Lean Six Sigma

KLM practices the business philosophy Lean Six Sigma, which is a synergy between Lean Manufacturing and Six Sigma, in its business processes, including the inbound logistics process. In this section, we discuss these two concepts, their principles, and the synergy between the two philosophies. In Section 3.2.1, we elaborate on Lean Manufacturing. Section 3.2.2 discusses Six Sigma. Section 3.2.3 describes the synergy of these two concepts into Lean Six Sigma.

3.2.1

Lean Manufacturing

Lean Manufacturing, or Lean Production, is generally described from two points of view, either “from a philosophical perspective related to guiding principles and overarching goals, or from the practical perspective of a set of management practices, tools, or techniques that can be observed directly” (Shah & Ward, 2007). In this section, we elaborate on the concept of Lean Manufacturing based on these two points of view.

Philosophy perspective

Due to confusion caused by the two abstraction levels and the broad span of the concept, there exist many definitions and views in literature on Lean Manufacturing. To clarify the confusion surrounding the term Lean Manufacturing, Shah & Ward (2007) conducted an extensive literature review on Lean Manufacturing. They propose the following definition to capture the many facets of Lean Manufacturing:

Lean production is an integrated socio-technical system whose main objective is to eliminate waste by concurrently reducing or minimizing supplier, customer, and internal variability.

Although there is ambiguity in literature on the definition of Lean Manufacturing, its goal is more clearly established. A company that adopts Lean Manufacturing strives to eliminate non-value adding activities, or waste, in order to maximize the value for the customer. The Lean Manufacturing philosophy focuses on avoiding the seven cardinal types of waste (Ohno, 1988):

1. Transportation: unnecessary transport of parts under production.

2. Inventory:stacks of parts waiting to be completed or finished products waiting to be shipped.

3. Motion:unnecessary movement of people working on products. 4. Waiting: unnecessary waiting by people to begin the next step. 5. Over-processing the product with extra steps.

6. Over-productionof products not needed. 7. Defectsin the product.

Practical perspective

Womack & Jones (1996) defined five principles that are fundamental to Lean Manufacturing. These principles are: specify value, identify the value stream, make the value-creating steps flow, transform processes into pull, and pursue perfection through continuous improvement of the processes. To achieve the goal of Lean Manufacturing (the elimination of waste) by these principles, many practices exist.

As with the definition of lean, there is no consensus in literature on which practices belong to Lean Manufacturing. However, Cua et al. (2001) and Shah & Ward (2008) state that there is general agreement within literature that there are four main aspects of Lean Manufacturing, in which practices are often bundled: quality management, pull production, preventive maintenance, and human resource management. Concrete examples of these practices are just-in-time production, turnaround time reduction techniques, maintenance optimization, and lot size reductions. The purpose of all these practices is to identify and remove some form of waste.

To apply these practices, several tools, methods, and techniques have been developed. Examples of these tools are (Hopp & Spearman, 2004, Akbulut-Bailey et al., 2012): value stream mapping (to identify the value stream and the wastes in the stream), 5S (a method to create a cleaner working environment), and the visual factory (making the process clearly visible to everyone).

To successfully implement Lean Manufacturing, employees need to be encouraged to directly contribute to improving the process.

3.2.2

Six Sigma

As with Lean Manufacturing, descriptions of Six Sigma also range from a business philosophy for improvement to a bundle of practices (Linderman et al., 2003, Schroeder et al. 2008). The focus in Six Sigma lies on identifying sources of variability and reducing these. It is a methodology for variability reduction rather than a general strategy for improvement, such as Lean Manufacturing (Hopp & Spearman, 2004). The name Six Sigma stems from the original principle, as developed by Motorola, that the failure rate should be defined as all parts that are outside the specification limit of six standard deviations (sigma) from the mean. This means that there may be at most 1 defect per 3.4 million parts.

A clear definition of the concept is not available in literature. Therefore, Schroeder et al. (2008) conducted an extensive literature study to define Six Sigma. We explain the concept and its elements based on the definition of Schroeder et al. (2008). They define it as follows:

Six Sigma is an organized, parallel-meso structure to reduce variation in organizational processes by using improvement specialists, a structured method, and performance metrics with the aim of achieving strategic objectives.

First, we see that the definition highlights the focus of the reduction of variation. The parallel-meso structure refers to the special Six Sigma teams that operate outside an organization‟s normal way of operating. These teams are led by full-time improvement specialists, called Black Belts. Black Belts are trained in the Six Sigma method and are solely focused on improving the organization. Typically, they lead multiple projects simultaneously. Other members of the teams are Green Belts, who are part-time member.

The structured method of Six Sigma includes five steps known as Define, Measure, Analyze, Improve, and Control (DMAIC). This method is aimed at systematically finding the root of a problem by employing standard quality tools such as a cause- effect charts and statistical process control. The DMAIC method is based on the

PDCA (Plan, Do, Check, Act) model, but it puts more emphasis on integrating specific tools and involving different organizational members.

Six Sigma uses a variety of metrics to measure the benefits and performance of the Six Sigma method. The performance metrics can either be customer-oriented or financial. This distinction clearly underscores the focus on both financial and non- financial (customer-related) results, which is at the root of the Six Sigma philosophy. The customer-oriented metrics, such as critical-to-quality metrics, are aimed at identifying and measuring the customer needs. The financial metrics are aimed at measuring and monitoring the benefits of the projects.

A successful integration of the Six Sigma philosophy involves a learning organization that strives for continuous improvement. It requires companywide commitment and training everyone in the company in DMAIC, the concept, and the tools. This is a systematic, ongoing process (Wiklund & Wiklund, 2002).

3.2.3

Synergy

Shah et al. (2008) compare the Lean Manufacturing and Six Sigma philosophies to determine the use of the business philosophy of Lean Six Sigma, which combines the principles and practices of Lean Manufacturing and Six Sigma. They conclude that most researchers agree that there are more commonalities between Lean and Six Sigma tools and practices than differences. The most significant overlap is in the area of quality management: quality management practices are included in defining, describing, and measuring both Lean Manufacturing and Six Sigma. Even so, there are also differences. For instance, while Lean Manufacturing requires workers in the process to directly improve it, Six Sigma deploys change through the parallel organizations structure.

The philosophies are complementary on some important aspects. For example, most practices and tools of Lean Manufacturing focus on the elimination of obvious waste, such as excessive buffers and work-in-progress, long set-up times, inefficient transport, and rework that can be avoided. While it is clearly very important to eliminate this kind of waste, it should be noted that the elimination of this kind of waste has always been common practice in organizations. Lean Manufacturing also aims to address indirect waste, which is mostly caused by variability (Hopp & Spearman, 2004). Since Six Sigma is a variability reduction method, it connects perfectly with Lean Manufacturing.

3.2.4

Lean Six Sigma in the inbound logistics process

We have already encountered elements of Lean Six Sigma, such as the Kaizen event (see Section 2.4.5) in the report. This section discusses other principles and techniques of Lean Six Sigma that are relevant to the inbound logistics process. KLM strives to reduce variability and to create a stable turnaround time in all its processes. This is one of the fundamentals of the Lean Six Sigma concept. To focus on a steady turnaround time, performance measurement at KLM is often not based on the mean, but rather on the P95 measure. P95 stands for the 95%-percentile, which is the value below which 95% of all observations fall. With the P95 measure, companies are forced to reduce the span of turnaround times, rather than focussing on the average. By identifying the extreme values and solving the issues that causes

these extreme values, companies reduce the span and create a more stable and reliable process.

The objective of Lean Six Sigma is to maximize the value to the customer. We measure the value of the inbound logistics process by the turnaround time of parts. To increase the value of the inbound logistics process, we must identify and remove waste and decrease the variability in the process. Examples of waste in the inbound logistics process are the parts that need to go into quarantine, IIGs searching for emergency requests, and the buffers. Sources of variability are for instance not using FIFO and the highly volatile arrival process.