Lean Six Sigma Logistics

Thomas J. Goldsby, Ph.D.

Assoc. Professor of Supply Chain Management
University of Kentucky
Lexington, Kentucky (USA)

Gatton College of Business & Economics

University of Kentucky
What does it mean to be “Lean”?

lean (΄lēn) \ adj: having no surplus flesh or

bulk

Taichii Ohno and the Toyota Production

System (TPS): the origins of “lean
thinking”

Leanness means developing a value stream

to eliminate all wastes, including time.

2
 What are the wastes?

Process
Overproduction only what’s needed
when it’s needed
Inventories
Waiting
Overprocessing
Get it right
Unnecessary movement the first time…
Unnecessary transport every time
Product defects

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Key Ingredients to Lean Implementation
Value stream mapping
Continuous Improvement
Total Cost Analysis
Kaizen

Process orientation Discipline

Teamwork Heijunka
Jidoka quality High frequency
Five-S organization Small lot size
JIT
Standardized work Kanbans
4
 Seeing the “Rocks”

Poor
Space Waiting Uncertainty
Communication

Rew ard Systems Poor Processes

Transportation Rew ork

Poor
Service Quality Measurement
Obsolescence Supplier Quality

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Reported Benefits of “Leanness”
Reduced cycle times
Reduced inventory
Reduced changeover time
Reduced rework
Improved service
Productivity increases of 30%
Reduced wastes
Lead times reduced by 70%
Inventory reduced by 75%
Defects reduced by 20%
On-time delivery close to 100%
Improved cash flow
6 Source: Tennessee Manufacturing Extension Program (2002)
Lean Manufacturing
Daily Demand =
500 per day.
Consensus Sales Demand Customer
Forecast Forecast Forecast Service Customer
PT= 120 min PT= 60 min PT= 20 min
WT= 4 weeks WT=2 weeks WT=2 weeks
FTQ=80% FTQ=80% FTQ=80%

t
en
Sh uck
ipm
Tr
Truck
Truck Shipment
Supplier Shipment Plant Plant DC Regional DC

PT = 2 hour PT = 4 hour PT = 4 hours PT = 1 hour PT = 2 day PT = 1 hour PT = 1 day

WT = 2 day WT = 2 weeks WT = 1 week WT = 3 days WT = 1 day WT = 2 day WT = 1 day
INV = 20,000 INV=10,000 INV = 20,000 INV = 30,000 INV=10,000 INV=30,000 INV=2000
FTQ: 90% FTQ:99% Batch Size=10,000 FTQ: 95% FTQ:98% FTQ:98% FTQ:98%
Avail.98% Avail.99% FTQ: 98% Avail. 95% Avail.99% Avail.99% Avail.98%
Value: Value: Avail. 95% Value: Value: Value: Value:

200 min 2 hour 4 hour 4 hour 1 hour 2 day 1 hour 1 day

8 weeks
1 week 3 day 1 day 2 day 1 day
WT 2 day 2 week

INV. 40 day 20 day 40 day 60 day 20 day 60 day 4 day

Total Process Time = 3.64 Days Total Wait Time = 85 Days Total Inventory = 244 Days
7 Total Lead Time = 332 Days PT / TLT = 1.1% FTQ: 39.9% Availability = 84%
The Lean Enterprise
Daily Demand =
500 per day.
Consensus Sales Demand Customer
Forecast Forecast Forecast Service Customer
PT= 120 min PT= 60 min PT= 20 min
WT= 4 weeks WT=2 weeks WT=2 weeks
FTQ=80% FTQ=80% FTQ=80%

t
en
Sh uck
ipm
Tr
Truck
Truck Shipment
Supplier Shipment Plant Plant DC Regional DC

PT = 2 hour PT = 4 hour PT = 4 hours PT = 1 hour PT = 2 day PT = 1 hour PT = 1 day

WT = 2 day WT = 2 weeks WT = 1 week WT = 3 days WT = 1 day WT = 2 day WT = 1 day
INV = 20,000 INV=10,000 INV = 20,000 INV = 30,000 INV=10,000 INV=30,000 INV=2000
FTQ: 90% FTQ:99% Batch Size=10,000 FTQ: 95% FTQ:98% FTQ:98% FTQ:98%
Avail.98% Avail.99% FTQ: 98% Avail. 95% Avail.99% Avail.99% Avail.98%
Value: Value: Avail. 95% Value: Value: Value: Value:

200 min 2 hour 4 hour 4 hour 1 hour 2 day 1 hour 1 day

8 weeks
1 week 3 day 1 day 2 day 1 day
WT 2 day 2 week

INV. 40 day 20 day 40 day 60 day 20 day 60 day 4 day

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 What is Six Sigma?
Data-driven approach to better understand,
predict, and control processes through the
reduction of variation.
Voice of Business
Voice of Customer
Project Management tools
Statistical analysis
Project Selection tools
Root Cause Analysis

Belts Process Capability assessment

- DPMO and Sigma calculations
DMAIC Methodology

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The DMAIC Method
Define Measure Analyze Improve Control
What problem What is the How can
How can process
needs to be capability of the When and where the gains
capability be
solved? process? do defects occur? improved? be sustained?

• Improvement validated
• Process owner takes over
• Periodic validations
• Solutions proposed & prioritized
• Solution piloted & implemented
• Sources of variation identified
• Root causes determined
• Process mapped
• Data collected
• Improvement goals set
• Value of projects determined
• Projects are organized

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 Why Six Sigma?
Defects per Million
Opportunities (DPMO) Sigma Level
841,300 0.5
691,500 1.0
500,000 1.5
308,500 2.0
158,700 2.5
66,800 3.0
22,700 3.5
6,200 4.0
1,300 4.5
230 5.0
30 5.5
11 3.4 6.0
Why Controlling Variation is Important

Accuracy of:
• Right product (no substitutes) 98%
• Right quantity 98%
• Right place 98%
• Right time 98%
• Right quality 98%
Translates into:
“Perfect Order” execution 90.4%

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 What is “Lean Six Sigma?”

The elimination of wastes through disciplined

efforts to understand and reduce variation,
while increasing speed and flow in the
supply chain.

Lean and Six Sigma as complements rather

than competitors
• Lean provides the inspiration for the “I” in
DMAIC
• Six Sigma provides the structured approach for
Lean improvements
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 Customer Demand
Production Lean Six Sigma - Utopia
Planning Leveled Production
Order Mgt Pull Replenishment
Fixed Fence
Logistics PFEP Network Design
Consumption - Pull

Supplier Base
Design Planned Operation
Fixed Schedules Supplier Mall
Supplier Mgt
Event Management Carriers
8 AM

MR Pick Up

10 AM
LTL Pick Up

12 PM

2 PM TL Direct

Traffic Mgt
MR Direct
Yard Mgt 4 PM
Returnables
Material
Handling
Ocean Direct

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 Customer Demand Variance

Consumption – Disconnect Production

Planning Un-Leveled Production
The Harsh Reality
Push Inventory Systems
Order Mgt
High Order Changes
Logistics Supplier Controlled Routing Supplier Base
Design No PFEP- Hidden Operation
Open Schedules Supplier Mall
Supplier Mgt
Fire Fighting Carriers
8 AM

MR Pick Up

10 AM
LTL Pick Up

Implementing
12 PM without supporting
process

No
2 PM PFEP TL Direct

Traffic Mgt
MR Direct
Yard Mgt 4 PM
Returnables
Material
Handling
Gaining
Ocean Direct

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 Information Flow (Corporate offices)
Marketing Sales
& Sales Forecast

Operations Forecast MPS MRP Production

Planning “Revision” Generated Generated Request

Supplies
Purchasing Ordered
Logistics/ DRP
Customer Service Generated A

Plant Supplies Feed

Logistics Received Assembly

Plant Assembly
Operations Ops. #1 B

Interfacility
Carrier

Regional DC
Operations

Outbound
Gatton College of Business & Economics
Carrier
University of Kentucky
16 Physical Flow (Field operations)
 Information Flow (Corporate offices)
Marketing Order
& Sales Received

Operations
Planning

Purchasing

Logistics/ Order
Customer Service A Processed

Plant Stage &

Logistics Ship
Plant Assembly Assembly
Operations B Ops. #2 Ops. #3

Interfacility Transport
Carrier to RDC

Regional DC Receive Pick, Stage

Operations & Put Away & Ship

Outbound Transport
Gatton College of Business & Economics to Customer
Carrier
University of Kentucky
17 Physical Flow (Field operations)
Separating Value- from Non-Value-Add
A value-adding activity is one that creates a benefit
for which the customer is prepared to pay
• An activity adds value if
– the customer cares about it,
– it physically changes the item, and/or
– creates time and place utility.
A non-value-adding activity is an activity whose
elimination would lead to no reduction of the
product or service’s attributes as seen by the
customer (e.g., performance, function, quality,
perceived value)
• Some non-value-adding activities are necessary; others not

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Finding the Wastes: The Value Stream Map

1 day 1 day

I I I I 2 days I
30 days 5 days 4 days 5 days 45 days

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Finding the Wastes: The Value Stream Map

89 Days’ supply of inventory

(45 at Regional DC)
Service problems
1 day 1 day
Pipeline Time = 93 days
Order Time Value-Added Time = 4.2 days
= 10 days
12% Late
3% Short
4% Wrong
I I I I 2 days I
84% Perfect
30 days 5 days 4 days 5 days 45 days
Processing .75 hrs. (0.5-1.3) 1.5 hrs. (1.2-3.0) .75 hrs. (0.5-2.0) .50 hrs. (0.4-1.5) 1.2 hrs. (.8-4.0)
Queue Time 30 days 5 days 4 days 5 days 45 days
Setup Time .25 hrs. 2.0 hrs. 1.75 hrs. 0.75 hrs. .20 hrs
Uptime % 98% 96% 88% 92% 96%

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Getting to the Point

VALUE
ADDED

y
er
liv
(Form, rt

De
o Store
Place, nsp
a
& Time Store Tr
Utility)
le
mb
se
As

Store
cure ls
o
Pr teria
ma COST ADDED
(Production, Storage & Transport costs and the Time Cost of Money)

21 Adapted from: Martin Christopher (2002)

 The Critical Waste of Time

Value-Adding Time
Throughput =
Efficiency
Pipeline Time

A typical measure of throughput efficiency is < 10%

Many will be as low as 2% - 5%

What does this mean?

22 Source: Martin Christopher
Source:
(2002)
Martin Christopher (2002)
 The Bridge Model

DISCIPLINE
Y
IT
IL
AB
P
CA
FLOW

THE CUSTOMERS
COMPANY AND
AND ITS MARKET
RESOURCES OPPORTUNITIES

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 Asset
Flow
Information
Flow Flow
Financial
Flow
Lean Six Sigma Logistics

Predictability

Capability
Stability

Visibility

Collaboration

Systems
Discipline Optimization
Waste
Elimination

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 Asset Fixed
People Inventory
Flow Resources

Information
Flow Data Knowledge Communication
Flow

Financial
Income Balance
Flow Cash Flow
Statement Sheet
Lean Six Sigma Logistics

Predictability Organization Coordination Complexity

Capability Stability Standardization Flexibility Control

Visibility
Understandability Measurability Actionability

Strategic Project
Collaboration Teamwork
Sourcing Management

Systems Horizontal Vertical

Optimization Total Cost
Discipline Integration Integration

Waste Quality at Continuous

Elimination Execution
Source Improvement

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 The Implementer’s Map
The Logistics Bridge Model + DMAIC

The DMAIC structure combined with

the Logistics Bridge Model
support discovery and action for
the implementer.

Define Measure Analyze Improve Control

Definition How do you So what? Trade-Offs How do we control

Next Level measure? Tools used Lean Six Sigma and monitor?
Truism Formula: (Y=F(x)) Insights Principle Sustainability
Axioms Compared to what? Cause and Application Review
Elements and • Targets/Goals Effect Solutions and Next stage – new
facts Data Collection Counter- gap identification
measures
Questions
Action Plan

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 When are we “there”?
Revised
VSM
VSM – VSM –
Current Future Controlled
Processes

Project Improved
Hopper Processes

Priority Selected
Answer: Matrix Projects
Never

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 Quite simply…
Lean Six Sigma is about:

DOING THE RIGHT

THINGS RIGHT!

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 For more information

Thomas Goldsby
goldsby.1@uky.edu
Ph. 859-257-2979
http://gatton.uky.edu/faculty/goldsby/
The book is available at: www.jrosspub.com

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