Conventional Wisdom

May 1, 2002
Achieving Six Sigma Logistics

The Executive Forum of NA 2002 was a gathering of material handling decision-makers focused on today’s market dynamics. The forum featured industry leaders whose companies are at the forefront of logistics execution.

Six Sigma is an organizational methodology for achieving total quality throughout your company. It was pioneered by Motorola and championed by former leader of General Electric, Jack Welch. The now-retired executive was an early proponent of Six Sigma, the program given credit for saving his company millions of dollars.

Applying the methodologies of Six Sigma is said to not only make your business successful, it helps you maintain and sustain the hard-fought successes. Six Sigma is now being applied to logistics as well as manufacturing processes.

The goal of Six Sigma is to enable business processes to produce results with no more than 3.4 defects per million.

Steve Banker, director of supply chain solutions, ARC Advisory Group, told a crowd of nearly 600 that by applying Six Sigma methodology to measure, analyze, improve and control your operations, you can approach the “perfect order.”

Perfect order fulfillment, said Banker, means an order delivered:

• On time and undamaged;

• With agreed upon value-added services done right;

• In quantities ordered and no unauthorized substitutions;

• Correct billing.

Banker said there are emerging new technologies in the supply-chain-visibility area he calls supply chain process management.

“The supply chain process management allows us to apply Six Sigma methodology to the extended supply chain,” said Banker, “which was very difficult to do in the past.”

He said the place where the supply chain and Six Sigma most logically come together is around the perfect order metric.

He added that many companies are not focused on the total entry process, just on the small part of the order that is theirs to control. “Material handling, in general, or compared with manual processes,” said Banker, “is more predictable and reliable.” And because the process is more reliable, the need for safety stock is eliminated.

According to Banker, achieving a Six Sigma supply chain is difficult. “It’s difficult because there are many centers of responsibility,” Banker explained. Those centers of responsibility extend beyond your own company to all your suppliers — and their suppliers.

In achieving Six Sigma performance, according to Banker, you must manage supply chain events — visibility into actual events via specialized software.

“That means,” explained Banker, “your factory floor alerts you [the production manager] if a key supplier has not delivered an order by a specific time.”

You might also want to be alerted if the throughput on the factory floor falls below a certain level. Software allows you (the manager) to drill down to where the bottleneck might be or to determine another source of the problem.

Banker noted that supply chain management is not just about systems. “It is always about people, processes and systems.”

Phong Vu, director, corporate deployment, consumer-driven Six Sigma, Ford Motor Company, gave the audience a user’s perspective on the implementation of Six Sigma methodologies to drive supply chain improvements. Vu began championing the idea of Six Sigma at Ford in 1999. Vu said it all begins with the customer — the end user. By reducing variability in any order process you reduce the defects, or potential for defects.

Vu said Ford identified the 25 primary concerns of customers, and went to work at the assembly plants to eliminate the problems.

“Customer satisfaction,” explained Vu, “leads to higher profitability since you are no longer paying warranty claims or for returns.”

Sometimes determining what is a defect can be a challenge. “In our interpretation,” said Vu, “a defect is any outcome not consistent with how we planned it [a job or process].”

He added that managers often act on, or manage, what they think is right, not what the customer wants. Thus you must be able to measure the things that cause dissatisfaction with your customers.

Vu said success of a Six Sigma program depends on two things: commitment by senior management at the highest level, and dedication by all employees to understanding the customer’s needs.

“You have to have complete buy-in from management,” said Vu, “because there are so many changes in the way your company will be doing business in the future.”

Peter Pande, president, Pivotal Resources Inc., and author of numerous publications on the subject of Six Sigma methodologies, told the audience “common measures and understanding, along with measurable goals” are keys to successful implementation of Six Sigma programs.

Pande emphasized that Six Sigma is not another business fad. He said it is a flexible system for improvement in leadership and performance across the company.

“We build on important management ideas and best practices,” said Pande.

— Clyde E. Witt, executive editor

See MHM’s exclusive interview with DaimlerChrysler logistics experts on technology implementation at

Latest from Facilities Management