Martin James LSSL SC

Lean Six Sigma
for Supply Chain

Management
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Lean Six Sigma
for Supply Chain
Management
A 10-Step Solution Process
Second Edition
James W. Martin
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About the Author
James William Martin is president of Six Sigma Integration, Inc., a Lean Six
Sigma consulting firm located in the Boston area and the author of the books
entitled Unexpected Consequences: Why the Things We Trust Fail, Measuring
and Improving Performance: Information Technology Applications in Lean
Systems, Lean Six Sigma for the Office, and Operational Excellence: Using Lean
Six Sigma to Translate Customer Value Through Global Supply Chains. As a Lean
Six Sigma consultant and master black belt for 19 years, Mr. Martin has trained
and mentored more than 3,000 executives, deployment champions, master
black belts, black belts, green belts, and Lean practitioners in Lean Six Sigma
methods, including design excellence as well as supply chain applications.
As part of this consulting work, Mr. Martin led successful Lean Six
Sigma assessments and deployments across Japan, China, Korea, Singapore,
Malaysia, Thailand, Australia, North America, and Europe. This work
included organizations in retail sales, residential and commercial service,
banking, insurance, financial services, measurement systems, aerospace
component manufacturing, electronic manufacturing, controls, building
products, industrial equipment, and consumer products. He coached the
various belts to execute projects, facilitated Lean simulations and kaizen
workouts across global business enterprises, delivered significant financial
returns for organizations, created dashboards to quantify key cost elements
and communicate trends and goals for improvements, created and managed
master black belt certification programs, and executed improvements in
total customer experience (TCE), voice of customer (VOC), loyalty metrics,
and net promoter scores (NPS).
Mr. Martin’s current work is focused on big-data analytics, cloud com-
puting, and security applications in Lean Six Sigma. Mr. Martin served as
an instructor at the Providence College Graduate School of Business for 20
years, instructing courses in operations research, operations management,
and economic forecasting, as well as related quantitative subjects, and coun-
seled MBA candidates from government organizations and leading corpo-
rations. He holds an M.S. in mechanical engineering from Northeastern
University, an MBA from Providence College, and a B.S. in industrial engi-
neering from the University of Rhode Island, as well as several certifications.
He also holds several patents and has written numerous articles on quality
and process improvement.
Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xix
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxix
CHAPTER 1 sing Lean Six Sigma Methods to Identify

U
and Manage Supply Chain Projects . . . . . . . . . . . . . . . . . 1
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Executive Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Voice-of-the-Customer (VOC) . . . . . . . . . . . . . . . . . . . . . . 3
Market Segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Obtaining VOC Information . . . . . . . . . . . . . . . . . . . . 8
Analyzing VOC Information . . . . . . . . . . . . . . . . . . . 10
Identifying Performance Gaps and Projects . . . . . . 13
The 10-Step Solution Process . . . . . . . . . . . . . . . . . . . . . . . 14
Understanding How Your Process Works . . . . . . . . . . . . 16
Strategic Project Execution in the 10-Step Solution
Process (Steps 1 Through 3) . . . . . . . . . . . . . . . . . . . . . 18
Strategic Project Selection . . . . . . . . . . . . . . . . . . . . . . . . . 20
Lean Six Sigma Operational Assessments . . . . . . . . . . . . 24
Executive Training Sessions . . . . . . . . . . . . . . . . . . . . 24
Champion Training . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Conducting Operational Assessments . . . . . . . . . . . . 28
Local Leadership Interviews . . . . . . . . . . . . . . . . . . . . 29
Lean Six Sigma Black Belt Training . . . . . . . . . . . . . 30
Lean Six Sigma Green Belt Training . . . . . . . . . . . . . 31
Master Black Belt Training . . . . . . . . . . . . . . . . . . . . . 32
Design for Six Sigma (DFSS) Training . . . . . . . . . . . 32
Building the Project Charter . . . . . . . . . . . . . . . . . . . . . . . 33
Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
vii
viii | Contents
Project Problem Statement . . . . . . . . . . . . . . . . . . . . . 34

Project Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Required Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Project Financial Justification . . . . . . . . . . . . . . . . . . 36
Project Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Project Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . 40
Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Fundamentals of Project Management . . . . . . . . . . . 42
Selecting the Team . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Work Breakdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Communicating Project Status . . . . . . . . . . . . . . . . . 45
Identifying Lean Six Sigma Projects . . . . . . . . . . . . . . . . 46
A3 Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
CHAPTER 2 eploying Lean Six Sigma Projects

D
Using Lean Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Lean Six Sigma Project Alignment . . . . . . . . . . . . . . . . . . 51
S&OP Control of Lean Six Sigma Projects . . . . . . . . . . . . 53
Lean Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Performance Measurements . . . . . . . . . . . . . . . . . . . 57
JIT/Stable System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Total Productive Maintenance . . . . . . . . . . . . . . . . . . 60
SMED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Standardized Work . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Mistake-Proofing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
High Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Visual Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Container Size (Packaging) . . . . . . . . . . . . . . . . . . . . 68
Supplier Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Rapid Improvement Using Kaizen Events . . . . . . . . . . . . 69
Enterprise-Wide Kaizen Events . . . . . . . . . . . . . . . . . 70
Kaizen Applications . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Lean E-Supply Integration . . . . . . . . . . . . . . . . . . . . . . . . . 73
E-Supply Applications . . . . . . . . . . . . . . . . . . . . . . . . . 74
Contents | ix
Order-Entry Example . . . . . . . . . . . . . . . . . . . . . . . . . 76
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
CHAPTER 3 emand-Management Impact on

D
Lean Six Sigma Projects . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Demand-Management Overview . . . . . . . . . . . . . . . . . . . 81
Sales and Operations Planning (S&OP) . . . . . . . . . . . . . . 82
Demand Aggregation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Forecasted Demand . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Forecasting System . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Forecasting-System Objectives . . . . . . . . . . . . . . . . . . 89
Forecast-Modeling Capabilities . . . . . . . . . . . . . . . . . 91
Forecasting at Which Level? . . . . . . . . . . . . . . . . . . . . 93
Potential Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Developing a Consensus Forecast . . . . . . . . . . . . . . . . . . . 95
Master Production Schedule (MPS) . . . . . . . . . . . . . . . . . 97
Estimating Customer Demand . . . . . . . . . . . . . . . . . . . . . 99
Product Forecasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Creating Sales Forecasts . . . . . . . . . . . . . . . . . . . . . . 105
Quantitative Forecasts . . . . . . . . . . . . . . . . . . . . . . . 108
Time-Series Models (Exponential Smoothing) . . . . 108
Simple-Plot/Monthly Sales . . . . . . . . . . . . . . . . . . . . 109
Measuring Forecasting Error . . . . . . . . . . . . . . . . . . . . . . 111
Forecasting Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Impact of New-Product Forecasts . . . . . . . . . . . . . . . . . . 113
Lean Six Sigma Forecasting Applications . . . . . . . . . . . . 115
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
CHAPTER 4 Lead-Time Impact on Lean Six Sigma Projects . . . . . 119

Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Why Reducing Lead Time Is Important . . . . . . . . . . . . . 120
Lead-Time Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Value-Flow Mapping . . . . . . . . . . . . . . . . . . . . . . . . 126
Managing Bottlenecks . . . . . . . . . . . . . . . . . . . . . . . . 130
Mixed-Model Operations . . . . . . . . . . . . . . . . . . . . . 132
x | Contents
Transfer Batches . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Integration of Lean Tools and Methods . . . . . . . . . 133
Reducing Lead Time (Example) . . . . . . . . . . . . . . . . . . . 136
Takt-Time/Resource Calculation . . . . . . . . . . . . . . . 137
Implementing Process Improvements . . . . . . . . . . . 139
Maintaining Excess Capacity . . . . . . . . . . . . . . . . . . 140
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
CHAPTER 5 ean Six Sigma Applications to Manufacturing

L
Resource Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Manufacturing Resource Planning . . . . . . . . . . . . . . . . 143
MRP High-Level Functions . . . . . . . . . . . . . . . . . . . . . . . 146
Capacity Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Increasing Capacity . . . . . . . . . . . . . . . . . . . . . . . . . 151
MRP-Specific Functions . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Bill-of-Materials (BOM) File . . . . . . . . . . . . . . . . . 153
Production-Activity Control (PAC) . . . . . . . . . . . . . 154
Scheduling Techniques . . . . . . . . . . . . . . . . . . . . . . . 155
What Is Kanban? . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Reorder Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Hybrid MRP Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Lean Six Sigma MRP Applications . . . . . . . . . . . . . . . . . 161
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
CHAPTER 6 I dentifying Lean Six Sigma Projects Using

Inventory Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Inventory Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Types of Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 166
Measuring Inventory Quantities and Errors . . . . . 167
Physical Control of Assets . . . . . . . . . . . . . . . . . . . . . 168
Cost-Flow Assumptions . . . . . . . . . . . . . . . . . . . . . . 169
Fraudulent Valuation of Inventory Assets . . . . . . . 169
Building System Models . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Contents | xi
System Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Data Collection and Analysis . . . . . . . . . . . . . . . . . 172
Building a Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Analyzing Model Outputs . . . . . . . . . . . . . . . . . . . . 173
Inventory Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Perpetual-Inventory Model
(Fixed-Order-Quantity Model) . . . . . . . . . . . . . . . . . 176
How Do We Create the PIM? . . . . . . . . . . . . . . . . . 177
Other Types of Inventory Models . . . . . . . . . . . . . . . 181
Miscellaneous Inventory Topics . . . . . . . . . . . . . . . . . . . 183
Excess/Obsolete (E&O) Inventory . . . . . . . . . . . . . . 184
Product Complexity/Proliferation . . . . . . . . . . . . . . 186
Lean Six Sigma Inventory Applications . . . . . . . . . . . . . 187
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
CHAPTER 7 Lean Supply Chains and Third-Party Logistics . . . . . 189

Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Lean Supply Chain Overview . . . . . . . . . . . . . . . . . . . . . 189
Distribution Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Receipt of Customer Orders . . . . . . . . . . . . . . . . . . . . . . . 198
Call-Center Operations . . . . . . . . . . . . . . . . . . . . . . 199
Electronic Data Interchange (EDI) . . . . . . . . . . . . . 203
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Carrier Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Fleet Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
Warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Receiving and Shipping Operations . . . . . . . . . . . . . 207
Warehousing Operations . . . . . . . . . . . . . . . . . . . . . 208
Facility Maintenance . . . . . . . . . . . . . . . . . . . . . . . . 209
Distribution-Inventory Management . . . . . . . . . . . . . . 210
System Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
Kits and Assemblies . . . . . . . . . . . . . . . . . . . . . . . . . 212
Consignment Inventory . . . . . . . . . . . . . . . . . . . . . . 212
Cycle Counting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Import and Export Operations . . . . . . . . . . . . . . . . 216
Third-Party Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
xii | Contents
Outsourcing Operations to Improve Quality . . . . . 217

Integrating Third-Party Providers into
Lean Six Sigma . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
Reverse Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Food and Commodity Supply Chains . . . . . . . . . . . . . . 221
Difference Between Value-Flow and
Value-Steam Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
CHAPTER 8 oot-Cause Analysis Using Six Sigma Tools

R
(with Operations Research Methods) . . . . . . . . . . . . . 227
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Root-Cause Analysis Using the 10-Step
Solution Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Project Alignment (Review of Steps 1 Through 3) . . 228
Prove Causal Effects (Step 4) . . . . . . . . . . . . . . . . . . 229
Distribution Call Center Example . . . . . . . . . . . . . 276
Big-Data Analytics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284
What Is Big Data? . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
Data Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
Big-Data Applications for Supply Chain
Improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
CHAPTER 9 Lean Six Sigma Improvement and Control . . . . . . . . 293

Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
Control Strategies (Steps 5 Through 10) . . . . . . . . . . . . 293
Reviewing Solutions . . . . . . . . . . . . . . . . . . . . . . . . . 294
Process-Control Strategies . . . . . . . . . . . . . . . . . . . . 294
Cost-Benefit Analysis . . . . . . . . . . . . . . . . . . . . . . . . 302
Piloting the Solution . . . . . . . . . . . . . . . . . . . . . . . . . 302
Implementing the Solution . . . . . . . . . . . . . . . . . . . . 304
Development of the Control Strategy . . . . . . . . . . . . . . . 310
Control Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311
Integration of Other Initiatives . . . . . . . . . . . . . . . . 313
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314
Contents | xiii
CHAPTER 10 Supply Chain Design for Excellence . . . . . . . . . . . . . . 315

Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
History of Design for Six Sigma for
Supply Chain Operations . . . . . . . . . . . . . . . . . . . . . . . 316
What Is It? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318
Why Use It? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
Define Phase: Tools and Methods . . . . . . . . . . . . . . . . . . 324
Kano Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
Previous DMAIC Tools and Methods
for Define . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
Measure Phase: Tools and Methods . . . . . . . . . . . . . . . . 330
Requirements Translation . . . . . . . . . . . . . . . . . . . . 330
QFD: The House of Quality . . . . . . . . . . . . . . . . . . . 331
Benchmarking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332
Axiomatic Design . . . . . . . . . . . . . . . . . . . . . . . . . . . 334
Reliability Analysis, MTBF Calculation,
Life Testing, Failure Reporting . . . . . . . . . . . . . . 336
Simplification Tools and Value Analysis . . . . . . . . . 336
Innovative Solution Methods . . . . . . . . . . . . . . . . . . 337
TRIZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
Analyze Phase: Tools and Methods . . . . . . . . . . . . . . . . . 340
Creating Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
Generate Concepts/Pugh Matrix/Select
Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
for Analyze Phase . . . . . . . . . . . . . . . . . . . . . . . . . 343
Design Phase: Tools and Methods . . . . . . . . . . . . . . . . . 343
for Design Phase . . . . . . . . . . . . . . . . . . . . . . . . . . 344
Verify Phase: Tools and Methods . . . . . . . . . . . . . . . . . . 345
Pilot and Proof of Concept . . . . . . . . . . . . . . . . . . . . 346
for Verify Phase . . . . . . . . . . . . . . . . . . . . . . . . . . 346
Applications for Supply Design . . . . . . . . . . . . . . . . . . . . 347
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
xiv | Contents
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
Managing Organizational Change for Lean
Six Sigma Deployments . . . . . . . . . . . . . . . . . . . . . . . . 356
The Lean Six Sigma Maturity Model . . . . . . . . . . . . . . . . 357
Phase 1: Initial Launch . . . . . . . . . . . . . . . . . . . . . . . 357
Phase 2: Early Success . . . . . . . . . . . . . . . . . . . . . . . . 358
Phase 3: Widespread Adoption . . . . . . . . . . . . . . . . 359
Phase 4: Culture Transformation . . . . . . . . . . . . . . 359
New Trends for Supply Chain Improvement . . . . . . . . . 360
Cloud Computing and Supply Chain
Virtualization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
Supply Chain Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
Supply Chain Sustainability . . . . . . . . . . . . . . . . . . . . . . 363
Carbon Footprint . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
e-Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
Climate-Change Impact . . . . . . . . . . . . . . . . . . . . . . 365
Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . 366
Conflict Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
Final Thoughts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
APPENDIX Important Supply Chain Metrics . . . . . . . . . . . . . . . . . 369

Twelve Key Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369
1. Inventory Investment . . . . . . . . . . . . . . . . . . . . . . 369
2. Profit-and-Loss Expense . . . . . . . . . . . . . . . . . . . 370
3. Inventory Efficiency (Turns Ratio) . . . . . . . . . . . 370
4. On-Time Supplier Delivery . . . . . . . . . . . . . . . . . 371
5. Forecasting Accuracy . . . . . . . . . . . . . . . . . . . . . . 372
6. Lead Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
7. Unplanned Orders . . . . . . . . . . . . . . . . . . . . . . . . 373
8. Schedule Changes . . . . . . . . . . . . . . . . . . . . . . . . . 374
9. Overdue-Order Backlogs . . . . . . . . . . . . . . . . . . . 374
10. Data Accuracy . . . . . . . . . . . . . . . . . . . . . . . . . . . 375
11. Material Availability . . . . . . . . . . . . . . . . . . . . . 376
Contents | xv
12. Excess/Obsolete Inventory . . . . . . . . . . . . . . . . 376

Additional Lean Supply Chain Metrics . . . . . . . . . . . . . 377
13. Customer Service Target . . . . . . . . . . . . . . . . . . 377
14. Net Operating Profit after Taxes . . . . . . . . . . . 378
15. Asset Efficiency (Turns) = Sales/Assets . . . . . . . 378
16. Fixed-Asset Efficiency (Turns) =
Sales/(Average Property + Plant +
Equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379
17. Receivables Efficiency (Turns) =
Net Credit Sales/Average Accounts
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379
18. Gross Profit Margin = Gross Profit/Sales . . . . . 380
19. Return on Assets (ROA) =
Net Profit Margin × Asset Efficiency . . . . . . . . . 380
20. Gross-Margin Return on Investment
(GMROI) = Gross Margin/Average Inventory
Investment at Cost . . . . . . . . . . . . . . . . . . . . . . . . 380
21. Energy Use per Employee . . . . . . . . . . . . . . . . . . 381
22. Waste per Employee . . . . . . . . . . . . . . . . . . . . . . 381
23. CO2 per Employee . . . . . . . . . . . . . . . . . . . . . . . . 381
24. Net Promoter Score (NPS) . . . . . . . . . . . . . . . . . 382
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
Preface
Nineteen years ago, I began my Lean Six Sigma career as a black belt (BB)
and later became a master black belt (MBB) at Honeywell (at that time,
it was AlliedSignal). Project assignments were in finance, sales, market-
ing, purchasing, materials planning, and logistics. Later, I began a second
career as a consultant. I found many Lean Six Sigma applications within
the supply chain. But the Lean Six Sigma training was always conducted
by generalists and from a manufacturing perspective. In my opinion, basic
supply chain theory and methods remain on the “outside” of Lean Six
Sigma training. The training continues to focus on manufacturing applica-
tions. Lean topics are often thrown into the training to cover some supply
chain applications. This book has been written to help master black belts
(MBBs) and other belts, champions, and team members to understand
Lean Six Sigma supply chain concepts and applications. The book includes
practical tips for the identification and analysis of Lean Six Sigma projects
to improve supply chain performance. In fact, an important goal of this
book is to enable someone with little knowledge of supply chain concepts
to quickly “come up to speed” on both Lean Six Sigma and key supply
chain concepts.
xvii
Introduction
There have been dramatic developments in supply chain improvement

methods since the original publication of Lean Six Sigma for Supply Chain
Management in 2006. These include the widespread adoption of enter-
prise kaizen events (i.e., continuous-improvement meetings with large
virtual teams), big-data analytics (i.e., data-mining methods applied to
e-commerce, operations, and other areas), and the use of customer loy-
alty metrics, including the net promoter score (NPS) and design for excel-
lence as well as security and sustainability. The second edition of this book
incorporates these new topics into its 10 chapters. Additional examples
are also included to ensure that this book remains a useful resource for
supply chain and process-improvement professionals.
The goal of the first edition was to help readers understand how a sup-
ply chain works from the perspective of process improvement using Lean
and Six Sigma methods. It presented quantitative tools and methods not
found in Lean or Six Sigma training but considered basic for supply chain
analysis. Examples included demand management (e.g., forecasting mod-
els), lead-time reduction, inventory basics, and system modeling. Many
supply chain problems are best solved using operations research (OR) tools
and methods. This second edition preserves these attributes.
This second edition contains from 10 to 20 percent newer informa-
tion than the first edition. Supplemental information, including the origi-
nal Chapter 10 inventory model with its Excel templates, is now available
for download from McGraw-Hill’s website (www.mhprofessional.com/
LSSSCM2). There are templates. Readers of the first edition have made
suggestions for improvement over the past several years. These include
clarifications to enhance readability. These have been integrated through-
out this second edition.
This book is the culmination of more than 19 years of successful
Lean Six Sigma consulting and training work focused on improving sup-
ply chain performance. This consulting was performed through graduate
classes and on-site corporate workshops, projects, applications, and oper-
xix
xx | Introduction
ational assessments of work streams within diverse supply chains. Cross-

functional business unit teams were often brought together to analyze
key supply chain metrics, identify root causes for poor performance, and
implement process improvements using a 10-step solution process. This is
based on Lean Six Sigma, operations management (OM), and OR tools and
methods. This work demonstrated the need for a book to help Lean Six
Sigma belts analyze supply chain work streams and inventory systems to
identify and implement Lean Six Sigma improvement projects. This book
brings together these useful tools and methods for supply chain analysis
and optimization in one place for the first time.
Bringing diverse topics and metrics together to understand interre-
lationships and supply chain performance requires quantitative tools and
methods not found in Lean and Six Sigma training. These tools and meth-
ods are basic for supply chain analysis. They can be found within the fields
of OM and OR.
Others are from Lean and Six Sigma methods and other fields such as
demand management. Their full analytical potential has not been realized
because most belts are not familiar with supply chain systems, inventory
basics, or system modeling. For example, some supply chain problems are
best solved using methods that model dynamic changes of systems.
The correct analytical tools and methods for solutions in an improve-
ment project should be based on root-cause analysis. We should avoid sit-
uations that force an analysis in a wrong direction. Using ineffective tools
and methods results in nonoptimal solutions. The approach shown herein
will enable improvement teams to create supply chain models to continu-
ously improve customer, financial, and internal operational metrics most
effectively.
This second edition has several other goals. The first is to expose peo-
ple new to the field of supply chain management or Lean Six Sigma princi-
ples to practical supply chain terminology and methods. The second is to
provide readers with tools and methods that are useful to manage demand,
lead-time, and related activities within supply chains to accelerate the
deployment and execution of Lean Six Sigma projects. The third goal, for
those more advanced in supply chain concepts, is to demonstrate the use of
inventory models to understand relationships between process inputs, that
is, “X”s such as lead time, demand, and service levels, and their impacts on
key process outputs, that is, “Y”s such as cash flow, profitability, inventory
Introduction | xxi
investment, and inventory turns. This is the Lean Six Sigma relationship,
Y = f(X), as it applies specifically to supply chain improvement.
The fourth goal is to facilitate identification of aligned Lean Six Sigma
projects to improve key supply chain metrics. These metrics are listed
in Figure 1.2 and defined in the Appendix. For example, almost every
chapter contains examples of aligned Lean Six Sigma project applications
across major supply chain functions. The fifth goal, once we have a firm
understanding of current customer, financial, and internal operational
performance, is development of feasible improvement targets based on
internal or external benchmarks. The sixth goal is to introduce useful
project-management methods. These will help to properly execute
improvement projects.
Understanding customer requirements through voice-of-the-customer
(VOC) translation is a major focus of a Lean Six Sigma initiative. In Chapter
1, this discussion has been expanded to include customer experience map-
ping, loyalty metrics, and the net promoter score (NPS). Using the Y = f(X)
approach to process analysis, at an internal operational level, VOC require-
ments are classified into high-level categories of quality, cycle time, and
cost to form a basis for customer value. The categories form the basis for a
critical-to (CT) flow-down analysis, for example, critical to quality (CTQ),
critical to time (CTT), critical to cost (CTC), critical to delivery (CTD), and
critical to safety (CTS), to name a few.
Working backwards from specific customer metrics, that is, the Y,
identified using market research methods including market segmentation,
Lean Six Sigma improvement projects are identified for assignment and
execution. These projects translate CT metrics into the internal organi-
zational metrics. The objective is to translate, in an aligned manner, VOC
requirements from a high-level strategic perspective to a lower level to
identify performance gaps and projects to close them.
The objective of an improvement project is to move a process onto its
metric target (accuracy) with minimum variation (precision) over time.
Effective project execution is accomplished through analysis and identifi-
cation of the root causes for poor performance. The 10-step solution pro-
cess, shown in Table 1.3 and Figure 1.8, contain sequential activities that
will move a process toward its design intent, that is, its entitlement. The
entitlement performance is based on process design. Higher levels of per-
formance are not possible without a redesign of a process.
xxii | Introduction
The 10 steps correspond to the Lean Six Sigma define-measure-

analyze-improve-control (DMAIC) methodology, but they have been mod-
ified to be most applicable to supply chain improvement. That is, they pro-
vide more emphasis on relevant supply chain tools and methods.
This methodical approach ensures effective execution of strategy. It
also ensures that tactical objectives are consistently met. This enhances
an organization’s ability to achieve and sustain excellent supply chain per-
formance through breakthrough improvement. The philosophy underly-
ing the problem-solving methodology is that variations in process inputs
cause variations in outputs. These variations lower operational capability
and customer satisfaction. This is often abbreviated as the DMAIC equa-
tion, that is, Y = f(X). The goal is to increase process capability from the
customer’s perspective. This is achieved using several methods to be dis-
cussed, including a formal capability analysis. A process with less variation
will produce fewer defects than one that has significantly higher variation.
After a justification has been made to improve process capability
through baseline analysis of key metrics, Lean Six Sigma tools and methods
are used to identify the root causes for process breakdowns that contribute
to poor capability. Solutions, also called improvements or countermeasures,
are created to eliminate root causes. Controls are applied to integrate and
sustain the solutions. Although a hierarchy of control strategies is used to
ensure that process improvements are sustained, the specific combinations
of control tools and methods vary by project and root-cause analysis.
An effective transition of a project to the local process owner and
work team is a final step for project execution. Effective project transition
implies that the work team has the necessary training and tools to ensure
that process controls are effective over time. Integration of numerous Lean
Six Sigma projects across a supply chain facilitates continuous improve-
ment and higher customer satisfaction.
Inventory analysis and control are also important competencies that
identify supply chain operational breakdowns. Inventory investment,
inventory turns ratio, and similar metrics are barometers of how well a sup-
ply chain uses its assets. Efficient asset utilization is also a key characteristic
of a Lean supply chain. Because inventory is a chronic problem, it is used
as an example throughout this book for tying together Lean Six Sigma and
supply chain management concepts. This includes the strategic alignment
of improvement projects to create significant business value. The Lean Six
Introduction | xxiii
Sigma philosophy of “acting on fact” helps to avoid situations in which

inventory levels are arbitrarily reduced to meet year-end financial goals
without regard for long-term customer-service levels or operational effi-
ciency. It also helps to avoid the practice of arbitrarily maintaining higher
inventory investment rather than seeking effective longer-term solutions.
Lower inventory levels are always preferred, but only if an opera-
tional system can satisfy external customer demand. This implies that
the required target per-unit service levels are met given an organization’s
item lead times and capacity constraints. This book shows how inventory
investment can be optimally calculated by item and location to create real-
istic internal investment benchmarks as opposed to relying on arbitrary
external benchmarks. This is why inventory analysis and investment are
common themes throughout this book. The approach shows how Lean Six
Sigma methods can be used to attack this chronic asset-utilization prob-
lem as well as the many other interrelated problems. In addition, numer-
ous other supply chain applications are discussed throughout the book.
These span every organizational function. Chapter 1 shows the importance
of identifying key financial and operational metrics before creating Lean
Six Sigma projects to ensure organizational alignment. Twenty important
operational and financial metrics are presented in Chapter 1. Twelve of
these metrics are important to Lean Six Sigma projects at a tactical level.
These 20 key metrics are shown in Figure 1.2. There are also many other
performance metrics that vary based on supply chain design.
Chapter 1 also presents a long list of other metrics common to human
resources, distribution, materials planning, and other major supply chain
functions. An important theme of Chapter 1 is that Lean Six Sigma
improvement projects should link to the VOC to ensure that customers
remain satisfied with an organization’s products and services. Once an
improvement team identifies the critical VOC requirements, balanced
metric scorecards are created to measure current and future performance
levels with respect to the VOC. Using a scorecard enables a team to track
process improvements across several supply chain functions to ensure that
everything remains integrated and on schedule. The chapter ends with a
discussion of using a simple A3 project tracking form at a team level.
Process inputs, that is, the X’s, and outputs, that is, the Y’s, are inter-
related. It is important to evaluate these using integrated work streams.
Ideally, analyses and project identification are done using a system model.
xxiv | Introduction
These help us understand how a process works, and how the key process
input variables, the X’s, have an impact on performance, of the Y’s. They
are also useful for efficiently translating senior management’s goals and
objectives into lower-level tactical improvement projects. Chapter 1 dis-
cusses alignment and translation using the input-output matrices shown
in Figure 1.4. A project charter and effective team management are also
required to successfully execute a team’s project. These concepts are dis-
cussed in Chapter 1.
In Chapter 2, the focus is on basic supply chain management meth-
ods. One focus is the execution of the sales and operating plan (S&OP).
The S&OP requires all organizational functions to plan and execute using
an agreed-on plan. Chapter 2 discusses the S&OP team facilitation and
communication process across a supply chain. Process breakdowns occur
when there is a lack of effective communication between organizational
functions. An S&OP team also provides a useful source for Lean Six Sigma
projects because it is by design aligned with strategic goals. Its members
know the important process issues and their supply chain impact.
Another important topic of Chapter 2 is how lead time drives supply
chain efficiencies and costs, and inventory investment. Inventory invest-
ment and the turns ratio are two of several key supply chain metrics mea-
suring the efficiency of supply chain asset utilization, that is, the “leanness”
of a supply chain. This chapter demonstrates how lead-time reduction helps
to reduce inventory investment, that is, to “lean out” a supply chain. Topics
related to lead-time reduction include elimination of process steps and
operations, bottleneck management, application of mixed-model schedul-
ing, application of transfer batch methods, and deployment of other Lean
methods such as just-in-time (JIT) production and delivery.
Demand management is discussed in Chapter 3. Effective demand
management helps to ensure that products and services are available for
customers and internal operations. In this context, the S&OP team is essen-
tial for the identification of projects to improve demand management. An
important discussion is how the violation of an organization’s stated lead
times, that is, time fences, causes significant operational problems. These
violations often necessitate creation of improvement projects to identify
and eliminate issues contributing to poor demand estimation. Chapter 3
also shows that Lean Six Sigma belts can help forecasting analysts develop
and interpret advanced forecasting models to more effectively manage
Introduction | xxv
products with unusual demand patterns. Effective demand management

also helps to improve new-product forecasts. Poor forecasts of new-
product sales are a major contributor to excess and obsolete inventory.
Lead-time reduction strategies are discussed further in Chapter 4.
This chapter discusses creating a value-flow map (VFM) for major process
work streams to help identify process simplification and standardization
opportunities to lower cycle time and cost while improving quality. The
VFM will be shown to be a powerful way to identify process-improvement
opportunities. Effective lead-time reduction also requires identification of
a system’s critical path and its takt time. Takt time is calculated to ensure
that the production of materials or information will match actual cus-
tomer demand hour to hour. Takt-time calculations also help to identify
the resources necessary to maintain the flow of materials or information.
VFM and takt-time analyses are important tools to identify Lean Six Sigma
projects associated with process waste. Chapter 4 also discusses the eight
common process wastes as well as several other powerful tools and meth-
ods to reduce lead time.
Lean Six Sigma belts must know the “nuts and bolts” of supply chain
operations to understand its process-improvement potential. Chapter 5
discusses the mechanics of the master production schedule (MPS or MRPII)
and manufacturing resource planning (MRP) systems. These systems offer
opportunities for improvement projects. Examples include problems at
receiving, within production activity control (PAC), within purchasing, and
in several areas associated with inventory investment. Chapter 5 also dis-
cusses the comparative advantages and disadvantages of make-to-stock,
assemble-to-order, and make-to-order systems. Improvement projects can
be applied in these areas. System capacity, especially at bottlenecks and
system-constrained resources, is discussed relative to increasing material
and information throughput rates using pull scheduling systems to help
reduce inventory, improve quality, and reduce operational costs.
Chapter 6 discusses inventory basics from several perspectives to show
it is a major barometer of supply chain financial and operational perfor-
mance. The chapter discusses why Lean Six Sigma belts should calculate
optimal inventory levels to identify where to strategically deploy Lean Six
Sigma projects to reduce inventory investment and improve other supply
chain metrics using an inventory model. The model is built using lead
times, demand variations, service levels, and other relevant information as
xxvi | Introduction
major inputs to calculate optimal levels of inventory investment. Second,

it identifies various types of Lean Six Sigma projects to reduce nonoptimal
inventory levels. For example, it discusses the identification and elimina-
tion of excess and obsolete inventory as an important step for improving
supply chain operational and financial performance.
Chapter 7 discusses the concepts of Lean supply chain and third-party
logistics. Recall asset utilization efficiency is one of several key metrics mea-
suring the degree of supply chain “leanness.” The discussion continues into
why Lean Six Sigma deployments are more complex in these environments.
Another focus of this chapter is the continued identification of Lean Six
Sigma projects within order import and export operations, carrier manage-
ment, claims management, warehousing operations, fleet management, and
other applications. More examples of Lean Six Sigma project opportuni-
ties are provided in Table 7.1. Chapter 7 also discusses third-party logistics
and the importance of integrating its providers into a Lean supply chain.
Specific Lean Six Sigma applications in retail food and commodity supply
chains and other industries are also discussed in this chapter.
Chapter 8 discusses tools and methods useful for identifying relation-
ships between key process input variables (KPIVs) and key process output
variables (KPOVs) to create the Lean Six Sigma Y = f(X) relationship. The
discussion starts with measurement system analysis (MSA), which helps
to estimate the accuracy and precision of the systems used to collect pro-
cess data. It continues with a discussion of estimating process capability of
the KPOVs. Once process capability has been calculated for the KPOVs,
data collection continues, and analyses are done to understand relation-
ships between KPIVs and KPOVs. The analyses are used to answer critical
project questions related to a project’s problem statement and goal. Other
analytical tools such as queuing analysis, linear programming, scheduling
algorithms, simulation, and financial modeling may be necessary to iden-
tify the root causes of the process breakdowns for specific applications.
These are discussed at the end of Chapter 8. The chapter also discusses new
trends for big-data analytics. Databases and data structure have evolved to
require analytical methods that are different from those used in classical
Lean Six Sigma applications. Examples include massive databases and the
analysis of text, sound, and visual patterns, as well as numbers.
Chapter 9 discusses creating alternative solutions to eliminate root
causes. Once an optimal solution to a root cause, that is, “the problem,” has
Introduction | xxvii
been identified, it is evaluated under controlled conditions. This is called

conducting a pilot study. A pilot study shows how to set the levels of the
KPIVs to move the KPOVs on target and with minimum variation over
time. Using a pilot study also minimizes project implementation risk and
helps to gain support from the process owner and local work team. These
people feel the impact of process changes. Chapter 9 also shows why it is
important to integrate process changes into current control systems. An
example is the International Standards Organization (ISO) various process
controls. Proper integration ensures that process improvements are incor-
porated into daily work standards and effectively communicated within an
organization.
Chapter 10 of the first edition, describing how to create an inventory
model, has been moved into the online supplemental information available
at www.mhprofessional.com/LSSSCM2. The new Chapter 10 discusses sup-
ply chain excellence from the perspective of Design for Six Sigma (DFSS).
The preliminary discussion of Chapter 10 has been greatly expanded.
The focus of the chapter is entirely on service and supply chain applica-
tions rather than manufacturing. It discusses differences between classical
DMAIC and DFSS approaches to process improvement. Obvious differ-
ences are that the DMAIC process is applied to the improvement of an
existing process and focused on just one or a few customer requirements.
The DMAIC process is a reactive approach to solving chronic process prob-
lems. In contrast, DFSS is applied to the design of new products and ser-
vices to increase revenue and market share and usually to provide unique
performance enhancements. Also, many requirements must be satisfied
at one time. This requires specialized methods for building the appropri-
ate models, that is, Y = f(X), but for many outputs, DFSS is a proactive
approach because it actively seeks to understand customer and stakeholder
requirements to design products and services. Unlike the DMAIC process,
which applies a proven and standardized set of tools and methods to any
process, DFSS must be customized to fit a particular company’s products,
culture, and industry best practices. For example, the methods for design-
ing bridges, buildings, and airplanes are different, as are the methods
required to design new manufacturing processes, bank service systems,
and supply chains.
Organizational change, the Lean Six Sigma maturity model, and
newer trends such as cloud computing and supply chain virtualization,
xxviii | Introduction
security, and sustainability are discussed in the Conclusion. Sustainability

includes topics such as carbon footprints, energy efficiency, waste, e-waste,
climate-change impact, human rights, hazardous materials, and conflict
resources as examples of supply chain improvement opportunities.
Finally, the Appendix contains information that is useful for under-
standing the supply chain metrics discussed in this book, as well as key
summaries from each of the chapters. The Glossary defines common terms
used throughout the book (available for download at www.mhprofessional
.com/LSSSCM2).
The advantage of using the structured 10-step solution process is that
clear improvement goals can be created by the organization to ensure effec-
tive execution of strategy at a tactical implementation level. It ensures that
tactical objectives are consistently met through the deployment of aligned
Lean Six Sigma projects. To facilitate this discussion, the 10 chapters of
this book discuss supply chain improvement from an elementary to an
advanced level. For green and black belts or master black belts not famil-
iar with supply chain concepts, the first few chapters briefly describe basic
supply chain structure, demand management, lead-time analysis, materials
planning, and inventory topics and models. Subsequent chapters describe
data analysis from a Lean Six Sigma, OR, and inventory-modeling per-
spective. Big-data analytics are also introduced at an elementary level. The
final chapters discuss project-control strategies based on proven Lean and
DMAIC methodologies. This format allows experienced readers to skip
chapters containing familiar information to concentrate on more useful
chapters. For example, if a reader has experience in supply chain method-
ology, materials planning, forecasting, and inventory analysis, then he or
she can skip Chapters 2 through 6 to concentrate on VOC, project manage-
ment, inventory modeling, and analysis and then move on to improvement
and control of the process changes and DFSS in Chapter 10 and the newer
trends discussed in the Conclusion.
I would like to thank my readers for making the first edition a suc-
cess. I hope that you find this second edition useful for your supply chain
improvement work.
Acknowledgments
I must thank Judy Bass, my McGraw-Hill Education senior editor, for

encouraging me to publish this second edition; Patricia Wallenburg of
TypeWriting; and I also thank Amy Stonebraker, Ms. Bass’s editorial assis-
tant. Thanks also go to the reviewers of the book, who made construc-
tive comments that changed the direction of the book to a more practical
and hands-on approach. I especially thank my wife, Marsha, as well as my
clients, and Providence College faculty and graduate students, who have
provided inspiration for this book.
xxix
Lean Six Sigma
for Supply Chain
Management
CHAPTER 1
Using Lean Six Sigma Methods

to Identify and Manage
Supply Chain Projects
Objectives
After reading this chapter, you should understand how to identify and exe-
cute supply chain projects to ensure operational linkage with senior man-
agement’s high-level goals and objectives and have a grasp of the following
concepts:
▲▲ Why it is important to identify financial and operational metrics to
ensure business alignment prior to creating Lean Six Sigma improve-
ment projects
▲▲ Why projects must link to the voice-of-the-customer (VOC)
▲▲ The importance of customer experience mapping, loyalty metrics, and
net prompter score (NPS) as useful methods for obtaining customer
information
▲▲ Why it is important to establish metric scorecards prior to deploying
projects
▲▲ Why system models of major work streams are useful in understand-
ing their impact on supply chain performance
▲▲ Why input-output matrices are useful in translating senior manage-
ment’s strategic goals and objectives into Lean Six Sigma projects
▲▲ Why it is important to create a list of questions relevant to a project’s
problem statement and objective prior to collecting and analyzing data
▲▲ Why a project requires a project charter and effective project manage-
ment to be successful
▲▲ How to use the Toyota A3 form to track projects at a team level
1
2 | Lean Six Sigma for Supply Chain Management
Executive Overview
In this chapter, the initial metric discussion is based on improvement of
one or more of the 12 key supply chain metrics shown in Figures 1.1 and
1.2. An additional eight supply chain metrics focused on financial perfor-
mance are also listed in Figure 1.2. The 12 key metrics consist of financial
metrics, including inventory investment, profit-and-loss (P/L) expense,
and excess and obsolete inventory investment, as well as operational
metrics, inventory turns, on-time supplier delivery, forecasting accuracy,
lead time, unplanned orders, scheduling changes, overdue backlogs, data
accuracy, and material availability. The 12 key supply chain metrics can be
used as the focus of your Lean Six Sigma improvement projects. In addi-
tion to the 12 key metrics, Lean Six Sigma projects also can be identified
and deployed using the additional eight metrics These include customer-
service-level targets, net operating profit after taxes (NOPAT), asset effi-
ciency (turns), fixed-asset efficiency (turns), account-receivables efficiency
(turns), gross profit margin, return on assets (ROA), and gross margin
return on assets (GMROI). The Appendix contains definitions and addi-
tional information about the 20 metrics. In addition to these 20 metrics,
many other operational metrics exist that could serve as a basis for Lean
Six Sigma improvement projects. These are listed later in the chapter in
Tables 1.5 through 1.7.
1. Inventory Investment
Supply Chain Overview 2. Profit and Loss
Understand Supply
Materials Planning Chain 3. Inventory Turns
4. On-Time Delivery
Excel
5. Forecast Accuracy
Access Develop
Model 6. Lead Time
Basic Data Analysis
7. Unplanned Orders
Inventory Basics
Learn Tools
8. Schedule Changes
and
Demand Management
Methods 9. Overdue Backlog
Process Mapping 10. Data Accuracy
Lead Time Management 11. Material Availability
12. Excess/Obsolete Inventory
Figure 1.1 Twelve key metrics.

Chapter 1 Using Lean Six Sigma Methods | 3
YTD
Percentage
Current Q1 Q2 Q3 Q4 Improvement
12 Key Metrics
1. Inventory Investment
2. Profit/ Loss
3. Inventory Efficiency (Turns)
4. On-Time Supplier Delivery
5. Forecast Accuracy
6. Lead Time
7. Unplanned Orders
8. Schedule Changes
9. Overdue Backlogs
10 Data Accuracy
11. Material Availability
12. Excess & Inventory
Additional Metrics
13. Customer Service Target

14. NOPAT
15. Asset Efficiency
16. Fixed Asset Efficiency
17. Receivables Efficiency
18. Profit Margin
19. ROA
20. GMROI
Figure 1.2 Tracking the 12 key metrics against baselines and targets.
Voice-of-the-Customer (VOC)
Lean Six Sigma projects touch external customers relative to time, cost,
or quality, if only indirectly. As an improvement team begins to identify
and scope project opportunities, it must consider the impact of the project,
including its eventual solution, on external customers as well as local work
teams. For example, inventory exists to meet customer demand in envi-
ronments having limited manufacturing capacity. Lean Six Sigma inven-
tory projects must balance lead-time, demand, and customer-service-level
targets to ensure that customer delivery promises are kept. The only way
to ensure delivery promises is to understand what was promised to the cus-
tomer and how well your systems actually meet service-level agreements
over time. That is, what is your process capability?
Understanding customer requirements is a complex process. It starts
with customer value. Value can be separated into components of conve-
nience and price. When an organization provides goods and services to

external customers, it should ask, “How convenient is it for the customer to
access, understand, and use our product or service?” Convenience can be
separated into the subcomponents of time and benefits. Customer benefits
can be broken down further into components of relative importance and
usefulness to external customers and how a product or service performs.
Organizations should consider the concept of value when marketing their
products and services. The external customer’s value expectation is what
our operational systems should deliver every day because customers are
unhappy if there are operational breakdowns. The goal of an organiza-
tion should be to design operational systems that deliver customer value
to internal voice-of-the-business (VOB) and external VOC expectations.
When systems do not perform to expectations, then Lean Six Sigma or
other types of process-improvement projects are necessary to improve
operational performance.
Organizations with best-in-class supply chains operate at lower rela-
tive costs versus competitors and also perform at service levels exceeding
customer expectations. These best-in-class supply chains have major com-
petitive advantages over their competitors. Taking the concept of customer
value further, we should ask, “Who are our customers, and how well do we
know their value expectations?” The answers to these questions will reflect
market-segmentation principles because customers differ. Identifying cus-
tomer value expectations and customer needs requires understanding who,
why, where, when, and how customers use products and services. This
approach will help to identify internal process breakdowns that affect cus-
tomers and opportunities to create Lean Six Sigma improvement projects
to satisfy customer needs.
What is the VOC? It is a set of tools, methods, and techniques that
allow a Lean Six Sigma improvement team to methodically collect and
analyze customer needs. Customer needs can be separated into basic, per-
formance, and excitement needs using a Kano model. Chapter 10 discusses
the mechanics of building a Kano model within the context of Design for
Six Sigma (DFSS). Figure 10.2 provides an example of a Kano model. Basic
needs are unspoken and expected by the customer. If these needs are not
met by a supplier, extreme customer dissatisfaction will be the result. An
example would be buying an automobile but finding that it will not start.
Performance needs differentiate one supplier from another relative to
price, functionality, and the ability of the supplier to provide the product
or service in less time than a competitor. An example would be buying a
car and finding that it has a longer warranty or better handling perfor-
mance than a competitive vehicle for the same price. Excitement needs
are unknown by a customer, but they clearly separate a product or service
from current designs. An example would be finding a warranty has been
lengthened from 60,000 to 100,000 miles without an increase in purchase
price or that maintenance for the first 10,000 miles of vehicle usage is pro-
vided for free by the seller. Understanding customer needs as well as how
customers value products and services shows a Lean Six Sigma team what
is most important to customers.
Quantifying the VOC starts by classifying customers into market seg-
ments based on relevant demographic criteria. Common demographic cri-
teria include geographic location, products purchased, type of customer,
and size of customer, industry, and other criteria. For example, other cus-
tomers could be segmented by how, where, and when they use a product
or service. This information helps to focus attention on critical customer
requirements, which can be translated into projects.
After market segmentation has been completed, Lean Six Sigma teams
obtain additional information from customers using a variety of methods.
These methods include analysis of customer complaints, operational reports,
and competitive intelligence, as well as customer surveys, interviews, and
on-site customer visits. This enables a Lean Six Sigma team to understand
the major drivers of customer satisfaction within a market segment. The
major drivers of customer satisfaction, called critical-to (CTs), are later ana-
lyzed and broken into the big Y’s representing customer requirements at
an internal operational metric level. These are a project’s key process output
variables (KPOVs). Recall from the Introduction that CTs can be separated
into critical-to-quality (CTQ), critical-to-time (CTT), and other factors.
These are further separated into the big Y’s or KPOVs that form the rela-
tionship Y = f(X).
In the last step of translating the VOC, the team uses quality function
deployment (QFD) and other information-management tools and meth-
ods to compare customer requirements, in the form of KPOVs, against
current internal systems (or process work streams) designed to satisfy
those requirements. Performance gaps serve as the basis for Lean Six
Sigma projects. Various experts (belts) are assigned to the Lean Six Sigma
projects to close performance gaps. We will now discuss each of these

concepts in more detail. QFD is discussed in Chapter 10 in the context of
DFSS. An example is shown in Figure 10.4.
Market Segmentation
Understanding customers is not easy. We often substitute our voice for
theirs. This causes miscommunication and disappointment for both the
customer and the supplier. Many Lean Six Sigma projects are based on
the process breakdowns that occur because of poor VOC information. For
example, the failure to deliver on time to a customer is a common problem.
However, the term on-time delivery needs to be carefully defined. It is also
important to understand all steps of a delivery interaction between a sup-
plier and a customer. Lead time must be carefully defined prior to setting
the on-time delivery service level. A customer may assume that the basis is
work days, that is, 20 per month, whereas a supplier may assume calendar
days, that is, 30 per month.
Good questions to ask are, “Given that an order arrives on time and
in good condition, what else does a customer require from this delivery
transaction?” “What are the customer’s unspoken needs and requirements,
that is, Kano needs?” “What does the customer expect as minimum ser-
vice performance?” “What would differentiate our service or product from
that of competitors?” “What would excite the customer and ensure that we
remain the supplier of choice?” Obtaining this VOC information is com-
plex and requires using a variety of tools and methods.
We need to understand customer value perceptions regarding price,
time, utility, functionality, and relative importance. Using a delivery exam-
ple again, but relative to value, relevant questions would be, “How does
the customer value the delivery transaction?” “Is low-cost delivery the
major criterion of importance to the customer?” “Is it timeliness or flexi-
bility of the delivery time?” “Do we do additional value-adding tasks such
as invoicing, self-scheduling, and unloading of the trailer?” “How well do
we perform over time?” “How consistent is our delivery performance?”
Understanding how the customer values and perceives operational perfor-
mance relative to these criteria can help to differentiate one supplier from
its competitors. Also, closing any identified performance gaps using Lean
Six Sigma projects will help to ensure that one supplier is preferred over
others. Customer segmentation helps us to understand our customers so

that we can provide differentiated products and services that can be used
efficiently and profitably by our customers. It is also very useful to under-
stand how products and services are valued by customers further down
in the supply chain. This information also can help to improve their value
elements. For example, imagine a Lean Six Sigma black belt riding in a
delivery truck to analyze a delivery process. The analysis would include
careful recording of all work tasks associated with the movement of mate-
rials and information. Using a hands-on approach, a black belt could
identify basic transactions that are critical to a customer’s operations as
well as ways in which to enhance the customer experience and differenti-
ate this supplier from its competitors. The analysis would identify basic,
performance, and excitement needs as well as value elements.
For example, United Parcel Service (UPS) is exceptional for providing
low-cost, quality, standardized customer service in a standardized manner.
I receive many UPS shipments at my home office, and I am never disap-
pointed with the service. I also receive Federal Express shipments, which
are also delivered with very good service. In my view, both suppliers are
equivalent in their service. However, neither organization really keeps me
informed of their service offerings. I guess that I should read the fine print.
It would be great if they would periodically tell me the current service offer-
ings; for example, will they pick up at my house if I call them so that I won’t
have to travel to drop the package off at a remote location? Of course, I
could check the service offerings myself, but I never really seem to have
the time to do this. You might have your own service preferences. Either
delivery organization could ensure customer loyalty if it just went one step
further by understanding its customers’ Kano needs and value expectations.
In distribution, manufacturing, or other production operations, this
concept can be taken further. When was the last time a supplier visited a
customer’s facility or job site to understand who, why, where, when, and
how customers use products and services? Although the supplier might
have many good ideas on how to improve operational performance or
product design, much can be learned by working directly with customers.
This is a powerful strategy for understanding what is valued by customers
for improving the performance of products and services. For example, a
supplier visit to a customer’s distribution center may show that product
packaging does not provide sufficient protection from moisture or nor-
mal handling. This situation may be causing repacking by the customer. As

another example, a customer may periodically complain of product dam-
age. Worse, a customer may have learned to adapt to the damage problem
because of a lack of response to complaints. Orders also may be arriving
with loads shifted, damaged, or not loaded in proper sequence. This causes
higher labor expense and lower satisfaction. Lean Six Sigma projects can be
created to close these types of performance gaps or to provide information
to redesign products and services to increase value. These improvements
will lower supply chain costs and lead time as well as improve quality and
increase customer satisfaction.
Obtaining VOC Information

Several methods are available to obtain customer information. Each has
strengths and weaknesses relative to the quality, cost, and ease of obtain-
ing the information. An organization should have a structured plan to
enable systematic gathering and analysis of VOC information using these
methods. The plan should include one or more standard methods useful
in obtaining VOC information. A passive method involves gathering and
analyzing complaints around product and service performance. Passive
complaints arrive as warranty and returned goods, poor survey results,
direct e-mails, and letters, as well as legal and regulatory actions. This
information provides obvious areas of focus.
Surveys are another passive method to obtain VOC information. They
require sending a list of questions to specific market segments in either
written or electronic format. Surveys are relatively easy to develop, but they
must be carefully designed to ensure that the information collected is accu-
rate and useful for understanding the VOC. The advantage of surveys is
that relative to other ways to obtain VOC information, they are relatively
inexpensive, but because they often have a very high nonresponse rate, the
cost per response actually might be of the same order of magnitude as that
of other methods used to obtain VOC information. Surveys also gener-
ate large amounts of quantitative data that can be analyzed with statistical
confidence. In addition to the large percentage of nonresponses, custom-
ers also may misinterpret questions and not fully understand all aspects
of the survey process. This situation could result in inaccurate and biased
responses, which will result in inaccurate VOC information. For this rea-
son, survey conclusions always must be validated on a limited sample prior
to acceptance as the VOC.
Actively obtained VOC information provides more useful insights
for process-improvement work. For example, information often not com-
municated to an organization is that associated with unmeasured inter-
nal operational breakdowns. These breakdowns constitute the hidden
factory. Obtaining this information requires careful measurement of the
current process and establishing performance baselines for key metrics.
Customers also may have needs that neither they nor their suppliers fully
understand.
Organizations routinely use phone and in-person interviews, focus
groups, and on-site visits to actively obtain VOC information directly from
external customers. An advantage of using customer interviews is that they
enable follow-up questioning by an interviewer. Interviews are conducted
by telephone or in person. Telephone interviews are less expensive but do
not have a customer’s full attention, nor can the interviewer ascertain the
customer’s body language. In-person interviews are more expensive, but
the interviewer can interact with the customer and see his or her body lan-
guage. While the major benefit of interviews is the quality of information
(if properly conducted), the disadvantage is the small sample size.
External marketing research can be conducted on customers and
competitors, as well as relevant industry trends. This external marketing
information can be very useful in identifying new products and services
or showing operational weaknesses in the supply chain that are common
within the industry. Lean Six Sigma projects can be created to provide a
competitive advantage in these situations. Marketing research also pro-
vides focus-group information. Focus groups are structured and facilitated
to obtain an exchange of information between an organization and its cus-
tomers within a market segment. An advantage of using a focus group is the
quality of information obtained relative to the use of products and services.
Disadvantages include the expense and the limited sample size. Walking
through a customer’s operations to see how a product or service is used on
a daily basis is an extension of in-person interviews. This is an extremely
useful way to understand the VOC at its most basic level. Lean experts call
this the gemba walk (in Japanese, gemba means the “real place”).
Analyzing VOC Information

Because VOC information is gathered using different methods and for-
mats, the collected information needs to be organized, analyzed, and trans-
lated into key customer requirements, that is, the key process output vari-
ables (KPOVs). The available information is organized into CT categories
of quality, time, cost, and others prior to identifying the KPOVs with each
category. These CT categories correlate with the value elements associated
with time, price, function, and utility to the customer.
Customer statements associated with value elements are categorized
into CT format and decomposed into operationally oriented statements
that more nearly represent internal specifications for the KPOVs. For
example, customers may want deliveries to arrive on time plus or minus
one hour; the product should be loaded according to industry standards,
including having the loads stepped down to prevent shifting; and the loads
should be protected from moisture by placing plastic wrap at the end of
the trailer. Other comments may be that the heavier product must be on
the bottom of each pallet and lighter products on the tops of the pallets
to prevent product damage and that the pallets should have standardized
dimensions and be properly labeled to allow easy storage within their dis-
tribution center. Perhaps there is additional information around a delivery
person bringing paperwork into the facility in a timely manner or helping
to unload a trailer according to customer requirements. There probably
would be several other customer comments obtained from the various
methods used to establish the VOC. In a more detailed examination, per-
haps a Kano analysis was completed to offer additional insights into a cus-
tomer’s basic, performance, and excitement needs
Customer Experience Mapping

Obtaining customer feedback is often done through surrogates such as
sales and marketing personnel or third parties. Seldom do the people
responsible for process improvement have direct customer feedback. This
results in feedback that is not easily actionable. However, customers are
inundated with requests for feedback from many suppliers. A large supplier
may use several surveys requesting feedback from the same customers too
frequently. There also may be issues with the phasing of questions, their
delivery, and the dilution of sample sizes over many products, services,
and stakeholders. The temptation is to rely too heavily on metrics collected

through surveys, product returns, warranty issues, and other feedback sys-
tems. The problem with surveys or collecting of information passively is
that the customer message may become diluted. The resulting analytical
results will not be sufficient to drive process-improvement actions.
Imagine using a method to enable a process-improvement team to
work directly with customers to identify performance gaps. Customer
experience mapping (CEM) is a joint supplier-customer workshop, similar
to a kaizen event, in which the key touch points between organizations are
mapped to identify gaps. Touch points are embedded within the higher-
level steps associated with the sale, purchase, delivery, and use of prod-
ucts and services. A typical customer experience map has these steps in
sequence. Beneath each step are one or more touch points. These are col-
ored-coded and marked up to identify gaps, moments of truth, and other
evaluation or prioritization criteria.
An advantage of the CEM approach is that customer needs and expecta-
tions become clearly understood through mutual interaction and agreement.
CEM also serves as a long-term road map or model from which to continu-
ously improve the customer experience. This information also can be inte-
grated within a supplier’s formal voice of programs, for example, VOC, voice-
of-partners (VOP), and voice-of-field (VOF). These “voice-of ” programs
capture metrics that measure customer relationships from perspectives of
loyalty and transaction experiences. This information is collected using
interviews, electronic surveys, and analyses of returns, allowances, warranty
information, and other methods discussed earlier. An effective CEM pro-
gram helps to validate the information collected by passive data-collection
methods. Ideally, in aggregate, the information will enable an organization
to effectively focus its continuous-improvement efforts.
Loyalty Metrics
Several types of metrics are used to understand supplier performance. They
are classified from perspectives of relationships, competitors, and transac-
tions. Overlaying these types are the various stratifications used to obtain
feedback from different parts of a customer’s organization or from third
parties. Relationship feedback is obtained via interviews with executives
and key customer stakeholders relative to overall experience with a sup-
plier. Transaction surveys immediately measure direct user experiences
with a product or service as opposed to interactions that occurred weeks or

months earlier. Some of the transaction questions may be focused on cus-
tomer satisfaction (CSAT), for example, “How satisfied were you with the
information just provided to you?” Others may be focused on operational
efficiency. Competitive information also can be obtained from third parties
using double-blind surveys in which customers evaluate competitors, but
do not know who will be receiving the information. A supplier does not
know which customers provided the feedback. Depending on the questions
and people being asked, gathering loyalty metrics is very useful for identi-
fying improvement opportunities. However, not only should the focus be
on the upfront question design or the interviewees, but the backend analyt-
ical requirements also should be considered from the perspectives of how
actionable is the information from each question, are the interviews able to
accurately answer the questions, and is the sample size sufficient?
A popular relationship metric is the net promoter score (NPS). This
metric uses a scale between 0 and 10 around the question, “Would you
recommend this product or service?” There has been extensive research
showing that a high rating indicates that customers will repurchase a prod-
uct or service. However, there is contention between survey experts on the
reliability of the metric. The metric is a high-level indicator of performance
gaps or things working well. However, more actionable questions would
be needed to provide information to create improvement projects. Several
major retailers use the NPS question effectively by embedding it into a sur-
vey that asks very specific experience questions, that is, transaction ques-
tions around a purchase as well as a field to add free-form text. Competitive
questions are useful to measure general industry trends but are not very
useful unless they are associated with specific product or service features,
functions, and other characteristics under known usage conditions.
Surveys
This topic was discussed briefly earlier. In this section I want to provide
additional context for survey design. There is a distinction between VOC
experts who have little knowledge of advanced statistical modeling but
who design surveys and the modeling experts who have little interest in
VOC surveys and methods but must do the analysis. The result is that there
is often very little quantification of customer loyalty metrics or their trans-
lation into process-improvement activities.
Surveys should be designed with the ultimate analysis in mind. The

questions should be framed for action. For example, we often are asked
to complete surveys after visiting major retailers. A typical question is
whether the checkout time was satisfactory. The answer will be either a yes
or a no. A more effective question would be, “How long did you wait in the
checkout line, and how long did you expect to wait?” This approach pro-
vides more granularity for subsequent analysis using quantitative models.
Recall that customers fall into segments having different value expectations
relative to time, cost, and quality. This implies that market-segmentation
information also must be known to an analyst.
Surveys also should be traceable to the people making comments
because additional context may be needed for subsequent analyses. The
respondent sample sizes within each stratification also must be sufficient
for estimating sampling error but without oversampling respondents.
Properly designed surveys enable process-improvement experts such as
the various belts to select projects that will be aligned in ways to increase
customer satisfaction and drive higher business benefits.
In addition to using passive and active survey information, Lean Six
Sigma projects can be identified using the extensive list of potential metrics
described in Tables 1.5 through 1.7. These include many areas where cus-
tomers experience failures, including complaints associated with defects
causing warranty allowances or returned-goods issues, billing errors, how
long it takes to answer customer inquiries and the accuracy of information
provided to customers, late deliveries, damaged products, and others.
Identifying Performance Gaps and Projects

The quantified customer requirements, that is, the KPOV variables, are
compared against baselines representing current system performance to
identify and prioritize Lean Six Sigma projects. For example, if custom-
ers specify that deliveries must arrive on time plus or minus one hour but
our current performance reports show an arrival variance of plus or minus
three hours, this performance gap could serve as a potential project. The
business benefits gained from closing this performance gap are not only
increased customer satisfaction but also lower supplier delivery costs when
non-value-adding time elements are eliminated from the process. The
identification of performance gaps should be conducted in a systematic
way to ensure that improvement projects are properly prioritized. There

are several ways in which prioritization can be done, including using qual-
ity function deployment (QFD). Regardless of the prioritization method,
the result should be a list of prioritized projects. Resources are assigned to
the projects to close performance gaps on schedule.
The 10-Step Solution Process

The Lean Six Sigma team’s balanced scorecard is shown in Figure 1.2. It
ensures strategic alignment of the 12 key supply metrics through actionable
projects at an operational level. This methodology ensures that the project
team remains aligned with the organization’s strategic goals and objectives
as projects are deployed across various supply chain functions. The metric
scorecard is important for tracking, at a high level, process improvements
against baseline levels. We will show how to create accurate internal tar-
gets for each of these metrics using models and analyses of specific work
streams. As performance gaps are identified for each metric, improvement
projects can be created to close those gaps. This methodical approach has
been shown to improve operational effectiveness significantly.
Basic modeling concepts are summarized in Chapter 6, and an applied
example using Excel worksheets showing how to build and analyze a sim-
ple inventory model is provided in the supplemental information at www
.mhprofessional.com/LSSSCM2. This applied example is based on a make-
to-stock perpetual inventory system, but other types of models can be cre-
ated by the Lean Six Sigma team based on specific system constraints and
assumptions. Using these types of analytical models, Lean Six Sigma proj-
ects can be identified and executed to systematically improve supply chain
performance.
Effective project management and execution of Lean Six Sigma
projects will provide significant business benefits for an organization.
Tables 1.1 and 1.2 show the key elements of the 10-step solution process.
Table 1.1 provides the methodology, and Table 1.2 links the project goal
with productivity metrics. The 10-step solution process is the basis for
improving the 12 key metrics and is used to systematically improve process
performance in conjunction with the team’s balanced scorecard shown in
Figure 1.2.
Table 1.1 Supply Chain Improvement Program

1. Develop a list of questions related to the project’s scope and problem statement
that must be answered to complete the project’s goal.
2. Establish the target and baseline metric performance, and ensure that the required
data are available to complete the modeling analyses.
3. Build a simple supply chain/work-stream/inventory model, and conduct sensitivity
analysis of inputs and outputs.
4. Analyze the model relative to the project’s goal, and identify other improvement
opportunities for subsequent projects.
5. Identify the root causes for the problem using Lean Six Sigma methods.
6. Ensure that the countermeasures are fact based and tied to the root-cause analysis
using appropriate Lean Six Sigma tools and methods.
7. Identify solutions, that is, improvements, to eliminate the underlying root causes
adversely affecting the key metrics.
8. Update the target and baseline portions of the metric score card.
9. Transfer the improved process to the process owner and local work team, and
develop long-range plans to sustain improvements over time.
Table 1.2 Operational Linkage

Measurable Productivity
Improvement Enabler Opportunities Productivity Link
Increased rolled Six Sigma experi- Reduced rework Reduced labor
throughput yield mental design hours and material
(RTY)
Improved schedule Lean, total produc- Reduce oversched- Reduce labor,
attainment tive maintenance uling of material material, premium
(TPM), supply and labor freight, and so on
chain and DOE
The Lean Six Sigma team collects data to answer the questions shown
in Table 1.1 and ensures linkage with the original project’s problem state-
ment and goal. The required information or data may be scattered across
several processes, databases, or software applications. The team needs to
bring the required data into one place for the analyses to build a simple
work-stream model. This model reflects the questions and information
needed for process improvement and to optimize work-stream operations.
A sensitivity analysis also can be done by varying the model’s key process
input variables (KPIVs) according to the relationship Y = f(X) to optimize
performance of the key process output variable (KPOV) once the analysis
is completed. This relationship may already be known, as is the situation
for inventory modeling and a few other supply chain work streams, or may
have to be developed by the Lean Six Sigma team. Lean Six Sigma projects
can be created based on the sensitivity analysis of the model to improve
operational performance.
As the Lean Six Sigma team begins its focus on a process issue, the root
causes responsible for the poor performance are identified and eliminated
from the process. Based on its analysis of the work-stream model, the Lean
Six Sigma team eventually makes process changes to improve the KPOV
identified on the balanced metric scorecard or that was specific to the proj-
ect. Transfer of the improved process to the process owner and local work
team is the last major action taken by the Lean Six Sigma team. The rec-
ommended process improvements and controls must be easy to implement
and maintain. Once the project is transferred to the process owner and
local work team, the Lean Six Sigma team begins work on other issues.
This methodology has been shown to improve process performance, as
reflected in improvements of key metric baselines shown in the balanced
metric scorecard.
Building and analyzing supply chain models constitute a significant
communication breakthrough because people gain agreement on the root
causes for the process problem. This helps to move an organization toward
a solution at a faster learning rate because people quickly agree on the
underlying reasons for the problem as a result of fact-based analyses. The
key chapters necessary to develop a work stream model (with an emphasis
on inventory applications) are Chapters 6, 8, and 9 and the supplemental
information. Chapters 2 through 5 and 7 present supply chain concepts.
These chapters are important for readers who are not familiar with the
basic supply chain concepts necessary for properly identifying improve-
ment projects.
Understanding How Your Process Works

Deployment of a Lean Six Sigma program to improve a major work stream
begins with creation of a system model. A simple example is shown in
Figure 1.3. A system model helps the Lean Six Sigma team understand the
major inputs, the X’s, and outputs, the Y’s, of a work stream to create the
Brainstorming … Process Maps … System Models
Lead-Time • Inventory Investment
Demand Variation • Expense
Service Targets • Service Level
Capacity
pacity Delivery
•D Performance
elivery Per
Figure 1.3 System model map.
Y = f(X) relationship. Identifying these inputs and outputs starts with a

team brainstorming session.
In the brainstorming session, the Lean Six Sigma team identifies all
the possible inputs, that is, the X’s, and their associated outputs, that is,
the Y’s. Using this information, the team creates a simple system model.
Advanced versions of such a model describe spatial and dynamic relation-
ships between all inputs and outputs. In an inventory analysis, inventory
level (or quantity) is a KPOV. It can be shown to depend on all four of the
inputs shown in Figure 1.3, that is, lead time, demand variation, service
targets, and capacity. Depending on design of the supply chain, there also
may be other inputs not listed in Figure 1.3. Using the Lean Six Sigma
relationships, we can state that Inventory level = f (lead time, demand vari-
ation, service targets, and capacity). Delivery performance is another out-
put variable that may be affected by lead time, demand variation, service
targets, and system capacity, as well as other KPIVs.
The inputs and outputs of the simple system model shown in Figure
1.3 are used to develop input-output matrices that map metric linkages at
functional interfaces throughout the work stream. An example is given in
Figure 1.4, which shows how mapping strategic goals into tactical improve-
ment projects is done using the input-output matrix one level at a time, for
example, strategic metrics to tactical metrics to project goals (the KPOVs)
to the KPIVs at various levels depending on process complexity. Metric
Strategic Inputs Tactical Outputs
Operational Inputs
Tactical Outputs
Figure 1.4 Input-output matrices.
mapping is a critical task of the Lean Six Sigma team. There must be one-
to-one correspondence between high-level strategic metrics and lower-level
project metrics. An input-output matrix forces an alignment of improve-
ment projects with strategic goals. The mapping also helps to coordinate
the work of several independent teams working different parts of a larger
supply chain problem without interfering with each other’s work or double
counting business benefits. This is a common deployment practice because
several concurrent projects may be required to improve a KPOV from a
customer’s perspective. For example, if on-time delivery is adversely affect-
ing inventory investment, several smaller projects may need to be executed
to ensure that the on-time delivery metric achieves its target performance
level. One project may focus on supplier quality issues. Another project may
focus on internal demand variation issues. Still another project may focus
on inventory accuracy issues. Together they improve the on-time delivery
metric from an external customer’s viewpoint.
Strategic Project Execution in the 10-Step

Solution Process (Steps 1 Through 3)
Metric linkage should encompass the entire supply chain, including exter-
nal suppliers and customers, to ensure strategic and tactical alignment
through the project identification and prioritization process. This deploy-
ment strategy ensures project alignment of high-level organizational stra-
tegic goals and objectives throughout a supply chain. For example, Table
1.2 shows that lower-level operational metrics are linked to higher-level
strategic goals and objectives through enabler initiatives. Lean Six Sigma
is an enabler initiative having complementary toolkits, that is, Lean and
Six Sigma toolkits. Projects strategically linked in this manner will gener-
ate significant business benefits for your organization because as projects
are deployed, the Lean Six Sigma improvement team works with the pro-
cess owner and financial representative to ensure that project benefits link
to financial statements when operational metrics improve. This ensures a
direct productivity impact from an improved process.
The specific type of financial linkage depends on the type of project, as
well as on the root-cause analysis. For example, the reasons for poor schedule
attainment may vary as a result of several operational factors. For this rea-
son, the project benefits associated with improving schedule adherence will
also vary based on the specific root causes affecting the process. The Lean
Six Sigma improvement tools necessary to understand the root causes of the
problem will also vary depending on the root-cause analysis. For example, if
the project focus becomes one of process simplification, waste elimination,
or work standardization, Lean methods would be more appropriate to the
process analysis and final solution than a reliance on complicated statis-
tical tools and methods. On the other hand, if the data analysis requires
advanced statistical analysis or designed experiments, then Six Sigma tools
would be more appropriate. In either case, the correct enabler initiative
should be used to ensure that operational improvements link to the organi-
zation’s financial statements. Ideally, linkage will affect the P/L statement to
generate incremental revenue, higher margin on revenue, or reduced cost.
Alternatively, a positive impact on the balance sheet will increase cash flow
through higher asset utilization and reduced P/L expenses.
Table 1.1 provides a good example of how to transform the concepts
shown in Figures 1.1 and 1.2 into a solution methodology formalized in
the 10 steps shown in Table 1.3. These are easy to understand and com-
municate to the larger supply chain organization. Table 1.1 focuses on cre-
ating supply chain models as a major identifier of aligned Lean Six Sigma
projects. Using inventory investment as an example, an analysis of a work-
stream model will show how to balance the inventory quantities at an item
and location level relative to lead time and demand to achieve service-level
targets. A balance analysis will help to identify “quick-hit” opportunities
using a simple rebalancing of the inventory population item by item and by
stocking location. This analysis also identifies obsolete and excess inventory
Table 1.3 10-Step Solution Process

1. Align the project with business goals and the VOC, and establish accurate metric
baselines.
2. Ensure buy-in from the process owner, finance, and other stakeholders.
3. Communicate the project to stakeholders.
4. Ensure measurement-system accuracy, collect data on inputs and outputs, and
prove the causal effect Y = f(X) using Lean Six Sigma tools and methods.
5. Improve measurement systems and refine analyses as needed to identify root
causes and their solutions, that is, improvements or countermeasures.
6. Develop a detailed improvement plan, and conduct a pilot study to prove that
Y = f(X).
7. Integrate solutions into the larger process based on the pilot study.
8. Create standardized procedures, processes, and mistake-proofing.
9. Implement training and audits to sustain the solutions.
10. Create the control plan, apply control strategies, and transfer project ownership
to the process owner and local work team.
by stocking location as well as situations where inventory investment is too

low. Other Lean Six Sigma projects can be identified in areas offering the
highest opportunity to reduce inventory investment. If significant obsta-
cles to the reduction of excess and obsolete inventory are encountered by
the team, development of longer-term solutions may be required to reduce
inventory investment. An example would be inventory investment levels
that are difficult to reduce because of several years of on-hand supply, that
is, extreme levels of excess inventory. Or an item might be obsolete because
of design changes. In these situations, the root causes for higher inventory
investment may have been the result of long lead times, large lot sizes, or
other operational conditions. In these situations, Lean Six Sigma projects
are useful to effectively reduce inventory investment and improve other
supply chain metrics.
Strategic Project Selection

Projects should be strategically selected based on their potential business
benefits. Referring to Figure 1.5, you can see that there are many ways to
identify business benefits. Some are obvious and can be found on financial
Project Identification Strategy Improvement Strategy
1. Strategic Gaps
2. Budget Variances a. Just-Do-It
3. Cost Avoidance b. Lean Methods

c. Six Sigma Methods
4. Benchmarking
d. Capital Expenditure
5. Process Assessment
e. Process Reengineering
6. Customer Issues
7. Regulatory Issues
8. Health & Safety Issues
Figure 1.5 Project selection versus process-improvement strategy.
statements or management reports. Others require an operational analy-

sis. The balance of project opportunities arises from customer, employee,
and regulatory requirements. The first project identification strategy is
an analysis of performance gaps within an organization’s strategic plan.
Because organizations have different strategic goals, their performance
gaps will be different. Strategic gaps usually focus on improvements in
sales, cash flow, and profitability. But differences occur between organi-
zations at lower levels, such as inventory investment, asset utilization,
and increases in the rate of new-product introduction. Gaps exist when
projects have not been identified to improve performance; these are also
called unidentified tasks. A second category for project identification is
analysis of budget variances and poor trends. Budget variances can be
easily identified using management reports, but they must be carefully
analyzed. For example, variances may exist because the original budget
targets were calculated incorrectly. The analysis of budget variances is a
good way to identify improvement projects. Cost avoidance is the third
category of project opportunity. Cost-avoidance projects cannot be quan-
tified using the current financial statements because a performance prob-
lem has not occurred. However, it may be well known that unless a proj-
ect is undertaken now to avoid a future cost, problems will occur in the
future. When properly defined, cost-avoidance projects form the basis for
good improvement projects. An example would be when regulatory stat-
ute requires a technological process change. Perhaps a key material is used
today but will not be available in the future. Failure to replace the current
material in the near term might result in a heavy fine to an organization

in the longer term.
Benchmarking is a fourth category of project opportunity identifica-
tion. Benchmarking compares the operational performance of one system
against another. The thought is that the poorer-performing system could
be improved by using operational methods similar to the better-perform-
ing system. Benchmarking can be very useful if the systems have been
designed on the same basis. If not, there could be issues when trying to
emulate another system with wrong assumptions. For example, a com-
parison between two distribution centers may show significantly different
inventory turns-ratio performance. Prior to assuming that the distribution
center with a lower turns ratio could be made to perform like the distribu-
tion center with the higher turns ratio, though, questions should be asked
to ensure that both centers have similar customers, products, suppliers,
and inventory systems. If they are similar, then lessons may be learned
from the better-performing distribution center. If the distribution centers
are not really comparable, the project to improve the inventory turns ratio
would be based on false benchmarking assumptions.
In the process-assessment category, a team would “walk the process” to
study how it actually works. One of the most useful tools used to conduct
a process assessment is a value-flow map (VFM). A VFM is a detailed and
quantified process map (discussed in Chapter 4). The VFM describes every
operation within a work stream, including their interrelationships. It also
quantifies the flow of material and information through the work stream.
Process assessments are useful because they identify waste-reduction
opportunities not easily seen on management reports. These unknown pro-
cess issues are also called the hidden factory. It should be noted that several
VFMs can be integrated into a value-stream map (VSM) that describes an
entire enterprise, including customers, suppliers, and internal operations.
Customer, regulatory, and health-and-safety issues are also good areas
to identify improvement projects. Financial benefits should be clearly esti-
mated for these projects using one of the eight project identification strat-
egies shown in Figure 1.5.
Once a project opportunity has been identified, the project deploy-
ment process starts. There are different strategies to deploy projects, but
basic questions that should be asked are, “Which improvement strategy
should be used to solve the problem and generate the business benefit?”
“If the solution to the problem is known and can be easily handled by pro-
fessionals within the organization, then why overly complicate the project
by bringing in Lean Six Sigma belts?” “Also, if the project can be solved
by capital expenditures or reengineering, then why go through root-cause
analysis using Lean Six Sigma tools and methods?” In other words, Lean
Six Sigma projects should have characteristics that make deployment of
teams and root-cause analysis beneficial to the organization. This leads to
the discussion of what makes a good Lean Six Sigma project.
Key considerations when deciding whether a project should be deployed
using Lean Six Sigma include estimating business benefits, the implementa-
tion time frame, the resource requirements, and the estimated project risks.
Project benefits can be classified into four categories. These are impact to the
P/L statement, cash-flow improvements, significant cost-avoidance oppor-
tunities, and soft savings (benefits that are difficult to quantify). Operational
benefits occur as reductions of time, material, and other expenses; increases
in revenue and margin; and cost avoidances, as well as improvements in
quality, customer satisfaction, and employee satisfaction. At a more detailed
level, operational benefits can be broken down into hundreds of specific
operational metrics that organizations use to control their systems.
Implementation time frame or schedule reflects the fact that properly
scoped Lean Six Sigma projects should be executed within a time period
that is useful to the organization, which is typically within 6 to 12 months
for black belt projects and less time for green belt projects. The better the
project scope, the less time it will take to complete the project. Good project
management will help to keep a Lean Six Sigma project on schedule.
An advantage of most Lean and Six Sigma projects is that they do not
require large capital outlays because they improve a process back to its
original design intent (entitlement level). However, resources in terms of
team members and budgets for data collection and root-cause analysis are
needed for project execution.
Relative to risks, Lean Six Sigma projects in general and especially cer-
tification projects should not depend on other projects, new technology,
or conflicting organizational goals and objectives (strategic and political
conflicts) for completion. For example, a project should not be deployed if
the process will be eliminated in the intermediate future, if it requires tech-
nology not in existence, or if it interfaces with other processes that cannot
be included within the project’s scope.
The justification of the business case should include the problem, its
organizational impact, and the desired outcome, but it should not have a
specific solution. This would depend on the root-cause analysis. Building
an effective business case for a Lean Six Sigma project is important for
obtaining senior-management and process-owner support. The project’s
problem statement should be aligned with the business case, which also
should reflect senior management’s high-level business goals. A business
case also should identify the time period of problem occurrence. The proj-
ect’s problem statement should describe the problem and its magnitude.
The project’s goal for improving the KPOV should have the same scope as
the problem statement as well as an improvement target and completion
date. The project’s KPOV should be consistent at every level of project anal-
ysis. This information should be documented as a written project charter.
Lean Six Sigma Operational Assessments

An operational assessment is a process for estimating the potential busi-
ness benefits to be gained from a Lean Six Sigma deployment. Assessments
properly conducted will firmly establish a Lean Six Sigma deployment by
ensuring a high return on investment (ROI). The major goals of an oper-
ational assessment are to train senior management and champions to
identify Lean Six Sigma projects within their operations. This identifica-
tion process is different from normal methods of project identification, as
shown in Figure 1.5. The operational assessment process starts with senior
management training sessions. In these sessions, senior management’s
high-level goals are systematically broken down into areas or opportuni-
ties by major strategic goal. These areas of opportunity are called project
clusters. The goal is to map project clusters into project charters through
champion training and operational assessments. In addition to identifying
projects, executives and champions are shown how to customize the Lean
Six Sigma program to their organizational culture to accelerate the deploy-
ment schedule.
Executive Training Sessions

An operational assessment must have support from senior management.
The best way to gain senior management’s support is to show managers
the success characteristics of a typical Lean Six Sigma initiative. In addi-

tion, it is important to show how the program can be modified to improve
the organization’s operational effectiveness. In an executive training ses-
sion, real-world examples are drawn from the organization’s work streams
from the a pre-assessment by consultants to show how the Lean Six Sigma
program could be deployed within the organization. This also includes
information related to the types of Lean Six Sigma projects that would be
deployed for this specific organization; profiles of the people who would be
involved in the deployment, including the various belts, champions, sup-
port personnel, and team members; the training curriculum; and typical
business benefits obtained from similar deployments. The major goal of
the executive training session is to gain senior management’s commitment
to proceed to project champion training and to an operational assessment
to identify Lean Six Sigma project opportunities within the business units.
The first topic of executive training covers the proposed deploy-
ment structure for the organization. The deployment structure includes
the organizational framework describing both key participants from the
organization and those from the consulting organization. This discussion
includes roles and responsibilities. The deployment should be controlled
by a steering committee consisting of executives from all major functional
areas within the organization as well as the consulting organization.
In Chapter 2, we will suggest that later in a deployment, the sales and
operating planning (S&OP) team should control the steering committee
because that team is responsible for all major supply chain functions. Also,
the S&OP team has a vested interest in optimally deploying the Lean Six
Sigma initiative because that team controls the resources necessary to work
the projects and receives direct business benefits from them.
The executive steering committee is assisted by functional support
people and other key deployment personnel. Functional support includes
information technology (IT) that extracts data files and information rele-
vant to project analyses. Having IT support will accelerate the time to close
Lean Six Sigma projects. In the improve and control phases of the project,
IT support will also be useful in making minor to moderate IT system
changes to help implement process improvements and controls. Finance
is another important support function. During the operational assessment
process, finance must review every proposed project charter to verify that
the financial assumptions are reasonable. Also, finance will help to estimate
ROI for the program. In the improve and control phases of the project,
finance will be required to sign off on the actual project benefits and work
with the process owner to ensure that financial benefits accrue over time
according to the deployment plan.
Other important support people include the corporate communica-
tions department (CCD). The CCD works with the deployment team to
ensure that all communications around the Lean Six Sigma deployment are
consistent across the organization with respect to both the Lean Six Sigma
message and the organization’s strategic goals. Human resources (HR) is
the fourth major support function. HR helps to move people into their new
roles or directly hires new people to take on these Lean Six Sigma deploy-
ment roles and responsibilities.
Major roles and responsibilities within the Lean Six Sigma deployment
include deployment leaders who direct the deployment within business
units and report to the executive steering committee. Master black belts
lead the assessments and train other Lean Six Sigma belts. Champions
work with the belts to identify significant business opportunities and align
senior management’s goals. Champions are the business people within a
deployment, and the various belts are the technical people. Process own-
ers help to support the Lean Six Sigma projects with their local resources.
These include the project team’s members. The process owner will eventu-
ally help to implement process improvements.
The various belts lead the Lean Six Sigma projects and help the local
work team collect and analyze data to identify root causes. Toward the end
of the project, they will also work with the local work team to implement
process improvements within the modified process. Black belts typically
work across business functions, whereas green belts typically work within
a specific business function.
The success of a Lean Six Sigma initiative is the result of several
important factors. One critical success factor is support from senior man-
agement, that is, a top-down deployment. Senior management’s support
will guarantee adequate resource commitments and other support from
the organization. Another critical success factor is use of the right peo-
ple. The right people are those who historically performed above average
during the years prior to the deployment. If an organization cannot spare a
large percentage of its top performers, then it might be better off planning
a smaller deployment. The best people will get the project completed on
schedule and in a very professional manner. Poor performers must be con-

tinuously managed to complete projects. This becomes difficult because
projects may be deployed in diverse areas in which the poor performers
have not worked, resulting in an inability to accurately measure their per-
formance. For poor performers, this is an ideal situation, but it can slow a
deployment down to a snail’s pace.
A third important success factor is selecting the right projects. Lean Six
Sigma projects should be selected when there are no known solutions and
the root-cause analysis has a high likelihood of using the training tools. If
these success factors exist, obtaining quick wins should be relatively easy
for the deployment. Quick wins are very important to ensure the deploy-
ment’s success by maintaining the target ROI. They also help to show that
the Lean Six Sigma concepts apply to the organization. The final success
factor is effective communication of the deployment. Effective communi-
cation describes roles and responsibilities, the types of projects that are
being worked, and the business benefits for the organization. Success sto-
ries will greatly accelerate a Lean Six Sigma deployment. As a deployment
matures, organizations must customize the deployment to fit strategic and
tactical goals. An executive workshop should expose executives to key
Lean Six Sigma tools and concepts at a very high level to show them the
types of projects and problems that can be solved. This review also should
include a breakout exercise in which executives and their support staffs
scope areas for Lean Six Sigma projects using current goals as a basis for
project identification. The goal of the exercise is to identify operational
performance gaps for which executives do not currently have projects. The
executives also should be introduced to topics related to the next step of
the deployment. These include champion training followed by an opera-
tional assessment.
Champion Training
Following the executive training session, executives choose champions
within functional areas, that is, direct reports. These lower-level executives
are typically middle managers. The purpose of champion training is to
expose champions to more deployment details. These include information
regarding the technical tools and methods of Lean Six Sigma, the roles
and responsibilities associated with the deployment, project selection, how
to write project charters, and finally, how to conduct operational assess-

ments to create project charters. These project charters will eventually be
assigned to Lean Six Sigma belts. Champion training also includes infor-
mation about the deployment organization and strategy. The discussion
includes the executive steering committee functions, the typical roles and
responsibilities associated with the deployment, and how projects will be
selected during the operational assessment.
As champion training continues, assessment strategies and tactics are
discussed. The champions create an assessment plan for their functional
areas. After the training, as the assessment starts, the champions will be
working with the consultants and local black belt candidates to create proj-
ect charters. These will be based on operational and financial analyses.
The project charters are reviewed by local management and finance. Once
each black belt has been assigned two to four project charters, each having
the savings objective specified by senior management, the Lean Six Sigma
training will begin in earnest. Each black belt will work one project during
training.
Eventually, the project charters’ estimated savings are aggregated to
a business-unit level to firm up the deployment ROI. Although a specific
project may be over or under its original savings estimate, the cumulative
business benefits from the entire project population are likely to be on target
to deliver the required ROI. At the conclusion of the champion training ses-
sion, the champions should present their operational assessment plans prior
to departing the training session to conduct the operational assessments.
Conducting Operational Assessments

Operational assessments allow an organization to customize its Lean Six
Sigma deployment according to the business opportunities within each
of its business units. The Lean Six Sigma black belts are selected to work
improvement projects identified by the assessment to improve operational
and financial performance. The operational assessments are a structured
approach to investigating and identifying Lean Six Sigma projects. They
help create project charters that form the basis for the Lean Six Sigma
deployment within each business unit.
A major purpose of operational assessments is also to gain support
from local executives because a deployment will rely on their resources. In
the initial meeting with local executives, the Lean Six Sigma deployment
team must show how they will become an integral part of the assessment.
The discussion includes evaluation of potential projects, belts, and typical
benefits. The deployment team should review key aspects of the corporate
deployment, but it is important to show how it will be customized at a local
level. Relevant information includes training dates, financial projections,
other benefits, what will be taught, and how the project identification pro-
cess will work within the local business or facility. At the end of the assess-
ment, the proposed Lean Six Sigma projects will be discussed.
An operational assessment involves several components. These
include functional manager interviews, analyses of financial and opera-
tions reports, the creation of VFMs (discussed in Chapter 4) to identify
operational issues related to quality, long cycle times, high costs, high
inventory levels, and gaps in operational and financial performance. At the
end of the assessment, and before the team leaves the facility, project char-
ters must be created by the assessment team. These charters can be mod-
ified later as additional data become available to the team. But an assess-
ment team should not delay creating the project charters until a later date
because it will be more difficult to obtain the necessary functional manager
review and sign-offs on the project benefits. If an assessment team cannot
create project charters to show performance gaps and potential business
benefits by project, then the operational assessment has not been success-
ful. The assessment team should remain at a location until its work has
been completed according to plan. The failure to complete the operational
assessment successfully will mean that the Lean Six Sigma black belts will
struggle to validate their project charters during training. This situation
will delay their project execution by between 30 and 90 days.
Local Leadership Interviews

As the assessment team begins the interviewing process, it is important
to review with each local executive the operational breakdowns that pre-
vent that executive from achieving his or her goals. The team should ask
for recommendations of specific areas or work streams for investigation.
This interviewing process also should include a review of the local opera-
tional and financial performance reports to evaluate current performance
baselines. The assessment team also should request help to create VFMs of
major work streams to look for process breakdowns not currently captured
by management reports. This information should be checked against the
areas of opportunity identified during the executive training session and
local interviews to ensure consistency across the organization. These local
interviews are also important to obtain resources to continue the assess-
ment within each functional area.
Opportunities for Lean Six Sigma projects will emerge as the assess-
ment team identifies critical processes that have performance gaps. Data
may be available to immediately analyze performance gaps and create
project charters. Using this information the assessment team will create
business cases for projects. This is important so that the Lean Six Sigma
belts will not need to do this work during their training cycle. At the end of
the assessment, the team creates a deployment plan for the local business
unit or facility. This plan includes the initial round of proposed projects
recommended for deployment as well as second and third rounds of proj-
ects. The initial ROI is also estimated to gain support for the deployment.
A report that embodies all the information gained from the assessment is
also created for corporate and local executives. This information is pre-
sented to the local leadership team to complete the assessment.
Lean Six Sigma Black Belt Training

If the assessment team and deployment leaders did their jobs well, the Lean
Six Sigma belts will have well-defined project charters before and after
training. This will place them on a firm basis for data collection and analy-
sis. This will enable the belts to focus on learning the Lean Six Sigma tools
and methods rather than having to find projects.
The Lean Six Sigma training program is made up of training cycles.
These consist of one week of classroom training followed by three weeks
of project work. However, there are many variations on this model. If the
Lean Six Sigma belts have a very good technical background, the classroom
training can be reduced to just two weeks. Or, if the organization needs
sequenced training, the training cycle might begin with one week of Lean
training followed by one week of green belt training and finally by two to
three weeks of black belt training. We believe that the sequenced training
cycle is the most effective because students can apply their newly learned
tools to three projects in total rather than just one project. Also, the belts
learn to simplify a process using Lean tools and methods prior to applying
the statistically oriented Six Sigma tools and methods. It is also important
that the training emphasize the correct mixture of analytical tools because
“one size does not fit all.” In particular, supply chain projects should really
have more of an operations management or operations research blend of
analytical tools. This concept will be discussed in Chapter 8.
Lean Six Sigma black belt training consists of a combination of train-
ing topics designed to bring the black belt through the define, measure,
analyze, improve, and control (DMAIC) phases of the project. In the define
phase, the black belt is trained to identify project opportunities using the
VOC and VOB information to create or better scope the project charters.
The project-identification process will be discussed later in this chapter.
In the measure phase of the training cycle, the Lean Six Sigma black
belt is trained to conduct measurement system analyses (MSAs) to ensure
that the KPOV can be measured accurately and precisely and to deter-
mine the process capability of the KPOV. Capability analysis is discussed
in Chapter 8, but it consists of comparing the VOC relative to the process
performance. At the end of the measure phase, the team will have a list
of potential input variables causing the KPOV to vary. In this phase of
the training cycle, the Lean Six Sigma black belt is trained to analyze the
collected data to identify input variables that have the greatest impact on
the KPOV. These are the key process input variables (KPIVs). During the
analysis phase, the Lean Six Sigma black belt could use a variety of tools
and methods to identify these KPIVs and their combined impact on the
KPOV. In the improve phase, the black belt and improvement team change
the process to improve the operational metrics, that is, the KPOV.
Lean Six Sigma Green Belt Training

A common problem in green belt training is “watering down” the Lean Six
Sigma tools and concepts rather than designing the training topics for the
types of people and projects that will be part of the green belt deployment.
The major problem with green belt training is that it tends to be overly
complicated, with too much emphasis on black belt–level statistical tools
and methods. There also may be a lack of emphasis on completing applied
projects having significant business benefits. Green belt training is very
important to the organization, and the students should be supported with
good training materials and held accountable for business results in the
same manner as the Lean Six Sigma black belts are held. In addition, the
training should adequately prepare green belts for the next step in their
career development, that is, black belt training.
Master Black Belt Training

It was recognized in the early days of the Lean Six Sigma program that
for deployments to continue without retaining external consultants, the
best black belts would need to support an organization’s Lean Six Sigma
training and mentoring activities. Although the technical knowledge of
master black belts was already advanced, business acumen, presentation
skills, and other “softer” skills were added to the training program to round
out their skill sets. Master black belt certification requirements evolved to
include advanced black belt topics, mentoring, creating workshops, identi-
fying and leading high-impact projects across an organization, and work-
ing with executives, sponsors, and champions to deploy the Lean Six Sigma
program.
Although the specific training topics have evolved over time and by
organization, a master black belt is a highly proficient black belt having
business acumen. Master black belts are hands-on rather than theoreti-
cal, and the best master black belts have completed numerous projects and
have helped to lead one or more major deployments. A typical master black
belt training workshop would consist of the following topics in addition to
advanced analytical methods: deployment governance, strategies, tactics,
roles and responsibilities, change management and organizational culture,
financial analysis, project selection, pipelines, scoping, creating charters,
the selection of belts and training models, and benchmarking.
Design for Six Sigma (DFSS) Training

Although Lean Six Sigma projects follow the DMAIC methodology to help
eliminate chronic problems within a current process, DFSS black belts create
new processes (or products) to meet VOC requirements. This work requires
specialized tools and methods that form the basis of DFSS. The DFSS meth-
odology consists of several phases that have inputs and outputs designed to
eventually create solutions for meeting new customer requirements.
DFSS has become an important differentiator for the organization that

deploys it well. In this second edition, Chapter 10 has been written to focus
entirely on this topic. It should be noted that current DFSS tools and meth-
ods used for product design in manufacturing require major modifications
for supply chain applications. DFSS must be modified for different indus-
tries and even functions within an industry. As they say, “one size does not
fit all.” Or, as people often remark, “Everything isn’t a nail, even though you
know how to use a hammer.”
Building the Project Charter

The project charter is the communication vehicle for a project. It takes sev-
eral forms depending on the organization and industry, but it has common
elements. These are stating the organization’s business problem; stating
the project objective, that is, a part of the higher-level problem statement;
determining the required resources to execute the project; and quantify-
ing the financial and other benefits anticipated from project completion. A
simple example of a project charter is shown in Figure 1.6. Here we see sev-
eral sections, including administrative, project-definition elements, oper-
ational metrics, resource requirements (including team members), and a
financial summarization section that calculates net business benefits. The
project charter is updated as the Lean Six Sigma improvement team works
through its root-cause analysis to solutions.
Scope
Charles Kettering stated that “a problem well stated is half-solved.” Good
scope helps to state a problem correctly. If the scope is too broad, the proj-
ect may never be completed. At the other extreme, if the scope is too nar-
row, the project may not produce sufficient business benefits. Three ques-
tions help to frame a project’s scope. The first question is, “Which process
needs improvement?” The answer should be a very specific phrase to pro-
vide focus, for example, “the corporate billing process for commercial cus-
tomers in the United States,” “third-shift deliveries into our Chicago dis-
tribution center,” or “soldering defects for component X in the Singapore
facility.” The second question is, “What are the critical process outputs that
measure success for the process?” At a high level, these outputs may be clas-
Administrative Information
Project Name: Date:
Business Unit:
Champion: Process Owner:
Project Timeline:
Project Definition Information
Problem Statement:
Project Goal:
Project Metric(s):
Resource Requirements
Team Members:
Project/Team Leader:
Financial Information Margin Cost Cost

Revenue Reduction Avoidance Other
One-Time Cost Savings
Project Costs
Total Benefit
Figure 1.6 Typical project charter.
sified as related to time, quality, cost, safety, or another attribute. Related

questions might be, “What is the historical performance level of this spe-
cific output versus the desired target?” and “How should the process work,
and is it working properly?” Good scope helps to refine a project’s problem
statement and its objective and to identify the right team members.
Project Problem Statement

The problem statement should be a complete description of the business
problem presented in such a way that the entire organization can under-
stand the importance of deploying the project. It should include current
performance baselines related to financial and operational metrics as well

as quantitative background information. This background information
describes where the problem occurs, how it is measured, who is affected by
the problem, and how much they are affected. Other critical information
should include all major internal and external impacts on the business as a
result of the existence of the chronic problem, including those affecting the
customer. The project’s metrics should clearly link to high-level business
goals. It is also important that the problem statement contain no solutions
or other information that may bias data collection and analysis.
Project Objective
The project objective should be a part of the problem statement. It should
be linearly linked to the overall problem and be in the same financial
and operational metric format. For example, if the higher-level problem
is stated in terms of “excess inventory investment” and “low inventory
turns,” then the project objective should have at least these same metrics.
However, as the root-cause analysis proceeds, the team may be required
to bring additional operational metrics into the project charter. For exam-
ple, through root-cause analysis, the team may find that the lead time for
a certain product category or supplier has a major impact on inventory
investment and turns. The project solution might be focused on lead-time
reduction. However, lead time must be corrected to the higher-level proj-
ect goals of investment and turns. The team should ensure that the metric
relationships are explained. For example, the Lean Six Sigma team should
be able to make a statement such as, “If lead time is reduced by 50 percent
for product category XYZ, then inventory turns at the product level will
increase by 20 percent and at the business-unit level they will increase by
10 percent to reduce inventory investment by 10 percent.” In this manner,
as the team works through the root cause, senior management always sees
the overall business impact of the project.
Required Resources
The resources for the project will vary depending on the type of project. In
Lean Six Sigma projects, the goal is not to make major changes in the pro-
cess that would require large capital outlays or significant resource com-
mitments. This is not to say that some high-leverage projects should not be
resourced using capital but only that this situation should be the exception,
not the rule. The three categories requiring resources are the people taking
part in the project, those paying for data collection and analysis, and those
affected by implementation of the improvements.
The people making up the Lean Six Sigma project team, as well as sup-
port personnel from IT, finance, and departments within the organization,
are often very busy. As a result, the project should only use the level of
resources required to meet its objectives. Thought must be put into who
should be on the team, as well as what team members will do when on
the team. Resources required for data collection and analysis are another
important consideration. Some data-collection efforts require that surveys
be conducted or data be purchased. Examples are data required to obtain
customer buying preferences, laboratory testing, and payments to consul-
tants or other professionals for their time. Finally, improvements will cost
money. Examples include making minor changes to software code to mis-
take-proof data entry, modifying the employee training program, or mak-
ing minor process changes. Resources should be well managed.
Project Financial Justification

Project financial benefits are classified into four categories. The first is
direct cost savings visible on the P/L statement. The second is incremen-
tal margin on current or improved sales. The third is lower carrying costs
associated with working capital and higher asset utilization. The fourth is
significant cost avoidances that can be clearly documented. In addition to
these four categories, Lean Six Sigma projects should improve or at least
not degrade customer metrics such as on-time delivery and other service
levels. It is important to correctly classify the projects in terms of their
financial benefits as well as month-to-month timing so that senior man-
agement can manage the Lean Six Sigma deployment to accommodate the
business unit’s financial goals. Financial analysts also should be an integral
part of the project team. This information should be captured within the
project charter.
A P/L statement lists the major cost categories that help to identify
Lean Six Sigma projects. Obvious project opportunities include expense
reductions of scrap, rework, overtime, warranty, premium freight, inter-
est, direct labor, materials, and transportation, as well as other expenses.

However, a heavy emphasis on cost reductions has been a criticism of
the Lean Six Sigma program. While this may be true, cost savings always
should be a business priority. However, to prevent an unbalanced deploy-
ment strategy, a mixture of Lean Six Sigma improvement projects should
be created from each of the four major business benefit categories. Also,
every project should improve or at least not deteriorate customer satis-
faction. The actual percentage of projects within a particular category will
vary by organization depending on its goals and objectives.
P/L financial benefits associated with revenue increases include sales
percentages over and above those already in the annual operations plan
or increases to gross margin. When identifying projects in these areas, it
is important to very clearly establish performance baselines and antici-
pated revenue improvements by sales. This helps to ensure that the Lean
Six Sigma team is recognized for its incremental contributions. There are
many examples where revenue has been increased through the use of Lean
Six Sigma methods. For example, perhaps sales were lost because of long
cycle times or poor quality. The Lean Six Sigma team may have created a
VFM to identify wasted time within the process or where quality issues
occur. Organizations can also analyze current product or service offerings
and modify them to increase sales or obtain incrementally higher gross
margins. In the latter situation, gross margin increases would be obtained
by reducing product returns and allowances. As another example, using a
VOC analysis, new marketing opportunities might be identified to increase
sales revenue.
The third category includes cash-flow improvements. These are associ-
ated with reductions in account receivables and asset conversions such as
inventory investment as well as asset divestitures such as facility outsourc-
ing. The P/L impact from these types of Lean Six Sigma projects depends on
the prevailing interest rates. In these types of projects, the Lean Six Sigma
team works to free up available capacity and remove entire sections of an
asset class. For example, if productivity and throughput are increased, then
perhaps fewer manufacturing lines or facilities will be required to satisfy
customer demand. Or, if inventory turns are increased, less distribution
center floor space will be required. In fact, if enough floor space is elimi-
nated, there may be no further need for a satellite warehouse. Other Lean
Six Sigma projects might evaluate the need to own assets rather than lease
them to free up invested capital. There are many other examples where
Lean Six Sigma projects have significantly increased cash flow.
The last category includes benefits obtained using cost avoidance.
There are some situations where a cost-avoidance project may become
a higher priority than a cost-saving project. But cost-avoidance projects
must have their assumptions verified by finance. Examples where Lean
Six Sigma improvement projects have been deployed successfully to avoid
future cost increases include material substitutions in which, without the
removal or addition of certain materials, the organization would be forced
to cease operations or use much more expensive materials in the future.
Health and safety issues are another area where cost-avoidance projects
have been deployed successfully to prevent anticipated injury or death. As
a final example, a customer may threaten to take business away if a chronic
problem is not eliminated. The benefits of cost-avoidance projects to the
organization can be significant.
Project Planning
After creation of the project charter and approval by management, a project
plan is developed by the Lean Six Sigma team. The project plan requires sup-
port from the process owner and the work team. The Lean Six Sigma team
refines the original project’s scope. This is accomplished by reviewing of the
system map shown in Figure 1.3. In many organizations, this system map is
called a SIPOC. The acronym SIPOC describes a high-level, quantified sys-
tem map that shows input and output relationships; it includes the supplier,
the inputs to the process (including materials, labor, and information), the
process (which converts inputs into outputs), the outputs (including mate-
rial, labor, or information), and the customer (who receives the output from
the process). As the Lean Six Sigma team continues analysis and refinement
of the project objective, more detailed process maps may be created.
To develop the project plan, the Lean Six Sigma team breaks the project
into a series of well-defined activities or tasks having the DMAIC phases as
the project’s milestone activities. Each project has generic Lean Six Sigma
deliverables within the DMAIC phases as well as project-specific activities.
The activities are spatially and temporally related to each other; that is, they
are series or parallel activities separated by a time sequence. Each activity
has an expected duration or completion time defining the time required to

complete it. Once an activity has been clearly defined, the Lean Six Sigma
team estimates the resource requirements. Project milestones guide the
team through the analysis, root-cause identification, and solution process
as well as eventual transition of the solutions to the process owner and
local work team.
One of the key principles of process improvement is to understand
the focus of the improvement activities, that is, the problem statement and
goal. To get started, the team is brought together to brainstorm questions
to be answered by the analysis. Key stakeholders and customers must be
questioned. An important activity is to list relevant project questions in
advance for consideration by the Lean Six Sigma team and prior to data
collection. The specific questions will vary by industry and organization.
Obtaining the answers to these questions can be difficult because organiza-
tions seldom have the necessary data in a convenient format and location.
This is one reason why the questions had never been answered previously.
The typical situation is that required data, if they exist, will be scattered
across several software applications and databases. They must be brought
together in one place to build a model.
Using inventory investment and its turns ratio as an example, the
simple question, “What should inventory turns be by item and location?”
requires accurate estimates of lead time and expected demand, as well
as their variation by item and location. These will be the required inputs
into the inventory model. However, issues usually arise when the team
tries to accurately estimate item lead time and demand by location. The
required data may not even exist. Other relevant data elements required
for an effective inventory analysis may include cost of goods sold (COGS),
service-level targets, lot sizes, and other stratification variables.
Table 1.4 provides a partial listing of questions relevant to inventory
analysis in most organizations. The first question is applicable to raw mate-
rials, work in process (WIP), and finished-goods inventories. The sec-
ond question is applicable to organizations using forecasting models. The
advantage of listing questions prior to data collection and analysis is that
necessary data fields can be collected and brought together in one place to
build a quantified model of a work stream directly associated with the list
of critical questions.
Table 1.4 Relevant Questions

1. What should inventory targets (turns) be?
2. How do demand and lead-time variation affect inventory investment?
3. What is the current inventory investment baseline?
4. How can inventory investment be reduced?
5. Which suppliers contribute to excess inventory?
6. How do large lot sizes and long lead times affect inventory investment?
7. What are the current levels of excess and obsolete inventory investment?
8. Should low-volume items be centralized or decentralized to reduce investment
and improve service?
9. What are the current forecast accuracy baselines?
10. What has been the impact of unplanned customer orders on inventory?
11. How many unplanned schedule changes occur today?
12. What is the overdue order backlog situation?
13. What is the normal material availability at production start?
14. What is the effectiveness of manufacturing resource planning (MRP)?
Use of these questions ensures project alignment with business goals as

well as operational alignment with the data directly linked to the business
metrics that must be improved by the team. Analysis of a properly built
inventory model helps to ensure that the correct questions are answered
by an analysis. These concepts will be discussed in Chapters 6 and 8 in the
context of building and analyzing inventory models. But the concepts also
apply to the analysis of other supply chain work streams. Asking the right
questions upfront will go a long way toward producing a project solution.
Project Risk Assessment

As the Lean Six Sigma project is being defined, the team must analyze
external and internal project risks, including their impact on projected
benefits and required resources. Project risks can arise for many reasons.
These might include project cost overruns, shortages of resources, tech-
nological problems, changes in organizational strategy, changes in orga-
nizational structure, and changes in customer requirements. Project cost
overruns also can occur for several reasons. These include incorrect spec-
ifications and poor utilization of materials and labor as well as other fac-
tors. Shortages of resources occur as a result of the loss of key suppliers or
unanticipated demand. Technological problems occur because of unfore-
seen problems with machinery, test equipment, materials, methods, and
other factors. The result is lower process yields. Some of these issues are
associated with the design of new products and processes or research and
development (R&D) projects.
Additional risks occur when an organization changes strategic focus
(i.e., closes facilities or shuts down manufacturing lines); projects asso-
ciated with these processes will be at risk because priorities change. For
example, when organizational structure changes, projects currently sup-
ported by process owners and champions may be left without organiza-
tional support or resources. Also, if a project touches external customers
and requirements change, the basis for a project must be modified or the
project canceled. Although project risks exist, they can be managed and
contingency plans created to eliminate or minimize their impact.
Project Management
Effective project management is critical. It is especially important for
building the business justification for a project. Key project-management
tasks include developing the overall project plan with team members, allo-
cating resources to project work activities, implementing project control
procedures, and ensuring an effective transition of the modified process
from the improvement team back to the process owner and local work
team. These key project-management elements are necessary to ensure
creation of efficient resource planning and project control to meet cost,
quality, schedule, and improvement objectives.
A project brings people from different organizational functions
together for a specific purpose, that is, to solve a problem for the organi-
zation. It consists of people, materials, information, machines, and other
resources that are used to accomplish the project’s goals and objectives.
More specifically, it is a network of related activities. These activities have
a varying time duration that consumes resources. Some activities begin
before other activities, whereas others are parallel. Recall that project man-
agement consists of developing goals with the team and breaking these
goals into key milestones, activities, and lower-level work tasks. This pro-
cess is called creating the work breakdown structure (WBS).
Fundamentals of Project Management

Effective management ensures that the project scope is correct, that the work
is done correctly, and that the project remains on budget and on schedule.
Project scope defines the work stream within which a project begins and
ends. A key tool to scope a project is the high-level process map called the
SIPOC (supplier-inputs-process-outputs-customer). Project scope is com-
municated differently in different organizations. It is called the project char-
ter objective, the statement of work (SOW), or the internal performance spec-
ifications depending on the context. The quality of the project-management
process relates to how well the team executes its deliverables. It is important
that a team periodically measure its effectiveness relative to quality of project
execution and budgets. A project should remain within budget if the project
fundamentals are correct and all schedules related to project milestones are
completed on time.
Specific project-management methods vary depending on the size and
complexity of the project and its value to the organization. Large, com-
plex, and important projects require rigorous management, whereas small
and less complex projects may require only basic project management. In
summary, the basic elements of project management are to define required
project activities to form the WBS, to plan how the activities or work tasks
will be done, to bring the team together, to measure and control all the
interrelated project tasks, and to ensure that the project closes on time and
within budget.
Selecting the Team

Lean Six Sigma teams require effective project management. Because team
members are assigned on a temporary basis to the team and may have other
assignments, it is important that they remain focused on the project’s prob-
lem statement and goal. Team members will likely be drawn from several
different organizational functions such as logistics, manufacturing, mar-
keting, sales, and purchasing. However, the core portion of a team should
reflect the process under investigation, as defined by the SIPOC. For exam-
ple, core team members should include people who are part of the process
under investigation as well as those who supply or receive materials, labor,
or information at the process input and output boundaries. In addition, a
team may require subject-matter experts (SMEs) to help collect and ana-
lyze data. Once the Lean Six Sigma team is formed, it will progress through
several phases ranging from disagreement to consensus. A team is more
likely to reach consensus if data are collected and analyzed in an unbiased
manner. A fact-based approach will reveal a clear course of action.
In the initial team formation, the team leader should review the project
charter’s problem statement and goal. This review should include a thor-
ough discussion from the perspectives of all team members. Throughout
this review, team members should be focused on the questions that need to
be answered. A diverse team and proper facilitation are important to avoid
either “groupthink” or derailment of the project by forceful personalities.
Team Dynamics
There are several other considerations relative to selecting and managing a
project team. In Chapter 2, we will discuss virtual teams within the context
of enterprise-wide kaizen events encompassing people from around the
world. These teams are complicated by culture, language, geography, and
other factors. The complications must be managed in addition to those
associated with team maturity and dynamics.
Good project teams have members with different skills and perspec-
tives regarding the issues under discussion. Properly facilitated, the project
will move toward solution with minimal conflict. It is important to use
effective tools and methods to channel the team’s energy into work activ-
ities to avoid prolonged interpersonal conflict. For example, a team needs
to agree on the meeting organization, roles, and responsibilities, as well as
how to make decisions and plans,
Maturity
Teams move through maturation phases that start at the initial team meet-
ing and continue through project’s closure. This movement could be very
fast if the team is well facilitated using proper tools and methods or very
slow if the team becomes bogged down by prolonged conflict. The team
maturation phases consist of forming, storming, norming, and perform-
ing. Team members exhibit little conflict during their initial meetings.
However, as differences of perspective and approach become evident, the
storming phase is entered. Differences are to be expected and encouraged,
but they need to be managed in ways that will bring consensus after discus-
sion. In the norming phase, the team, when properly facilitated, is able to
work through disagreements. In the performing phase, the team is work-
ing efficiently and has trust among its members.
Work Breakdown
Work breakdown is an essential part of project planning. It involves taking
the project deliverables and systematically breaking them into major mile-
stones. The milestones are broken into specific work activities and lower-
level work tasks. Deliverables are the specific goals of the project. In the
10-step solution process, the DMAIC milestones have been represented as
the 10 steps of the solution process focused on supply chain improvement.
This is shown in Figure 1.7. The Lean Six Sigma improvement team breaks
the 10 steps down into work activities. These activities are broken into
work tasks. The work tasks are the specific items that must be completed
by a small group of people or a specific person to complete a higher-level
activity or deliverable.
Depending on a project’s complexity, there may be easier ways to com-
municate a project’s status than others. Certain types of project communi-
cation will be more effective depending on the message and the targeted
audience. Complicated projects should be tracked using project-manage-
ment software such as Microsoft Project. Simpler projects probably can be
managed using a Microsoft Excel list of each work activity with its associ-
ated work tasks, including beginning and ending dates for each task, or a
simple project tracking form such as the A3 form shown in Figure 1.9 The
advantage of using project-management software is that project status can
be displayed in Gantt chart format, with activities listed by row and time
duration by column with bars to indicate the relationship of one activity
to another. A Gantt chart is shown in Figure 1.7. An advantage of using
project-management software is that when scheduling changes occur
because of resource scarcity, the software can immediately reestablish the
work schedule, or simulations can be performed to reduce a project’s cycle
time by adding resources (crashing the schedule).
Key Project Milestones

Month 1 Month 2 Month 3 Month 4
1. Align project with business goals, the VOC, and establish accurate
metric baselines
a. Identify project opportunity
b. Estimate business benefits
c. Select team and complete project charter
2. Ensure buy-in from process owner, finance, and other stakeholders

a. Develop project plan with process owners
b. Develop as-is process map and baselines
c. Refine project charter as required
3. Communicate project to stakeholders
a. Develop communication strategy
4. Ensure measurement system accuracy, collect data on inputs and out,
prove causal effect Y = f(X) using LSS tools and methods
a. Identify key metrics (outputs)/improvement targets
b. Validate Key metric measurement systems
c. Develop data collection strategies on inputs/outputs
d. Collect data and build models
e. Analyze models and identify root causes
f. Test the optimum solution (pilot)
g. In parallel, create a list of other projects and charters
h. Provide charters to champions
i. Help champions integrate charters into Lean Sigma deployment
5. Improve measurement systems and refine analyses as needed to identify
root causes and their solutions, i.e., improvements or countermeasures
a. Update measurement systems on key inputs/outputs as well as
other identified MSA issues
6. Develop detailed improvement plan, conduct a pilot to prove Y=f(X)

a. Analyze pilot/develop list of countermeasures by root cause
to ensure their elimination
b. Refine project timeline
7. Integrate solutions into the larger process based on the pilot
a. Develop action plans to expand the solution(s)
8. Create standardized procedures, processes and mistake proofing

a. Standardize revised procedures
9. Implement training and audits to sustain the solutions

a. Implement training and audits as required
10. Create the control plan, apply control strategies and transfer project
ownership to the process owner and local work team
a. Implement and integrate all other control actions
Figure 1.7 Gantt chart.
Communicating Project Status

In addition to specific project communications, there are higher-level
deployment communications that need to be coordinated with the orga-
nization’s communications professionals. It is important for an organi-
zation to hear a simple, clear, and consistent message from all Lean Six
Sigma teams. Communication should be standardized to a high degree to
ensure that people can easily understand deployment information such as
benefits, project types, and success stories. For example, Lean Six Sigma
initiatives communicate project status using easy-to-understand visual
displays employing a combination of project status charts and presenta-
tion templates. There are many forms of project status charts, but the most
common is the Gantt chart shown in Figure 1.7. A second key communica-
tion vehicle is a PowerPoint presentation. Different organizations have pre-
ferred forms of communication. In this context, it is important to provide
the various Lean Six Sigma teams with a common presentation template so
that every project can be easily compared with others. Figure 1.8 provides
a list of presentation deliverables. These correspond to the 10-step solution
process.
10-Step Solution Process DMAIC Project Presentation
1. Align project with business goals, the VOC, and 1. Team picture
establish accurate metric baselines
D 2. Problem statement
2. Ensure buy-in from process owner, finance, and other 3. Project objective
stakeholders 4. Process baseline
3. Communicate project to stakeholders 5. Process map

M 6. Brainstorming the inputs (X’s)
4. Ensure measurement system accuracy, collect data on
inputs and outputs, prove causal effect Y = f(X) using 7. Measurement on the output (Y)
LSS tools and methods 8. Capability analysis on the output (Y)
5. Improve measurement systems and refine analyses as 9. Business benefit verification

A needed to identify root causes and their solutions, i.e., 10. Elimination of trivial many inputs (X’s)
improvements or countermeasures
11. Selection of key inputs (X’s)/build model
6. Develop detailed improvement plan, conduct a pilot 12. Final solution
to prove Y=f(X)
13. Integrated control plan on the inputs (X’s)
I 7. Integrate solutions into the larger process based on the 14. FMEA
pilot
15. Instructions and training
8. Create standardized procedures, processes, and 16. Verified business benefits
mistake proofing
17. Next steps
9. Implement training and audits to sustain the solutions
C 18. Translation opportunities
10. Create the control plan, apply control strategies, and
transfer project ownership to the process owner and 19. Lessons learned
local work team
Figure 1.8 Communicating project status using the DMAIC process.
Identifying Lean Six Sigma Projects

It has become widely recognized that Lean Six Sigma methods are use-
ful throughout an organization’s many supply chain functions. Tables 1.5
through 1.7 contain generic lists of operational metrics that have served
as the basis for these projects. Other metrics could be added to this list
depending on organizational requirements. In the chapters that follow, we

will provide numerous examples showing how Lean Six Sigma methods
are applied in practice. The metric lists contained in Tables 1.5 through
1.7 will help your organization to begin the project identification process.
Table 1.5 Typical Project Examples: Part A

Finance
Accounts payable cycle time
Variance to budget
Margin improvement
Overtime expense
Accounts receivable cycle time
Quality Assurance
Defects
Customer complaints
Claims
Rework
Scrap
Warranty
Billing
Billing errors
Mailing expense
Call Center
Average handling time
Call transfers
Cost per abandoned call
Purchasing
Inventory investment and turns
Year-over-year cost reduction
Number of suppliers
Cost per invoice
Purchasing errors
Table 1.6 Typical Project Examples: Part B

Administration
Utilities expense
Insurance costs per employee
Facility costs per employee
Material and supplies expense
HR
HR staff per total employees
Absenteeism rate
Training hours per employee
Employee cost to hire and retain
Health costs per employee
Lost-time accidents
Disability costs
HS&E
Marketing and Sales
Sales dollars per salesperson
Turnover per customer
Marketing cost per dollar sales
Percentage of sales closed
Quote to actual project cost
Order changes
Sales policies and procedures
Operations
Lead times
Late orders
Average cycle time per order
Scrap
Rework
Emergency maintenance
Table 1.7 Typical Project Examples: Part C

R&D
Worker-hours per project
New products per year
Current projects
Project cycle time
Projects waiting
Engineering changes per year
IT
System capacity
System crashes
Distribution
Number of shipments
Freight charges (inbound and outbound)
Inventory investment and turns
Excess and obsolete inventory
Shortages
Premium freight costs
Retuned product
Product transfer between facilities
On-time delivery
A3 Form
Formal Lean Six Sigma projects use a project charter such as the one
shown in Figure 1.6. These are usually created and maintained using an
enterprise-wide software application. There are several popular versions.
However, a simpler approach is to use an A3 form with supporting docu-
mentation. The A3 form information also can be used as an input to soft-
ware to create project charters or the A3 format directly. Many people find
using an A3 form easier than more complicated software-based charters
because it is very visual as opposed to the more complicated project char-
ters. The A3 form was created by Toyota. The term A3 refers to the over-
sized paper originally used to construct the form. Another advantage of
using an A3 form is that it forms a road map for completing a project. The
projects listed in Tables 1.5 through 1.7 lend themselves easily to an A3
project tracking and solution approach. This is especially true for supply
chain operations. An example is shown in Figure 1.9 that has 8 steps, and
this could easily be modified to DMAIC or 10-step format.
Process Area Reference Number Open Date Team Champion Close Date
1. Identify the problem 5. Identify improvements (brainstorm)
Use current reports, customer feedback, write a Brainstorm solutions for the higher-level priority root causes.
statement of the problem, the defect, its measure. How will they work? Can they be mistake proofed?
2. Understand the current state (walk the process) 6. Create a plan to implement improvements (solutions)
Create a plan to collect data to understand the process, e.g., Build a plan to execute the solutions. Test them on a limited
a process map, historical data on the defect, procedures, forms, basis, i.e., pilot them. Validate they work. Identify changes to the
and other relevant information. process.
3. Create the improvement goal 7. Check results, update standard work and control
Establish an improvement target. Expand the solution and measure the defect level to verify the
target is met. Create a control plan to sustain the solutions.
4. Identify the root causes 8. Lessons learned

Analyze the process map, brainstorm causes, use 5 Why Can solution be leveraged elsewhere? What is the next project?
analysis, create Pareto charts, etc., and prioritize the root causes Team celebration.
for solution.
Figure 1.9 A3 form (modified).
Summary
The 10-step solution process leads you through several key project-
management tasks, including definition, alignment, and execution. The
result is a Lean Six Sigma project that will be supported by the process
owner, work team, finance, key stakeholders, and senior management.
Its fact-based and methodical approach to problem solution facilitates
communication to the larger organization. The underlying relationships
between KPIVs and KPOVs become apparent as the team works through
its root-cause analysis and solutions. This is called understanding the Y =
f(X) relationship. The methodology links solutions to a project’s root-cause
analysis for transition of a project to the process owner and local work team.

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Lean Six Sigma

for Supply Chain

New York Chicago San Francisco

eBook conversion by codeMantra

THE WORK IS PROVIDED “AS IS.” McGRAW-HILL EDUCATION AND ITS

CHAPTER 1  sing Lean Six Sigma Methods to Identify

Project Problem Statement . . . . . . . . . . . . . . . . . . . . . 34

CHAPTER 2  eploying Lean Six Sigma Projects

CHAPTER 3  emand-Management Impact on

CHAPTER 4 Lead-Time Impact on Lean Six Sigma Projects . . . . . 119

Transfer Batches . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

CHAPTER 5  ean Six Sigma Applications to Manufacturing

CHAPTER 6 I dentifying Lean Six Sigma Projects Using

System Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

CHAPTER 7 Lean Supply Chains and Third-Party Logistics . . . . . 189

Outsourcing Operations to Improve Quality . . . . . 217

CHAPTER 8  oot-Cause Analysis Using Six Sigma Tools

CHAPTER 9 Lean Six Sigma Improvement and Control . . . . . . . . 293

CHAPTER 10 Supply Chain Design for Excellence . . . . . . . . . . . . . . 315

APPENDIX Important Supply Chain Metrics . . . . . . . . . . . . . . . . . 369

12. Excess/Obsolete Inventory . . . . . . . . . . . . . . . . 376

There have been dramatic developments in supply chain improvement

ational assessments of work streams within diverse supply chains. Cross-

The 10 steps correspond to the Lean Six Sigma define-measure-

Sigma philosophy of “acting on fact” helps to avoid situations in which

products with unusual demand patterns. Effective demand management

major inputs to calculate optimal levels of inventory investment. Second,

been identified, it is evaluated under controlled conditions. This is called

security, and sustainability are discussed in the Conclusion. Sustainability

I must thank Judy Bass, my McGraw-Hill Education senior editor, for

Using Lean Six Sigma Methods

Lead Time Management 11. Material Availability

12. Excess/Obsolete Inventory

Figure 1.1 Twelve key metrics.

13. Customer Service Target

nience and price. When an organization provides goods and services to

projects to close performance gaps. We will now discuss each of these

others. Customer segmentation helps us to understand our customers so

mal handling. This situation may be causing repacking by the customer. As

Obtaining VOC Information

Analyzing VOC Information

Customer Experience Mapping

and stakeholders. The temptation is to rely too heavily on metrics collected

with a product or service as opposed to interactions that occurred weeks or

Surveys should be designed with the ultimate analysis in mind. The

Identifying Performance Gaps and Projects

way to ensure that improvement projects are properly prioritized. There

The 10-Step Solution Process

Table 1.1 Supply Chain Improvement Program

Table 1.2 Operational Linkage

Understanding How Your Process Works

Brainstorming … Process Maps … System Models

Lead-Time • Inventory Investment

Demand Variation • Expense

Service Targets • Service Level

Figure 1.3 System model map.

Y = f(X) relationship. Identifying these inputs and outputs starts with a

Strategic Inputs Tactical Outputs

Figure 1.4 Input-output matrices.

Strategic Project Execution in the 10-Step

Table 1.3 10-Step Solution Process

by stocking location as well as situations where inventory investment is too

Strategic Project Selection

Project Identification Strategy Improvement Strategy

CHAPTER 1 sing Lean Six Sigma Methods to Identify

CHAPTER 2 eploying Lean Six Sigma Projects

CHAPTER 3 emand-Management Impact on

CHAPTER 4 Lead-Time Impact on Lean Six Sigma Projects . . . . . 119

CHAPTER 5 ean Six Sigma Applications to Manufacturing

CHAPTER 6 I dentifying Lean Six Sigma Projects Using

CHAPTER 8 oot-Cause Analysis Using Six Sigma Tools

CHAPTER 9 Lean Six Sigma Improvement and Control . . . . . . . . 293