Application of Six-Sigma in Supply Chain Management

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Application of Six-Sigma in Supply Chain Management

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Application of Six-Sigma in Supply Chain Management
Fadhili Kiyao
School of Management Studies
CUSAT, Kochi - 22
E-mail:[email protected]

Abstract: This paper hypothesizes that, whilst Six Sigma as a change and
improvement strategy is delivering significant business benefit to practitioner
organizations, it has not been successfully adapted to deliver similar benefits
across supply chains. It demonstrates by reference to the literature that most
published applications of Six Sigma in supply chains are related to the
application of traditional internal Six Sigma methodologies to the internal
processes of a supplier to the “Six Sigma Organization”. In this paper, the
issues particular to an application of Six Sigma in a broader supply chain
context are discussed, with reference to specific supply chain issues. It is
concluded that Six Sigma does have something novel to offer organizations
over and above the contribution of existing approaches to supply chain
improvement, and a conceptual model is proposed that is consistent with the
literature and has potential to support such an introduction. Although rooted
in the supply chain realm, SCOR adherents see a role for the methodology
as the gatekeeper – identifying the projects most likely to render ROI using
SCOR, Lean or Six Sigma. There is already a natural link between Lean and
Six Sigma at the program and project execution level. The model integrates
the Balanced Scorecard, SCOR model (Supply Chain Reference model) and
Six Sigma DMAIC (define, measure, analyze and improve) methodology in a
two-level framework. This is a strategic-level cycle, developing focused
projects to generate maximum business benefit, and an operational-level
cycle, applying Six Sigma and lean tools in a DMAIC cycle to deliver supply
chain improvements. Cautions and requirements for the success in practice
of such a model are discussed and it is concluded that the model should be
tested in practice to validate and develop further the methodology.
Key words: Six Sigma; Supply chain improvement; Lean; SCOR model;
Variability reduction

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1.0 INTRODUCTION
Six-Sigma Process Improvement is a rigorous approach to improving business processes
by addressing the underlying causes of variation that lead to poor performance as
experienced by the ‘customer’, who is the recipient of the outputs. The early exponents
were Motorola and GE in the 1980s. Since then, many organizations ranging from
manufacturing to service in all sectors have successfully deployed Six Sigma to deliver
measurable
cost,
quality
and
time
based
improvements
[1].

2.0 LEAN - SIX-SIGMA
In the past, Lean and Six-Sigma have at times been viewed almost as rival methodologies,
with some companies choosing one or the other as their primary improvement vehicle [2].
Two of the most powerful forces in manufacturing and now the broader supply chain are
“Lean” and “Six Sigma.” Traditionally, many companies have adopted one or the other as
their primary approach to operational improvement, or in some cases used both but as
fairly independent tools [2].
Increasingly, however, companies are seeing the benefit of combining the two techniques
into a more integrated strategy that uses the best of each approach, which can be highly
complementary. Many believe this “Lean Six Sigma” strategy is the best way to improve
overall supply chain results and tackle process improvement more holistically [3].
Lean, the name given to the Toyota Production System in the book The Machine that
Changed the World, has traditionally been associated with the elimination of waste in
business processes. Lean was originally focused on improvement on the factory floor, but
has since been used in some cases to power broader supply chain improvements.
European retailer Tesco, for example, used Lean principles to engineer improved store
replenishment processes.
Six-Sigma is a quality improvement methodology that in general seeks to reduce process
and results variation. Originally focused on improving the quality of manufactured
components, the approach has also been expanded for use in improving almost any
business process. Drug wholesale McKesson, for example, has used Six-Sigma to
improve a variety of supply chain processes, such as inbound trailer cycle times and pick
face replenishment efficiency [2].
2.1 Adding Value with SCOR
Developed by the not-for-profit Supply-Chain Council, SCOR (Supply Chain Operations
Reference) is a model that links process elements, metrics, best practices and features
associated with supply chain execution. It helps to identify and quantify critical
opportunities for improvements not only within the supply chains of a single company but
also between multiple trading partners. It describes a continuum of processes: Plan,
Source, Make, Deliver and Return. SCOR works best with companies that have an
enterprise information platform that can carefully track this continuum through KPIs and
scorecards or at least provide the data so that a qualified enterprise platform can acquire
the data, analyze it and surface it to the people who need to see it
Although rooted in the supply chain realm, SCOR adherents see a role for the
methodology as the gatekeeper – identifying the projects most likely to render ROI using
SCOR, Lean or Six Sigma. There is already a natural link between Lean and Six-Sigma at

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the program and project execution level. Six-Sigma has the project tracking and financial
accountability elements. Lean helps “surface the rocks” that become ideal targets for Six
Sigma. The two combined provide a powerful results-driven program.
The opportunities for Six-Sigma and Lean application in SCM are numerous. Specifically in
warehousing management you may want to look at metrics around fill rates, pick and pack
defects and dock-to-stock or dock-to-bench type metrics. Start with Lean and look for
opportunities to get the dock-to-stock (time from material unloaded on dock to put away on
shelf) cycle times down (this impacts availability rates to the production floor). Take a walk
through the warehouse and if you see lots of boxes and pallets sitting around, you know
you have opportunities! Once your cycle times are lower, then take a look at defect rates in
the other areas of standard warehouse metrics. Let me know if you have some questions I have extensive experience in this one.

3.0 Bringing Lean and Six-Sigma Together
Industrial giant Honeywell was among the first to recognize the power of combining Lean
and Six-Sigma disciplines. When Honeywell acquired Allied Signal in the late 1990s, under
the leadership of legendary CEO Larry Bossidy, it created a mechanism for combining
Lean and Six-Sigma that it called “Six-Sigma Plus.” The company hoped to improve
processes and results by using Lean to streamline processes and eliminate waste, then
improve the consistency and reliability of those processes using Six Sigma. 3M is another
pioneer in the application of Lean Six Sigma. When Jim McNerney took over as CEO of
the company in 2001, the former GE executive quickly helped drive a Lean Six-Sigma
program
throughout
the
company.
“Lean Six-Sigma always starts by defining value from the supply chain from the eyes of the
customer,” says Paul Husby, a former VP of Supply Chain Services at 3M. “Every
business has either an explicit or implicit strategy and needs the operational supply chain
to provide specific performance to support that strategy. Lean Six-Sigma has a primary
goal of significantly improving operational excellence, and should also greatly improve a
company's
competitive
advantage
with
key
customers
and
markets.”
There are several principles that drive the strategy of bringing Lean and Six-Sigma
together:

Lean cannot bring a process under statistical control

Six-Sigma alone cannot dramatically improve process speed or reduce invested
capital

Both enable the reduction of the cost of complexity, but in complementary ways
In the past, Lean and Six-Sigma have at times been viewed almost as rival methodologies,
with some companies choosing one or the other as their primary improvement vehicle.
With Lean Six Sigma, that false conflict can be formally removed, and companies can
benefit
from
the
best
of
both
approaches.
The two methodologies can interact and reinforce one another, and there is much
evidence that total improvements in a process is larger if Lean and Six-Sigma are
implemented together.
“The opportunity is to reduce the variability in value-adding processes,” said SCDigest
editor Dan Gilmore. “Lean should eliminate the non-value added process steps, and then
Six-Sigma can be applied to tighten up the execution of those processes.”

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So, from a Lean perspective, what Six-Sigma adds is the ability to reduce process
variability. From a Six-Sigma perspective, what Lean adds is often greater process and
cycle time velocity, as well as lower operating costs. It can also be said that Lean focuses
on reducing Time variability, while Six-Sigma focuses on reducing Process variability.
Lean tends to generate more “Quick Fix” solutions, while Six-Sigma takes a more “Root
Cause”
approach.
It is also possible to think of applying Six-Sigma principles at the “pursue perfection” stage
of
one
popular
six-step
Lean
model.
Some companies are taking the concept even further, adding in Eli Goldratt’s Theory of
Constraints (TOC) methodology as another tool, usually front-ending TOC before both
Lean and Six-Sigma. This three-way combination is sometimes referred to as TLS (TOC,
Lean,
and
Six-Sigma).
Companies that have focused on either Lean or Six-Sigma as a primary strategy to the
exclusion of the other, or that use both but as very separate tools, should consider whether
there is opportunity to deliver better results from a Lean Six-Sigma strategy.

4.0 THINGS NEED TO KEEP IN MIND
4.1 Is our data integrated, clean and in one location?
Data sitting in silos, incompatible or duplicative data, and – most importantly – data that
requires the intervention of the IT department to retrieve will make any business
improvement program much more costly than necessary. A robust business intelligence
solution
is
a
must.
4.2 Can I quickly see what is working in quality programs?
If you would like to report to Wall Street analysts that a Six-Sigma initiative saved $1
million on a new product, do you need to deploy a portion of your staff to dig through
information, or is that information readily available on a dashboard? More importantly, is
the information up to date? Can a portal tell at a moment’s glance what the quality
programs are doing for the company’s bottom line and how they compare to one another?
4.3 Can my staff visualize the results of quality projects?
Six-Sigma Black Belts parachute into departments they don’t work in. Being able to show
how a process could be improved helps win over reluctant team members to the results of
a project. An easily integrated visualization application is an important component.
4.4 Do I have an application powerful enough to analyze and (especially when using
Lean) forecast?
Can my staff – without any programming skills – create “what if” scenarios that will help
identify the best methodology for improving quality and performance?
Using SCOR to align corporate goals and develop and execute a plan for improvement
targets, and then employing Lean or Six-Sigma or both to the prioritized projects, is a way
forward for companies that recognize that survival is truly the provenance of the fittest.
Just having these methodologies under the roof isn’t enough. They need to be converged
and
integrated
methodologies
working
off
the
same
platform.
A focus on integration will provide the organization with optimized yields and

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improvements. The trend toward converging methodologies is really about change
management and its logical extension to platform status. After all, change is not a one-time
event or even a series of one-time events but must be a culturally ingrained part of the
organization’s DNA. Organizations want to embrace change, but doing so requires an
integrated approach to using methodologies and a strong enterprise wide platform that
goes beyond business intelligence to include data integration and analytics.

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5.0 REFERENCES
1.
2.

3.

Stuart Smith, Six Sigma Process Improvement in a Nutshell,
http://www.sixsigmagroup.co.uk/Uploaded/1/Documents/Six%20Sigma%20in%20
a%20NUTSHELL%20new.pdf, accessed on 13.10.2015
Anonymous, 2008, Supply Chain News: Is “Lean Six Sigma” the Winning
Approach
to
Manufacturing
and
Supply
Chain
Improvement?,
http://www.scdigest.com/assets/On_Target/08-07-28-1.php,
accessed
on
13.10.2015
Anonymous, 2015,Lean Six Sigma Software with Artificial Intelligence,
http://www.shopfloorreporting.com/Artificial-Intelligence/Artificial-Intelligence.htm,
accessed on 13.10.2015

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