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Lean Six Sigma (LSS) aims to assist enterprises in improving the production
process, quality, efficiency and effective status, and is regarded as the latest
trend in Six Sigma. The purpose of the paper is to build the LSS framework
and show how to use LSS to reduce the stock cost. To achieve the research
objectives, the paper reviewed the literature on LSS. By integrating Six Sigma
DMAIC implementation with the lean concept, the three inventory models
(basic fixed-order-quantity model, Economic Order Quantity (EOQ) model and
two-bin approach) are compared with regard to reducing stock cost in a case
study of Taiwanese enterprises which were able to develop and judge the LSS
that best allocates organizational resources to solve this critical business
problem. The EOQ model has better inventory management and is thus able
to reduce the stock cost better. The organization may depend on off season
and busy season demand to judge what EOQ quantity to purchase, and this
EOQ model can effectively control the stock cost and meet the improvement
goals of LSS. The value of the paper lies in its observation of the improvement
steps following LSS implementation. It is also found that as a strategy-oriented
initiative of LSS, Six Sigma activities must be adapted and modified to fit the
lean management environment.
Introduction
Six Sigma and lean concept have become two of most popular methodologies for
improving productivity, quality and business performance. Lean concept has received
a lot of attention from line professionals and managers because of the performance
of the Toyota Production System (TPS). The purpose of TPS is to eliminate waste and
improve cycle time and upgrade quality. TPS aims to characterize lean concept efforts
focused on the reduction of wastes through Kaizen (or continuous improvement)
events as well as basic improvement activities (Womack and Jones, 1996). Six Sigma
resembles a philosophy more than just a few tools and techniques (Coronado and
Antony, 2002).
Improving
2017 IUPInventory Performance
. All Rights Reserved.Through Lean Six Sigma Approaches 23
Todd (2005) defines lean concept as an initiative whose goal is to reduce the waste
in human effort, inventory, time to market, and manufacturing space, and thus to
become more highly responsive to customer demand. Lean concept is a more macro
approach in dealing with eliminating waste and single-piece flow which allows all
activities along the value-added process (Pannell, 2006). The lean concept approach
encompasses various practices to improve efficiency, quality, and responsiveness to
customers. Some core lean concepts include knowledge of the people working in the
process, the idea that improvement imperfectly done today is better than the perfect
solution done later, that there is always a need for further continuous improvement,
that inventory is not an asset but a cost or waste, and that there is power in teamwork
and consensus through brainstorming (Alukal, 2006).
Lean Six Sigma (LSS) which integrates lean concept and Six Sigma, that is, the Six
Sigma implementation improvement concepts and methodologies from the lean concept.
The key methodology of LSS thus implements DMAIC process which uses lean concept
in decision making to achieve better business performance. LSS stresses data-driven
methodologies in all decision making, strives to minimize variations in quality, and
designs and implements a company-wide and highly structured education and training
regimen. The training courses in LSS also include lean concept and related
improvement methods, such as continuous improvement, eliminating all forms of waste,
reducing setup times, and mapping the value stream.
However, LSS program is not just about doing things better, it is a way of doing
better things (Byrne et al., 2007). We need to explore what process steps of the LSS
framework improve inventory performance, and what inventory models are there for
using LSS to achieve business profit. How is LSS implementation to improve inventory
management defined in enterprises in Taiwan? This paper builds LSS framework which
integrates lean concept and Six Sigma DMAIC and outlines LSS improvement steps,
and finally uses a case study to explore the LSS framework and how it can be used to
improve inventory stock cost.
Literature Review
Six Sigma
Pande et al. (2000) indicated that the Six Sigma system is a set of management-oriented
concepts, and that implementing the system requires not only the application skills of
quality management, but also the development of an appropriate business strategy.
Six Sigma is also a business strategy and systematic methodology, the use of which
often leads to breakthroughs in profitability through significant gains in product/service
quality, customer satisfaction and productivity. Six Sigma represents a conceptual
change in organizational culture and emphasizes customer orientation, and the process
improvement must be based on business strategy. Strategy factors must be integrated
into Six Sigma to increase the probability of successful implementation (Sandholm
and Sorqvist, 2002).
Customer
Process
Quality
Employee
DMAIC
DMAIC methodology includes Definition of Measurement, Analysis, Improvement,
and Control, thus providing a structured framework for solving business problems by
effective process execution (Pressly, 2001). Horel (2001) described that the DMAIC
quality technique was first applied in manufacturing operations and rapidly expanded
to different functional areas such as marketing, engineering, purchasing and servicing.
Anthony and Banuelas (2002) conducted a case study on bulb manufacturing company
to reduce the shell cracking during the manufacturing of bulbs and achieved dramatic
improvements in defects by using DMAIC quality technique. Kim et al. (2010)
conducted a case study into a corporate research library of a telecom company in
Korea to identify and remove ineffective components and unnecessary steps in library
works and services.
Figure 2 displays a breakthrough strategy and the activities necessary to achieve
the goals of each phase. The DMAIC methodology involves the following phases:
Define: Teams work to clearly define those problems that are business-related
or essential to customer satisfaction.
Measure: Baselines for measuring the current defects and goals for improving
are established.
Analyze: The analytical phase is set with the aim to understand the root
causes of why defect occurs and to identify the key process variables that
cause defects.
Improve: During the improvement phase, teams seek optimal solutions, and
develop and test action plans for implementation.
Control: Control planning and verifying long-term capability are performed.
Lean Six Sigma
LSS is a combination of two continuous improvement programs, lean concept and Six
Sigma, with lean creating the standard and Six Sigma investigating and resolving
any variation from it (Breyfogle III and Meadows, 2001). George (2002) states that the
purpose of LSS is twofold, to transform the CEOs overall business strategy from vision
Continuous
Improvement
Mobilize
Change
Problems
Control
Margin of ROI
Analysis
Focusing on
Improve
Measuring
Defining Analyze
Problems
Measure
Define
Time
Inventory Management
Inventory process is important to any trading or manufacturing company. The
organization should work and communicate properly to address the inventory problems.
If we do not know what or how much is in the warehouse, or whether it is in a usable
state or not, we will have a tough time meeting production schedules and performing
to meet our customers expectations (Wayman, 1995). An inventory system is the set of
policies and controls that monitor levels of inventory and determines what levels should
be maintained, when stock should be replenished, and how large orders should be.
The purposes of inventory management are to maintain independence of operations,
to meet variation in product demand and to take advantage of economic purchase-
order size.
There are three basic systems of multi-period inventory models to implement control.
The multi-period inventory models include the basic fixed-order-quantity model,
Economic Order Quantity (EOQ) model and two-bin system.
Fixed-Order-Quantity Model
The fixed-order-quantity model determines both the specific inventory point at which
an order will be placed and the size of that order. The fixed-order-quantity model
provides a good starting point for coverage of the inventory model.
Two-Bin System
The purpose of classifying items into two-bin is to establish the appreciation of each
item. The order period of the two-bin system is bimonthly. The assumptions of the
two-bin system are: inventory holding cost is based on average inventory, ordering or
setup costs are constant, and all demands for the product will be satisfied.
Process 1
Implementation 1. Transportation
Principle 2. Defects
Customer 3. Unnecessary Motion
Requirements Process 2
The Waste 4. Delays
Elimination of Lean
5. Setup Time
Concept
6. Overstock
Organizational 7. Processing
Capacity
Step 2
Goal Setting
Measurement
Step 3
Situational Survey
Step 4 Analysis
Cause Finding
Step 5
Implementing Strategy
Step 6 Improvement
Results Confirmation
Step 7
Maintaing Standardization
Step 8 Control
Future Projects
Transporation Cost 6%
10,000
8,000
On Hand Stock
6,000
Quantity
Purchasing Qty
4,000
Sales Qty
2,000 Accumulated
Stock
0
1 2 3 4 5 6 7 8 9 10 11 12
2,000
Month
Note: On Hand Stock = Purchased Quantity Sales Quantity
main cause of high stock cost is material cost (Total cost percentage = 75%). The LSS
must present an alternative implementation strategy for solving the stock cost problem.
There are three alternative implementation strategies to be considered: the basic fixed-
order-quantity model, EOQ model, and the two-bin system.
Step 5: Implementation Strategy
There are three alternative implementation models to solve the stock cost problem.
Step 5.1 Alternative 1: Basic Fixed-Order-Quantity Model The fixed-order
quantity model has to determine both the specific inventory points, R = 2,500
units, at which an order will be placed and the size of that order, Q = 3,000
units.
Step 5.2 Alternative 2: EOQ Model The calculations to obtain the EOQ model
would be divided into off season and busy season. The orders quantity in the
busy season will be double that of the off season.
Step 5.3 Alternative 3: Two-Bin System The purpose of classifying items into
two-bin is to establish the appreciation of each item. The order period of the
two-bin system is bimonthly. Based on the decision of the two-bin system, the
purchasing quantity of the first period is 18,000 units, and the seventh period is
also 18,000 units.
Step 6: Results Confirmation
Based on the results presented in Table 3, alternatives 1 and 2 are viable action plans.
Alternative 2 is the best available action plan, because it has a lower total cost and higher
profit than alternative 1.
When the LSS project and corrective actions are effective, they complete the LSS
methodology step cycle. The process results of the corrective action will be used for
performance benchmarking and standardization in future improvement activities. To
ensure that higher level of performance is maintained, the principle of continuous
improvement should be established for future projects. This principle of future LSS
should embrace everything, including initial product designation, design proposals,
production process and after-service guarantees.
Conclusion
The assumptions of the fixed-order-quantity model are to release orders when the stock
is below specific units and the customer order is confirmed. Although the profit gained
from the fixed-order-quantity model is almost the same as in the EOQ model, the firms
may lose orders or face increased inventory cost because of the variability of customer
order.
The EOQ model has better inventory management, and inventory cost does not
rise so rapidly because orders are released each month. The firm may depend on the
off and busy seasons to judge what EOQ quantity to purchase. The EOQ model easily
controls inventory cost and enhances product quality since it is able to control the
quantity received in each period.
The two-bin system is not considered a viable methodology. To implement the two-
bin system, the firm must invest a huge amount of capital to purchase material in the
initial period, and thus the profit turnover will be very slow.
Suggestions
If organizations want to implement LSS, then there are four suggestions for its success.
References
1. Alukal G (2006), All About Lean, Quality Progress, Vol. 39, No. 2, pp. 74-75.
2. Anthony R and Banualas W (2002), Design for Six Sigma, Journal of Research
Technology and Management, Vol. 65, No. 1, pp. 23-25.
3. Antony J, Kumar M and Madu C N (2005), Six Sigma in Small and Medium
Size UK Manufacturing Enterprises, International Journal of Quality & Reliability
Management, Vol. 22, Nos. 8&9, pp. 860-874.
4. Bauelas R and Antony J (2002), Critical Success Factors for the Successful
Implementation of Six Sigma Projects in Organizations, The TQM Magazine,
Vol. 14, No. 2, pp. 92-99.
7. Breyfogle III F and Meadows B (2001), Bottom-Line Success with Six Sigma,
Quality Progress, Vol. 34, No. 5, pp. 101-104.
8. Byrne G, Lubowe D and Blitz A (2007), Using a Lean Six Sigma Approach to
Drive Innovation, Strategy & Leadership, Vol. 35, No. 2, pp. 5-10.
Reference # 07J-2017-08-02-01