Lean Six Sigma for Supply Chain Management: The 10-Step Solution Process by James W. Martin


Lean Six Sigma for Supply Chain Management: The 10-Step Solution Process
By James W. Martin

Lean Six Sigma

Foreword vii
Introduction ix
Chapter 1. Using Lean Six Sigma Methods to Identify and Manage Supply Chain Projects 1
Chapter 2. Deploying Lean Six Sigma Projects Using Lean Tools 45
Chapter 3. Demand Management Impact on Lean Six Sigma Projects 73
Chapter 4. Lead-Time Impact on Lean Six Sigma Projects 111
Chapter 5. Lean Six Sigma Applications to Materials Requirements Planning (MRPII) 135
Chapter 6. Identifying Lean Six Sigma Projects Using Inventory Models 157
Chapter 7. Lean Supply Chains and Third-Party Logistics 181
Chapter 8. Root Cause Analysis Using Six Sigma Tools (With Operations Research Methods) 219
Chapter 9. Lean Six Sigma Improvement and Control 277
Chapter 10. Applying the 10-Step Solution Process 299
Appendix I. Important Supply Chain Metrics 347
Appendix II. Key Lean Six Sigma Concepts 359
Conclusion 367
Glossary 381
Index 395

This book is the culmination of several years of successful Lean Six Sigma consulting and training focused on improving sup­ply chain performance. This consulting work was performed as a series of graduate classes as well as on-site corporate seminars and operational assessments of major work streams within diverse supply chains. In this work, cross-functional business unit teams were brought together to analyze key supply chain metrics and implement process improvements using a 10-Step Solution Process based on Lean Six Sigma, operations management, and operations research tools and methods. These improvement efforts demonstrated the need for a book showing Lean Six Sigma “belts” how to analyze supply chain work streams, and inventory systems in particular, to identify and implement Lean Six Sigma improvement projects. This book brings together the specific tools, methods and techniques that are relevant to supply chain analysis and optimization together into an organized format in one place for the first time to improve supply chain operational performance.

The goals of this book are to help the reader understand how the major work streams within their supply chain work and make process improvements within the context of Lean and Six Sigma methods as described in the 10-Step Solution Process. However, bringing diverse top­ics and metrics together to understand their inter-relationships and impact on supply chain performance requires quantitative tools and methods not found in Lean and Six Sigma training. Some of these required tools and methods are considered basic in supply chain analysis and can be found within Operations Management (OM). Others are associated with Lean methods, Six Sigma or demand management; however, their full analyti-cal potential has not been realized because their users are not familiar with supply chain work streams, how the major supply chain systems work, inventory basics or system modeling. Finally, many supply chain problems are best solved using operations research (OR) tools and meth-ods to understand how major components of the system dynamically change. The correct mix of analytical tools and methods for a particular project should be based on the nature of the root cause analysis. We want to avoid a situation in which the analysis is being forced in the wrong direction by using an ineffective set of tools resulting in a solution which is not optimal. Understanding all aspects of the major work steams found in a supply chain will enable improvement teams to develop supply chain (or inventory) models to systematically improve key financial and operational metrics for their organization in the most effective manner.

The book has several other goals. The first is to expose people who are new to the field of supply chain management or Lean Six Sigma principles to practical supply-chain terminology and methods. The second goal, related to the first, is to provide the reader with commonly accepted tools and techniques useful to manage demand, lead-time, and related activities to accelerate the deployment of Lean Six Sigma projects. The third goal, for those more advanced in supply chain con-cepts, is to develop simple models of major work streams using an inventory model as an applied example to show how its analysis can be used to understand relationships between process inputs, that is, “X’s” such as lead-time, demand and service levels, and their impact on key process outputs, that is, “Y’s” such as cash flow, profitability, inventory investment, and inventory turns. This will help us understand the famous Lean Six Sigma relationship Y = f(X) as it applies specifically to inventory investment. The fourth goal is to facilitate development of Lean Six Sigma projects to systematically improve key supply chain met-rics. These metrics are listed in Figure 1-2 and defined in Appendix I. To enable the fourth goal, almost every chapter contains examples of Lean Six Sigma project applications across the major supply chain functions. The fifth goal, once we have a firm understanding of current opera-tional performance baselines, is development of feasible improvement targets or internal benchmarks. Finally, the sixth goal of the book is to introduce standard project management methods to properly execute the Lean Six Sigma improvement projects. These project management techniques will be described in the coming chapters as they pertain to Lean Six Sigma supply chain improvement projects.

Understanding customer requirements through voice-of-the customer (VOC) translation is a major focus of a Lean Six Sigma initiative. These VOC requirements are categorized into high-level categories of quality, cycle time, and cost, which form the basis for the concept of “customer value.” Working backward from specific customer value metrics identified through marketing research activities, Lean Six Sigma improvement proj­ects are identified and translated into internal organizational requirements using the “critical-to-quality (CTQ)” concept. The objective of the CTQ concept is translating VOC requirements from a strategic to tactical level throughout an organization to identify operational performance gaps and the projects necessary to close these gaps. The objective of the improve­ment projects is to move the process on target (accuracy) with mini­mum variation (precision). Effective project execution is accomplished through methodical process analysis and identification of the root causes for poor operational performance. The 10-Step Solution Process, shown in Table 1-3 and Figure 1-8, consists of a series of ten steps that, when executed, will move the process toward its design intent (entitlement). These ten steps are correlated to the Lean Six Sigma “define-measure-analyze-improve-control (DMAIC)” process, but have been modified slightly to provide more focus on those improvement actions which are most applicable to supply chain improvement, that is, less statistical analysis and more emphasis on supply chain tools and methods found in the field of operations management and operations research.

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