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January, 2003 | List all feature stories Six Sigma Success 3PLs embrace Six Sigma to drive out costs and increase quality.
Motorola scientist/engineer Bill Smith introduced the concept of Six Sigma in 1986. Six Sigma, a rigorous system of process management, which aims to improve customer satisfaction, speed cycle time, and reduce defects in manufacturing, has now grown into a system to help process control in service businesses such as transportation.
One of the most vigorous of the continuous improvement methodologies is Six Sigma," says Steve Banker, director of supply chain research for the ARC Advisory Group Inc., Dedham, Mass. While Six Sigma has traditionally been associated with manufacturing and product quality, "leading manufacturers are using it to improve their extended supply chain and logistics capabilities," he says. "At the same time they are improving reliability, some companies have cut hundreds of millions of dollars of fat out of their supply chains." Applying Six Sigma methods to complex and challenging logistics processes can decrease variation and optimize the processes, notes Peter Pande, president of Pivotal Resources Inc., an organizational improvement consulting and training company based in Walnut Creek, Calif. Achieving Near Perfection
Six Sigma can mean several things, Pande explains. First, the Greek letter sigma is used in statistics to indicate standard deviation, or how much variation there is, as in a set of data or a process. Six Sigma is a performance improvement goal of near perfection -- 3.4 defects per million opportunities. "We look at Six Sigma as three main strategies," Pande says, "improving processes, redesigning ones that are outmoded, and the ongoing management of the processes." This includes having better metrics in place to evaluate performance. Unlike some quality approaches, Six Sigma is customer focused, not internally focused. "One thing that's really different about Six Sigma is that, while we may look within the plant walls -- from loading to unloading of trucks -- the real issue is how effectively that aspect of the supply chain provides necessary service and value to the whole chain," Pande explains. At the heart of Six Sigma is a five-phase model, called the DMAIC model, which includes the following steps:
A Standard of Success
Third-party logistics provider Standard Corporation, a UTi Worldwide company based in Greenville, S.C., for two years has averaged more than $1 million in annual savings from Six Sigma, reports Stephen Sargunaraj, a Master Black Belt in Six Sigma as well as a logistics engineer at Standard. The 3PL began looking at Six Sigma five years ago, reports Elijah Ray, Standard's senior vice president of customer solutions and the company's Six Sigma senior champion. At the time, Standard, which has a strong culture for quality and continually strives for perfection in its core processes, was looking for ways to continue its quality journey, Ray says. Ray attended a Six Sigma class conducted by Motorola to learn more about the approach. The 3PL then invited the instructor of that class to visit Standard and introduce Six Sigma to the company's management team at a Quality Council meeting. Intrigued by what they heard, Standard decided to pursue Six Sigma further. The first step was an intensive training session for the executive team, conducted by a consultant from Pivotal Resources Inc. Fifteen people -- including Standard's senior management team, the process improvement manager, plus operations and human resources executives -- attended the training. "The intent was to win senior management buy-in and gain their commitment," Ray says. Taking the First Step
After the initial training, which took place some three years ago, Standard began implementing Six Sigma in its operation. The first step, Sargunaraj reports, was to look at the 3PL's core processes and conduct some pilot projects within those core processes. Selected projects had to be part of Standard's core processes, part of the strategic goals and direction of the company, or represent gaps in the company's processes, as indicated by the voice of the customer. "We want to use Six Sigma to drive quality improvements and improve customer relations," Sargunaraj says, "so the voice of the customer is probably the biggest key for us when it comes to project selection." The team of senior managers who attended the initial Six Sigma training helped select the projects and the people to work on them. One early project targeted shipment errors at a facility operated by Standard for The Robert Bosch Corp., a manufacturer whose products include aftermarket auto parts and OEM systems and equipment. The facility had averaged one shipment error per month since the operation's inception, Ray explains, an unacceptable performance for Bosch's automobile customers. The team that was assembled to address the problem created its project charter, laying out the problem and goal statement, team members, key objectives and milestones. The Green Belt Goes to Work
As the team worked through its charter and collected preliminary data, a potential root cause -- inventory accuracy -- was identified. Inventory accuracy of finished goods at the time was 96 percent, while inventory accuracy of component goods was 94 percent. The Green Belt (Six Sigma expert) worked through the Measure and Analyze phases of the Six Sigma process, using tools such as process mapping, fishbone diagrams, run charts, and control charts, to identify potential areas of improvement. The five-member team then moved into the Improve phase of the project. "They had a four-pronged approach to improving inventory accuracy," Ray explains, which included improving the cycle counting process, training managers and the team at the facility, and fully redesigning the process. In addition, the team addressed a communications gap that existed between the Bosch and Standard offices. The gap caused a delay in making some inventory adjustments. With those four steps, "over the course of six months, they got inventory accuracy up to 99.99 percent for both finished goods and component goods," Ray says. Most importantly, shipping errors were completely eliminated. That project was one of 13 that Standard has completed; another 14 are ongoing or on hold. While most of the projects have been successes, some have not. "Sometimes we pick a project, move into the Definition and Measure phase, and find that the solution is beyond our control, that the problem doesn't exist, or that what we thought was a problem wasn't really a problem," Sargunaraj explains. "Sometimes, the solution is so simple that it's easier just to fix the problem than it is to go through the entire Six Sigma process." Standard has found that one key to a successful Six Sigma project is having a customer representative as a member of a project team -- someone who has a vested interest in the results, and can make things happen from the customer perspective,says. When that occurs, "changes are more successful, and happen faster," Sargunaraj says. Standard has moved from simply completing individual Six Sigma projects to creating an organization-wide Six Sigma culture. "Six Sigma is an organized approach that engages people in solving problems," Ray says. "That makes it an extremely powerful tool in our environment. I think there is a huge opportunity for 3PLs to work with their customers to drive costs out and improve service using Six Sigma methodology." Six Questions About Six Sigma
Ray, Pande, and Sargunaraj sit still for six questions about Six Sigma:
1. What are the major steps to implementing Six Sigma?
A. The first step is to identify what you're trying to accomplish through the application of Six Sigma, Pande says. Then, identify strategic issues within the organization or within logistics/supply chain management that need attention. Typical areas include streamlining operations, improving efficiency and accuracy, and reducing inventory and waste. The next step is to commit to "launching a series of projects that focus on achieving some critical business results or performance improvement," Pande says. This can be done organization-wide, or within the logistics/supply chain function. For example, one major retailer piloted Six Sigma in its logistics operation, and is now rolling it out throughout the company. Next, based on your objectives, determine the types of tools, resources, and people you need to address the chosen opportunity. In addition to a project champion, each team needs training in Six Sigma methods plus the time and resources required to do the job. 2. What are Six Sigma's critical success factors?
A. "The most important thing is some kind of leadership drive and consensus or shared decision to change the organization to improve the business, and to improve how it improves the business," Pande says. This commitment to change is critical to Six Sigma's success. Having executive commitment is particularly important in a supply chain environment, which often involves dealing with multiple constituencies. "Who's best at breaking down silos?," Pande asks. "The senior leader, who can facilitate taking the broader view to tackle the problems." Other critical success factors include: Having the right people. "It takes a mix of skills to make Six Sigma work," Pande says. "You need creative as well as analytical people." Those who do well on Six Sigma projects are people "who are attracted to doing new things, to doing things better, to understanding problems; who are service-oriented and tuned in to serving customers." While analytical skills are important in some areas, "this is definitely not something where you'd want to find math majors to do the work," he says. Solving the right problem. One prerequisite for success is solving the right problem, Pande says. "You have to understand the problem so you can get the right data to help you figure out the cause. In more undisciplined problem-solving, people put solutions in place only to realize later that they didn't understand the problem." By investing in proper problem definition and data validation, Six Sigma teams are able to zero in on the real problem, so that they can develop a sound solution. Gaining buy-in to the project. A key part of project selection is ensuring that the senior owners buy in to the Six Sigma process. If the project is not selected or supported properly, the team can invest significant effort into developing a solution that's not supported, Sargunaraj warns. Tying Six Sigma to rewards. "A lot of the great companies using Six Sigma tie promotions and incentives to Six Sigma," Ray says. Six Sigma metrics should be tied to managers' and leaders' performance and objectives to maximize improvement, he says. As Standard matures in its use of Six Sigma, "we're trying to look for people who have high potential, who will make good team leaders and do well on Six Sigma projects, and develop them as they work on the projects," Ray explains. This will help Six Sigma performance become a part of the company's leadership development process. 3. How hard is it to use Six Sigma to drive change?
A. "The foundation of Six Sigma, the basic principles, are common sense," Pande notes. While the statistical concepts inherent in Six Sigma can be intimidating to those unfamiliar with them, "quality tools, such as fishbone or scatter diagrams, can be very user-friendly," Ray says, "especially if you have the right Black Belt working with people on the team helping them understand the tools and how to use them." Six Sigma tools do facilitate implementing change, and they may be fairly simple to use. But solving challenging business problems -- changing the way an organization operates -- is not easy, Pande says. 4. What can get in the way of successful application of Six Sigma?
A. Complacency, and a belief that existing performance improvement approaches are sufficient, can be barriers to Six Sigma success, Pande says. Other barriers can include delegating project selection inappropriately, and not putting the right people on the Six Sigma team. "You can't just assign responsibility to people who aren't skilled at Six Sigma or savvy enough to think outside the box," Pande warns. Another potential barrier is lack of buy-in from middle managers. "Not everybody is a believer in Six Sigma," Ray notes. "The biggest impediment in many organizations is middle managers" who do not embrace the new way of working. 5. How much time does it take to see tangible savings from applying Six Sigma processes?
A. Six Sigma takes time -- a team may work on a project for three to six months. The approach, which invests significant time in defining and analyzing problems, can conflict with the more traditional method of managing, which often rewards quick fixes. "We reward managers on their ability to sum up a situation quickly, to make a solution happen to solve the problem virtually instantaneously," Sargunaraj notes. "Six Sigma asks you to stand back and walk through a structured process, to create longer- term success." 6. What results can be expected?
A. The payoff from Six Sigma can be significant in terms of dollars. "Most of the time, the kinds of benefits from improvements are meaningful," Pande says. In fact, quantifying the potential financial benefits of a project is a key requisite for choosing and executing a Six Sigma project. "One thing that has made Six Sigma successful and caused broader adoption is that the benefits have to be quantified in dollar terms," Pande says. "But there is a risk to putting too much attention on hard dollars," as substantial benefit can be achieved from initiatives that may not affect cost but can win additional business by reducing customer pain and increasing customer satisfaction. A solid understanding of Six Sigma practices and principles can give any transportation, third-party logistics, or supply chain management operation a path to continuous process improvement. Six Sigma Pizza Pi Imagine you own a pizza shop. You have contracts with customers, nearby business offices, promising to deliver fresh, hot pizza between 11:45 a.m. and 12:15 p.m. If a customer's pizzas are not delivered during this window, you have agreed to discount their next order by 50 percent. You and your staff get a bonus for on-time delivery of pizzas. If you deliver at a fairly miserable 68 percent, you're operating at a 2 Sigma level, according to What Is Six Sigma? by Peter Pande and Larry Holpp, from which this example is taken. At a 3 Sigma rate, your on-time delivery climbs to 93 percent. If your on-time delivery rate is 99.4 percent, you're operating at a 4 Sigma rate.
And if you operate a Six Sigma pizza shop, you will deliver pizzas on time 99.9997 percent of the time -- with just three or four late deliveries per million pizzas. "The goal of Six Sigma is especially ambitious when you consider that, prior to the start of a Six Sigma effort, many processes in many businesses operate at 1, 2, and 3 Sigma levels, especially in intangible and administrative areas. This means that from 66,000 to as many as 700,000 mistakes per million opportunities are being produced," write Pande and Holpp in What Is Six Sigma?
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