Lean Six Sigma and Supply Chain Management

Since its inception in the 1980s, Lean Six Sigma practices have supported more effective and efficient processes – including in the supply chain management and logistics arena. By applying Lean Six Sigma practices, organizations can streamline their supply chains to reduce costs and waste while simultaneously enhancing value.

Other applications of Lean Six Sigma to supply chain management include:

Decrease Order Fulfillment Time

Organizations can isolate inefficiency, waste and variance in the order fulfillment process, and then strive to make adjustments with DMADV, such as reducing manual paperwork and increasing automation in picking, shipping planning and shipment verification.

A sock company in India applied Lean Six Sigma to understand how to reduce waiting time in their process. The organization’s review found several times throughout the process where employees were waiting: searching for stock, managing stock and looking for sock varieties, often a result of highly manual processes. To reduce this, the company increased the number of machines tackling some of the rote work and appointed a single employee to oversee several machines.

Decrease Delivery Time and Delayed Deliveries

The same sock company examined why they were struggling to meet their delivery times. The Lean Six Sigma team uncovered several underlying issues: orders were lost, delayed orders were then shipped with more expensive options, and the organization lacked governing metrics to establish whether a shipment was delayed and how to quantify it. As a result, the organization established a process to examine manufacturing capacity overall, specific manufacturing availability, and required deliveries. This helped with planning and ensuring that the sales team doesn’t commit to deliveries that can’t happen, and that operation teams were aware of delivery commitments. This review also introduced capacity planning and management coordinating to layer in oversight and advance planning on the delivery schedule. 

Build a Responsive Supply Chain

With its customer emphasis, Lean Six Sigma practices guide organizations to measure themselves against items that customers value, often called items that are critical to quality (CTQ). This requires a dynamic supply chain, as these values can change over time, along with supply and demand. Organizations that leverage Six Sigma to properly define CTQ aspects can be more nimble and responsive.

Reduce Error

Sometimes, humans make mistakes. However, supply chains should strive for zero errors by leveraging Poka-Yoke, a Lean technique aimed at reducing human error through forcing correct completion, often through technology. For example, a bell may sound if a product is removed before it is complete, or a software-driven tool may count the number of nails inputted to ensure the count is correct. On a broader scale, human error can often be reduced by improving the environment. Leveraging Lean principle 5S, organizations can Sort out, Set in order, Shine, Standardize and Sustain working environments to ensure they are as efficient, free of clutter, safe and clean as possible.

Optimize Order Fulfillment

A complete order arrives on time, has complete and correct documentation, and is delivered without damage. Organizations can apply Six Sigma to root out barriers to order fulfillment within the process, such as poor planning processes or inefficiencies in the execution. With Lean practices, waste can be reduced or eliminated, and overall performance in the fulfillment process enhanced.

Behemoth healthcare distributor Cardinal Health launched Lean in 2007 as part of a greater initiative aimed at achieving no errors, waste or loss revenue in the healthcare supply chain. After just three years, the error rate dropped by almost one third, according to Industry Week. Collaboration proved to be a critical aspect to applying Lean Six Sigma at Cardinal, when the organization set out to examine its purchasing process. The organization found that customers typically orders seven items per day; however, the orders were fulfilled from 10-item cartons. The solution to streamline was clear: ask customers to order by the box, instead of individually.

Reduce Waste

As part of its customer-centric orientation, Lean eliminates any aspect of a process that doesn’t contribute value for the customer. For a Lean organization, value is achieved when the highest quality product is delivered at the lowest possible price. This ultimately requires that supply chains function more efficiently. Most often, key sources of waste are:

  • Non-value added processing: This is extra work in the process – work that adds no value. This often stems from poor facility layouts that create extra work.
  • Transportation: Extra physical steps, either for humans or machines, increase both the production cost and production time.
  • Over-production: When inventory overshoots demand, organizations’ inventory costs increase.

Underutilized talent and additional motion can also contribute to waste.

Cummins Power Generation, a global electrical power generation systems provider, applied Lean Six Sigma in a project striving to reduce the amount contract carriers were paid per mile by 5%. In addition to cutting carrier costs, additional goals of the project were to ensure the organization didn’t compromise on service quality or damage its relationship with the carrier. Armed with data, the organization was not only able to isolate the waste, but also able to establish solutions for the variables, including carrier lane assignments, mode selection, freight rates and a varied customer base.

Decrease Costs

Creating efficiency in the supply chain can save businesses costs on transportation and shipping, inventory storage and management, and even production. On a global scale, efficient supply chains are judicious with locations based on economic stability, tax policy, business policy, and import and export policy. By applying Lean Six Sigma, global organizations can ensure quality control remains intact while costs are reduced.

Prevent Defects

Using the DMAIC approach, Six Sigma uncovers the root cause of defects in production and refines the production processes to ensure improved efficiency and quality control. Leveraging the Lean approach in analysis also ensures updated processes are streamlined, leaving fewer opportunities for defects and errors.

Focus on Customer Value

Improving the supply chain doesn’t only reduce costs for businesses. A more efficient and accurate supply chain means better service, improved delivery and increased quality for customers. An emphasis on the customer is at the core of the Six Sigma process, which begins its identification stage by seeking the voice of the customer (VOC) to better understand customer needs and perception. In supply chain management in particular, a quality supply chain must also keep a pulse on customer demand, to ensure the right inventory and delivery modes and options.

Improve Performance

With a combined focus on efficiency and quality, Lean and Six Sigma can equip supply chain managers to hone processes, reduce waste and eliminate inefficiencies. With those improvements, overall performance, both in the production and delivery process and customer sales, are bound to improve. Improvement can even have a snowball effect, as streamlined processes free employees to apply their time and talents to innovations. These efficient processes also tend to be more flexible, ensuring supply chains can adapt to new demands and marketplace factors as needed.

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