Lean Warehouse Management Guide for SMEs

Lean warehouse management is a methodology that takes the lean principles widely used in manufacturing environments and applies them to warehousing. Putting an emphasis on removing waste, lean warehouse management helps companies optimize and continuously improve their inventory processes.

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Intro

With tremendous disruptions in manufacturing over the last few years, small and medium-sized enterprises (SME) feel pressure to manage their operations tightly. By controlling costs and optimizing processes, SMEs can better manage the effects of tariffs, trade wars, pandemics, and other events.

But what about warehouse management? While optimized manufacturing operations are great to have, the same practices that drive efficiency in production can be applied to warehouse management. And one great way to do this is through lean warehouse management.

What is Lean Warehouse Management?

Lean warehouse management is the application of the lean principles into warehousing environments. It aims to cut down on waste and improve the efficiency of inventory processes.

The Lean methodology grew out of the Toyota Management System envisioned by Kiichiro Toyoda. It consisted of several key components that included identifying value, mapping value streams, creating flow, establishing a “pull” system, and repeating the process to improve continuously.

These process improvements focused on types of waste, including:

  • Overproduction
  • Inventory
  • Unnecessary Motion
  • Defects
  • Over-Processing
  • Wait Time
  • Transportation

Focusing the closed loop on these types of waste creates an optimized system, which becomes the driving force for improvement. Lean then becomes part of the company culture and is a way of thinking about production.

With the success of Lean methodologies in production, many companies began using the tools and techniques of Lean in other areas to produce the same effect, drive out waste, and optimize any area to create more value.  

Today, lean thinking is used in many types of businesses outside of manufacturing, including retail management, public utilities and services, municipal management, and others. And it has also proven itself to be a handy tool in warehouse management. By applying the same methodologies to the same waste classes, warehouse management can realize benefits much like their production counterparts.

Applying Lean Tools to Warehouse Management

One of the most readily recognized tools of Lean is the 5S methodology. 

5S refers to:

  • Sort
  • Set in Order
  • Shine
  • Standardize
  • Sustain

This tool is used in a Lean conversion and throughout a Lean lifetime within manufacturing. Let’s look at how the 5S differs from manufacturing but still applies to warehouse management.

Sort

In manufacturing, sort means to sort pieces, parts, tools, and physical components for doing the job and placing them together. In warehouse management, sort is used to identify the necessary and unnecessary practices and resource use. This process helps team members identify bottlenecks and eliminate unnecessary processes while identifying those that should remain.

Set in Order

This works the same in warehouse management as it does in manufacturing. Having sorted processes into place, unnecessary ones are discarded while required processes remain. It may be possible to improve many of the necessary processes, remove redundant steps, automate steps, or change their task structure to speed them up and improve accuracy. In warehousing, this may include things such as:

  1. Improving accessibility to inventory and resources that are used most often.
  2. Re-imagining warehouse layout to improve transit and order picking tasks.
  3. Looking at the workflow in relation to staff proximity to reduce steps for employees.

Shine

Manufacturing long ago grasped the importance of housekeeping as an indicator of discipline in eliminating waste.  Warehouses are no different. Many of these warehouse organization steps are simple and should be done during the actions of picking. This housekeeping includes removing shrink-wrap, taking empty pallets to the staging area, replacing tape and packing supplies when empty, and breaking down and removing cartons. Not only do these things make a warehouse look bad, each one represents additional steps – or wasted motion in Lean – that employees must make to correct them, thus lowering labor efficiency.

Standardize

In manufacturing, after sort, set in place, and shine comes standardizing. The same applies to warehouse management. This harmonizing includes standardized labels, common packing formats, uniform tape lengths for carton closure, adherence to proper transit pathways, whether one-way or two-way. All of these can be standardized, and all will reduce wasted effort, time, and material.

Sustain

Lean in manufacturing sustains the changes and improvements through well-designed standard operating procedures (SOP).  The same is true for warehouse management. Warehouses can benefit from well-designed and effective SOPs for putting away stock, picking, packing, unloading, and loading trucks, and many more. Like manufacturing, standard work that describes how certain tasks should be performed can be created, and employees are trained to adhere to the best work practices.

Specific Benefits of Lean Warehouse Management

Regardless of the similarities, there are distinctions between warehouse management and production in its application of Lean. Because of this, some considerations are specific or need to be customized to apply to Lean warehouse management. The focus is still on waste and process improvement, however.

Data

Because inventory is extremely transactional, data should be input only once into the system. This is aided by the use of an MRP or ERP system with a strong inventory management component. Automating inventory data to where it is only handled once means that reconciliation, adjustments, and other maintenance functions are less frequent, giving the system high-quality data that can be accessed by MRP and ERP systems with confidence.

Storage Management

Another case for automation to include in inventory management is to take advantage of storage management. With data in manufacturing being at or near real-time, inventory needs to keep up with this capability. This means optimized picking strategies suggested by computer insights and real-time inventory to Work-in-Process inventory (WIP) availability.

Vendor Management

Lean methodology in warehouse management includes standardization.  This means that vendors should be tasked with creating standard labels that can be read with bar code readers, scanners, and other automation equipment the facility uses.  

Order Management

Because automation is key to Lean warehouse management, orders for materials, staging, pick requests, etc., will be able to keep pace with the real-time data flow of manufacturing “pull” requests from inventory. Because it is automated, this data is also easily used in a perpetual inventory system, so purchasing, logistics, and other supply chain function decisions are made using real-time data and insights.

Improved Visibility

Many manufacturing companies operate with seasonal fluctuations.  Lean warehouse management best practices can help deal with the highs and lows of seasonality because processes are standardized. It allows managers and decision-makers to know when to add more labor or when to back off because seasonal issues are handled the same across higher and lower demand cycles.

Holding Costs

Unlike manufacturing, warehousing and inventory fluctuate in the need for space. Lean practices enabled by automation can be used to develop optimized picking and kitting strategies. It can also help prevent overstocking and the need to take on expensive additional space.

How Lean Warehouse Management Helps SMEs

Most SMEs do not have the depth of resources of large-scale enterprises and multinational manufacturers. This means that they must be able to optimize the resources they have at their disposal. 

Lean warehouse management in SMEs can provide benefits such as:

  • Lower Cost
  • Better Labor Utilization
  • Improved Accuracy
  • Fewer Administrative Tasks

Of course, the key to realizing these benefits is robust ERP/MRP software that includes powerful inventory capabilities. This allows SMEs to focus on core tasks with fewer resources and less time devoted to warehouse management. It also means less waste in their inventory management across all waste categories – making Lean warehouse management for SMEs a valuable choice.

Key takeaways

  • The lean methodology consists of several key components that include identifying value, mapping value streams, creating flow, establishing a “pull” system, and repeating the process to improve continuously.
  • This closed loop is then focused on eliminating waste such as overproduction, excess inventory, unnecessary motion, defects, over-processing, wait time, and transportation.
  • One of the best toolsets to use for lean warehouse management is the 5S: Sort, Set in Order, Shine, Standardize, and Sustain.
  • Sort is used to identify the necessary and unnecessary practices and resource use. This process helps team members identify bottlenecks and eliminate unnecessary processes while determining those that should remain.
  • Having sorted the processes, Set in Order in used to improve many of the necessary processes, remove redundant steps, automate steps, or change their task structure to speed them up and improve accuracy.
  • Shine is used to keep the facility clean by including housekeeping steps into the picking process, i.e. having pickers remove shrink-wrap, take back empty pellets, discard the cardboard, etc.
  • Standardizing includes standard labels, common packing formats, uniform tape lengths for carton closure, adherence to proper transit pathways, whether one-way or two-way. All of this will reduce wasted effort, time, and material.
  • Sustain means adhering to the standard procedures put in place. Warehouses can benefit from well-designed and effective SOPs for putting away stock, picking, packing, unloading and loading trucks, etc.
  • Applied to warehouse management, lean can provide benefits such as lower costs, better labor utilization, improved accuracy, and reduction of administrative tasks.
  • The key to realizing the advantages of lean warehouse management is ERP/MRP software with great inventory management capabilities.

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