Lean Sigma in Logistics

Lean Sigma in Logistics

It may seem unrealistic to expect that any company can both manufacture a product with Six Sigma efficiency (99.9997%), and then also distribute it as quickly as possible with Six Sigma efficiency. It is definitely possible as countless successful companies have proven with streamlined logistics departments. In today’s global market, it is not enough to offer a quality product; in fact, that product needs to quickly and efficiently reach the consumer with as little error as possible to achieve maximum customer satisfaction and profit. This is accomplished by implementing the Six Sigma Methodology during logistical planning. Implementing the Six Sigma process during every process that takes your product from point of origin to point of consumption can eliminate waste, decrease lead time, increase supply chain flow, decrease the cost of inventory, and decrease variation in shipping. This will result in a near perfect logistics plan for your business.

Assessing performance and analyzing the data to make sure that near perfect flow has both been achieved and is being maintained are critical to the overall success of Six Sigma in Logistics. Once a process has been perfected with Six Sigma Methods, there are safeguards as well as checks and balances put into place to ensure that this efficiency continues through the life of that logistical process. Defects mean cost, and the more defects there are within the entire supply chain, the more they will affect a company’s overall profits

Six Sigma is a methodology that utilizes statistical tools and concepts to identify variations or defects in a process. Although the roots of the Six Sigma Process are in the Manufacturing sector of business, once a product is manufactured, it must also reach its final destination for a company to be profitable. That final destination is the customer or consumer, and this process of flow from a product’s point of origin to point of consumption is called Business Logistics. Today’s consumers expect products to arrive so swiftly, that any delay can cause disappointment before the product even arrives. The main goals of the Six Sigma process are to find, diagnose, and fix errors or defects, wherever they may exist in the supply chain, including the complex logistics processes. Six Sigma experts look at each phase of the supply chain to determine where the defects are coming from and how they could be reversed, leading to a sustainable 6 sigma level of perfection, or only 3.4 defects per million opportunities. This increases customer satisfaction and bottom-line profit, both necessary measures of success for any company.  

DMAIC or Define-Measure-Analyze-Improve- Control is one such method, devised for seamless assimilation of the Six-Sigma approach to logistics. It overhauls and improves the entire internal logistical process and ensures reduction of defects. It also reduces the mean route time and the route time variability.

Variation reduction and logistics

In any business that involves logistics, variation reduction is an important concept. Logistics is all about managing inventory and this depends heavily on managing variance. Typically, the variance is managed through hedging inventories or keeping “buffer stocks”- so as to counter for the unknowns.

It is imperative to maintain a safety stock to cover for variances in transportation reliability, supplier quality, customer demand patterns and manufacturing process capability. This dependency on buffer stock can be reduced to a great extent if it is possible to understand and control the variation in the entire process flow from the supplier to the customer. Variances in production or control and variances in outbound and inbound logistics may lead to a stoppage in production, which may, in turn, lead to loss of organizational credibility and customer loyalty.

Application of DMAIC in logistics

DMAIC can be termed as a backbone process applied in Six Sigma to ensure all-round improvement. DMAIC stands for Define, Measure, Analyze, Improve, and Control and consists of five stages, as the name suggests. It provides a way or roadmap towards achieving Six Sigma in logistics.

We will describe these stages in brief here-

The define phase â€“

This phase comprises-

·        Defining the problem through a precise problem statement

·        Defining the business goal through a goal statement

·        Defining the process through designing the maps of the entire process

·        Defining the customers and their specific requirements

The problem statement may include things such as error percentage or the number of delayed orders last month and their impact on the business, the units and departments involved etc.

The goal statement will be a result of the problem statement. As for example, if the delay happened in 10 % of the orders last month, the goal should be to reduce it down to 5 % over a specific period of time. Thus, the goal statement needs to be time bound and measurable.

A high-level process orientation or process map is designed in the process definition. A tool named SIPOC (Suppliers, Inputs, Process, Outputs and Customers) is used for this purpose.

The customer is the very focus of any project or process. It can be an external as well as an internal component of the organization. During their operations in the define phase, the team must take opinions from their customers in order to better understand their requirements.

The measured phase

A precise definition of the problem will make tasks easier in the measurement phase. The aim of this phase is to determine and measure how the process is actually performing. For example, if improving the reliability of delivery is the problem statement for a DMAIC logistics project, then ‘transit time’ may be a primary measuring unit for it. The average transit time and the variance around it will be measured in this case. Cost, time and quality will be other common areas of measurement. But those measures, that are proved to be easily measured, quantifiable, reliable and robust – will be considered the best among them. These measures will be prioritized as per their perceived importance.

Proper care should be taken in this phase so that the wrong things are not measured, or right things are not measured in the wrong way. It is also necessary to set up the measurement process which allows monitoring of the process as per the set objectives of the previous phase. Proper care should be taken to ensure that the data collected is reliable and accurate.

The Analyse phase

The objective of this phase is to identify the root cause of the problem and also to identify the cause and effect relationship (how the independent variables affect the dependent variable). This phase is critical to a logistics process as it can identify the issues that can lead to unwanted costs, reducing margins and dissatisfied customers. The data collected in the previous phase is reviewed in this phase and additional information, if any, is included. Both the process and the data are then analyzed to verify the root causes of defects and waste. Then, the data is presented using statistical tools.

The Analyze phase consists of –

Time analysis– This analysis compares the time of actual work done to the time spent in waiting.

Value-added analysis– This looks at the process from the point of view of customers to ascertain the cost of the business.

Value stream mapping– This combines the findings of the value-added analysis stage with the process data to determine where to remove the waste from. Teams resort to structured brainstorming to find out the causes. They use a tool named “the cause and effect diagram “to find out vital causes of defects, lost time and wastes.

By using another tool, the Design of Experiments, a logistician can examine the variance in the reliability of delivery by controlling the associated factors with shipments. These factors may include the methods in which shipments are dispatched, tendered and scheduled; methods how orders are prepared, loaded and staged physically; how deliveries are fulfilled by the carriers and drivers, weather conditions, time of delivery and pick up and documentation related to the shipment. Details related to the potential for improvement are also studied.

The improve phase

 The objective of this phase is to find and implement the solutions to eradicate the causes of problems recognized in the previous phase. This prevents the reoccurrence and reduces the observed variability in the process.

Lean Six Sigma is an effective tool to make effective changes in a logistics process, which can be really challenging for an organization. It is based on a disciplined approach towards developing a culture that facilitates improvement. It allows choosing a few of the best possible solutions from a plethora of solutions available for the same problem. It ensures that the right decision is made in this regard so that the identified solution does not involve large investment or implementation cost. These solutions should also be tested thoroughly, and their efficacy should be checked before they are cleared for implementation.

To carry out this entire decision-making process, the team can take help of mini testing cycles called the “Plan, Do, Check, Act“ or PDCA. This will help them to chalk out and refine the ideas while going through the process of collecting stakeholder feedback.

The Control Phase

The improvements implemented in the previous phase are controlled in this phase through a sustained effort. Here, actions are defined to ensure that the process is under continuous monitoring and the key variables are within the specified limits. As a part of this, workers are trained to get adjusted to the new measures and changes.

This phase also focuses on the corrective actions to be taken when the project is affected by the environmental forces.