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:
- Define opportunities
- Measure performance
- Analyze the opportunity
- Improve performance
- Control performance
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."