Six Sigma Answer to Material Shortages

One of Six Sigma¡¯s strengths is its facility for revealing causes and solutions that run contrary to our initial assumptions. When a persistent condition resists all attempts at improvement, or when an obvious fix to a newly discovered problem turns out to be lacking, a methodical approach like Six Sigma¡¯s can uncover even the most unlikely of causes and deliver results.

In the following case study the continuous improvement team was in for just such a surprise. Conventional wisdom was wrong, and the path the team started down hid unexpected complexities.

Definition

The XYZ Pump Garage program overall performance was poor. Future customer orders would not have been forthcoming without substantial improvements in quality and delivery.

• On-time delivery was 80% vs. >99% goal.
• Direct labor overtime was running 15% vs. a goal of zero.
• Field reported defects were found in 50% of system shipments vs. 0.5% goal.
• Project margin was approximately 22% vs. a 33% goal.

A process improvement team was formed with members from Customer Service, Manufacturing, Production Control, Engineering, Operations, and Purchasing.

Measurement

' Initial ' majority team consensus was that the program¡¯s poor on-time delivery was the result of material shortages due to understaffing in Purchasing. More buyers seemed to be the probable solution. The team suspected that the field defects were principally a result of poorly trained assembly staff.

The team began daily monitoring of data for number of daily kit shortages, overdue suppliers, and daily purchasing workload based on Material Requirements Planning (MRP) demands. Field personnel were interviewed for detailed descriptions of field defect rework.

Briefly summarized, the data showed:

• Typical labor overtime occurred near the end of the manufacturing process.
• 100% of all kits were issued with shortages.
• The key suppliers were >3 days late 50% of the time.
• The MRP system was posting material demands inside the material lead times!
• The requested delivery dates for material in the MRP system did not match well with project ship dates!
• A majority of customer-reported defects appeared to be the result of incomplete or incorrect manufacturing documentation.

1. Overtime was being worked to make up lost time due to late material deliveries.
   
2. Understaffing in Purchasing was not the problem! An army of buyers would not result in on-time material when the MRP ¡®buy¡¯ signal came too late or not at all. The team¡¯s true analysis problem was to understand why the MRP System was giving wrong signals. The team decided to focus on one specific sales order line item that exemplified the problem set for a typical system.
   
   What they found:

1. The sales order was coded incorrectly in a fashion that would generate several MRP problems.
2. Item master attributes were not properly populated for many of the material items that had MRP problems.
3. Customer engineering change orders (ECO) had been accepted without renegotiating product delivery dates with the customer to allow time for ECO implementation, including new material delivery.
4. A check of other customer order line items showed similar problems.
   

1. Customer ECO information was not being properly transmitted and propagated throughout the organization, resulting in out-of-date manufacturing instructions and field defects.
   
2. Problems would not have occurred if program participants had properly followed the procedures and work instructions documented in the Quality Management System.

Improvement

The improvements we implemented can be summed up in one word: training. The company had grown significantly during the past year and while all employees had received training, it had sometimes been rushed or had not been completely absorbed by the new personnel. Mandatory training was scheduled immediately for all Customer Service, Engineering, and Operations personnel on the documented procedures for sales order entry, customer engineering change orders, creating item masters, and creating engineering masters. Retraining took 7 working days with approximately 30 personnel participating.

ERP data for all active purchase orders was audited for the most common errors the team had recently discovered. This process required 5 working days.

New delivery dates were negotiated with the customer¡¯s buyer based on the new solid data foundation. This was difficult, but fortunately the customer¡¯s buyer is a mature personality with a long-term partnership attitude.

Results:

• Within 4 weeks material shortages had improved considerably.
• On-time delivery reached 100%.
• Overtime labor became negligible.
• After 8 weeks there had been no field defects found in the 6 systems shipped in the prior 5 weeks.
• Margin has improved to 28%, but this needs further investigation.
• Teamwork between organizations improved as a result of greater appreciation for the needs and complexities of their respective jobs.

Control

On-time delivery, customer field defects, and margin remain the bottom-line metrics for process control on the XYZ program. However, most importantly, as a result of the XYZ team findings, a new continuous improvement team was formed: the Enterprise Resource Planning Data Integrity Team (EDIT). EDIT is tasked with developing a set of strategies and process control tools to insure there are no repeats of the XYZ difficulties on other programs.

Implications

This single Six Sigma project thus had far-reaching implications for the XYZ Pump Garage program. First, in fulfilling the immediate purpose of improving our performance, we achieved customer retention for the near future. On a broader level, we also seized an opportunity to enhance our overall long-term approach to improvement. The value of reaching beyond obvious solutions having been so dramatically reinforced, we created a new continuous improvement team charged with making the pursuit of quality a more proactive endeavor.