WHAT IS LEAN SIX SIGMA LOGISTICS?

Lean Six Sigma Logistics. Although it may sound as if it would require a yearlong
training course to do the topic justice, most logisticians are in fact using Lean Six
Sigma Logistics techniques without realizing it. As the competitive environment
changes the way we do business, companies are embracing Lean and Six Sigma
initiatives to support cost reductions and quality improvements. Although Lean and
Six Sigma programs were separate initiatives in most organizations initially, today’s
firms see that Lean and Six Sigma do not compete against but rather complement
each other and provide for dovetailing of continuous improvement activities. But
what does this have to do with logistics? The quick answer is ―everything.‖ Once
grounded in Lean and Six Sigma principles, the logistician will realize that logistics,
Lean, and Six Sigma form a natural union. This union leverages the strengths and
weaknesses of each discipline to create a cultural and operational model that will
aid the logistician to solve age-old issues while improving operations and
contributing to business success at all levels. Where does one start when dealing
with a topic as complex as Lean Six Sigma Logistics? Mathematicians have shown
us that Y is a function of X, so if we truly want to understand Y (Lean Six Sigma
Logistics), the best place to start is with the Xs. In this case, the Xs we need to
understand individually are logistics, Lean, and Six Sigma. Once we can envision
the three focus areas on their own, then we can see how they come together,
allowing the whole to be greater than the sum of the parts.

WHAT IS LOGISTICS? There seem to be as many definitions of ―logistics‖ as there

are logisticians. And this is not a bad thing! Why? Because logistics is so far-
reaching and yet so integrated into our businesses that it is hard for one definition
ever to meet the challenge of summing up what we do in a few short sentences.
Although logistics does involve internal operations and stretches to upand
downstream trading partners in the supply chain, it is fair to say that any definition
of logistics will need to involve the management of inventory, whether it is in the
form of hard goods (materials, people) or soft goods (information). If there is no
inventory to move around, there is no need for logistics.

WHAT IS LEAN? ―Lean‖ concepts are deeply rooted in the Toyota Production
System. In its purest form, Lean is about the elimination of waste and the increase
of speed and flow. Although this is a high-level oversimplification, the ultimate
objective of Lean is to eliminate waste from all processes. According to Lean
theory, at the top of the list of known wastes is excess inventory. More simply, we
need to eliminate any inventory that is not required to support operations and the
immediate need of the customer. In this book, we identify excess inventory along
with six other potential sources of waste in logistics: transportation, space and
facilities, time, packaging, administration, and knowledge. Clearly, each of these
resources — all necessary for logistics planning and execution — becomes waste
when not utilized effectively to generate: (1) the greatest possible value in the eyes
of customers and (2) healthy return for the company.

Lean and the Logistician

The impact of Lean on the logistician is significant. A common misconception of the

Lean philosophy is that it only finds application in manufacturing settings. The goal
of Lean is to eliminate waste, decrease work-in-process inventories, and, in turn,
decrease process and manufacturing lead times, ultimately increasing supply chain
velocity and flow. Lean also has a vital cultural element to it that is crucial to the
logistician, the concept of ―total cost.‖ The Lean practitioner does not focus on
individual cost factors such as transportation or warehousing, but rather focuses on
total cost. With inventory carrying costs representing 15 to 40 percent of total
logistics costs for many industries, making decisions based on total cost has
dramatic implications for the logistician.

Unfortunately though, many organizations never embrace the total cost concept
fully, as poor decisions are made continually based on traditionally visible cost
drivers like transportation, warehousing, and per-unit purchase prices.
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 infrastructure of trained professionals (black belts), Six Sigma delivers a
problem-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 customer, then we will be able to reduce our reliance on
the buffers dramatically. In this regard, logisticians need to think of themselves as
actuaries, like those who develop rates for automobile insurance. Actuaries look at
key variables — 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 demographics
and sports cars, the logistician substitutes supplier competence, transportation
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 demand) is not understood; the second
reason is more emotional. The emotional part of the equation is simply that
industry is addicted to inventory. Make no mistake about it — industry has an
addiction to inventory. and as with any addiction, inventory is something that most
companies cannot imagine living without.

WHAT IS LEAN SIX SIGMA LOGISTICS? Now that we have explored the three
elements of Lean Six Sigma Logistics, we need to put them together to appreciate
fully how they dovetail and complement each other. Summarizing from the above,
recall that:

1. Logistics is about managing inventory. .

2. Lean is about speed, flow, and the elimination of waste.

3 Six Sigma is about understanding and reducing variation.

Therefore, Lean Six Sigma Logistics can be defined as:

The elimination of wastes through disciplined efforts to understand and reduce

variation, while increasing speed and flow in the supply chain.

The Logistics Bridge Model

Both Lean and Six Sigma lend distinctive disciplines and tools to logistics. Using
these disciplines and tools will allow an organization to uncover and deal with
wastes and inefficiencies. Although Lean and Six Sigma tools are very powerful,
we need to remember that for Lean and Six Sigma to work in logistics, a
fundamental mind shift must occur. This mind shift requires that we first begin to
make decisions based on the concept of ―total logistics costs,‖ and second, we
have the courage to eliminate waste in its various forms. This may sound simple,
but reality will prove otherwise. Organizational norms, management tradition, and
financial accounting methods will fight against ―total cost‖ and will continue to
support our natural tendencies to create waste. The purpose of this book is to
provide a template for the design and implementation of a logistics strategy based
on Lean and Six Sigma principles. We have called this template the Logistics
Bridge Model.

The Logistics Bridge Model is a model that can be used as a compass for the
logistics professional. That is, it will provide direction and insight on how to solve
today’s logistics challenges and set the course for ongoing success. At the heart of
these challenges is the need to bridge our suppliers with our own processes and
then bridge our processes to the customer. All of this must happen while we face
competitive and shareholder pressures to reduce costs and increase market share.

The Logistics Bridge Model teaches us that Lean Six Sigma Logistics is made up
of three main principles. These principles are:

1 Logistics Flow.

2 Logistics Capability .

3. Logistics Discipline

Logisticians can draw from these three principles to design their own, personally
tailored solutions to meet the specific challenges faced by their organization. Our
goal is to provide the logistics professional with guiding principles that can be used
to solve any logistics challenge that might be faced. To accomplish this, we have
divided the book into four sections.

In Section 1, we continue to explore the importance of excellence in logistics and

supply chain management. Section 2 examines the wastes that are all too often
created in the absence of Lean Six Sigma implementation. Section 3 provides the
details of the Logistics Bridge Model, the guiding principles to Lean Six Sigma
Logistics. We illustrate the key tenets to logistics strategic visioning, tactical
development, and successful operational execution. Section 4 introduces key
methods and tools that can be utilized for strategy development, problem solving,
measurement, and Lean Six Sigma Logistics implementation. Toward the close of
the book, a real-world example is provided as an exercise in critical thinking and
problem solving related to Lean Six Sigma Logistics.

As the authors, it is our hope that this book will provide you as a logistics
professional with the ―golden nugget‖ for which you have been searching. Whether
you have responsibility for a distribution facility or a global supply chain, Lean Six
Sigma Logistics has much to offer. The same holds true whether you work in the
commercial sector, for a nonprofit organization, or for a government entity. At a
minimum, we trust that you will learn new principles that can be added to your
current operations and strategy. At best, the logistics professional can use the
Logistics Bridge Model to design, develop, and implement a comprehensive
logistics strategy.