Lean Six Sigma Logistics: Lessons Learned from Toyota

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Lean Six Sigma Logistics Lessons Learned from
Toyota

• Thomas J. Goldsby
• Assoc. Professor of Supply Chain Management
• University of Kentucky

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What does it mean to be Lean?

• Developing a value stream to improve speed and
  flow through the elimination of wastes, including
  time.

Value stream mapping
Team orientation
Discipline Systems Thinking Total Cost
Jidoka quality
Heijunka
Kaizen
Five-S organization
High frequency Small lot size Kanbans
Standardized work
Cycle Time Reduction
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What are the wastes?
Process only whats needed when its needed

• Overproduction
• Inventories
• Waiting
• Unnecessary processing
• Unnecessary movement
• Unnecessary transport
• Product defects

Get it right the first time every time
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Value Add vs. Non-Value Add

• A value-adding activity is one that creates a
  benefit for which the customer is prepared to pay
• An activity adds value if
• the customer cares about it,
• it physically changes the item, and/or
• creates time and place utility.
• A non-value-adding activity is an activity whose
  elimination would lead to no reduction of the
  product or services attributes as seen by the
  customer (e.g., performance, function, quality,
  perceived value)
• Some non-value-adding activities are necessary
  others are not

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What are the elements of total logistics cost?

• Place/customer service levels
• Customer service
• Parts service support
• Returned goods collection

• Inventory carrying cost
• Inventory management
• Packaging
• Returned goods inventory

• Transportation costs
• Inbound and outbound transportation

• Warehousing costs
• Warehousing and storage
• Plant and warehouse site selection

• Lot quantity costs
• Materials handling
• Procurement
• Production setup

• Order processing and information costs
• Order processing
• Information exchange
• Demand forecasting/planning

Source Adapted from Douglas M. Lambert (1976)
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A Focus on Inventory

• the more inventory a company has, the less
  likely they are of having what they need.
• - Taiichi Ohno
• Inventory carrying cost consists of
• Opportunity cost of capital
• Inventory service cost (insurance and taxes)
• Storage space cost (incremental/unnecessary
  costs)
• Inventory risk (obsolescence, damage, pilferage)

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What is Six Sigma?

• Data-driven approach to better understand,
  predict, and control processes through the
  reduction of variation.

Voice of Business
Voice of Customer
Project Management tools
Statistical analysis
Project Selection tools
Root Cause Analysis
Belts
Process Capability assessment - DPMO and Sigma
calculations
DMAIC Methodology
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Why Six Sigma?
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What is Lean Six Sigma?

• The elimination of wastes through disciplined
  efforts to understand and reduce variation, while
  increasing speed and flow in the supply chain.
• Lean and Six Sigma as complements rather than
  competitors
• Lean provides the inspiration for the I in
  DMAIC
• Six Sigma provides the structured approach for
  Lean improvements

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Improving Processes in Two Ways
Not Accurate or Precise
Precise not Accurate
Accurate and Precise
XXXXXXXXX
Center Process
Reduce Spread
(Lean Influence)
(6s Influence)
Source Goldsby and Martichenko (2005)
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Lean Six Sigma - Utopia
Customer Demand
Production Planning
Leveled Production
Order Mgt
Pull Replenishment
Fixed Fence
Logistics Design
PFEP Network Design
Supplier Base
Planned Operation
Supplier Mgt
Supplier Mall
Fixed Schedules
Event Management
Consumption - Pull
Carriers
8 AM
MR Pick Up
10 AM
LTL Pick Up
12 PM
2 PM
Traffic Mgt
Yard Mgt
4 PM
Returnables
Material Handling
Ocean Direct
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Customer Demand Variance
The Harsh Reality
Production Planning
Un-Leveled Production
Order Mgt
Push Inventory Systems
High Order Changes
Logistics Design
Supplier Base
Supplier Controlled Routing
No PFEP- Hidden Operation
Consumption Disconnect
Supplier Mgt
Open Schedules
Supplier Mall
Fire Fighting
Carriers
8 AM
MR Pick Up
10 AM
LTL Pick Up
Implementing without supporting process
12 PM
No PFEP
2 PM
Traffic Mgt
Yard Mgt
4 PM
Returnables
Material Handling
Gaining
Ocean Direct
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Finding the Wastes

• Insert a Value Stream Map and build it by
  highlighting the wastes and sources of variation

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The Critical Waste of Time
Logistics Throughput Efficiency
Value-Adding Time Total Lead Time

• A typical measure of throughput efficiency is lt
  10
• Some companies will be as low as 2 - 5
• Just because touches are placed on inventory
  does not mean that value is added You could be
  making the wrong products or positioning products
  in the wrong location.

Source Martin Christopher (2002)
Source Christopher (2002)
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The Bridge Model
CAPABILITY
DISCIPLINE

FLOW

THE COMPANY AND ITS RESOURCES
CUSTOMERS AND MARKET OPPORTUNITIES
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Asset Flow
Information Flow
Flow
Financial Flow
Predictability
Capability
Lean Six Sigma Logistics
Stability
Visibility
Collaboration
Systems Optimization
Discipline
Waste Elimination
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Asset Flow
People
Inventory
Fixed Resources
Information Flow
Flow
Data
Knowledge
Communication
Financial Flow
Predictability
Capability
Stability
Lean Six Sigma Logistics
Standardization
Flexibility
Control
Visibility
Understandability
Measurability
Actionability
Collaboration
Systems Optimization
Discipline
Waste Elimination
Quality at Source
Continuous Improvement
Execution
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The Implementers Map
The Logistics Bridge Model DMAIC

• The DMAIC structure combined with the Logistics
  Bridge Model support discovery and action for the
  implementer.

Define
Measure
Analyze
Improve
Control
Definition Next Level Truism Axioms Elements and
facts Questions

• How do you measure?
• Formula (YF(x))
• Compared to what?
• Targets/Goals
• Data Collection

So what? Tools used Insights Cause and Effect
How do we control and monitor? Sustainability Revi
ew Next stage new gap identification
Trade-Offs Lean Six Sigma Principle
Application Solutions and Counter-measures Action
Plan
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Quite simply

• Lean Six Sigma is about
• DOING THE RIGHT THINGS RIGHT!

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For more information

• Thomas Goldsby
• Tom_at_logisticsprof.com
• Ph. 001-859-257-2979