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lean-six-sigma-logistics

WHAT IS SIX SIGMA?
Six Sigma is a management methodology that attempts to understand and
eliminate the negative effects of variation in our processes. Based on an in-
frastructure of trained professionals (black belts), Six Sigma delivers a prob-
lem-solving model armed with “voice of the customer” utilities and statistical
process control tools. Define-Measure-Analyze-Improve-Control (DMAIC) is
a map, or step-by-step approach, to understand and improve on organizational
challenges (see Chapter 21). Six Sigma–trained employees will work on
“projects” using the DMAIC model to reduce variation in processes and to
attempt to achieve “Six Sigma quality,” a statistical reference to 3.4 defects per
million opportunities.
At the heart of Six Sigma is the principle of variation reduction: If we can
understand and reduce variation in our processes, then we can implement
improvement initiatives that will center the process and ensure accuracy and
reliability of the process around customer expectations. For example, an average
order-to-delivery cycle time of five days may reflect a variation between two
and eight days. It is this variation that leads to customer nonconfidence and the
resultant inventory buildup and/or loss of sales.
Six Sigma and the Logistician
The concept of variation reduction is paramount to the logistician. As stated
above, logistics is about managing inventory, and managing inventory is about
managing variance.* If we look at the different types of inventory, we will
plainly see why variation plays such a vital role in how we manage inventories
throughout the business and the supply chain.
For example, safety or “buffer” stocks are inventories that we need to hedge
against unknowns (i.e., the variations from the norm). That is, we maintain
safety stocks because of variation in supplier quality, transportation reliability,
manufacturing process capability, and customer demand patterns. In other words,
if we can understand and control variation in our processes from supplier to
* We use the following terms interchangeably throughout the book: variation, variance, and
variability.


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Lean Six Sigma Logistics
customer, then we will be able to reduce our reliance on the buffers dramati-
cally. In this regard, logisticians need to think of themselves as actuaries, like
those who develop rates for automobile insurance. Actuaries look at key vari-
ables — the age of drivers, gender of the drivers, types of vehicle driven,
measures of past behavior (e.g., speeding tickets and accidents) — and then they
determine insurance rates that reflect the variability in the data. This is precisely
why the sixteen-year-old male who drives a sports car will have the highest
insurance rates!
Logisticians are no different than the actuaries in this analogy. For demo-
graphics and sports cars, the logistician substitutes supplier competence, trans-
portation reliability, and demand fluctuation. Then the logistician determines
the “insurance rate,” using inventory as the unit of currency. The problem here,
though, is that too many logisticians are treating their companies like teenage
drivers when, in fact, the company performance is more like a middle-aged
soccer parent who drives a minivan. A down-to-earth example of this is when
a manufacturer has leveled demand from a supplier who is an hour down the
road from the plant, yet the manufacturer continues to carry twelve days worth
of that supplier’s parts in inventory! Why? Most likely the answer is twofold.
The first reason is that the leveled flow (and therefore low variability of de-
mand) is not understood; the second reason is more emotional. The emotional
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