Lean Distribution - Foundations
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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SECTION: Foundations

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Lean Distribution

Written By: Matt Di Iorio

Article Date: 03-01-2006
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.

Can Lean Principles work in a dealer environment?

Although the dust hasn't quite settled on AED's 87th Convention, the staff is already working on the 88th meeting next year in Las Vegas. The same holds true for AED's Executive Forum. A great deal of work has been done, and the 2006 Forum is shaping up to be more provocative and informative than ever. This year's theme, "Lean Distribution," will focus on improving the business processes that add value and eliminating those that don't. Concrete examples of how the application of Lean Principles will improve customer, employee, supplier and shareholder satisfaction will be plentiful.

Do promises of a better bottom line through greater efficiency sound familiar? They ought to. Lean principles represent the latest chapter of a story on organizational theory dating back to Egypt in 1491 BC.

The modern concept of scientific management emerged when Louis Brandeis coined the term in the early 1900s. Frederick Taylor published "The Principles of Scientific Management" in 1911. However, the dozens of acronyms and buzz words that followed, i.e. TQM, ABC, BPR, Six Sigma, Lean Sigma, Lean etc. dealt primarily with manufacturing environments.

Even Jeffrey Liker, author of "The Toyota Way," suggests that comparatively little has been written about the application of Lean Principles in service or distribution.

It is no secret that manufacturers have historically focused more on process improvement than dealers have. The most obvious reason, to a distributor anyway, is the variability of the dealer environment. Until recently, management theorists have viewed variability as the enemy of process improvement. Traditional application depended on a controlled environment or at least, repeatable, or redundant activities. "Controlled environment" is a phrase not typically spoken in a dealership...not because the possibilities don't exist, but because we can't see them.

In the dealer's sales-driven culture, customers reward flexibility and going the extra mile. However, these activities often take place after the customer is in urgent need of the dealer's product or service. The dealer's inability to plan for changes is demand, add considerably to expenses relating to the transaction.

Manufacturer employees are hired and trained to focus on process. Historically, the ability to build better equipment, faster, and at a lower cost also meant recruiting heavily, albeit not exclusively, from engineering schools.

Dealers, however, demanded autonomy, and the entrepreneurial spirit necessary to meet customer needs that often change by the hour. Their leaders are more likely to have come out of business school.

These hypotheses aren't good or bad, let alone universal. However, customer needs are changing, and the roles and relationships that support them will too.

Although most of what has been written about Lean Principles applies specifically to manufacturing, more is happening in distribution every day.

James Womack, coauthor of "Lean Solutions" has applied these concepts with convincing results in automotive distribution. His consumption-based model recognizes the value of time, as well as resources, expended by all the stakeholders involved in the transaction of value.

The dealer's wagon is hitched inextricably to the customers they serve. If those customers happen to be contractors, dealing with variability is not only unavoidable, it's a means of differentiation.

The 2006 Executive Forum will demonstrate how distributors in similar industries are managing and leveraging variability in many ways. They continue to reengineer their value-add in ways that grow profit and secure their roles in their respective channels.

The Forum will also present examples of how lean principles are being successfully employed by AED members today. The industry's top economists and analysts will provide you with thoughts regarding 2007 economic conditions. Industry research and best practices will also be discussed.

Please mark your calendar to attend AED'sm2006 Executive Forum, September 7 and 8 in Chicago. Visit with your friends, peers and suppliers, hear the experts talk about future business conditions, and hear about how distribution is thriving and adding value in our channel and others.

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