PROCESS MANAGEMENT:

LEAN & SIX SIGMA IN THE

SUPPLY CHAIN
LEAN PRODUCTION & THE TOYOTA PRODUCTION
SYSTEM

Lean Production

an operating philosophy of waste reduction & value

enhancement & was originally created as Toyota Production
System (TPS) by key Toyota executives
 Early versions were based on Ford assembly plants & U.S.
supermarket distribution systems
Lean Production emphasizes –
 Reduction of waste
 Continuous improvement
 Synchronization of material flows within the
organization
 Channel integration- extending partnerships in the
supply chain
 LEAN THINKING AND SCM

 Supply chain management (SCM) seeks to

incorporate Lean elements using –
 cross-training,

 satisfying internal customer demand

 quickly moving products in the production system
 communicating demand forecasts & production schedules up
the supply chain
 optimizing inventory levels across the supply chain
 THE ELEMENTS OF LEAN
The Elements of Lean

1) Waste Elimination

2) Lean Supply Chain Relationships

3) Lean Layouts

4) Inventory & Setup Time Reduction

5) Small Batch Production Scheduling

6) Continuous Improvement

7) Workforce Empowerment
 THE ELEMENTS OF LEAN
Waste (Muda) Reduction
 Firms reduce costs & add value by eliminating waste from
the productive system.
 Waste encompasses wait times, inventories, material &
people movement, processing steps, variability, any other
non-value-adding activity.
 Taiichi Ohno described the seven wastes
 The Seven Wastes

Wastes Description
Overproducing Unnecessary production to maintain high utilizations

Waiting Excess idle machine & operator & inventory wait time

Transportation Excess movement of materials & multiple handling

Over-processing Non-value adding manufacturing & other activities

Excess Inventory Storage of excess inventory

Excess movement Unnecessary movements of employees

Scrap & Rework Scrap materials & rework due to poor quality
LEAN SUPPLY CHAIN RELATIONSHIPS

 Suppliers & customers work to remove waste, reduce cost, &

improve quality & customer service
 Lean Thinking includes delivering smaller quantities, more
frequently, to point of use
 Firms develop lean supply chain relationships with key
customers. Mutual dependency & benefits occur among
these partners.
 Locate production or warehousing facilities close to key
customers
 LEAN LAYOUTS
 Move people & materials when & where needed, ASAP
 Lean layouts are very visual (lines of visibility are
unobstructed) with operators at one processing center able to
monitor work at another
 Manufacturing cells
 Process similar parts or components saving duplication of
equipment & labor
 Are often U-shaped to facilitate easier operator & material
movements
U-SHAPED WORK CELL
INVENTORY AND SETUP TIME REDUCTION

 Excess inventory is a waste

 Reducing inventory levels causes production problems

 The result is a smoother running organization with less

inventory investment.

 Reduce purchase order quantities and production lot sizes

 THE ELEMENTS OF LEAN
Relationship between Order Quantity, Lot Size, and Average Inventory
SMALL BATCH PRODUCTION SCHEDULING

 Small batch scheduling drives down costs by –

 Reducing purchased, WIP, & finished goods inventories
 Makes the firm more flexible to meet customer demand
 Small production batches are accomplished with the use of
kanbans
 Kanbans generate demand for parts at all stages of
production creating a “pull” system
THE ELEMENTS OF LEAN
Small Lot Sizes Increase Flexibility
 CONTINUOUS IMPROVEMENT
(KAIZEN)

 Continuous approach to reduce process, delivery, & quality

problems, such as machine breakdown problems, setup
problems, & internal quality problems
 Kaizen Blitz -- rapid improvement event or workshop, to find
big improvements quickly

Workforce Commitment
 Managers must support Lean Production by providing
subordinates with the skills, tools, time, & other necessary
resources to identify problems & implement solutions
LEAN SYSTEMS AND THE ENVIRONMENT
Lean green practices –
 Reduce waste
 Reduce the cost of environmental management
 Lead to improved environmental performance.
 Increase the possibility that firms will adopt more
advanced environmental management systems
 THE ORIGINS OF SIX SIGMA QUALITY

Six Sigma
 Near quality perfection (the statistical likelihood of non-
defects 99.99966% of the time)
 Or 3.4 defects/million observations
 Pioneered by Motorola in 1987
 A statistics-based decision-making framework designed to
make significant quality improvements in value-adding
processes
 SIX SIGMA & SCM
 Process integration & communication lead to fewer
negative chain reactions along the supply chain, such as
greater levels of safety stock, lost time & less productivity

 Six Sigma is an enterprise and supply chain-wide

philosophy, that emphasizes a commitment toward excellence
& encompasses suppliers employees, and customers
THE ORIGINS OF SIX SIGMA QUALITY

Calculating the DPMO

Where:
DPMO = Defects per million observations
OFD = Opportunities for a defect to occur
Example: Calculating the DPMO for Blakester’s Speedy Pizza
Blake Roberts, owner of Blakester’s Speedy Pizza, keeps track of customer
complaints. For each pizza delivery, there are three possible causes of complaints:
a late delivery, a cold pizza, or an incorrect pizza. Each week, Blake tracks the
delivery “defects” for pizza deliveries, and then uses this information to
determine his company’s Six Sigma quality level.
During the past week, his company delivered 620 pizzas. His drivers received
sixteen late delivery complaints, nineteen cold pizza complaints, and five
incorrect pizza complaints. Blake’s defects per million opportunities is:
Solution:

From Table 1, Blakester’s is operating at slightly better than 3.5 Sigma.

 THE ORIGINS OF SIX SIGMA QUALITY
Six Sigma DPMO Metrics
# of std dev above the % of defect-free output DPMO
mean
2 69.15 308,537
2.5 84.13 158,686
3 93.32 66,807
3.5 97.73 22,750
4 99.38 6,210
4.5 99.865 1,350
5 99.977 233
5.5 99.9968 32
6 99.99966 3.4
 THE ELEMENTS OF SIX SIGMA
14 Points to consider
1. Create constancy of purpose to 8. Drive out fear.
improve product & service. 9. Break down barriers between
2. Adopt the new philosophy. departments.

3. Cease dependence on mass 10. Eliminate slogans & exhortations.

inspection. 11. Eliminate quotas.
4. End the practice of awarding 12. Remove barriers to pride of
business on the basis of price. workmanship.
5. Constantly improve the 13. Institute program of self-
production & service system. improvement.
6. Institute training on the job. 14. Put everyone to work to
7. Institute leadership. accomplish the transformation.
 THE ELEMENTS OF SIX SIGMA
Juran’s Quality Trilogy
 Quality Planning - Identify internal/external customers &
their needs, develop products that satisfy those needs.
Mangers set goals, priorities, & compare results
 Quality Control - Determine what to control, establish
standards of performance, measure performance, interpret
the difference, & take action
 Quality Improvement - Show need for improvement,
identify projects for improvement, implement remedies,
provide control to maintain improvement.
THE ELEMENTS OF SIX SIGMA
ISO 9000 and ISO 14000 Families of Management
Standards
 ISO requires review of its standards at least every five
years.
 Worldwide reputation as “generic management system
standards”
 The ISO 9000 standards were adopted in the US by ANSI
and ASQC.
 THE ELEMENTS OF SIX SIGMA
The DMAIC Improvement Cycle
1. Define Identify customers service or product requirements critical
to achieving customer satisfaction
2. Measure Prepare a data-collection plan. Determine what to
measure for each process gap and how to measure it.
3. Analyze Perform a process analysis .Use Pareto charts and
fishbone diagrams to identify the root causes of the
process variations or defects.
4. Improve Design an improvement plan. Remove the causes of
process variation by implementing the improvement plan.
5. Control Monitor the process to assure that performance levels are
maintained. If performance gaps are identified, repeat
Steps 1–5.
 THE ELEMENTS OF SIX SIGMA
Six Sigma Training Levels
Levels Description
Basic understanding of Six Sigma Methodology and
Yellow Belt
tools in the DMAIC problem solving process. Team
member on process improvement project.

A trained team member allowed to work on small,

Green Belt
carefully defined Six Sigma projects, requiring less
than a Black Belt’s full-time commitment.

Thorough knowledge of Six Sigma philosophies and

Black Belt
principles. Coaches successful project teams.
Identifies projects and selects project team
members.
A proven mastery of process variability reduction,
Master Black
Belt waste reduction and growth principles and can
effectively present raining at all levels.
 THE STATISTICAL TOOLS OF SIX
SIGMA

 Flow Diagrams - Annotated boxes representing process to

show the flow of products or customers.
 Check Sheets - to determine frequencies for specific
problems.
 Pareto Charts - for presenting data in an organized fashion,
indicating process problems from most to least severe.
 Cause and Effect Diagrams (Fishbone or Ishikawa diagrams) -
used to aid in brainstorming & isolating the causes of a
problem.
THE STATISTICAL TOOLS OF SIX SIGMA
Flow Diagram or Process Map for a Restaurant
THE STATISTICAL TOOLS OF SIX SIGMA
Check Sheet for Problems at a Restaurant

Problem Monday Tuesday Wednesday Thursday Friday Saturday Sunday Totals % of Total
long wait 6 5 8 6 9 10 4 48 26.5
empty
cold food cell 2 1 1 3 2 empty cell 9 5.0
bad food 2 1 3 empty cell 1 4 empty cell 11 6.1

wrong food 5 2 1 2 5 3 1 19 10.5

bad server 3 2 5 1 6 2 1 24 13.3
empty
bad table cell 1 2 empty cell 1 3 1 8 4.4
Empty Empty
room temp. cell Empty cell 2 3 5 5 cell 15 8.3

expensive 1 2 1 1 3 3 Empty cell 11 6.1

Empty
no parking cell Empty cell 2 Empty cell 5 7 Empty cell 14 7.7
Empty Empty
wrong change 6 1 4 cell 4 3 cell 18 9.9
Empty
Other cell 1 2 Empty cell Empty cell 1 Empty cell 4 2.2
Totals 26 18 31 14 42 43 7 181 100
THE STATISTICAL TOOLS OF SIX SIGMA
Pareto Chart for Restaurant Problems
THE STATISTICAL TOOLS OF SIX SIGMA
Pareto Chart for Daily Restaurant Problems
THE STATISTICAL TOOLS OF SIX
SIGMA
Cause and Effect Diagram for the Long Wait Problem
THE STATISTICAL TOOLS OF SIX SIGMA
Statistical Process Control
 Allows firms to –
 visually monitor process performance
 compare the performance to desired levels or standards
 take corrective action
 Firms –
 gather process performance data
 create control charts to monitor process variability
 then collect sample measurements of the process over time
and plot on charts.
 THE STATISTICAL TOOLS OF SIX SIGMA

Statistical Process Control

Natural variations
 expected and random (can’t control)

Assignable variations
 have a specific cause (can control)

Variable data
 continuous (e.g., weight, length, time)

Attribute data
 indicates some attribute such as color & satisfaction, or beauty
(yes/no, good/bad)
 THE STATISTICAL TOOLS OF SIX SIGMA
Statistical Process Control
Attribute Data Control Charts
 P charts monitor the percent defective in each
sample
 C charts count the number of defects per unit of
output
THE STATISTICAL TOOLS OF SIX SIGMA
Attribute Data Control Charts
Sample standard deviation for the P chart

Upper and lower control limits for the P chart

z – number of standard deviations from the mean

n - size of each sample
p- standard deviation of the sampling distribution
THE STATISTICAL TOOLS OF SIX SIGMA
Attribute Data Control Charts

C Charts
 THE STATISTICAL TOOLS OF SIX SIGMA
Acceptance Sampling
 When shipments are received from suppliers, samples are taken
and measured against the quality acceptance standard. The
shipment is assumed to have the same quality.
 Sampling is less time-consuming than testing every unit but can
result in errors

Producer’s risk- A buyer rejects a shipment of good quality units

because the sample quality level did not meet standards (type I
error)

Consumer’s risk- Buyer accepts a shipment of poor-quality units

because the sample falsely provides a positive answer (type II
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