As the supply chain continues to become more complicated as the result of globalization and business models that are in transition (i.e. getting goods to the consumer as quickly as possible), companies have been focusing on the most effective ways to ensure the best process results.
One of the processes that most successful supply chains implement is Six Sigma. This term derives from the statistical principle that states: “If you start at your process’ mean value, and you eliminate defects within the six standard deviations of the mean and the nearest specification limits, you will virtually eliminate all defects or errors.”
Motorola implemented the concept of Six Sigma in the mid-1980s as a way to seek process improvements within its manufacturing operations. Other early adopters of Six Sigma include Honeywell and General Electric. Since then, the term has become synonymous with process optimization.
In the late 1990s, about two-thirds of Fortune 500 companies had begun Six Sigma initiatives with the aim of reducing costs and improving quality. In 2005, Motorola attributed over $17 billion in savings to Six Sigma. Other organizations that utilize Six Sigma include Amazon, 3M, Boeing, Ford, GE, McKesson, the U.S. Army and Marines, Johnson Controls and GEICO Insurance.
The five main steps in the Six Sigma process use the acronym DMAIC, which stands for Define, Measure, Analyze, Improve and Control.
Define: define the customer and their expectations; define the impacted business processes; define the project boundaries; create a process map; define metrics, including Big Y and little y’s; form a project team and finally, develop a project charter.
Measure: gather data and measure the existing processes.
Analyze: analyze the gathered data; identify the gaps between existing and desired performance; identify sources of variation and finally, decide on the processes to be improved.
Improve: propose solutions; carry out pilot studies, test and evaluate the proposed solutions and finally, develop an implementation plan.
Control: implement processes to ensure sustainable improvements and also develop procedures and control plans, as well as train staff.
The DMAIC method offers a five-step plan that gives organizations a road map to follow so that issues can be resolved using a structured methodology. Features that set Six Sigma apart from previous quality-improvement initiatives include a clear focus on achieving measurable and quantifiable financial returns from any Six Sigma project; an increased emphasis on strong management leadership and support and finally, a clear commitment to making decisions on the basis of verifiable data and statistical methods, rather than assumptions and guesswork.
Six Sigma projects are typically led by professionals trained and certified in Six Sigma techniques, as these projects are disciplined, data-driven and designed to improve processes by identifying and removing the causes of defects or errors and minimizing variability. Companies implement these projects following a defined sequence of steps that have specific value targets, such as reducing costs and process cycle times, and increasing profits and customer satisfaction.
In order to do a deeper dive into this topic further, we interviewed a supply chain specialist, Gina Walton, senior managing director of supply chain and logistics at Newmark Knight Frank, and posed the following questions.
Why is Six Sigma so important to successful supply chain operations?
Gina: Six Sigma is important in a supply chain’s success because it supports management strategy by using business strategy in operations to eliminate defects within a supply chain process. The Six Sigma principles take a management strategy and provides process improvements in various aspects of the business to eliminate defects that cause variability in costs, customer dissatisfaction and increase in a process using analytics. The methodology allows continual improvement. These steps should optimize a company’s business performance.
What major improvements to the supply chain are achievable by implementing Six Sigma disciplines?
Gina: The major improvements that a company will see could include eliminating defects in processes to increase productivity, improving customer satisfaction, reducing cost and increasing an organization’s competitive edge. The methodology is also successful in new process as well. When a process is new the method is to analyze the objective concerning the processes and the requirements and allow the organization to design and validate to eliminate the defects prior to start which will decrease process/tool startup costs and drive to customer satisfaction early in the deployment.
An additional opportunity for improvement is integration of multiple organizations to standardize processes where applicable. Starting with individual baselines and comparing the corporate objectives and allow synergies to be identified and executed. Other benefits of using Six Sigma in the supply chain include improvement in delivery time; reduction of logistics cost; lesser inventory cost and improvement in the final finished product and/or service.
The Lean process is another improvement process that is being used in supply chain operations. How does this relate to the Six Sigma and/or merge with it?
Gina: There is a place to expand on the defects to other areas that could reduce cost and improve delivery time to the customer. The areas in which the Lean process compliments Six Sigma expands to transportation inefficiencies, inventory mismanagement, production inconsistency, labor misuse and bottlenecks outside any identified defect.
Six Sigma is based more on analytics, and Lean is based on flow. Lean wants to continue to drive out the waste that could be integrated many different areas (i.e. how the process desks are set up or the specific location of doors for the outbound product). These items show up outside of the analytics.
How long does it take for a company to incorporate Six Sigma principles and then begin to see the desired results?
Gina: The most important part of incorporating Six Sigma principles into an organization is the C-level buy-in and support. Depending on the size and buy-in, it could take a few months or years for full integration. The first step is identifying the baseline and the corporate objectives with requirements to be identified to drive to a successful result and continuous improvements.
The Six Sigma process that many major corporations are implementing has enabled them to become more cost effective, meet changing customer demands and achieve efficiencies within their supply chains.
A sincere thank you to Gina Walton, senior managing director for supply chain and logistics at NKF, for sharing her knowledge, experience and insights into this timely topic.