Lean Six Sigma Logistics: Strategic Development to Operational Success

Lean Six Sigma Logistics: Strategic Development to Operational Success

Lean Six Sigma Logistics: Strategic Development to Operational Success

Lean Six Sigma Logistics: Strategic Development to Operational Success

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Overview

Speed to market, reducing costs, and accelerating lead times are vital for survival in today's competitive environment. This "how to" book illustrates how to integrate Lean, Six Sigma and Logistics into a cohesive process that will help you eliminate unnecessary inventories through disciplined efforts to understand and reduce variation, while increasing speed and flow in the supply chain. Lean Six Sigma Logistics provides the vehicle to solidify strategic position, win over customers, and achieve increased profit margins. It is the one book that executives, practitioners, consultants and academics will all want on their bookshelf.

Product Details

ISBN-13: 9781604277067
Publisher: Ross, J. Publishing, Incorporated
Publication date: 08/01/2005
Sold by: Barnes & Noble
Format: eBook
Pages: 304
File size: 7 MB

About the Author

Dr. Thomas Goldsby is experienced practitioner and consultant and currently an Assistant Professor of Marketing and Logistics at The Ohio State University. He is a published author in numerous well know professional and academic journals such as Supply Chain Management Review, Journal of Operations Management, Journal of Business Logistics, International Journal of Logistics Management, International Journal of Physical Distribution & Logistics Management, Management Science among others. He is a member of the Distribution Management Association; the Education Strategies Committee for the Council of Logistics; Subcommittee on Collaborative Transportation Management for the VICS Association, Faculty Advisor to the Operations and Logistics Management Association. He is a sought after speaker and on the editorial review board for the International Journal of Logistics Management. Robert Martichenko is President of LeanCor LLC, headquartered in Burlington, Kentucky. LeanCor delivers Logistics and Supply Chain Management services to organizations embracing Lean production principles. Robert is a certified Six Sigma Blackbelt and he has over ten years of transportation, consulting and third party logistics experience which includes multiple operational launches such as the "green field" start up at Toyota Motor Manufacturing. Mr. Martichenko is also an active instructor of Supply Chain Management, Logistics, Lean and Six Sigma programs offered by the Lean Enterprise Institute and Saint Louis University - John Cook School of Business. He is an experienced author who currently sits on the Editorial Advisory Board of "Logistics Quarterly" magazine and is past President of the Cincinnati Council of Supply Chain Management Professionals (CSCMP) Roundtable and now serves as a regional advisor.

Read an Excerpt

CHAPTER 1

WHAT IS LEAN SIX SIGMA LOGISTICS?

Lean Six Sigma Logistics. Although it may sound as if it would require a yearlong training course to do the topic justice, most logisticians are in fact using Lean Six Sigma Logistics techniques without realizing it. As the competitive environment changes the way we do business, companies are embracing Lean and Six Sigma initiatives to support cost reductions and quality improvements. Although Lean and Six Sigma programs were separate initiatives in most organizations initially, today's firms see that Lean and Six Sigma do not compete against but rather complement each other and provide for dovetailing of continuous improvement activities.

But what does this have to do with logistics? The quick answer is "everything." Once grounded in Lean and Six Sigma principles, the logistician will realize that logistics, Lean, and Six Sigma form a natural union. This union leverages the strengths and weaknesses of each discipline to create a cultural and operational model that will aid the logistician to solve age-old issues while improving operations and contributing to business success at all levels.

Where does one start when dealing with a topic as complex as Lean Six Sigma Logistics? Mathematicians have shown us that Y is a function of X, so if we truly want to understand Y (Lean Six Sigma Logistics), the best place to start is with the Xs. In this case, the Xs we need to understand individually are logistics, Lean, and Six Sigma. Once we can envision the three focus areas on their own, then we can see how they come together, allowing the whole to be greater than the sum of the parts.

WHAT IS LOGISTICS?

There seem to be as many definitions of "logistics" as there are logisticians. And this is not a bad thing! Why? Because logistics is so far-reaching and yet so integrated into our businesses that it is hard for one definition ever to meet the challenge of summing up what we do in a few short sentences.

Although logistics does involve internal operations and stretches to up- and downstream trading partners in the supply chain, it is fair to say that any definition of logistics will need to involve the management of inventory, whether it is in the form of hard goods (materials, people) or soft goods (information). If there is no inventory to move around, there is no need for logistics.

WHAT IS LEAN?

"Lean" concepts are deeply rooted in the Toyota Production System. In its purest form, Lean is about the elimination of waste and the increase of speed and flow. Although this is a high-level oversimplification, the ultimate objective of Lean is to eliminate waste from all processes. According to Lean theory, at the top of the list of known wastes is excess inventory. More simply, we need to eliminate any inventory that is not required to support operations and the immediate need of the customer. In this book, we identify excess inventory along with six other potential sources of waste in logistics: transportation, space and facilities, time, packaging, administration, and knowledge. Clearly, each of these resources — all necessary for logistics planning and execution — becomes waste when not utilized effectively to generate: (1) the greatest possible value in the eyes of customers and (2) healthy return for the company.

Lean and the Logistician

The impact of Lean on the logistician is significant. A common misconception of the Lean philosophy is that it only finds application in manufacturing settings. The goal of Lean is to eliminate waste, decrease work-in-process inventories, and, in turn, decrease process and manufacturing lead times, ultimately increasing supply chain velocity and flow. Lean also has a vital cultural element to it that is crucial to the logistician, the concept of "total cost." The Lean practitioner does not focus on individual cost factors such as transportation or warehousing, but rather focuses on total cost. With inventory carrying costs representing 15 to 40 percent of total logistics costs for many industries, making decisions based on total cost has dramatic implications for the logistician. Unfortunately though, many organizations never embrace the total cost concept fully, as poor decisions are made continually based on traditionally visible cost drivers like transportation, warehousing, and per-unit purchase prices.

WHAT IS SIX SIGMA?

Six Sigma is a management methodology that attempts to understand and eliminate the negative effects of variation in our processes. Based on an infrastructure of trained professionals (black belts), Six Sigma delivers a problem-solving model armed with "voice of the customer" utilities and statistical process control tools. Define-Measure-Analyze-Improve-Control (DMAIC) is a map, or step-by-step approach, to understand and improve on organizational challenges (see Chapter 21). Six Sigma-trained employees will work on "projects" using the DMAIC model to reduce variation in processes and to attempt to achieve "Six Sigma quality," a statistical reference to 3.4 defects per million opportunities.

At the heart of Six Sigma is the principle of variation reduction: If we can understand and reduce variation in our processes, then we can implement improvement initiatives that will center the process and ensure accuracy and reliability of the process around customer expectations. For example, an average order-to-delivery cycle time of five days may reflect a variation between two and eight days. It is this variation that leads to customer nonconfidence and the resultant inventory buildup and/or loss of sales.

Six Sigma and the Logistician

The concept of variation reduction is paramount to the logistician. As stated above, logistics is about managing inventory, and managing inventory is about managing variance. If we look at the different types of inventory, we will plainly see why variation plays such a vital role in how we manage inventories throughout the business and the supply chain.

For example, safety or "buffer" stocks are inventories that we need to hedge against unknowns (i.e., the variations from the norm). That is, we maintain safety stocks because of variation in supplier quality, transportation reliability, manufacturing process capability, and customer demand patterns. In other words, if we can understand and control variation in our processes from supplier to customer, then we will be able to reduce our reliance on the buffers dramatically. In this regard, logisticians need to think of themselves as actuaries, like those who develop rates for automobile insurance. Actuaries look at key variables — the age of drivers, gender of the drivers, types of vehicle driven, measures of past behavior (e.g., speeding tickets and accidents) — and then they determine insurance rates that reflect the variability in the data. This is precisely why the sixteen-year-old male who drives a sports car will have the highest insurance rates!

Logisticians are no different than the actuaries in this analogy. For demographics and sports cars, the logistician substitutes supplier competence, transportation reliability, and demand fluctuation. Then the logistician determines the "insurance rate," using inventory as the unit of currency. The problem here, though, is that too many logisticians are treating their companies like teenage drivers when, in fact, the company performance is more like a middle-aged soccer parent who drives a minivan. A down-to-earth example of this is when a manufacturer has leveled demand from a supplier who is an hour down the road from the plant, yet the manufacturer continues to carry twelve days worth of that supplier's parts in inventory! Why? Most likely the answer is twofold. The first reason is that the leveled flow (and therefore low variability of demand) is not understood; the second reason is more emotional. The emotional part of the equation is simply that industry is addicted to inventory. Make no mistake about it — industry has an addiction to inventory, and as with any addiction, inventory is something that most companies cannot imagine living without.

WHAT IS LEAN SIX SIGMA LOGISTICS?

Now that we have explored the three elements of Lean Six Sigma Logistics, we need to put them together to appreciate fully how they dovetail and complement each other. Summarizing from the above, recall that:

1. Logistics is about managing inventory.

2. Lean is about speed, flow, and the elimination of waste.

3. Six Sigma is about understanding and reducing variation.

Therefore, Lean Six Sigma Logistics can be defined as:

The elimination of wastes through disciplined efforts to understand and reduce variation, while increasing speed and flow in the supply chain.

The Logistics Bridge Model

Both Lean and Six Sigma lend distinctive disciplines and tools to logistics. Using these disciplines and tools will allow an organization to uncover and deal with wastes and inefficiencies. Although Lean and Six Sigma tools are very powerful, we need to remember that for Lean and Six Sigma to work in logistics, a fundamental mind shift must occur. This mind shift requires that we first begin to make decisions based on the concept of "total logistics costs," and second, we have the courage to eliminate waste in its various forms. This may sound simple, but reality will prove otherwise. Organizational norms, management tradition, and financial accounting methods will fight against "total cost" and will continue to support our natural tendencies to create waste. The purpose of this book is to provide a template for the design and implementation of a logistics strategy based on Lean and Six Sigma principles. We have called this template the Logistics Bridge Model.

The Logistics Bridge Model is a model that can be used as a compass for the logistics professional. That is, it will provide direction and insight on how to solve today's logistics challenges and set the course for ongoing success. At the heart of these challenges is the need to bridge our suppliers with our own processes and then bridge our processes to the customer. All of this must happen while we face competitive and shareholder pressures to reduce costs and increase market share.

The Logistics Bridge Model teaches us that Lean Six Sigma Logistics is made up of three main principles. These principles are:

1. Logistics Flow

2. Logistics Capability

3. Logistics Discipline

Logisticians can draw from these three principles to design their own, personally tailored solutions to meet the specific challenges faced by their organization. Our goal is to provide the logistics professional with guiding principles that can be used to solve any logistics challenge that might be faced. To accomplish this, we have divided the book into four sections.

In Section 1, we continue to explore the importance of excellence in logistics and supply chain management. Section 2 examines the wastes that are all too often created in the absence of Lean Six Sigma implementation. Section 3 provides the details of the Logistics Bridge Model, the guiding principles to Lean Six Sigma Logistics. We illustrate the key tenets to logistics strategic visioning, tactical development, and successful operational execution. Section 4introduces key methods and tools that can be utilized for strategy development,problem solving, measurement, and Lean Six Sigma Logistics implementation. Toward the close of the book, a real-world example is provided as an exercise in critical thinking and problem solving related to Lean Six Sigma Logistics.

As the authors, it is our hope that this book will provide you as a logistics professional with the "golden nugget" for which you have been searching. Whether you have responsibility for a distribution facility or a global supply chain, Lean Six Sigma Logistics has much to offer. The same holds true whether you work in the commercial sector, for a nonprofit organization, or for a government entity. At a minimum, we trust that you will learn new principles that can be added to your current operations and strategy. At best, the logistics professional can use the Logistics Bridge Model to design, develop, and implement a comprehensive logistics strategy.

CHAPTER 2

THE IMPORTANCE OF LOGISTICS AND SUPPLY CHAIN MANAGEMENT

If you were asked to generate a list of the world's best companies — companies that enjoy sustainable growth and healthy margins — which would you include? Would companies like Wal-Mart, Toyota, 3M, and Dell come to mind? How do companies like these somehow manage to stay ahead of the curve, to lead where others must follow? What is it that makes companies like these stand out from the crowd? Is it that their assortment and quality of products clearly outshine those of competitors? Possibly. Is it that they communicate the inherent value of their products better than their competitors? Maybe. Is it that they enjoy considerable channel power and negotiate favorable terms with suppliers? Perhaps. Is it that their supply chains and integrated logistics operations provide distinctive competitive advantage? Definitely. While these pillars of modern-day business achievement provide desired products at a good value to customers, all four have their supply chains to credit for much of their success.

DISCOVERING THE DARK CONTINENT OF LOGISTICS

How is it that logistics and supply chain management can make such a difference? After all, isn't logistics "merely" a company's management of material, product, and information flows in the supply chain? Those who work in the field of logistics recognize the difficulties associated with getting the right product to the right place at the right time in the right quantity and condition at the lowest possible cost. It involves not only a lot of heavy lifting, but also deep thought and decisive action to provide promised service at the lowest cost. Back in 1962, renowned management guru Peter Drucker once referred to logistics as an untapped source of innovation and opportunity, calling it the economy's "dark continent." Four decades later, logistics management is only somewhat better understood among business practitioners and the general public. It is regarded as an afterthought among many companies, a necessary cost of doing business that has little viable input on corporate strategy. Yet, ask the CEOs of the leading companies noted above what role logistics plays in their enterprises. Excellence in logistics provision not only supports the missions of these companies but, in fact, also serves as a focal point in their very competitiveness. Take Wal-Mart, for instance. How well does its model of "every day low pricing" stand in the absence of cross-docking and economies of scale in transportation, keeping costs below those of rival retailers? And, at the end of the day, what good are "every day low prices" if the products are not on the shelf in sufficient quantity and quality? So, it is not only the low prices but also the exceptional service that differentiates Wal-Mart from rivals.

Too often, companies fail to deliver on the implicit promises that are made to customers. What is worse is when an explicit promise is left unfulfilled. Consider the promotional advertisements and fliers that appear in newspapers almost daily. What happens when the retailer promoting the product depletes its inventory? If the retailer is lucky, customers facing the empty shelf will accept a rain check or the promise to accept the order at a later date when inventory is replenished. However, in many instances, the customer knows that he or she can take the promotional flier to a rival store that will honor the deal offered by the first retailer. What might such an experience mean for the future relationship between the retailer and that particular customer? For one thing, the retailer is likely to order greater quantities of product in the future to overcome the stockout situation. However, the customer may not return in the future, knowing that a rival store down the street will honor the deals promoted by the first store. In this instance, the second retailer actually benefits from the promotions of the first store. Meanwhile, what happens when the consumer in question tells a few people about this experience? The impact of that original stockout can be amplified dramatically as others consider similar action in the future, bypassing the promotion-happy retailer in favor of the customer-responsive one. So, simply adding inventory is not the answer but, in fact, is a big step backwards.

Wal-Mart enjoys fewer product stockouts than its competitors not because of higher inventories but because of better inventory management achieved through high-frequency replenishment. Order cycle times (the time from order placement to order delivery) are forty-eight hours or less for U.S. stores, allowing store shelves to be replenished as much as four times faster than competitors. Not only does frequent replenishment of stores support in-stock objectives, but it also provides for "fresher" products. Like availability, the timeliness of product delivery have become a key differentiator in many markets. "Freshness" is obviously important for perishable consumer products like fruits, vegetables, dairy products, baked goods, and infant formula, but now it is also commonly advertised as important for products like soft drinks and beer. The waste of obsolete inventory is created when supplies are left unclaimed at the time of their expiration.

(Continues…)


Excerpted from "Lean Six Sigma Logistics"
by .
Copyright © 2005 J. Ross Publishing, Inc..
Excerpted by permission of J. Ross Publishing, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

Prefacexi
Acknowledgmentsxiii
About the Authorsxv
Web Added Valuexvii
Section 1Lean Six Sigma Logistics: Why Bother?
Chapter 1What Is Lean Six Sigma Logistics?3
What Is Logistics?4
What Is Lean?4
Lean and the Logistician4
What Is Six Sigma?5
Six Sigma and the Logistician5
What Is Lean Six Sigma Logistics?6
The Logistics Bridge Model7
Chapter 2The Importance of Logistics and Supply Chain Management9
Discovering the Dark Continent of Logistics9
This Thing Called "Supply Chain Management"11
The Logistics Wastes14
Section 2The Logistics Wastes
Chapter 3The Waste of Inventory19
Logistics and Inventory Management19
The Temptation of Inventory20
The Costs of Holding Inventory22
Chapter 4The Waste of Transportation27
Logistics and Transportation Management27
Transportation and Logistics Trade-offs29
Transportation Carrier Relationships31
Minimizing the Day-to-Day Wastes in Transportation32
Chapter 5The Waste of Space and Facilities35
Logistics and Warehousing35
How Many Facilities? How Much Space?36
Are Advanced Technologies a Cure or Merely a Crutch?37
Chapter 6The Waste of Time39
Logistics and Time Wastes39
Order Transmission39
Order Processing41
Order Filling42
Order Staging and Verification43
Order Shipping and Delivery44
Chapter 7The Waste of Packaging47
Logistics and Product Packaging47
Packaging as a Source of Waste48
Packaging as a Waste49
Packaging as a Visual Control50
Chapter 8The Waste of Administration51
Logistics and Administration51
Administration as Help and Hindrance52
Technology and Administration52
Chapter 9The Waste of Knowledge55
Logistics and Knowledge55
Cultivating Knowledge56
Managing the Flow of Knowledge57
The River of Wastes59
Section 3The Logistics Bridge Model
Chapter 10A Tour of the Bridge65
History of Lean Six Sigma Logistics66
The Importance of the Logistics Bridge Model66
The CEO's Perspective67
The Implementer's Perspective69
The Logistics Bridge Model: Getting Started70
Chapter 11Logistics Flow: Asset Flow71
People Flow72
The People "Perfect Order"73
Organizing People73
Bridging the People Gap74
Inventory Flow75
Understanding Safety Stock76
Inventory Management77
Starting with the Systems Approach77
Inventory and Cause and Effect78
Inventory Management Fundamentals79
Fixed Resources Flow80
Identifying and Mapping Fixed Resources81
Questioning the Need82
Vision of Excellence and Fixed Resource Flow83
Chapter 12Flow: Information Flow85
Data Flow86
Historical Data86
Event and Real-Time Data87
Future and Deterministic Data87
Data Excellence89
Knowledge Flow89
Continuous Improvement and Knowledge Flow90
Standardized Work and Knowledge Sharing91
Getting Knowledge to Flow92
Communication Flow93
Strategic Communication93
Hoshin Planning94
Operational Communication95
Chapter 13Flow: Financial Flow97
Income Statement Flow98
Logistics Activities and Hidden Operating Costs99
Logistics Costs Flow Across the Organization100
Inventory Carrying Costs and the Income Statement101
Vision of Excellence and the Income Statement102
Balance Sheet Flow103
Inventory as a Current Asset104
Inventory Turns and the Balance Sheet105
The Balance Sheet and Business Strategy106
Flexibility106
Visibility107
Cash Flow107
Cash Flow Drivers108
Accounts Payable and Cash108
Accounts Receivable and Cash110
Revenue Growth and Cash110
Gross Margin and Cash Flow111
Selling, General, and Administrative Expense and Cash Flow111
Capital Expenditure and Cash Flow112
Inventory and Cash Flow113
Vision of Excellence and Cash Flow113
Chapter 14Capability: Predictability115
Organization116
Highlighting Waste and Creating Visibility117
Standardized Operations and Setting Priorities118
The Organized Workplace: Clutter, Complexity, and Quality119
Measurement and the Organized Workplace119
Coordination120
Coordination and Value Stream Mapping121
Coordination and Detailed Planning122
Coordination and Measurement124
Complexity124
Complexity of Products125
Complexity of Processes126
Chapter 15Capability: Stability129
Standardization130
The Key Aspects of Standardization130
Standardization and Continuous Improvement131
Flexibility132
Developing Flexibility and Back to Basics133
Flexibility and Lead Time134
Logistics Infrastructure Flexibility135
Planned Network Design and Visibility136
Control137
Today's Capability Is the System's Capability138
Common and Special Cause Variation139
Chapter 16Capability: Visibility141
Understandability142
Beginning to Understand143
Channel Partners and Their Important Role143
Opportunities and the Moment of Truth144
Measurability145
Voice of the Customer146
Creating Internal Measures of Meaning148
Actionability149
Chapter 17Discipline: Collaboration153
Teamwork154
Processes and Knowing the Customer155
Building Teams156
Complementary Skills and Opposing Views156
Natural Stages of Team Development157
Strategic Sourcing158
Raw Material Suppliers159
Standardization, Complexity, and Dual Sourcing160
Beware the Term "Partnership"160
Collaboration and Logistics Services161
Third-Party Logistics162
Developing a Lean Third-Party Logistics Relationship163
Project Management165
Project Management: The Basics166
Meeting Agenda (Compass)167
Storyboard167
Gantt Chart168
Failure Mode and Effects Analysis169
Chapter 18Discipline: Systems Optimization173
Total Cost174
Explicit and Implicit Costs174
Horizontal Integration177
Perceived Difficulty and System Constraints179
Compensation and Incentive Programs179
Teamwork, Imperfection, and Defensive Behavior180
Breaking Down the Walls181
Vertical Integration181
From Customer to Supplier182
Vertical Integration and Information182
Variability, Leveled Flow, and Vertical Integration183
Chapter 19Discipline: Waste Elimination185
Quality at the Source186
The Benefits of Quality at the Source187
Logistics and Quality at the Source189
Continuous Improvement190
Continuous Improvement: The Bare Facts190
The Challenges of Continuous Improvement Implementation192
Bridging the Gap193
Getting People Trained194
Execution195
Acting as Lean Six Sigma Logistics Leaders195
Section 4Building the Bridge: Lean Six Sigma Logistics Tools
Chapter 20Strategy and Planning Tools201
Surveying the Tool Kit201
Voice of the Customer202
Voice of the Business204
Value Stream Mapping206
Pareto Analysis and ABC Classification208
The XY Matrix211
Chapter 21Problem-Solving Tools213
DMAIC (Define-Measure-Analyze-Improve-Control)213
Define214
Measure214
Analyze215
Improve216
Control217
Causal Analysis Tools218
Brainstorming218
Cause-and-Effect Diagrams219
Five-Why Analysis220
Design of Experiments222
Inferential Statistics223
Chapter 22Operational Tools227
Flow Concepts227
Just-in-Time and the Pull System227
Lead-Time Management, Speed, and Flexibility229
Leveled Flow230
Frequency and Lot Size232
Organization Concepts232
Standardized Work Plan233
The SIMPOC Model233
5S Organization and Visual Control234
Red Tag Initiatives235
Poka-Yoke236
Chapter 23Measurement Tools237
Data Collection Plan237
Process Capability238
Defects per Million Opportunities241
Sigma Calculations242
Conventional Measures of Logistics Performance245
Total Cost Analysis246
Chapter 24Case Study: GoldSMART Products, Inc.249
Lean Six Sigma Logistics: A Real-World Story249
GoldSMART Products, Inc.: A Cast in Lean Six Sigma Logistics250
The Calm Before the Storm250
The Approach of Ominous Clouds251
In the Eye of the Storm252
Riding Out the Storm255
Seeing Daylight Again260
Chapter 25Summary and Conclusion267
Index271
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