lean six sigma techniques for inventory management mar2013

8/19/2019 Lean Six Sigma Techniques for Inventory Management Mar2013

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Please use the following twoslides as a template for yourpresentation at NES.

Lean Six Sigma Techniquesfor Inventory anagement

Norman Pugh!New"y# $PP%# P Panager

&eloitte

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-utline• Lean Six Sigma ! Short -verview• Inventory anagement Issues

• Excess -"solete Inventories• ,+!Step Solution Process• $onclusion


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• Lean Six Sigma is a com"ination of two separate "ut complementary process improvementmethodologies with an Enterprise Level

perspective

/hat is Lean Six Sigma

Lean Six Sigma

Lean(Simplicity)

Six Sigma (Reliability)


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• Lean $oncepts grew out of the Toyota ProductionSystem 0,12+s3

• Lean4s goal is to eliminate all forms of waste inthe process and engage employee creativity

• The currency of lean is time• 5equires process mapping

– I& value added step in process

– I& non!value added steps

/hat is Lean

SimplicityWasteReductionEfciency


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/hat is Six Sigma• Six Sigma dates "ac6 to the ,1)+4s and wor6

done on Statistical Process Control in the 7S• Six Sigma4s goal is to understand customer

need and deliver perfection every time• Six Sigma4s currency is consistency

– 5educe variation in process – 5educe defects – Produce consistently good product

ConsistencyReducedVariabilityE ectiveness


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LSS Inventory %pplications

• Ensuring system parameters are accurate• &emonstrate relationships "etween inventory

investment and lead time@demand variation• ;erify inventory valuation• Identify eliminate root causes of inventory

discrepancies• Elimination of excess & obsolete inventory • Improving cycle counting accuracy eAciency


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Excess -"solete Inventory

• =ene8ts of a solution9 – Private Sector9 'irms that can generate a given level

of pro8t with a lower level of investment in inventorywill generate higher cash "ows and "etter 5-Is – 'ederal Sector9 inimi:ing inventory investment

maximizes available funding for executing validatedmission requirements

– -ptimi:e capital investment of which inventories are a6ey component


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,+!Step Solution ProcessB

• %lign ProCect to =usiness (oals• $learly &e8ne ProCect (oals• Ensure =uy!In from Sta6eholders• Identify ;aria"les• $ollect &ata• Identify 5oot $auses• &evelop Improvement Plan• &evelop Standard -perating Procedure 0S-P3• Implement Improvement Plan• &evelop $ontrol Strategies

*%dapted from# artin# D. /. 0)++*3. Lean Six Sigma for supply chain management. New or6# N 9 c(raw!


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,. %lign ProCect to =usiness

(oals• =e strategic in mar6eting your Excess -"solete inventory proCect "y focusing onpotential long!term "usiness "ene8ts

• #lign the proCect with your seniormanagements4 goals and o"Cectives

• Typical "usiness "ene8ts include9 – $ost Savings – $ost %voidance – =enchmar6ing

• %ll your great wor6 can sometimes "e in vainwithout proper alignment of your proCect with

to your organi:ation4s "usiness goals


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). $learly &e8ne ProCect

• ProCect $harter – -"Cectives – Scope – -verall %pproach F to include choice of inventory

model for the analysis

• $ommunications plan

• $urrent State Process

• 5is6 %ssessment


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G. Ensure =uy!In 'rom

Sta6eholders• Ensure everyone understands the

fundamentals of Lean Six Sigma# "ut vary yourfocus "ased on the audience

• Executive Training Sessions – Emphasi:e strategic focus – Emphasi:e Enterprise "ene8ts

• $hampion Training – Emphasi:e -perational eHectiveness

• -ther Sta6eholder Training – Emphasi:e impact on their area of operation


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. Identify ;aria"les• =egin process "y as6ing relevant $uestions to

help you understand how the system wor6s9 –


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16

Demandrate

0 TimeLead time

Lead time

OrderPlaced

OrderPlaced

OrderReceived

OrderReceived

I n v e n

t o

r y L

e v e

l

Reorder point, R

Order qty, Q

. Identify ;aria"les 0 EOQ MODEL)


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O. $ollect &ata• &evelop comprehensive data collection plan

– 5equirements planning – Inventory record 8les – /arehouse management system – $urrent metrics

• Extract data from IT system@s• ;alidate system data "y conducting a manual

count of inventoried items associated withpro"lem

• $ollect management data # e.g.# lead time# lotsi:e# expected demand and its variation#forecasting accuracy# on!time delivery

• -rgani:e@align data with inventory model


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2. Identify 5oot $auses• $onstruct a value stream map for the entire

inventory process• 7se an inventory model to analy:e inventory

population to understand how %ey processinput variables impact excess and o"soleteinventory# i.e.# %ey process output variables

• $alculate target maximum inventory "alancefor every item and location in population ofinterest "ased on each items safety level# leadtime# and demand variation

• &evelop a shbone diagram to support theroot cause analysis process


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2. Identify 5oot $auses'ish"one &iagram

Problem:Excess & Obsolete

Inventory


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2. Identify 5oot $auses

0continued3Some typical root causes associated with excessand o"solete inventory include9• Long lead times

–Large Lot Si:es• Poor forecasting accuracy

– Inaccurate historical demand data – Poor forecasting model methodology

• Poor management – No early warning mechanism to identify

"uild up of excess – No system in place to ensure oldest

inventory issued 8rst


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*. &evelop Improvement Plan

• &evelop countermeasures to eliminate rootcauses

•

Incorporate countermeasures intoimplementation alternatives• 7se cost bene t analysis to select

implementation solution• Test solution• &evelop pilot plan• Implement pilot and analy:e results• &evelop full scale improvement plan


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. &evelop S-P• &istill important concepts' techni$ues' and

re$uirements into a format that can "e readilyused "y supply personnel in their regular wor6

•$learly delineate the various roles and theirassociated responsibilities and expected

performance standards• (on)t rush the S-PQ If you do you will have

pro"lems during implementation9 – =uild a team – (et organi:ational support – 5eview and test S-P – 5atify and approve S-P


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1. Implement Improvement Plan• Leverage S-P to support your implementation

plan9 – Pu"lici:e your S-P and emphasize the signi cance of

the changes "eing implemented "y the S-P – &istri"ute as needed and ma6e it readily accessible

to potential users and sta6eholders• Implement change management9

– $onduct training classes to ensure personnelunderstand their roles and have the %nowledge ands%ill to implement

– (et "uy!in from implementers regarding the change• &evelop a mechanism to monitor performance#

identify potential pro"lems# and provide

support during the implementation process


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,+. &evelop $ontrol Strategies• onitor and control implementation plan

– Sustain monitoring 0metrics# control charts3 – Show improvement is sustaina"le.

• %ssess change eHectiveness – $ompile "efore and after operational metrics to

validate the success of the implementation – Show impact in senior leader metrics to emphasi:es

enterprise "ene8t• $onduct after action review and record lessons

learned• 5eward 6ey contri"utors

– =uilds esprit de corps – Sustains support for the implementation


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$onclusion• Typical "ene8ts of LSS proCects to reduce and

eliminate excess and o"solete inventoryinclude9 – %ccurate demand data – EHective inventory management modeling – $hec6s to spot and 8x excess pro"lems

quic6ly – EHective procedures to issue oldest stoc6

8rst – Permanent reduction in excess and o"soleteinventory

–


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Norman %. Pugh!New"y $PP%# P P&eloitte 'inancial %dvisory Services0m3 ) +! 2+! 11

npughnew"y deloitte.com

uestionsJ

Please $ontact9

mailto:[email protected]:[email protected]


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. &evelop S-P

lean six sigma techniques for inventory management mar2013

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