lean six sigma project pdi logistics

Lean six sigma project PDI logistics

• Dharanidhar Malladi

• Hsiao Chuang-Jen

• Hitarth Patel

• Rachit Jauhari

DEFINE – Project definition

Project business Case :

• PDI is package pickup and delivery company which OUTSOURCES its ground operations to a third party

• Inefficiency in processes and miscommunication at PDI -> rebates and idle time costs

• Gross margin needs to be improved to sustain operations and for growth in future

Problem Statement :

Identify causes behind current inefficiencies (rebate and idle cost) impacting gross margin.

Goal: to suggest improvements in the system for achieving at least 30% profit before tax with minimum errors and defects

Out of scope

• Market-research data for the purpose of increasing market share.

• Improvement in Customer satisfaction metrics other than rebate.

• Details of an employee reward system for incentivizing employees.

DEFINE- CTQ

Characteristics of product or

service

On time pickup/delivery , no damage to package , convenience of

scheduling

Measures and operational

definitionsRebates due to lateness or damage to package

Target value of measures Zero rebate

Specification limits Time window of 15 mins and undamaged package

Defect rate of measures Reduce rebate occurrence from 33.3% per total pickups to 5% or less.

*Idle time is an error in the process and an inefficiency between PDI and third party *Rebate is a defect

5. Suppliers 4. Inputs 1. Process 2. Outputs 3. Customers

sender Sender order detailsorder received from customer(package

sender)Order details (name, address, contact no.)

PDI

third party dispatcher

Time window from dispatcher

sender informed on estimated time window

Estimated 15 min time window for sender

sender

senderPayment

Confirmationpickup of package

Pickup confirmation from sender

Third-party dispatcher/fieldoperator

Sales operator at PDI

revenue calculationbill generated and package recipient informed on 15 mins time-window

Bill , estimated 15 min time window for recipient

sender and recipient

Recipientaddress details of

recipient package delivered to recipient

Receipt confirmation from recipient

Third-party dispatcher/fieldoperator

DEFINE- SIPOC

DEFINE – VSM and focus area

DEFINE – Assumptions

• Field operators are always available.

• Time window is negotiated between sender and Sales Operator and is an input to

dispatcher.

• Performance of field operator is out of our control.

• Package pickup and delivery are 2 isolated processes and we need to focus only on

package pickup.

• Payment issues from sender are not be considered.

Define – Initial business state

Sigma Measurement

Defects ( rebate occurrences) 706

Opportunities 2096

Defect Opportunities per unit 1

DPMO 336832.0611

Sigma Level 1.9

Financials

Revenues $125,335.40

Fields ops cost ( including Idle time cost) $42,753.90

Rebate cost $38,106.00

Gross margin $44,475.50

Fixed costs $35,000.00

Profit before tax $9,475.50

Profit before tax ( % of revenue) 7.6%

MEASURE – Data Collection requirements: Planning Sheet

Question To Be Answered Name of Data Required Operational Definition

how often are we early ? early frequencyMinutes To Customer (One Way < Trip Time Lower Spec Limit

how often is rebate due to lateness ? late frequency Minutes To Customer (One Way > Trip Time upper Spec Limit

By how much is the dispatcher overestimating the amount of forecast time in case of early errors ?

amount of early error(one-way distance*60)/ forecast speed))+7.5 mins –(minutes to customer )

by how much is the dispatcher underestimating the amount of forecast time in case of late errors ?

amount of late error(minutes to customer ) - ((one way distance*60)/forecast speed) - 7.5 mins

Details about bike and Truck usage conditionsDMB, DMT, DEB, DET, SMB,

SMT, SEB, SETCombined Indicator variables with rebate and idle time

MEASURE - Identify Sampling Bias and Measurement Problems

Sampling Bias

• Unequal weightage of data for bicycle and truck

• Unequal weightage of downtown and suburbia

• Seasonal fluctuation in data

• More/less incidents of damaged package considered than normal

• Higher proportion of data for particular range of package weight (can influence speed)

Measurement problems

• Estimation of route to be travelled by field operator

• Tracking of occurrence of a late pickup/delivery

• Variation in field ops cost with no relation to vehicle used.

MEASURE - FMEA

Key Process

Step or Input

Potential Failure

ModePotential Failure Effects

S

E

V

Potential

Causes

O

C

C

Current Controls

D

E

T

R

P

N

Actions

RecommendedResp.

What is the

Process Step

or Input?

In what ways can the

Process Step or

Input fail?

What is the impact on the

Key Output Variables

once it fails (customer or

internal requirements)?

Ho

w S

ev

ere

is th

e

effe

ct to

th

e

cu

sto

me

r? What causes the

Key Process

Step or Input to

go wrong?

Ho

w o

fte

n d

oe

s

ca

use

or

FM

oc

cu

r? What are the

existing controls

and procedures that

prevent either the

Cause or the Failure

Mode? Ho

w w

ell c

an

yo

u

de

tec

t th

e C

au

se

or

the

Fa

ilu

re M

od

e? What are the

actions for

reducing the

occurrence of the

cause, or

improving

detection?

Who is

Responsible for

the

recommended

action?

Dispatch time

calculation

dispatch time

calculation doesn’t

synchronise with

time window

rebate or idle time cost.

10

forecast speed

under/overestima

tion 10

none

10 1000

Estimate dispatch

time with accuracy

dispatcher

selection of

bike or truck

vehicle selected is

wrong as per time

window , location,

distance and time of

day considerations

rebate or idle time cost.

8

error by

dispatcher 4

none

10 320

dispatcher

package pickup package lost or

damaged

rebate 10

Error by Field

operator 2

none 10 200

field operator

ANALYZE – Data set 1-3

• No rebate due to damage • regression reveals that

late rebate mainly due to trucks used in Downtown during morning

Increase reliance on bikes in downtown morning

during morning

ANALYZE – Data set 1 to 3

• Truck performance improved• Overall rebate increased• Gross margin decreased• Current formula for dispatch

mins calculation is: (time to reach – 7.5) mins

Dispatch mins need to be increased to reduce lateness. Lateness is more frequent than idle time occurrence.Improvement 1) (time to reach + 7.5) minsImprovement 2) (time to reach + 15 ) mins

ANALYZE – data set 1 to 3

• Rebates decreased, GM improved• No trucks used in evenings• High rebates during bike usage in

morning

Dispatch time can be further increased to (time to reach + 31 mins)


• All lateness occurrences are in morning and mainly due to bike

bike

downtown suburbia downtown & suburbia

AM 25 25 20 - 0.3*(pounds)

PM 15 20 20 - 0.2 * (pounds)

FORECAST SPEEDS

truck

bike

downtown suburbia downtown & suburbia

AM 20 20 20 - 0.3*(pounds)

PM 15 20 20 - 0.2 * (pounds)

FORECAST SPEEDS

truck

ANALYZE – dataset 4 – 6

• Data set 4-6 consisted of 100% bikes as vehicle used

• Over 90% of the pickups had idle time errors

• We focused only on optimizing forecast speed for bike and learnt that we need to monitor both dispatch mins and forecast speed

• In data 6 Idle time error was drastically reduced by increasing dispatch time to (miles/speed)*60 + 31 mins

ANALYZE – dataset 4 – 6

• But this was an impractical condition, so we ignored dataset 4-6 for further analysis


bike

downtown suburbia

downtown &

suburbia

AM 25 25 20 - 0.35*(pounds) (miles/forecast speed)*60 + 5

PM 15 20 20 - 0.10 * (pounds) (miles/forecast speed)*60 - 5

forecast speed

truck dispatch mins bike

downtown suburbia

downtown &

suburbia



forecast speed

truck dispatch mins

Rebates are quite low but idle costs are hitting margins now, mainly due to trucks


Total profit improved a bit to 26.4%, but idle time cost still remains high

bike

downtown suburbia

downtown &

suburbia



forecast speed

truck dispatch mins


bike

downtown suburbia

downtown &

suburbia



forecast speed

truck dispatch mins

profit before tax didn’t change enough. Idle time cost for individual

scenarios needs to be examined. Forecast speed can be increased, dispatch mins can be decreased


dispatch mins

bike

downtown suburbia downtown &



FORECAST SPEEDS

truck profit before tax didn’t change enough. Idle time cost for individual

scenarios needs to be examined. Forecast speed can be increased, dispatch mins can be decreased


Profit margin is 34 % Sigma level is 3.8

Higher sigma level is desired since target for profit margin has already

been achieved Profit margin is 37% Sigma level is 3.4

ANALYZE – overall progress

ANALYZE – Overall progress

Reduce lateness occurrence and rebates reduce idle time cost to improve profit

ANALYZE – INSIGHTS

Idle Time Lateness

WHEN ? Speed of field operator is underestimated Speed of field operator is overestimated

HOW ?Forecast Speed < Actual Speed

OR Dispatch mins > Mins to customer

Forecast Speed > Actual SpeedOR

Dispatch mins < Mins to customer

SO ? Dispatch mins OR Forecast Speed Dispatch mins OR Forecast Speed

BUT, Reducing dispatch mins more than required can

cause latenessIncreasing dispatch mins beyond certain limit can

cause idle time

15 MINS TIME WINDOW

field operator

dispatcher

early lateMinutes to customer with actual speed

Dispatch minutes calculated using forecast speed

Lower Spec limit

Upper Spec limit

IMPROVE – Pugh Matrix

IMPROVE – Suggested business state

Factors measure improved data

fields ops cost (% of revenue) 34.1% 36.8%

rebate % of revenue 30% 1%

idle time cost % of revenue 0.4% 2.0%

profit before tax % 7.6% 34.0%

% bikes 88% 62%

% trucks 12% 38%

% defects 33.6% 1.0%

% errors 51.7% 50.8%

sigma 1.9 3.8

Updated Forecast Speed and Dispatch Minutes Calculator

Comparison of results

IMPROVE – Lateness Control Chart

CONTROL - Non-Statistics Process Control

• Standardized Operation Procedures –• Dispatcher need to follow our final rule, as below, to calculate bike estimated speed and

dispatch time

• Field Operator must follow suggested route from Dispatcher

• Documentation –• What kind of documentation is available? Improved Process Map, Mainframe process

documentation.

• Where is the documentation located? Change Management folder on shared drive

• Who has access to the information? Change management team

• Who will be responsible for updating the information? Change Management Team

• How is documentation / file change control managed? Change management team updates the version changes in the document.

CONTROL - Non-Statistics Process Control

• Poke Yoke –• Before dispatching field operator, we have to check there is parking spot at

destination for truck delivery.

• Demanded 3rd party regularly implement bike and truck maintenance.

• Routes should be decided by dispatcher and followed by field operator.

• Monitoring –• Conducted a regular monthly meeting to review our gross margin, price rebate

and idle time cost, and perform root-cause analyses.

CONTROL - Statistics Process Control

Gross Margin Control Chart

CONTROL - Idle Time Control Chart

Idle Time Control Chart 5% outliers are above UCL

CONTROL - Idle Time Control Chart

1% outliers are above UCL

Summary

Proposed system should regularly meet these criteria

• Profit before tax should be above 30% of revenue

• Gross Margin should not be lower than LCL ($1392)

• Not more than 5% of idle time outliers should be above UCL (13.76 mins)

• Not more than 1% of lateness occurrences(defects) should be above UCL (0.173 mins)

THANK YOU

MEASURE – DATA SET 1-5

lean six sigma project pdi logistics

Business