Steve C. Cimorelli – Chapter Nineteen

Steve C. Cimorelli

CHAPTER NINETEEN:
Lean Six Sigma for a Leaner Supply Chain: A Focus on Analytical Tools

Overview

This chapter is intended for business leaders, managers, Six Sigma sponsors and project leaders who are interested in learning how to reduce costs and increase profits. Companies around the world are broadening their application of Six Sigma beyond the realms of quality and design to drive improvements in virtually every business function.

While the case study outlined below applies lean principles to the areas of supply chain, production and inventory management, the techniques employed are applicable to any business process. The Six Sigma methodology presented here contributed more than $100,000 in combined improvements and provides an excellent framework to describe the lean processes involved.

This chapter focuses on several keys to success in applying the Six Sigma DMAIC process through an inventory management case study. The focus is on the DMAIC process, allowing the reader to think through how to apply the process steps to their own opportunities.

This chapter will help you to:

  • Learn how to apply the DMAIC process
  • Rate and prioritize potential projects
  • Understand the benefits of using Creative Innovation tools
  • Consider projects in your own companies that lend themselves to rigorous Six Sigma analysis

The Role of Six Sigma in Problem Solving

Problem-solving methodologies can be thought of as running along a continuum, beginning with simple, gut-feel types of approaches, moving towards more data-based analytical methods. As business structures and problems become more complex, companies must begin to collect data, look for patterns and trends, and ultimately apply structured statistical tools to isolate problem sources and design solutions. These statistical tools are the realm of Six Sigma.

Figure 19-1: The DMAIC Process

DMAIC: Beginning with the End in Mind

The Six Sigma process seeks to improve processes by eliminating variation and defects, the opportunities for variation and defects in the process, and all non-value added activities. The DMAIC process begins with clearly defining the problem by way of a formula, called the ‘Ystatement,’ where the process output “Y” is a function of one or more inputs, or “Xn”:

Y = f(X1, X2, X3…Xn)

The DMAIC process is designed to provide a systematic method to reduce the number of key inputs down to a manageable set that have: a) a statistically significant impact on the process output, and b) a definable action plan. This “funneling effect” is illustrated in Figure 19-2.

Figure 19-2: The DMAIC Funneling Effect

Case Study

In applying the DMAIC process, a real-world case study is provided, with the company name and identifying details fictionalized to protect confidentiality. The company is a global automotive parts manufacturer that supplements its product line with branded products purchased from multiple suppliers. Service levels for these branded products, as measured by on-time delivery, are significantly below that of other products. The company believes that supplier minimum order quantities (MOQ) and long lead times are contributing to lower service levels resulting in higher Backorders and Cancelled Orders.

Historically, the company’s objective for Six Sigma projects has been to make a 50% improvement in the defined problem area. In this case, the team was challenged to make a 75% improvement through reduced backorders and cancelled orders, with an estimated combined cost savings and increased profits of $50,000. By the conclusion of the project, these goals were exceeded, reducing backorders and cancelled
orders by 80% and driving more than $100,000 to the bottom line.

“Define” Phase:

The company’s first step was to define the problem in the form of a Ystatement. The company saw the problem as poor on-time delivery of branded products. Company policy had been to limit inventory to no more than N months of supply. If the supplier’s MOQ exceeded this
value, they held customer orders until sufficient demand warranted placing an order and filling backorders upon receipt of the product.

This policy clearly contributed to poor on-time delivery (OTD). In the case of long-lead items, customers had to wait twice: first, while customer orders accumulated, and second, while the supplier’s lead time transpired. The company also believed long lead times exacerbated the situation. The company’s objective was to improve quality service on low-volume branded products with large MOQs, especially where those MOQ’s exceeded N months of average monthly usage.

The next step in the process is to develop a project charter, defining the business benefits and timeframe for project completion. Following are the key elements of the project charter for our example company.

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