Lean Six Sigma in Retail and Distribution: Value Stream Improvements
Author: Mitch Millstein, CFPIM, C.P.M., CQM, CQE
Project Outline Used Value Stream Mapping, a Lean Six Sigma tool, as the foundation for evaluating costs from Field to Table All direct and indirect processing costs were analyzed A cross functional team of employees was formed to conduct this analysis including Accounting, Retail Operations, Distribution, Transportation, Marketing, Procurement and Merchandising All departments that had a role in purchasing, advertising, distributing, retailing and accounting were mapped Labor functions in each department were time studied Outside purchased service costs were researched All job functions in this process were unitized to a cost per case Cost categories were sorted from highest to lowest Observations and financial analysis derived from the time studies led to numerous cost reduction opportunities in the Value Stream Results were presented to senior management, who in turn initiated a Lean Six Sigma program to form teams and implement the cost reductions in these areas Projects were prioritized from highest to lowest cost savings Project Details The cross functional team began by creating a Value Stream Map. Using the map, they created a time study matrix. These team members were subject matter experts and knew where to go, whom to speak with and how to get the time study and financial data we needed to allocate all of the overhead expenses to a per case cost. As an example, we time studied the time it takes to unload an inbound vendor truck at the distribution center. Based on the time it required, the hourly rate of the unloader and the number of cases unloaded, we could determine the unitized cost per case from unloading a truck. Cost per Case = (Labor Time x Hourly labor rate) / # of Cases Processed Even Accounting functions were unitized to a per case cost. The time required to process a vendor invoice was multiplied by an accounting clerks hourly rate and divided by the average case quantity on an order. For services such as shipping, freight costs to the stores and financial data were gathered and allocated by the number of cases on the truck. In addition to the detailed analysis, the team made observations while time studying different functions or when gathering financial data. Some of the highest priority cost reduction opportunities came from these observations. Results Many companies search for cost reduction opportunities by soliciting employee feedback in an ad-hoc manner. Instead, this company used time study and financial analysis of their value stream, to calculate how much overhead functions were costing the company at the unit level. The highest cost areas, plus observations made during the time study analysis, identified many cost reducing opportunities. These projects were prioritized by ease of implementation (easier were higher priority) and benefit (higher savings were higher priority). Management then began using Lean Six Sigma as a vehicle to address each opportunity and reap the savings. The easy to implement high savings projects were launched first. Cost Reduction Opportunities Discovered Below is a sample of the cost reduction opportunities discovered: Checkout Productivity productivity of the checkout clerks is below target SKU Proliferation Items for sale (SKU or Stock Keeping Unit) had grown far above the target Store are not optimizing ordering quantities to eliminate stock-outs and improve stocking productivity What is the optimum store-open hours related to expense to keep the store open versus sales Newspaper advertising effectiveness Optimizing transportation costs between distribution centers, to stores and backhauling product from vendors Newspaper Ads are reviewed multiple times by many executives, causing costs to increase and slowing down responsiveness Vendor invoice discrepancies resolution costs Distribution Centers do not select items and place on pallets to enable quick stocking at the stores Distribution Centers have numerous opportunities to improve order-selector productivity These are the top ten cost reduction opportunities. In total we identified 30 possible Lean Six Sigma projects. In addition, the initial projects identified other cost reduction opportunities. About the Author:
For more information on this subject goto
www.supplyvelocity.com, where you can view our full white papers.
Mitch Millstein, CFPIM, C.P.M., CQM, CQE
President
Supply Velocity, Inc.
314-406-4962
mitch@supplyvelocity.comhttp://supplyvelocity.com
Importance of Entertainment For Your Next Corporate Event Tudo Sobre Hipersensibilidade Dentinária E Seu Tratamento Inovador Pro-Argin Great Colors Ideal for Men's Scarves Community Service punishment to Misdemeanor Bioidentical Hormone Replacement Therapy (BHRT) My Favorite Tacori Engagement Rings Testosterone Supplementation Options for Men