to Lean Distribution
Big batches. Long lead times. Infrequent deliveries. Large inventories to cover fluctuations in demand. These aren’t characteristics normally attributed to lean paragon Toyota, but they once accurately described the automaker’s service parts distribution system.
“We used to deliver one large stock order toToyota’s Boston Parts
our dealers every week,” recalled Bob
Distribution Center at a Glance
Gallagher, manager of the Toyota parts • Opened in 1980
distribution center in Mansfield, MA. In turn, Gallagher’s parts distribution center • 187,400 sq. ft. received a large weekly shipment of North • Two shifts American-made parts from a feeder • 36 warehouse associates, 5 warehouse in Kentuckyand a large weekly admin./support associates, 1 shipment of Japanese-made parts from a manager and 7 leaders feeder warehouse in California. Like any (operations/logistics/customer conventional distribution system with its service) low-frequency, large-lot replenishment cycles, this system baked in a lot of waste.
For instance, since dealers couldn’t accurately predict what parts customerswould need the following week, they kept large inventories on hand to assure a consistent supply in between weekly deliveries. In turn, the automaker’s network of 11 parts distribution centers needed large inventories to supply dealers.
The system also hurt productivity at the parts centers as dealers would place daily “critical” parts orders --parts that had run out – in addition to their weeklystock orders. “Basically what we did in any warehouse in the country was go through once to pick the stock order then go through later in the day to pick the critical orders,” explained Gallagher. “We were making twice as many moves through the warehouse for each dealer.” Critical order volume climbed to as much as 45% of the daily order volume. The trick was to get the critical order volume downand the stock order volume up because the big productivity gains came from picking stock orders of standard replacement parts like spark plugs, filters, hoods, bumpers, etc.
The traditional system was inefficient for dealers, too. A big dealership in El Monte, CA, required two 48-foot trailers to deliver its weekly order. The dealer needed manpower and space to unload and stock the huge shipments.And the parts distribution center needed dock space equivalent to the two trailers to stage the shipment. This was space the distribution center could have used to speed up the unloading of parts arriving from the feeder facilities in California and Kentucky.
As Toyota sold more cars and models in the U.S., the problems would get worse --and more expensive --if dealers and distribution centershad to knock out walls and add staff to handle the burgeoning pile of new parts. It was money that could be better spent on marketing the new models or adding showroom space. Applying principles pioneered in its factories, such as one-piece flow, kaizen, and leveling, Toyota began a transition from conventional distribution to a just-in-time system.
Toyota built the new systemon frequent ordering and delivering to replenish minimum stock levels covering actual demand. So, when a dealer in Vermont replaced the hood on a customer’s Camry, the dealer ordered one new hood from Gallagher, who delivered one new hood, not a pallet load, the next day. Gallagher ordered one new hood from the feeder warehouse in Kentucky, which delivered one new hood, not a pallet load, the nextday, and passed the order back to the supplying factory. Toyota called it, sell one, buy one, make one.
Beginning in the mid-1990s, Toyota launched the new system on the west coast and
gradually rolled it out nationwide. “A lot of training went on before it happened,” said Gallagher. Eventually, dealers began placing daily orders with distribution centers. Parts ordered as late as 4:00 P.M....