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LEAN SIX SIGMA IMPLEMENTATION IN INVENTORY MANAGEMENT Saudi Quality Council
January 23, 2018
No. 1
ENG. ABDULLAH SALEM BUGSHAN
Bachelor of Industrial & Systems Engineering – King Fahd University of Petroleum and Minerals (2007– 2013)
Master of Engineering Management – King Abdulaziz University (2015 – 2017)
Senior Inventory Planner - SABIC (2013 – Present)
Process Engineer (Co-Op Trainee) - Unilever (2012 – 2012)
Lean Six Sigma Green Belt (LSSGB).
Chartered Institute of Procurement & Supply Certification (CIPS).
Senior Inventory Planner
Global Procurement Services
SABIC
AGENDA
SIX SIGMA HISTORY.
MYTHS ABOUT SIX SIGMA.
LEAN SIX SIGMA OVERVIEW.
INVENTORY MANAGEMENT OVERVIEW.
DMAIC METHODOLOGY.
SIX SIGMA IMPLEMENTATION IN INVENTORY MANAGEMENT OF SPARE PARTS
No. 3
SIX SIGMA HISTORY
Companies that have invested (Financial Benefits) in implementing Six Sigma:
Added more than $ 2 billion to the bottom line in 1999 and $ 2.4 billion in 2000.
In 1992-1996, reduced costs by $ 1.4 billion and reduced new product introduction
time by 16 %.
In 2000, reduced defects by 70 % with total value of $ 800,000/ year in automotive battery
assembly process and changes in drawing processes saved $ 1.7 millions/ year.
In 1998, realized more than $ 1.6 billion in cost saving in four years in addition to increasing
safety and reducing environmental impacts.
• Six Sigma was developed by Motorola in 1986.
• Bill Smith “the Father of Six Sigma” introduce this philosophy of quality
improvement methodology to Motorola.
• Six Sigma is now an enormous ‘brand’ in the world of corporate development.
Saved more than $ 15 billions in the first 10 years of its Six Sigma effort.
No. 4
SIX SIGMA HISTORY
START
1920’s
Mid
1980’s
Late
1980’s
1991 Motorola certified its first ‘Black Belt’ Six Sigma
experts, which indicates the beginnings of the
formalization of the accredited training of Six
Sigma methods.
Black Belt Certification
Engineers in Motorola used “Six Sigma” an
informal name for an in-house initiative for reducing
defects in the production processes, because it
represented a suitably high level of quality.
Production Processes
Motorola extended the six sigma to its
critical business processes and it became
a formalized in-house ‘branded’ name for
performance improvement methodology.
Performance Improvement
Sigma has been used by
mathematician and engineers as a
symbol for a unit measurement in
product quality variation.
Mathematic
1995
2000 Six Sigma was effectively established as an
industry in its own right, involving the training,
consultancy and implementation of Six Sigma
methodology.
Six Sigma Established
Jack Welch made Six Sigma a
central focus of his business
strategy at GE
Business Strategy
No. 5
MYTHS ABOUT SIX SIGMA
• Six Sigma works only in manufacturing setting.
• It has been applied successfully in all segments of business (banking, healthcare, the military, fast
food chains, airlines, hotels, retail stores, and on and on and on.
• Six Sigma doesn’t include customer requirements.
• Every project starts with customer and determining the factors that are critical to the customer.
• Six Sigma is an accounting game without real savings.
• It has been invested by different companies and estimated that you should expect a minimum return
on investment (ROI) of three or four times the costs of implementation.
x
x
x
No. 6
LEAN SIX SIGMA OVERVIEW
Lean Six Sigma is a fact-based, data-driven philosophy of improvement that
values defect prevention over defect detection. It applies anywhere
variation and waste exist, and every employee should be involved. The common Six Sigma Symbol
Sigma level Sigma (with 1.5σ shift) DPMO* Percent defective Percentage yield
1 −0.5 691,462 69% 31%
2 0.5 308,538 31% 69%
3 1.5 66,807 6.7% 93.3%
4 2.5 6,210 0.62% 99.38%
5 3.5 233 0.023% 99.977%
6 4.5 3.4 0.00034% 99.99966%
*DPMO: defects per million opportunities
No. 7
INVENTORY MANAGEMENT OVERVIEW
Raw Materials
Work-in-process
Finished Products
Supply Chain
MRO
Types of Inventory
the right inventory, in the right quantity, Inventory Management is all about having
at the right place, at the right time and at the right cost.
No. 8
INVENTORY PAIN ISSUES
One of the seven types of defined wastes is the excess inventory.
For spare parts and raw materials inventory, excess and dormant
stock are chronic supply chain issues costing the companies
billions of Saudi Riyal each year.
Inventory Costs
Ordering costs (Setup costs)
Carrying costs (Holding costs)
Stock-out costs (Shortage costs).
Reduced Profits
Write off and selling the excess
spares at lower prices
Strategic Planning Time
Company leaders typically have to
spend more time in solving this excess
stock.
Quality Issues
Storing excess stock can lead to
degradation and potential
obsolescence.
No. 9
“ The Most Dangerous Kind of Waste is
the Waste we don't Recognize."
Shigeo Shingo, the world’s leading expert on manufacturing practices and the Toyota Production System
THE MOST INSPIRING LEAN SIX SIGMA QUOTE
No. 10
DMAIC METHODOLOGY
DMAIC methodology that is an acronym for Define, Measure, Analyze, Improve and Control.
Define Measure Analyze Improve Control
an integral part of the company’s Six Sigma Quality Initiative to improve the performance
and increase the efficiency for any organization.
DMAIC methodology has been fully implemented to :
Grasp the current status of the inventory and excess value
Find all the main root causes that have led to the inflation of the inventory value during last years.
Propose the most suitable solutions that can be applicable and implemented in order to
minimize this inflation of inventory value with removing the main drivers of the excess inventory.
No. 11
DEFINE PHASE
Define Measure Analyze Improve Control
Purpose:
To provide a way of eliminating the challenges through first identifying the causes, providing a solution
for streamlining the problem and linking these goals to the strategic objectives.
Reduce
Inventory
Quality
Improvement
Reduce
Waste
Give
Value
Eliminate of unnecessary inventory stock (EXCESS) & processing, and the Dormancy percentage.
Optimize the total inventory value of spare parts.
Reduce the piling up leaving inventory processes optimized.
Implement systematic processes of inventory management measurement and control.
Benchmark the best practices to unify the inventory processes.
No. 12
MEASURE PHASE
Define Measure Analyze Improve Control
Purpose:
To focus the improvement effort by gathering information to narrow the range of potential causes it
needs to investigate in the Analyze Phase.
Measurement is critical throughout the life of the project. The team starts collecting data they focus on
both the process as well as measuring what customers care about.
Process Flowchart: Map the process in details.
Data Collection Plan
Benchmarking
Measurement System Analysis
Voice of the Customer Gathering
No. 13
INVENTORY DASHBOARD - JUNE 2017
Ranking
1
51%
Dormant Items Remaining Items
5.29
1.46
Potential Vs. Actual
Inv. Value Vs. Excess Value Zero Stock Items Critical Items
Excess Stock Sharing (MSAR) Urgent POs Consumption Open PRs > 30 Days
Dormant Items Reservation Efficiency
Out of 22
Tips & Hints
Stock Availability
To priorities & support PR processing against
the 0 STOCK L/Is
To ensure completing the OPEN PRs
processes into POs within the approved
Procurement KPIs.
Excess Stock
To be reviewed and validated in frequent
basis to identify potential write offs/disposal
stocks
To Apply EXCESS STOCK SHARING.
Stock Consumption
To consume what ordered in order to avoid
unneeded transactions and stocking costs;
measurements of consumption:
NON-CONSUMED URGENT PO
DORMANT (not consumed for more than 5
years)
RESERVATION EFFICIENCY
Stock Optimization
CRITICALITY: to be Identified and reviewed
in terms of validity & stock levels setting
CAPITALIZATION: to review the inventory
stock in frequent basis to validate and
capitalize the potential stocks
833.6
832.4 833.7
267.7
267.5 270.4
April
May June
Inevntory value Excess Value
10% 90%
Criticality
Capitalization (MSAR)
[VA…
[VA…
69
0 8
Total Urgent Critical
1.19
0.35
Potential Actual
[VAL…
M A Y A P R I L J U N E
94,744 94,753 94,756
438 470 486
LI Zero Stock
Urgent
TA
Urgent
MRO
l Meet/ Exceed the target l Below the target
TARGET 20%
TARGET 15 D
TARGET 1 % TARGET 20%
TARGET 100 %
TARGET 80 %
TARGET 35 %
TARGET 100 %
TARGET 70 %
The business dashboard as metaphor for critical
metrics to measure business performance originated
years ago at General Electric (GE).
This will help in understanding the quality situation and
to create the urgency to take the actions needed to
address the root issues (defects)
Inventory Dashboard
No. 14
ANALYZE PHASE
Purpose:
The Analyze Phase is often not given enough attention and, without analysis, teams jump to solutions
before knowing the true root causes of the issues. The result is teams who implement solutions but
don’t resolve the problem!
Define Measure Analyze Improve Control
In Analyze phase, It is the longest and has the most statistical and
analytical tools, and most of critical data analysis is performed in this phase.
5 Why Analysis (Why-Why Analysis).
Pareto Chart.
Fishbone (Ishikawa) Diagram.
Regression Analysis
No. 15
FISHBONE (ISHIKAWA) DIAGRAM
No. 16
BENCHMARKING & PARETO CHART
833.6
832.4 833.7
267.7
267.5 270.4
April
May June
Inevntory value Excess Value
Excess Stock is the available Qty. that exceed the optimum levels of the stock
which is highly affected in the total inventory value increase.
35 %
Excess Stock Value (MSAR)
MSAR xxx
Total Inventory Value (MSAR)
Excess Stock represents 35 % of the
total inventory value.
Inv. Value Vs. Excess Value
Reduce Excess Stock by 15 % with total
value of MSAR xxx
Target Excess Stock (20%)
Lean management consider that unnecessary inventory (Dormant) as a one
of the seven waste types (Muda).
57 %
Total Dormant LIs
51 %
Total Dorman Value (MSAR)
51%
Dormant Items Remaining Items
Dormant Items
No. 17
IMPROVE PHASE
Purpose:
The Improve Phase is where the team brainstorms solutions, pilots process changes, implements
solutions and lastly, collects data to confirm there is measurable improvement.
Define Measure Analyze Improve Control
Brainstorming that might fix the problem.
Select the practical solutions (Weighted Criteria Matrix).
Select the best solutions.
Implement the solutions.
Measure improvement.
No. 18
WEIGHTED CRITERIA MATRIX
a decision-making tool that evaluates potential options against a list of weighted factors. Common uses
include deciding between optional solutions or choosing the most appropriate software application to
purchase.
No. 19
LOCAL BUSINESS DEVELOPMENT INITIATIVE
LSO Scope Value
[CATEGORY NAME]
[PERCENTAGE] Gas 0%
Gasket 26%
Non Stock 11%
Oil 23%
>100 with local supply
15%
Category LI Potential Value
(MSAR)
GAS 39 xxxx
Chemical 712 xxxx
Gasket 3,960 xxxx
Oil 412 xxxx
Non-stock 616 xxxx
<100 with local
supply 3,103 xxxx
Local Stock Optimization, aims to utilize material’s local availability in eliminating or reducing the need
to store the materials in our warehouses in order to improve inventory supply chain by optimizing total
inventory value and reduce expiry items while keeping the plant running with optimized inventory with
high reliability.
Reduced inventory value.
Improved accuracy of demands.
Allocate W/H space.
Reduce material’s holding cost.
Avoid material expiration issues
Local Stock Optimization
Benefits :
Potential Value = MSAR 35
Current
Process
Target
Process
No. 20
STOCK TRANSFER ORDER SYSTEM INITIATIVE
Rank Plant Total Value Sold
1 xxxx 2,089,577
2 XXX
3 XXX
296,371
662,176 892,237
1,140,824 1,380,788
1,457,540
January February March April May June
It has successfully sold 2.1 MSAR (244 common LIs) to 18 companies.
• Implement stock sharing process to increase sharing excess stock.
Opportunity
• To have a full systematic process that support utilizing excess stock of spare parts between
companies to reach the optimum inventory level
Goal
• Weekly MRP-based review
• 1 PR released thru workflows
• Items transferred among affiliates WHs
• 3 Working days process
STO process Sale/loan basis process
• For excess requirements only
• Manual forms with 5+ signatures
• Items transferred directly to EU
• 10 working days process
No. 21
CONTROL PHASE
Purpose:
The Improve Phase is where the team brainstorms solutions, pilots process changes, implements
solutions and lastly, collects data to confirm there is measurable improvement.
Define Measure Analyze Improve Control
Implement Stock Sharing (Internally – Externally).
Increase Local stock Optimization opportunities .
Capitalization for the high value items.
Increase Reservation efficiency.
Sell Write-off surplus
Write off for unneeded items (Dormant).
Link reservations with PRs.
Return Authority.
Standardization Documentation Monitoring Plan Response Plan
Below techniques that are used in this Control Phase.
No. 22
THANK YOU
