one, according to Eisenhart’s sales-boosting advice.

Because salespeople often fall into comfort zones and ruts, Eisenhart offers some to-the-point advice for increasing productivity and eliminating inefficiency.

“Calculate break-evens for all your salespeople,” he says. “Figure out everything it costs you for that salesperson, then compare that to the gross profit of what they’ve sold and produced for the business.”

Secondly, rank your salespeople. “Who’s your best all the way down to who’s your worst. Then, ‘incentivize’ your sales staff.” This includes three steps: “Take your top salespeople, bring them into your office and you compliment them and give them some sort of raise or increase in compensation. Those who are in a rut — the average producers — reduce their commissions so they have to go out and get reignited to make the same amount of money,” Eisenhart explains.

“Make the pool deeper so they have to tread faster,” he adds.

(Higher-commission incentives for new accounts can also jumpstart an average producer’s ambition.)

As for the poor producers? “Terminate them and bring in new blood.” It’s a guaranteed method of rejuvenating sales, says Eisenhart.

To Each His Own
Every company has a certain function that needs the most attention, and George Bonomo’s company is focused on revisiting its inventory needs. The Standard Cos., a Chicago-based distributor, is currently working on ways to make its offerings more streamlined. This process, however, is deeply intertwined with customer needs, and Bonomo says, the goal is to save money for both the company and its customers.

“There’s a lot of duplications and redundant inventory,” says Bonomo, so his company has made it a policy to eliminate unnecessary SKUs. “Customers might be ordering three types of toilet tissue, and four different cleaners, so we try to standardize the orders.”

Bonomo’s company has also worked out new delivery schedules with customers, passing on savings when, for example, they agree to delivery once every two weeks rather than every week. Standard leverages the savings by reminding customers that they’ll have to deal with one invoice instead of two. Having control over a cash-flow item like inventory has allowed the company to achieve new levels of efficiency.

Reliable Maintenance Solutions, Sudbury, Ontario, introduced a host of lean strategies when it started to feel the economy’s effects, says Robert Bertuzzi, the company’s president.

When business was down, the company asked for volunteers to job share or work fewer hours, Bertuzzi says. Those who volunteered were grateful for more free time, and the system has been successful for the company.

The company also phased out duties and policies that were no longer beneficial, or that customers didn’t value, Bertuzzi says. “We looked at our delivery process and where we were going to areas on a daily basis, we changed that to every second day,” he adds.

Beyond that, the company overhauled its order-picking process, switching it from a day shift to night.

“That improved the efficiency of picking the orders pretty dramatically. There are fewer interruptions; in fact, there are no interruptions,” Bertuzzi says.

Each business process from start to finish must be analyzed when working toward lean. It also requires that business leaders look at everything they do and ask whether it’s there because it should be, or because it always has been, Bertuzzi says.

Even customers have not escaped scrutiny.

“What we’re looking at is whether a customer is profitable to our organization. We’re labeling them A’s, B’s and C’s, and the C customers are not being serviced outside anymore. They’re being serviced internally,” he says.

Bertuzzi categorizes all these changes as things that should have been done regardless of the economy, but it was the economy that finally prompted him to carry them out.

For The Standard Cos., lean means beefing up performance in areas such as sales, and the handling of inventory — areas where the company sees the most opportunity to benefit from efficiency.

“We try to eliminate wasteful efforts, and we’re constantly reviewing in-house procedures to see how we can do them better,” says Bonomo.

For some companies, lean means the opposite of cutting back. In fact, Bonomo believes efficiency is increased by pumping more resources into certain business functions. “When times are difficult, sometimes it’s an indication that we should be more aggressive,” he says. “We’ve taken the aggressive approach.”

In agreement with the lean philosophy, Bonomo believes that cutting salespeople is counterproductive when it comes to getting distributor businesses into shape.

“A lot of times [distributors] cut salespeople. We’ve done the opposite,” he explains. “In difficult times, customers aren’t looking to change suppliers, but they’re looking to improve their bottom lines, and we have to be diligent about helping them do that.”

Standard’s sales force now totals nine people — up from seven a year ago — and the company is contemplating the addition of another two or three salespeople in 2002, Bonomo adds.

“Sometimes being understaffed costs as much as being overstaffed,” he reasons.

Rather than simply riding out the storm or hacking away at costs, the company’s decision to create a bigger, better sales team has enabled it to find ways to corner new markets — even when customers have smaller budgets to work with. The strategy that works for Standard: adding value by helping customers reduce costs.

That’s where the extra salespeople fit in.

“The customers, while they’ve slowed down their purchasing, are much more aware of the costs involved, and the opportunity and the challenge is to go to the customer and show them the benefits we can provide them,” Bonomo explains. “They are more receptive to listening to cost-saving ideas. When things are good, the products get the least amount of attention. In a difficult economy, everybody pays attention to everything.”

But inefficiency extends beyond order fulfillment. Emiliani contends that 95 percent of business processes are waste. He compares the actual “touch time” it takes to fill an order (minutes) with the days it takes a customer to receive that order. “There’s a vast amount of waste,” he adds.

Because pinpointing wasteful processes is difficult, lean thinking does not lend itself to grass-roots implementation. Making large-scale business changes requires a managerial understanding of how it will impact the business and a commitment to making it work.

Getting Healthy
Every company has its own vision of where lean can be employed most effectively. Eisenhart offers up a few tips distributors can try when they realize they need an organizational overhaul.

“The first step is to do a series of interviews. Talk to everybody in the business. Find out what’s good, what’s bad, and where they’re weak all the way from the highest to the lowest.” Talk to key accounts, review people’s job descriptions and look for overlap, lack of clarity and confusion, he advises.

Educating employees on the chain of command (who they go to for what) and promoting specialization are two more ways distributors can make their businesses more lean.

“Everybody in a business should know exactly what they’re expected to do and how they’re held accountable.”

Additional Resources:
Survivor
Chain Reaction

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