Menlo Worldwide Prospers in a "Lean" Environment

Nashville, Tennessee USA Campus Site Visits

March 23, 2009

By

Evan Armstrong

Key Personnel:

Gary Kowalski, Chief Operating Officer

Bob Basset, Vice President of Sales and Marketing

Anthony Oliverio, Senior Director of Operations Strategy

Timothy Sroka, Lean Sensei

Jonathan Coller, Facility Manager

Jerome Wanke, Senior Logistics Manager

Overview

With 2008 revenues topping $1.5 billion and a global workforce of over 6,500, Menlo Worldwide Logistics is a leading U.S.-based third-party logistics provider (3PL). 2007 was a pinnacle year for Menlo. It made acquisitions of Shanghai, China based Chic Logistics and Cougar Logistics in Singapore to position Menlo as a major Asian-Pacific 3PL. In addition, Menlo was selected as the prime contractor for the U.S. Transportation Command’s Defense Transportation Coordination Initiative. The contract was a major win for Menlo over strong competitors and is potentially worth $1.6 billion.

Menlo provides customers 3PL and 4PL services, including dedicated and multi-client warehousing; domestic transportation management on four continents, managed international transportation services; as well as a variety of value-added services including: inventory management, light assembly, kitting, foreign trade zone (FTZ) services, labeling, manufacturing support, pick/pack operations, packaging, service parts management, and reverse logistics. Its key customers include: Canon, Cisco Systems, Diebold, Danfoss, Embraer, Ford, General Motors, Hewlett-Packard, IBM, Navistar International, NCR, Network Appliance, Nike, Nortel, Toyota, and the U.S. Department of Defense.

Menlo has embraced the warehouse campus concept. It has transitioned from a customer-driven dedicated warehouse centric strategy to more flexible multi-client warehouse operations and now has more than 60% of its value-added warehousing operations in multi-client facilities. Campuses and multi-client arrangements allow for improved labor management efficiencies.

Menlo Lean Management Process

Menlo has also taken major steps to implement "Lean" management principals across its organization. "Lean" is a methodology that has grown out of major manufacturing companies and considers the expenditure of resources for any other goal than the creation of value for the end customer to be wasteful. Wastes are identified using a technique called Value Stream Mapping and once identified, are targeted for elimination through process improvements (also known as "Kaizen"). 

Menlo has grown its business using a project-by-project approach. Its overall strategy of standardizing Lean management process improvement principles across its organization and then deploying the requisite technology needed by each project fits well into this approach. It is a process driven operating and management style – enabled by appropriate IT applications – versus an IT driven operating environment. Lean warehouse standardization is intended to: institutionalize lean principles and techniques at the floor level where the work is performed, engage and empower hourly staff to make decisions and eliminate waste. It also focuses on increasing training effectiveness, improving productivity and operational throughput, reducing the total cycle time for new project start ups, and in-turn drives increased customer satisfaction levels.

Each Menlo logistics project starts with an analysis of the current state of operations. Then an improved future state, represented by a Value Stream Map, is developed as an operational goal. The current state is then analyzed and wasteful activities are eliminated to drive toward the future state Value Stream Map. Shikumi diagrams and process flow charting techniques are used to model the improvements. Once the operational processes are optimized, standard work instructions are developed for each individual work process. 

As operations are deployed and mature, Menlo staff provide valuable input and feedback driving process improvements. In a Lean operating environment, Kaizen events are used to target process improvement areas. Menlo separates its Kaizen events into two types. "Process Kaizen" events focus on rapid process improvements on the logistics execution side to reduce waste and inefficiencies. "Flow Kaizen" events focus on larger network value-stream process improvements. Examples of Process Kaizen events include: increasing percentages of on-time deliveries, shortening order to fill lead-times, and reducing required inventory levels in a warehouse. Flow Kaizen event examples include: coordinating transportation moves between customers to build round-trip truckload moves and expanding the number of warehouse network campus operations to provide flexible workforces to meet customer needs.

In 2008, Menlo estimates it has saved over $8 million through its Lean improvement activities which are detailed in the figure below.

Figure 1 - Menlo's Lean Results

As process improvements are made, Menlo tracks operational performance through multiple metrics and ongoing customer satisfaction surveys. Menlo provides individual Lean training to its employees and has implemented Bronze, Silver, Gold, and Platinum certification levels based upon specific rating criteria for its warehouse operations.

Nashville Warehouse Site Visit

Menlo has been operating in Nashville for over eight years. A primary customer for Menlo is one of the world's largest copier and office systems manufacturer's, for whom Menlo provides finished goods distribution and transportation management. The first service Menlo performed for this customer was a modeling exercise designed to optimize its U.S. distribution network. The result of this analysis, which Menlo then implemented, was to reduce the customer's overall costs and maintain its customer service levels by rationalizing the domestic network to three distribution centers from eight. After redesigning the network, Menlo began managing all three value-added warehousing operations. Its daily warehousing and distribution services include inventory management, processing orders for copiers, printers, and associated accessories and parts, returns processing, and transportation routing.

Top-Level Nashville, TN warehouse operation informational and metric tracking boards

In its Nashville, TN campus, Menlo operates a 256,000 square foot dedicated warehouse. The operation employs 48 people and runs in two shifts. Over 14,500 stock keeping units (SKUs) of products, accessories and parts are maintained in on-hand inventory and approximately 665 outbound orders are processed each day. Orders are shipped to over 2,000 end customers. The operation recently received Menlo's Silver Lean Management Certification and participated in 12 Kaizen events in 2008.

As part of the Lean operation, standard work instructions (SWIs) have been developed for all warehouse tasks such as slotting, picking, and replenishment. Warehouse picking is performed to meet carrier pick-up "cut" times.

To support the operation, Menlo has deployed its Provia warehouse management system (WMS). Menlo receives orders every hour from its customer into the WMS for picking. The WMS is fully integrated with radio frequency (RF) devices for coordinated putaway, picking, and overall inventory management.

From Menlo's Lean process improvements, the facility has reduced labor cost per unit by 18% and has realized a 20% improvement in units processed per hour.

Picking is done in waves using a straightforward

card system in conjunction with RF scanners.

Multi-colored "hats" are used to signify order processing status.

Summary

Through its Lean focus, Menlo is attracting new business and making significant process improvement gains that are reducing its customers' costs of doing business. Menlo seems to have found a very good business model in targeting high-tech, consumer and retail, heavy industrial, and manufacturing industry customers and developing strategic relationships. As Menlo continues its international expansion, we anticipate that it will leverage its domestic Lean approach in efficiently managing complex global supply chains.

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