Lean methods for Fat margins!

A core focus is being made on various techniques that are potentially helpful in cost reduction. Efficient operations are the key to sustainable profit growth. The major challenge faced by the manufacturing facilities is the variance in the manufacturing processes. The lean and six sigma techniques allow the firm to focus on the values that are value adding to the customer and hence reduce the variability.  With the benefits of these techniques being evident, every firm is trying to encompass them into their strategy to come up with solutions that is highly complementary.

The term lean has been adopted from Toyota’s production model which has been widely adapted by many companies. The model essentially talks about reducing the waste from the business processes. Elimination of waste means reducing the flow time for the process by focusing more on the value adding services for the customers rather than the non-value adding activities. These lean principles can be effectively applied to reduce the supply chain costs for the various business processes.

In the similar way six sigma techniques are the ways of cost reduction for any process. They focus on reducing the variability related to any process. There are many successful examples of the same. McKesson, the wholesale drug producer has successfully used six sigma techniques to improve their cycle times and replacement efficiency cycles.

The lean and six sigma go hand in hand. Industrial giant Honeywell was among the first to recognize the power of combining Lean and Six Sigma disciplines. When Honeywell acquired Allied Signal in the late 1990s, it created a mechanism for combining Lean and Six Sigma that it called “Six Sigma Plus.” The company hoped to improve results by using Lean to streamline processes and eliminate waste, then improve the consistency and reliability of those processes using Six Sigma. 

3M also implemented this strategy and saw the value in the process from the point of view of the customer in the supply chain. This led to them defining the strategy of improving the operational excellence and the supply chain network was used to support that strategy. The co-existence of the lean and six-sigma models is very important. They co-exist because they complement each other. One solves the purpose that the other one cannot. Lean focuses on the time reduction techniques while six-sigma cannot reduce the time needed to work on a process, on the other hand lean cannot reduce the variance in the process and bring it under statistical control whereas the six-sigma has the prime focus on reducing the variance in a process. The two techniques can facilitate and improve one another.

Jabil Circuits, one of the dominant leaders in the $250 billion contractual electronic manufacturer market, has made it necessary for the management staff in their plant to be six sigma certified. When it comes to implementing these solutions to the supply chain systems a firm needs to work more closely with their suppliers and thereby rather than pushing the cost down the supply chain they need to ensure that the cost is eliminated from the chain. This concept is termed as an extended value stream where the suppliers and the ordering company work together to understand the ways in which the cost reduction can be made. Chrysler Corporation worked closely with their clients and launched a program called as the SCORE program which would enable them to work closely with the client and thus facilitate the cost reduction for eliminating the cost from the complete supply chain network rather than pushing it from them onto their suppliers. Chrysler entertained more than 12,000 supplier-submitted proposals and saved an estimated $25 billion. For 1996 alone, Chrysler Corporation and its suppliers achieved $1 billion in cost savings through the SCORE program. But was it really helpful; is cost reduction all that matters when trying to be more profitable? SCORE program was scrapped when Chrysler was bought over by Daimler-Benz!

References

http://www.allpar.com/corporate/score.html

http://www.scdigest.com/assets/On_Target/08-07-28-1.php

http://www.industryweek.com/blog/lean-supply-chain-management-what-it-and-why-should-you-care