applying lean six sigma to the supply chain

Application of Lean Six Sigma to the Supply Chain Guest was Jeff Slater of Sonoco

Business901 Podcast Transcript

Application of Lean Six Sigma to the Supply Chain

This is a transcript of a podcast that featured Jeff Slater, the Operational Excellence and Productivity Leader for Sonoco. Sonoco is a $4.1 billion global manufacturer of industrial and consumer products and provider of packaging services, with more than 300 operations in 35 countries, serving customers in some 85 nations. Jeff is an expert in his field and had some very progressive ideas on how to leverage the Supply Chain for competitive advantage. Lean Six Sigma is a tool that he uses to accomplish many of his objectives and he explained the use of them at Sonoco. Jeff will be presenting a case study on the Application of Lean Six Sigma to the Supply Chain at The Global Lean, Six Sigma and Business Improvement Summit. This summit represents the largest gathering of leading experts and senior executives across various industries that are passionate about achieving process and business excellence. Jeff, also writes book reviews for ASQ (American Society of Quality) on Lean - Six Sigma and drove customer quality initiatives as the primary contact for Wal-mart business -Sam’s Choice brand cookies. Jeff recently received his Certification in Lean Manufacturing from the University of Michigan, studying with Jeffrey Liker (Toyota Way) and Mike Rother (Learning to See). Sonoco News: On July 15, 2009, the Board of Directors of Sonoco (NYSE: SON) today declared a regular quarterly dividend of $.27 per common share. This is the 337th consecutive quarterly dividend. For more information on the Company, visit their web site at http://www.sonoco.com.

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http://www.sonoco.com/


Joe Dager: I'd like to thank everyone for joining us today. This is Joe Dager, the host of the Business901 podcast. Participating in the program today is Jeff Slater, the Operating Excellence and Productivity Leader for Sonoco Products. Jeff, can you give us a brief overview of Sonoco, and what your position entails? Jeff Slater: Well, Sonoco is a broadly diverse company that was founded well over 110 years ago; 11 decades ago. We earn approximately four billion in sales; we have about 300 operations in about 35 countries in some 85 nations. The products we serve are both industrial and consumer in nature. Our consumer products are probably well known, but we sell to manufacturers, and the products are used in your kitchen and in your home, and you don't even realize it. Our industrial products are sold more in the neighborhood of fabrics and products that are rolled up, and there are some other divisions that we have that provide other industrial applications. We just declared our 337th consecutive quarterly dividend, which we are very proud of, and it continues to increase, and we're in great shape to continue that dividend going forward. Myself, I'm actually related to the Operating Excellence part of the business. Our Manufacturing Excellence, our Maintenance Excellence groups all reside in our area as well, as related to Sigma training programs. My job is threefold. It's to make sure that we are recognizing and supporting the people in the company, and making sure that there is continuous skills development. Number two, we are also responsible for managing the project flow through the system, and insuring that we have projects that are

well managed and well recognized.

And then the third leg of that is making sure that we have productivity dollars in the neighborhood of $100 million this year to deliver for Sonoco's bottom line, because everything that we take out in productivity will make us more profitable in the long run. That's about it for Sonoco and my role right now. Joe: OK, so you're responsible just to put $100 million on the bottom line. That's not too big of a job, is it? Jeff: No, not at all! Luckily, there are a lot of great people working for Sonoco that help in that endeavor every year. Joe: Sonoco; I was very impressed when you said that there were, what was it? 337... Jeff: Consecutive dividends. Joe: Yes, I mean that's just unbelievable! There are very, very few in the world that could promote that. Jeff: We are actually one of the very few. We started out on the NASDAQ; we are now on the New York Stock Exchange and, yes, we are one of very few that can actually claim that title there. So it makes us a very good investment right now. Without throwing out exact numbers, we are in the three to four percent dividend range, so it makes us a good investment at this point. Surely to say, when we announced the last dividend, the stock went up three to four dollars. So it may not be as good of an investment right now, but it was a couple of weeks ago.


Joe: What's your outlook? Do you have a positive outlook going forward here? Jeff: We have a very positive outlook, especially on the consumer side of the business. One of our key focuses is to continue developing new products, and we try to focus on the "value added" portion of the market, like most companies do. We just have unusual success in that area; coming up with new factors that we think are value added for the end consumer and our customers. A couple of examples of that would be we actually produce all of the film for Kraft and Nabisco, on their Chips Ahoy, Oreos, and those products; where you see the easy open and seal packages. That's actually one of our patented processes and products. We just rolled out another cereal box, where we take away the concept of the old bag in the box, and we actually put the cereal straight in an oval tube that looks like a cereal box, but has a flip top lid on it, much like a (not to use somebody else's brand name here) but a Rubbermaid container. You don't have to deal with ripping that bag open and spilling cereal everywhere. And there are a few other notable things, like a top on a powdered infant formula can that allows you to clean off the top of a scoop, whereas before it would mound up, and you would dump it all over the counter, as opposed to in the bottle for the baby. A couple of other things, just in some of the other products that we do are more focused on industrial. We've got a pallet block, which is primarily recyclable material, but it also increases the nail pull, which is the number one complaint of pallet manufacturers. It damages the products, and they end up being liable for that, as well.


There are lots of different areas and lots of new products that you can probably find out about on our website, Sonoco.com. You might be surprised with some of the things that you find. One of the most well known, and I'll be quiet after this, is the Pringles can. We actually make the Pringles can for Proctor & Gamble, and that is probably one of our claims to fame. Joe: Your whole product line must have changed a lot because the things I'm hearing you going through as far as recycling and green initiatives has to be a key focus for you, doesn't it? Jeff: Recycling and green initiatives is probably one of our core foundational things for Sonoco. We started out in the paper industry, but because we put such an emphasis on recycling, we are a major player in recycled paper and plastics. One of our claims to fame is that we use no virgin material in our paper whatsoever, and the way we get away with that is that you use virgin plastic liners in the products that we do sell, that go to the end consumer. But the paper is all recyclable, and it is a great sales pitch right now, when you are talking to people in the market. So, we actually go out and sell it as a service, as well. Like, if your company came to us and said, "We want to learn how to be more green or focus on a recycled product" we'll go in and analyze the stuff that you're taking to a landfill right now, and we'll either take that and generate money for you by creating markets and selling it, or we will actually take some of those products ourselves and include them in our processes where we currently use recycled materials.


Joe: I'm really familiar with, what was it, the Sona-tubes for the concrete forms? Jeff: Yes. Joe: In years back we actually designed some products around that. We used the tubes as one of our templates to pour refractory around, and then we could pull it out. That was our inner lining! Jeff: Oh wow, interesting. Our products, as we've grown, have gotten out of some of the primary areas you might see. But, I mean, even a roll of toilet paper tissue, or rolls that go in paint rollers were products of ours. So you'd see them all over the place. But the Sona-tube is one of our recent successes. We actually created one that allows you to create a completely smooth form which can then be painted or left smooth in itself, whereas before it would be really rough or have striations in it. So that's one of our patented processes there, as well. Joe: Is your main expertise supply chain management? Jeff: My specific specialization is supply chain, and Lean and Six Sigma. The topic I'm actually speaking at the conference on at the summit is actually on “How can you apply Lean Six Sigma to Supply Chains.” I've been lucky enough to be in both those fields and see some neat opportunities - synergism, if you will - to apply those concepts and get even a better, more organized delivery system and higher customer service as a result.


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Joe: What's different today about supply chain management from, let's say, like five years ago? Jeff: Well, supply chain actually is one of those concepts that somebody wrote a book about and coined the phrase, and since then it's been growing and kind of changing as a result. You and I have even talked about this before, but the market itself, with the way the economy is right now, supply chain is going through a pretty dramatic shift. It was beforehand, and it's kind of going in the opposite direction now. But before the economy shrunk, supply chain was one of those things that you had to start getting into because of the globalization of the market. With the kind of drawback in the way the economy just recently, it's actually comes more to the forefront. Because people are now realizing that in order to be more competitive and take cost out of their processes while still maintaining that global footprint, they have to take the cost out of their supply chain and reduce their lead times. Now more than ever, delivery has become one of those factors in talking with your customers. There are three things I say that you can lose a customer by doing: either poor cost, poor quality, or poor delivery. Delivery is one of those that actually get tied up in the supply chain concept. Cost is another factor that gets tied up. Then in some cases, your delivery, your supply chain, can impact your quality as well. So if you want something that's going to hit all three of those ways that you could lose a customer or gain one, supply chain's the concept to apply.


Joe: Having a manufacturing background, in reflection I am amazed at how much energy is put into the manufacturing, put into the building, and the design. The actual delivery of the product is somewhat of an afterthought. The receiving of product can be an afterthought, but it's such a huge percentage of the total product that it is forgotten about sometimes. Jeff: Well, something that's just happened as well in the investment market. You were talking about Sonoco being a good investment. The analysts have started looking at things differently. Initially, they were looking at your return on investment as a primary reason they would invest in your company. But now the three things have kind of upside downed themselves. Cash is probably the number one thing in investors' eyes because cash says whether you are healthy or not as a company. You can be losing money, but as long as you have cash flow, you're still a viable company. So if you look at cash, supply chain, and taking inventory out of your supply chain, and reducing your lead times is a great way to impact your cash flow, and it's an immediate impact. It'll happen immediately, that next quarter, as you get that inventory out of the process. Joe: Like Dell Computer and how they actually operate with a negative cash flow. Jeff: Exactly. Dell, Toyota. Joe: What a perfect business model if you can do that. Jeff: Yes, exactly.


Joe: Definitely. How do Lean and Six Sigma play a role in supply chain? We know it used to you solve problems, but can you give me specific answers of how that applies to your supply chain? Jeff: Sure, sure. The two obvious ones to me are what you just mentioned about solving problems. Lean Six Sigma allows you to have instruction methodology in how you solve those problems and also gives you tools to solve those problems. The other side of that coin is that Lean Six Sigma's concepts. Applied on a plant or a manufacturing floor is the same as expanded and applied over an entire value chain or network. The same things they would do at that plant level, which is reduce the time that the material stays within that process. It reduces the variability in that process and ensures that the delivery occurs with good quality, right time, right place, right quantity, and all those things that are your customers' rights when it comes down to selling product. Joe: Now, when you use Six Sigma, do you look at all the tools and the statistical models? Do you use all the models? Do you go through all the analysis? Do you use Minitab, DOE and other models? Jeff: You touch on several of them. When you do a training project, you attempt to make them use as many of the tools as possible, sometimes whether they fit or not. But the key here is only using the tools that really apply to the project, that are going to make an impact when you start doing projects in the real world.


So your question, do we use all those tools? No, we don't use them all the time, but the one that you hit on that is probably used quite a bit, especially on some of the Black Belt projects, is Design of Experiment. It's one of those things that you do to actually tell if your process has gotten better or worse. Then you actually use statistics to give yourself a mathematical foundation of whether the process has improved or not. So all those things do apply. Lean was a nice complement because it allows you to stabilize the process. In some cases, you come in, and you can't even start doing some of the measurements and the statistical analysis because the process is in such chaos. Lean helps you get to a point where you could start a Six Sigma project, if necessary. Sometimes they're just combined. So it's using the right tools at the right time with the right project. Joe: What you're talking about at the conference is supply chain, and responsiveness, and flexibility. Can you be responsive and flexible at the same time, or are you just winging it, taking away from one, and kind of adding to the other? Jeff: Well, that's one of those big discussions in supply chains. A lot of people say that you add capital into a process and you're, in a sense, being responsible, responsive to your customers at that point. But you lose flexibility because "I bought a specific machine to deliver a specific product". Well, the concept is yes, you can do both of those at the same time but you have to make sure your machine is flexible to do that. And I'll use an example from my previous life, and it was at Corning. In the old days, the concept was that you build a gigantic furnace that melts glass and provides a huge line of insulation or fiberglass

sheets coming out.


Those large lines, they were hard to start up, hard to shut down, so they'd run them 24/7 and make whatever they could coming off the line. But the concept they're playing around with and working with in one of their Toronto facilities is a small line, it's easy to turn on and turn off if demand so justifies it, and it allows kind of flex line for different products. A relatively quick rather than the huge change-over that you have related to a large glass furnace sort of thing. So, yes you can be responsive and flexible, it has to start in the new equipment development process, the design process, and new product development process. You also have to hit that factor because if you design a product that's not flexible or you design a product that's not complimentary to your current product line, you'll also run into problems. Then you'll be forced to buy a very specific piece of equipment. Joe: Well, Jeff, that's one of the things that we always talk about with Six Sigma. It's great at defining problems. It's great at providing solutions but when on a new product development, it has some limitations. Do you find that being true? Jeff: We don't use as many tools as you would in a normal product project when we do our new product development. However, there are a couple of key tools we use, for example, like FMEA, Failure Modes and Effects Analysis. This is a process that helps you identify potential failures in the process and we've found that this tool specifically is very critical in new product development, and doing it earlier in the process opposed to later is much better.


There's also the design for Six Sigma process, DMADV, as some people might know it, similar to the DMAIC process. But if you utilize this, it was also help you again in specifying equipment that's responsive and flexible. But it also helps you in designing that product, so it does fit with your supply chain, does fit with your manufacturing processes, and makes it something you might be able to use for another product later on sort of thing. So, yes, it absolutely can be applied greatly to our new product development process and we use it religiously, just some of the tools get popped in and out as we need them. Joe: Is it accepted throughout your entire business structure, do people accept Six Sigma and Lean as part of life at Sonoco? Jeff: I'm probably a pessimist when it comes down to that because I see the full potential of really adopting it as an approach to business. And I would say that we're scratching the surface, but at the same extent, we have a much more engaged leadership team when it comes to Lean Six Sigma. We target individuals who have Lean Six Sigma when we hire from the outside and we don't really look at people that don't have that kind of tool set, or if we do, they better have another really good tool set that we're specifically hiring for. I would say we're fully and extensively using it at the higher levels. The lower levels, we're working on that. It's a continuous improvement type thing and we're in the process of going through a development of the Sonoco performance system, which you could kind of parallel with some of the other great companies out there, like Toyota, Milliken, and Danaher. But again, you have to kind of go through it and grow yourself, so we're developing it all around what our culture is and our history and the tools that we currently use. It'll be as good as the other ones, but it's going to be different because we're a different company, we service different customers.


Joe: You've been part of Six Sigma for a lot of years. Why do you think it's one of the ones that stuck, let's say, over TQM and Theory of Constraints? Jeff: You know, and I would actually argue a little here that Six Sigma's one of those ones that kind of built off of the Theory of Constraints and the TQM process, it's just kind of another iteration with the statistics applied to it. The reason why I believe that Six Sigma probably stuck a little bit better was it's similar to Lean. There was a great leader in that area really had utilized the tool and demonstrated how well it improved their business and managed their business, which is GE, of course. I think they demonstrated their leadership, and much like Lean in Toyota. Toyota started out as number four, probably number five in the automotive industry as it consolidated, but now they're number one. So I think you have two great examples of, if you make this part of your culture, if you make this part of how you do business opposed to just another tool, or another flavor of the month, how much it can impact your business and improve your overall operations. I think that's part of the reason it really was successful. The value has to be proven in any organization. That's why it works some places and not at others, because you got to have that top down support. If the value's never been proven out, then people end up dropping it, like the last flavor of the month. Joe: Now, do you do a storyboard at the end of each of these, and go through and do a presentation of what savings there were or what was accomplished with the Six Sigma project?


Jeff: At the end of every project there is one, and that's where the one leg of my responsibilities I was talking about, the continued Lean and recognition for customer satisfaction through excellence. We have several different levels of recognition. One is for certification with Lean and Six Sigma. We also utilize what we call an executive presentation where high profile projects get the opportunity to present those projects to the CEO and the management committee then. And we also have what we call, I mentioned just a minute ago, the customer satisfaction through excellence. Projects and individuals who went that extra mile, or projects that really delivered for the customer, receive corporate recognition where they're actually flown in to the corporate office. They have a golf night, dinner, celebration, and then the presentation, very close to when we have our annual report out as well, for the corporation. We have a pretty extensive process by which we recognize and celebrate these projects, and then we thoroughly encourage the plants to do recognition for individuals and projects at their level, as well, as we are trying to promote more floor-run projects and individuals on the floor kind of leading projects and utilizing these tools themselves. Joe: OK. There's one thing I notice in one of the notes I had here. It was "perfect order, what do you mean by that? Jeff: "Perfect order" is a term that has been coined for supply chain, where you take into account -- it's almost like an calculation for supply chain, where you basically take three different metrics or percentages, percent on time delivery, percent customer satisfaction, and percent fill rate and you basically multiply those together to see how you are performing overall, as a corporation on supply chain and customer satisfaction.


So, our perfect order describes those two different metrics. It's a pretty common one, if you look out to the Supply Chain Council. They utilize that term quite a bit. There are other companies, who are adopting it, as well. Joe: Well, it's common for the supply chain people, I am not necessarily in that field and it just jumped out at me, right away. What exactly does he mean by that? Jeff: It's a great concept to talk about because what we're really trying to say is: how do we achieve that perfect experience for the customer -- that they order it; they enjoy the ordering process; we manufacture it in a timely manner for them; and we deliver it at the time that they requested it be delivered. So in a sense, you're trying to achieve this perfect experience -- this perfect order. Joe: Where do you see supply chain management going? I mean, how much can you improve? The customer's perspective may be; everything customized and everything "right now.“ Is that really the idea that the supply chain has also? Jeff: Supply chain is one of those concepts that really has to be somewhat modified for the industry and the types of customers you serve. Supply chain's always going to be around because of the way it touches the cost equation, in the process; how it touches the customer; and ultimately, how it touches the experience that customers have with your company. Supply chain, I see going much farther than it has in the past.


There are little things, right now, where people touch orders when they come in, they touch the order, when it's connected to a truck for delivery, and they touch it here and they touch it there; all those are opportunities for bad experiences or errors to occur in the process. And where I see supply chain going is there's going to be a lot more optimization; there's going to be a lot more event management, meaning that there's going to be systems out there that are going to tell you when there's an upset to the supply chain and you manage the exceptions to the process. And then, there's going to be this whole automation that allows us to quit touching the order, take the order, and it just goes straight through the process without a lot of interruptions. Or you create a process where you customize a product, as opposed to having something... There's a lot of cases where they're doing analysis and you find out that building it overseas is great because it's a low-cost to manufacture, but by the time you factor in all the supply chain costs and the risks involved with timing, that you would have been better off paying a little bit more for having it made American made and customize it to exactly what the customer wants. Joe: You know, part of that is, is that we are becoming so customized and our needs and wants are getting so targeted, that the ability to respond, to customize and deliver quickly is what's going to bring manufacturing back here. Jeff: And that's the magic to the Internet. One, first of all, it's allowed certain niche companies to develop great products and great markets by being very niche oriented


but it also allows us to cater to and know exactly what the customer's needs are. We're all familiar with the concept that is, "If I could go online and actually spec out the car that I wanted, I'd probably be a lot happier than having to go to the dealership, maybe get the color I want with the features I want" sort of thing. I mean, several companies are really leveraging this to their benefit. Dell, as I mentioned before, is one of the great leaders in this area because they try not to hold any inventory whatsoever. The printers and the monitors are sent directly from their third party manufacturer. They don't even touch them and then they actually use the Internet to sell off inventory that doesn't sell on some of the hedges they want. For example, if they have a CD drive that just for whatever reason didn't sell the way they expected it to, they'll put it in with one of their models online and say discount it $50 to just get the inventory out of their books sort of thing. But, even so, the guy that wants to customize his computer and isn't worried about price can go out there and make a computer exactly the way he wants it. Joe: Is Sonoco looking at doing things like that with some of their products? Jeff: Well, the interesting thing about Sonoco is, is that a lot of our products are already customized for our customers. Some of the examples I gave like the Kraft wrapping for the cookies, the cereal box for Target. In a lot of cases, these companies want very specific things and we produce those things very specifically for them. Another example would be Hampton Farms, which is probably not a wide known brand name for peanuts, but they came into us and said they were looking to make a plastic tub and this is what we're thinking about and this is how we'd like it to look.


Well, they wrote it on a napkin and we took it back to our development lab. We actually gave them a prototype to carry home with them to actually share and show around the office. It was such a huge success; you know they signed up for the business right away. Being responsive to those customers and being able to customize to what they need is one of the things we do very, very well. Joe: I will finish up by saying thank you to Jeff and to Sonoco Products. If you'd like to know more about Sonoco products, they can be found at Sonoco.com, and if you'd like to learn more about supply chain management, I'd encourage you to go to the Global Lean Six Sigma and Business Improvement Summit. You'll find that at www.WCBF.com. Jeff will be there on the first day. I believe you're slated to talk. Jeff: Yes, sir. Joe: And on Wednesday, October 14. I, for one, will be attending your session and learn a little bit more about Supply Chains. I'd like to wrap it up and thank everyone for listening to the Business901 podcast.





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Joe Dager is President of Business901, a progressive company providing direction in areas such as Lean Marketing, Product Marketing, Product Launches and Re-Launches. Business901 provides and implements marketing, project and performance planning methodologies in small businesses. The simplicity of a single flexible model will create clarity for your staff and as a result better execution. My goal is to allow you spend your time on the need versus the plan. An example of how we may work: Business901 could start with a consulting style utilizing an individual from your organization or a virtual assistance that is well versed in our principles. We have capabilities to plug virtually any marketing function into your process immediately. As proficiencies develop, Business901 moves into a coach’s role supporting the process as needed. The goal of implementing a system is that the processes will become a habit and not an event. Part of your marketing strategy is to learn and implement these tools.

What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joe's ability to combine his expertise with "out of the box" thinking is unsurpassed. He has always delivered quickly, cost effectively and with ingenuity. A brilliant mind that is always a pleasure to work with." James R.

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applying lean six sigma to the supply chain

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