Applying Six Sigma to Logistics
What is Six Sigma?
Six Sigma is a methodology that is used widely to eradicate defects, enhance processes, and minimize variations in any business process.
The crux of the Six Sigma approach is built on eliminating wastes and thereby improving efficiency and quality. It also seeks to streamline and improve all the underlining processes. Six Sigma works on an extremely disciplined system of data collection and makes use of improved statistical tools. But, for it to produce the desired results, it demands the effective involvement of senior management and workers alike, throughout the stages of its application.
Six Sigma and logistics
Logistics has become the backbone for any business these days as it provides that important competitive advantage in the market, for any company. The Six Sigma approach of eliminating the defects or minimizing the variations in a process can be very handy if applied to logistics. This is because, such an approach can increase the satisfaction level of both external and internal clients and, in turn, can result in financial benefits.
DMAIC or Define-Measure-Analyze-Improve- Control is one such method, devised for seamless assimilation of the Six-Sigma approach to logistics. It overhauls and improves the entire internal logistical process and ensures reduction of defects. It also reduces the mean route time and the route time variability.
Variation reduction and logistics
In any business that involves logistics, variation reduction is an important concept. Logistics is all about managing inventory and this depends heavily on managing variance. Typically, the variance is managed through hedging inventories or keeping “buffer stocks”- so as to counter for the unknowns.
It is imperative to maintain a safety stock to cover for variances in transportation reliability, supplier quality, customer demand patterns and manufacturing process capability. This dependency on buffer stock can be reduced to a great extent if it is possible to understand and control the variation in the entire process flow from the supplier to the customer. Variances in production or control and variances in outbound and inbound logistics may lead to a stoppage in production, which may, in turn, lead to loss of organizational credibility and customer loyalty.
How can Six Sigma help?
The Six Sigma methodology thrives on the reduction of this variability associated with processes or products. This approach can be implemented to reverse or forward the logistics process.
Six Sigma is all about getting to the root of the variations and finding the most suitable solution to eliminate them so that the system can run at “near zero defects”. It is a simple, yet effective, structured and process-oriented way of ensuring improvements with a precise allocation of responsibility and organizational objectives to attain significant results. Six Sigma is more of a program to attain continuous improvement over a long period of time.
Application of DMAIC in logistics
DMAIC can be termed as a backbone process applied in Six Sigma to ensure all-round improvement. DMAIC stands for Define, Measure, Analyze, Improve, and Control and consists of five stages, as the name suggests. It provides a way or roadmap towards achieving Six Sigma in logistics.
We will describe these stages in brief here-
The define phase –
This phase comprises-
- Defining the problem through a precise problem statement
- Defining the business goal through a goal statement
- Defining the process through designing the maps of the entire process
- Defining the customers and their specific requirements
The problem statement may include things such as error percentage or the number of delayed orders last month and their impact on the business, the units and departments involved etc.
The goal statement will be a result of the problem statement. As for example, if the delay happened in 10 % of the orders last month, the goal should be to reduce it down to 5 % over a specific period of time. Thus, the goal statement needs to be time bound and measurable.
A high-level process orientation or process map is designed in the process definition. A tool named SIPOC (Suppliers, Inputs, Process, Outputs and Customers) is used for this purpose.
The customer is the very focus of any project or process. It can be an external as well as an internal component of the organization. During their operations in the define phase, the team must take opinions from their customers in order to better understand their requirements.
The measured phase
A precise definition of the problem will make tasks easier in the measurement phase. The aim of this phase is to determine and measure how the process is actually performing. For example, if improving the reliability of delivery is the problem statement for a DMAIC logistics project, then ‘transit time’ may be a primary measuring unit for it. The average transit time and the variance around it will be measured in this case. Cost, time and quality will be other common areas of measurement. But those measures, that are proved to be easily measured, quantifiable, reliable and robust – will be considered the best among them. These measures will be prioritized as per their perceived importance.
Proper care should be taken in this phase so that the wrong things are not measured or right things are not measured in the wrong way. It is also necessary to set up the measurement process which allows monitoring of the process as per the set objectives of the previous phase. Proper care should be taken to ensure that the data collected is reliable and accurate.
The analyse phase
The objective of this phase is to identify the root cause of the problem and also to identify the cause and effect relationship (how the independent variables affect the dependent variable). This phase is critical to a logistics process as it can identify the issues that can lead to unwanted costs, reducing margins and dissatisfied customers. The data collected in the previous phase is reviewed in this phase and additional information, if any, is included. Both the process and the data are then analysed to verify the root causes of defects and waste. Then, the data is presented using statistical tools.
The analyse phase consists of –
- Time analysis– This analyses the compares the time of actual work done to the time spent in waiting.
- Value-added analysis– This looks at the process from the point of view of customers to ascertain the cost of the business.
- Value stream mapping– This combines the findings of the value-added analysis stage with the process data to determine where to remove the waste from. Teams resort to structured brainstorming to find out the causes. They use a tool named “the cause and effect diagram “to find out vital causes of defects, lost time and wastes.
By using another tool, the Design of Experiments, a logistician can examine the variance in the reliability of delivery by controlling the associated factors with shipments. These factors may include the methods in which shipments are dispatched, tendered and scheduled; methods how orders are prepared, loaded and staged physically; how deliveries are fulfilled by the carriers and drivers, weather conditions, time of delivery and pick up and documentation related to the shipment. Details related to the potential for improvement are also studied.
The improve phase
The objective of this phase is to find and implement the solutions to eradicate the causes of problems recognized in the previous phase. This prevents the reoccurrence and reduces the observed variability in the process.
Lean six sigma is an effective tool to make effective changes in a logistics process, which can be really challenging for an organization. It is based on a disciplined approach towards developing a culture that facilitates improvement. It allows choosing a few of the best possible solutions from a plethora of solutions available for the same problem. It ensures that the right decision is made in this regard so that the identified solution does not involve large investment or implementation cost. These solutions should also be tested thoroughly and their efficacy should be checked before they are cleared for implementation.
To carry out this entire decision-making process, the team can take help of mini testing cycles called the “Plan, Do, Check, Act“ or PDCA. This will help them to chalk out and refine the ideas while going through the process of collecting stakeholder feedback.
The control phase
The improvements implemented in the previous phase are controlled in this phase through a sustained effort. Here, actions are defined to ensure that the process is under continuous monitoring and the key variables are within the specified limits. As a part of this, workers are trained to get adjusted to the new measures and changes.
This phase also focuses on the corrective actions to be taken when the project is affected by the environmental forces.
From the above discussions, it is evident that for Six Sigma to be successful in logistics, it should be driven with a sustained focus on quality improvement and customer relations.