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Lean Six Sigma for Supply Chain Performance Essay

ABSTRACT:

Purpose – The purpose of this paper is to clearly understand the functions of Lean Six Sigma, Supply Chain Performance, KPI’s and implementation of LSS to observe the effects on supply chain performance. Design/methodology/approach – Various journals and papers on six sigma, lean six sigma and supply chain performance were read/searched. Around 25 papers were searched. Most of them were on lean six sigma, on sig sigma methodologies, on supply chain management. There were very few papers that titled lean six sigma for supply chain performance or, even lean six sigma methodologies. So this journal has been written by researching on the topics separately and then interlinking the researches based on the requirements that have been demanded by the journal topic.

The methodologies on lean and six sigma were interlinked and tried to implement on supply chain to understand the implementation effects on supply chain performance . A separate study on the key performance indicators of a supply chain performance was done to be able to measure the improvements in a supply chain on implementing lean six sigma methodologies Findings – It was found that both lean and six sigma when integrated as a single methodology, they complement each other and act as a powerful methodology in influence enhancements in supply chain performance.

The KPI’s that were identified from successful supply chain performance were found to be also the products of LSS implementations. So if LSS is implemented, it brings changes into the processes and improves them. Practical implications –Originality/value – The work in the paper is stretched in three field viz., LSS, SCP, Implementation. It provides the research from existing literature and an insight into the implementation of LSS for improved supply chain performance which has not been discussed frequently. The paper is of information to academics and also to the practitioners. Paper type – Research paper

Keywords – Lean , Six Sigma, LSS, KPI’s, Supply chain performance, SCOR. Research Limitations The frequency of publications on LSS is very low and most of the research has been done recently. So it is comparatively a new entrant into the industry with the scope of introducing improvement methodologies. The research publication frequency has considerably improved from 2011. Most of the journals titled LSS discussed Lean philosophy and its advantages separately and six sigma methodology separately. It is not an integrated approach, and it is always left to the reader how well both the improvement methodologies are integrated and used to fit in what the existing supply chain and its performance demands for. Since LSS is applicable in all the sectors, the papers available do not discuss in particular LSS for supply chain performance. They usually discuss keeping the general reader in mind with respect to the business improvements and performance.

Introduction:

In today’s dynamic market with ever changing customer requirements, organisations and companies should be quick in their operations. This is where the supply chain performance comes to the picture. Managing a flexible, reliable and robust supply chain is very important. There are various methodologies that will ensure this and also provide continuous improvements. One such methodology is Lean six Sigma which aims at reducing wastes in the supply chain and defect rates of the process. Thus making the end to end supply chain effective and efficient including the peripheral sub processes associated with the supply chain. Getting the products on time to the customers and maintaining the specifications of the product as per customers demands is all that is expected of a supply chain.

This paper discusses the importance of LSS for supply chain performance. It discusses the integration of lean, where the foundation of the lean vision is still a focus on the individual product and its value stream and to eliminate all waste in all areas and functions within the system which is the main target of lean thinking (Womack and Jones, 1996). The other methodology is six sigma. Underpinned by statistical techniques, it presents a structured and systematic approach to process improvement, aiming for a reduced defect rate of 3.4 defects for every million opportunities, or Six Sigma (Brady and Allen, 2006).

Literature review on LSS:

Lean and Six Sigma are process improvement methodologies that have been used throughout industries as varied as the healthcare industry to car manufacturing, in order to improve their processes and respond to their customers’ needs (Hammond & O’donnell ,2008). More authors agree to it being a process improvement methodology. The integration of the two methods has occupied a special place in enhancing performances be it in supply chain or in organisations. Lean and Six Sigma are popular contemporary process improvement methodologies intended for companies striving for operational excellence (Arnheiter and Maleyeff, 2005). There is little literature available on the integration of these concepts when looking for a common model, theoretical compatibility or mutual content or method, (Bendell, 2006).

The areas that LSS is focussed on is summarised in the figure [see appendix Fig 1.1] The integration of the two methodologies attempts to provide empowerment even at the higher level process analysis stages, so that employees have true ownership of the process (Pepper & Spedding, 2010). The integration of lean and six sigma has lead to integration of the tools and techniques that are used in the two methodologies. So the integrated LSS consists of a power pack of tools which will be effective on various processes and in improving them. The figure [see appendix fig 1.2] shows an overall picture of an integrated LSS methodology with all its tools and techniques.

Following the discussion from Fundamentals of lean six sigma class, various lean tools were studied and their importance were analysed. This paper tries to reflect the correlation between the discussion and the existing literature.

Value Stream Mapping: Identifying wastes in the processes is the prime concern that is dealt in Lean philosophy. To ensure identifying both value adding and non value adding activities in the processes, Value stream mapping emerged for this role (Rother and Shook, 1999), and continues to provide a reliable qualitative analysis tool. 5S is another important tool. 5S is seen as fundamental to achieving a lean business and is deemed equally applicable to the shop floor or office (Bicheno, 2000).

Importance of measuring supply chain performance:

Most of the times organisations are perceived to look at the indicators in a financial point of view and neglect other indicators of SC performance. But it is not always the financial aspects that define performance. This paper discusses various literature and point of views from many researchers on the key performance indicators for defining the activity of improved supply chain performance. Effort has been done to define the concepts of measure and metrics , performance measurements, importance of KPI’s, existing performance measurement models for supply chain in the form of literature review. Some of the definitions and research views from the existing study are, Gunasekaran and Tirtiroglu( 2001) says ,measures and metrics are needed to test and reveal the viability of strategies without which a clear direction for improvement and realization of goals would be highly difficult. In the process of measurement some authors go ahead with describing the importance of planning in the process.

SCM performance measurement or monitoring is the term for a set of metrics and processes related to assessing and evaluating how accurate the planning is and how well the execution is carried out. (Chae, 2009). Any measurement method when adopted in a right manner reaps a better result. It is all about understanding the end to end supply chain and deciding on factors to measure to capture performance. Making proper performance measurement of a supply chain is necessary as it cultivates understanding between member firms in the supply chain for performance improvement (Dreyer, 2000; Fawcett and Cooper, 1998).

Since times that date back to the supply chain performance measurement activity, KPI’s have always been considered the essentials. The reason is due to its clarity and ability in pointing the factors to look for improvement. Performance metrics or KPIs offer the overall visibility of supply chain and help to assess the accuracy of supply/ demand plan like forecast accuracy and the execution performance like actual sales versus forecast plan. (Chae, 2009). Once they are identified, the process of supply chain re designs itself in working towards achieving those KPI’s which now transform to the critical success factors. To carry on with this, Importance of defining roles and responsibilities (R&R) of organizational units and members to make KPIs work in practice Chae (2009).

When the research for KPI’s of supply chain was being done, the study showed more than 200 KPI’s for a supply chain in the literature and also few case studies. They were in detail description and indicators of process and widely based. From that only the most important and general KPI’s for a supply chain irrespective of its domain was selected and filtered. The KPI’s that are mentioned in this paper are not the only KPI’s but are the fundamentals for any supply chain. Some of the fundamental KPI’s mentioned are given in the table [see appendix Table 1.3]

Supply Chain Operations Reference (SCOR) model:

Since KPI’s have proved to be successful factors in evaluating performance throughout supply chains, the concept of utilising them in building a performance measurement model was developed. One such well know model is SCOR which explicitly measures supply chain performance. Among the extant SCP conceptualizations, the supply chain operations reference model (SCOR) developed by the Supply Chain Council (Stewart, 1995) provides a useful framework that considers the performance requirements of member firms in a supply chain. (Lefebvre & Wamba, 2008). SCOR also acts as a benchmarking process for supply chain to compare and evaluate its processes within itself and also with the external supply chain of the best in class irrespective of the domain. The measurement criteria and indicators of performance measurement in SCOR across supply chain members, provide a useful framework for developing a construct and the corresponding instrument for SCP measurement (Stephens, 2000). This can be considered as more structured way of describing KPI’s in your supply chain.

From the figure [see appendix Fig 1.4] it is very evident the key performance indicators are described at every level of the supply chain that can improve the performance. This is a typical SCOR model that explains the performance metrics at each level of the supply/demand chain. The model also helps in understanding the process better by its clear definition of performance indicators at every level of the chain. This enables the organisation to focus on every level with clarity on the area to be measured and improved for achieving enhanced performances.

Some of the important KPI’s of supply chain that can be identified from the figure are material quality, production quality, production lead time, on time delivery. These were mentioned keeping in mind the customer satisfaction. End of the day, the supply chain is all about balancing the demand and supply from and to the customers and performing to gratify customer’s requirements and retaining them.

KPI’s within SCOR:

Further intricate refining of the supply chain performance management can be done by dividing the chain into stages and this is achieved through SCOR. The following table [see appendix Table 1.5] flawlessly indicates KPI’s at each stage in the supply chain.

From the above table the performance indicators show that planning cycle is an important metric, especially the short planning cycle which represents itself as a good indicator. By adopting this, supply chain shows sharp responsiveness. Reduction in the total inventories enhances the supply chain and it is an important KPI. Considering the cost factor, CCCT is the financial efficiency of any supply chain. . As a composite metric it is expected to offer a comprehensive view of one’s supply chain (Vollmann et al., 2005). Forecast is an essential process in the supply chain, demand forecast is the most important of all since it reflects the market views and customer requirements and drives the supply chain regarding production and sourcing the materials.

Obtaining the accuracy in forecast is the highest performance metric, which defines the operational excellence throughout supply chain. Estimating and measuring the inventory levels at each stage provides essential data for production, sales and distribution. Coming to the sourcing functions which have become the prime process in the supply chain, the primary KPI is the supplier fill rate which evaluates its suppliers on their processes and most importantly their reliability. The performance of the extended supply chain, where customers and vendors are now an integral part of it demands enhancement in its performance through receipt of accuracy in purchasing information, material information, delivery dates.

Benefits of LSS:

Arnheiter and Maleyeff (2005) discusses on the benefits of LSS by saying , Providing lean with a more scientific approach to quality, so that through the use of control charts, processes can be kept on target, effectively reducing waste incurred through faulty processing. It provides a structured approach rather than addhoc approach towards the problems. Strategic approach is instilled in all its operations. Six Sigma complements lean philosophy in as much as providing the tools and know how to tackle specific problems that are identified along the lean journey lean eliminates noise and establishes a standard (Wheat et al., 2003). This suffices the benefits for a noise free supply chain.

Arguments on the reasons why lean six sigma should be implemented for improved supply chain performance:

Process improvements have been the key interest in implementing LSS in various organisations irrespective of their domains. The organization adopted LSS either to improve their processes or modify them to increase efficiency and productivity Irfan et al (2012). Supply chain is a combination of many processes. Hence LSS which is dedicated in process improvement. For achieving an overall performance in the supply chain by implementing lean , it is foremost essential that the peripheral networks of the supply chain are also trained on the philosophy. Since supply chain performance is measured not as a chain but as a network. Considering the condition of a network, Chrysler used resources to extend in house training of lean philosophy to its major suppliers, emphasising the commitment needed from all parties in order to establish lean, and realise the full potential for everyone involved (Fitzgerald, 1997).

Lean philosophy and six sigma when implemented separately lacks the holistic approach which fits every situation. This is the problem with organisations that implement either one of the methodology. A solution therefore is to embed a coherent systems philosophy that integrates culture with a scientific approach through a unified hard/soft systems thinking philosophy (Pepper & Spedding, 2010). The culture here can be explained as lean philosophy and the scientific approach is using six sigma and its statistical techniques in reducing the defect rates and in turn aiming for continuous process improvements. Antony (2006) emphasises the importance of aligning projects to business objectives. This is very important for understanding and measuring the performance metrics of the supply chain of an organisation.

The defects that are observed in the supply chain through the implementation of LSS should be well defined and prioritised. The definition always varies and aligning the requirements of improving the performance with respect to the business objectives is important. A defect may be defined as anything which does not meet customer needs or expectations. It would be illogical to assume that all defects are equally good when we calculate the sigma capability of a process (Antony, 2006). Furthermore, it is not just the reduction of defects in supply chain but also keeping a balance in enhancing performance and increase the value for the customers.

The balance lies in creating sufficient value from the customer’s viewpoint, so that market share is maintained, while at the same time reducing variation to acceptable levels so as to lower costs incurred, without over-engineering the processes (Pepper & Spedding, 2010). With LSS ,the simplistic problems identified which are categorised as a non value adding activity like unnecessary movement, shop floor designs, longer lead times in a supply chain can be addressed by lean philosophy and issues in demand management , planning can be dealt with six sigma.

Impacts of the implementation of LSS on the supply chain performance: Synergy of LSS offering Supply chain and its performance .Become faster and more responsive to customers, Strive for Six Sigma capability level, operate at lowest costs of poor quality, Achieve greater flexibility throughout the business (Antony et al., 2003).

Implementing LSS will definitely make drastic changes in the 5 stages of supply chain ie., plan , source, make, deliver. It has its own challenges but it is undeniable that supply chain performance shoots up. The concept of LSS is identifying the root cause of any problem, solving it through various statistical techniques and implementing continuous improvements through many well structured approaches. This is exactly what is required for supply chain for its enhanced performance and it rests most importantly in the planning section which to a greater extent indirectly removes most of the non value adding activities further in the supply chain. LSS synergy preaches development effective leadership which can then handle the planning and driving the operations to ensure the ultimatum from the customers.

LSS is data driven, and this result in any organisation implementing LSS to maintain every record of data and activities. This process in turn will result in accurate forecasting and demand evaluation and management which have been studied as the most important KPI’s in the supply chain performance. These process improvement methods will ensure that effectiveness and efficiency of the processes are continuously maintained so that the summation of these processes leads to reduction in defect rates, quality problems, longer lead times, unnecessary WIP inventory, supply chain cycle times.

DMAIC- Define Measure Analyse Improve that is practiced in LSS is a great way of enhancing supply chain irrespective of the network complexities and brings in operational excellence. The Lean Six Sigma process is broken down into five interconnected stages: Define, Measure, Analyse, Improve and Control; abbreviated to DMAIC (Harris & Betsi, 2002), (Sewing, A et al ,2008). The main requirement of this is the support and strong commitment from the management and the understanding of every process in an end to end supply chain. LSS defines every activity that happens in the process built supply chain and this captures all the details for an effective decision making. Defining involves SIPOC diagrams which clarifies the potential blockers and the respective decision points.

It is good practice for an extended supply chain which integrates suppliers and customers into its value chain. Measure activity gathers info on the existing speed, quality, and costs of the processes and then they are summed up to analyse the current process condition. This data is in correlation with the defined objectives. Later comes the analyse part which considers all the measured factors to derive at the frequency of the variations causing non value adding activities in the supply chain. Prioritising of the problems can be done here with the proposed solutions through six sigma methodologies.

Bringing in structure and standardising the processes through root cause and failure analysis. Then the solutions are implemented and improved periodically with the help of kaizen and other implementation tools. This not only designed to improve the processes but also refines people who are involved in the operations to perform the best in what they are assigned. Training makes them efficient and leads to reduction in human errors. Automation of certain activities can be considered at this stage, with the vision of reduction of variations and defect rates. The final phase of control monitors all the implementations periodically. This keeps the supply chain flow smooth with necessary flexibility and a stringent control on quality.

Outcomes of the implementation reflecting in SCP:

Having a strong visibility, optimization and control on the supply chain is more important for its performance. This is supported by the tools that are used in LSS. One such tool VSM helps in understanding the present and future states of the supply chain and helps in redefining strategies by linking information to the material flow (Rother & Shook, 1999). LSS makes enhancements in the production efficiencies by reducing wastes with the help of real time data. This in turn enhances performance of the supply chain where the process tends to run smoother with reduced inventories, considerable closeness in supply demand match. Statistical process control that is involved in LSS eliminates risk factors that are associated with the processes, which can be a major overhaul.

Linear translation of implementing levelling, standardising , sequencing, FMEA, JIT, automation, pull production takt time, critical to quality , defect rate reductions, SPC is seen in improved delivery of products with reduced total supply chain cycle time, improved reliability, increased capacity utilisations, accurate demand and forecast management, inventory handling and more importantly successful sales and distribution operations.

The results reflect a quality throughput in terms of customer service, product profile, process profile, continuous improvement techniques, and employee involvement. These are the factors which defines supply chain performance. Concentrating and picking the best methods from both lean and six sigma provides decent amount of flexibility and robustness in supply chain. Involvement and training of employee is very important for all these activities and this is taken care by six sigma implementation.

According to LSS all the focus on problem identification, problem solving, continuous improvement id achieved then that results in improved process flow with eliminating non value adding activities and enhances value for customers by refining its activities throughout its supply chain.

Discussion on limitations:

Every activity and methodologies have its own set of pros and cons. With LSS the main limitation in its implementation is about its framework. Since it is an integrated system, there has been no official framework that has been established in its implementation methodology. This has triggered other problems that are considered as limitations by practioners. One of them is, understanding of tools and the process which demand the usage. One major problem apart from its framework is perception attitude of the management. The table [see appendix Table 1.6] lists some of the frequently written about limitations. Antony et al. (2003) suggest that the problem of lack of improvements in an organisation when the methodologies are applied in isolation is because, lean principles lacking a directed cultural infrastructure as can be seen with the Six Sigma approach.

Conclusions:

With the implementation of LSS to improve supply chain performances quality, efficiency and effectiveness of the process are improved with structured methods of root cause analysis and continuous improvements. LSS will ensure the supply chain of supplier development, reduction in process variations, optimisations, cooperation and leadership, elimination on non value adding activities, reduction in lead times, just in time. These are the fundamental results from LSS which any supply chain can obtain with the implementation.

LSS focuses on creating customer value stream, attacks WIP inventory, process control & planning, application of statistical tools and techniques to improve the performance. It is important that the management implement the integrated methodology for obtaining a supply chain which has greater control, visibility and has achieved optimisation throughout and has been the best supplier to its customers.


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