Value at the point of production does not necessarily translate into value at the point of consumption. Likewise, Lean Six Sigma initiatives focused on the factory floor do not ensure that the end user is receiving that value. As a product moves through the distribution system there are many factors that can diminish its value.

The very economic factors that gave rise to the need for channel distribution systems have the propensity to compromise even the best manufacturing processes. This is especially true of multi-level distribution systems, complex systems comprised of multiple entities with individual management approaches, models and goals. These structures typically exhibit the symptoms of potentially dysfunctional behavior that can lessen the value of a product and slow its speed to market.

Symptoms of Too Many Handoffs

When a product is manufactured, transported to a dealer and then passed into the hands of an end user, each handoff represents a potential problem if the value delivery process is not coordinated or aligned. Products not delivered when promised, parts not available when needed, stock-outs, wrong assortments packaged, damaged parts delivered, insufficient warranty support, the list goes on. Improperly aligned value delivery processes tend to appear at the dealer and end user, diminishing the competitive value proposition for both the dealer and manufacturer. The symptoms reflect processes that are out of alignment or that have developed too many layers to be effective.

No Clear Value Stream Ownership

There is frequently no clear ownership of the processes that move products and information between entities within a distribution channel. Consider what could happen when an equipment dealer is contacted about a warranty problem. The first contact may occur with the dealer’s service representative, who passes the problem along to the designated manager at the dealership. Suspecting a technical malfunction, the manager attempts to contact the manufacturer’s technical support representative. Due to recent cost-containment activity, the support representative is currently handling a backlog of warranty problems.

The result is a customer caught in the middle with an unresolved warranty problem, because no one in the distribution chain has clear ownership of the entire warranty process. Since no individual entity owns the warranty process, the customer does not receive the promise of value that was originally designed into it.

Symptoms of Fiefdoms and Empires

Fiefdoms and empires exist in most organizations. Communication and product flow can get hung up in these sociological impediments. In these instances, some dealers may receive product or information while others do not. Information and product flows are not directed by their best economic return, but by some personal or non-economic rational.

Similarly, flows from dealer to manufacturer are also susceptible to impediment. Manufacturers may not receive the necessary information to change product design, improve product quality or speed up technical support. An insufficient product or information flow is the symptom of an underlying problem that Lean Six Sigma can uncover.

Lean Six Sigma Within Distribution Channel

There is little doubt that channels of distribution are potential gold mines for Lean Six Sigma initiatives, replete with the promise of enhancing competitive performance with strong economic returns. What are the requirements for reaping the returns of a successful Lean deployment? Here are some of the more critical ones:

• Enhance the relationship that exists between manufacturers and dealers – Recognize that both are partners with the goal of creating and delivering outstanding value to the end user. Lean Six Sigma deployments require cooperation, trust and a sense of partnering between the various distribution channel entities.
• Understand precise value – The ultimate determiner of value for both the manufacturer and the dealer is the end user. All channel systems must align in the most efficient and effective manner to provide this value. This definition of value obtained from the end user should direct focused process changes resulting from Lean Six Sigma initiatives.
• Map value streams across corporate boundaries – This requires a recognition that value creation and delivery require the cooperation and partnering of all distribution channel entities. Redesigning these value delivery systems requires the active participation of all members of the channel. Listening to the voice of the end user will provide an environment that is responsive to market definitions of value.
• Apply the appropriate metrics – The efficacy of a Lean value delivery system is found in changes in the organization’s competitive value proposition. Monitoring these changes is critical to any Lean Six Sigma deployment in this arena.

Manufacturers risk falling into the trap of reductionism by solely focusing on the factory floor. To avoid this trap, manufacturers must expand their understanding of the value creation and delivery system and let customer definitions of value drive their Lean initiatives.