The document discusses using Lean Six Sigma to improve key performance indicators for supply chain management. The project aims to increase on-time shipments from 55% to 92%, inventory turnover from 7 to 16, inventory accuracy from 78% to 95%, and reduce operational hours per unit from 11.4 to 4 hours. Current performance is analyzed and causes of delays are identified. Various Lean Six Sigma tools are used to address issues, including 5S, value stream mapping, and cause-and-effect diagrams. Implementation of the project leads to reduced costs, improved productivity, higher inventory turns, and better customer satisfaction.

1. LEAN SIX SIGMA TO IMPROVE SUPPLY
CHAIN MANAGEMENT
Prepared by Julian Kalac, P.Eng and
Robert Czuma
May 2014

2. Page 61 of 19
1. Introduction
1.1 Objective
The objectives are to improve supply chain management related Key Performance
Indicators(KPI’s) such as On Time Shipments (OTS), Material availability, Inventory
management; Inventory Turnover, Reducing total costs associated with products,
The project focuses on increasing On Time Shipments from 55% to 92% hence it improves
customer confidence and reduce product development cost with increasing inventory turnover
from 7 to 16, increase physical inventory accuracy from 78% to 95% and reduce total
operational hours per unit from 11.4 hrs to 4 hrs. Currently the work place environment
is not organized so things need to get clean up and organized in organization.
Sl. No Key Performance Indicators
(KPI’s)
Current Target
(Before
Improvement)
1 Annual Inventory Turnover 7 16
2 On Time Shipments (OTS) 55% 92%
3 5 S (sort, straighten , shine,
standardize, sustain) Score
8 18
4 Physical Inventory accuracy 78% 95%
5 Service Factor: Kitting 65% 100%
6 Total Operations hrs/unit 11.4 4
Table 1: key performance Indicators (KPI’s) with Current and Target values

3. Page 62 of 19

4. Page 63 of 19
Causes Occurrence
% of
time Cumulative
Sales-SCM Lead time not
considered 54 17% 17%
Material shortage 47 14% 31%
Parts failure 41 13% 44%
BOM issue 38 12% 55%
Configuration issue 35 11% 66%
Rework 28 9% 75%
Shipping Schedule 25 8% 82%
Sales Issue 15 5% 87%
Engineering 15 5% 91%
S/W Issues 12 4% 95%
Sales hold 7 2% 97%
Project manager's Sign Off 5 2% 99%
Not Invoiced @ time of shipping 4 1% 100%
Total 326
Table 4 : Showing the causes for delayed in shipment and their occurrence
Time
90%
O
n
s
h
i
p
m
e
n
t
100%
80%
60%
40%
20%
0%
85%
65% 68% 69%
t
i
m
e
On time shipment
Data
center
N
appliances
Harmonic Siemens Other
OEMs
Business Unit/ product

5. Page 64 of 19
% 13% 12
Figure 8: showing Pareto Analysis for causes in delayed in shipment
Figure 21: Value Stream map for Supply chain management
100%91% 95% 97% 99%
75%
87%
66%
1%
44% 55%
9% 5% 5% 4% 2% 2% 1%% 11%
17%
100%
80%
60%
40%
20%
0%
e
82%
17% 14 3 8%
% of time
Cumulative
Causes of Delayed Shipment

6. Page 65 of 19
SR# Cause Root Cause Action item
1
Work order status not
changed WIP or Built
Low Service
level, No
responsibility
assignment
increasingproduct
availability with
MPS and MRP
2
Wrong Inventory
storage practices
No 5 S
programs
Need to have 5S
programs
3
Debit order not
created
Broken MRB
process flow
Develop process
flow for MRB by
introducing online
NCR forms
4
Material not received
in system
Training for
receiving and
lack of 5S
Train the employees
with process flows
5
Material not found in
stock room
Not having
cycle count
programs, lack
of 5S
Implement scheduled
cycle count programs
6
In-house borrowed
material list not
updated
No material
transaction for
In-House orders
Need to transact the
borrowed items with
either DO and SO
Table 13: Further causes, root causes, and action items
95%
73%
55%35%
35%
re ve r cycle c
r ce
120%
o
c
c
u
r
r
e
n
c
e
100%
80%
60%
40%
20%
0%
87%
100%
% 21% 18% 14% 7% 5%
o
f
% of total
cumulative
Causes of variances

7. Page 66 of 19
3.4.1 5S Program
Figure 24: 5S Audit findings

8. Page 67 of 19
Figure 25: 5S before and after comparison
Figure 26: Improvement with 5S Program

9. Page 68 of 19
Figure 27: Other application improved with 5S Program
Figure 29: Monthly trend of Cost of goods sold and AverageInventory
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Monthly Inv Turns
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
Cost of goods sold
Average INV

10. 71
Figure 36: Value stream map for Build, Pick, and Ship

11. 72
83
3.5.1 Liner regression
Figure 38: Simple linear regression analysis chart
Source: ("Linear regression solver,")
Figure 39: Showing regression analysis with calculation of L andT_chart2 Source:
("Linear regression solver,")

12. 73
3.6.1 Cause and effect diagram
Figure 40: Cause and Effect Diagram
Figure 41: Cause and Effect diagram with potential quick wins

13. 74
3.6.2 Rapid improvement Kaizen event for reducing labour costs
Date Total Units Total Hours Hrs/Units Current cost Projected cost Labour Savings
Savings8/1/11 173 1736 11.0 $47,858 $49,289 $1,431
8/8/11 229 1783 9.2 $52,865 $65,122 $12,257
8/15/11 219 1817 10.2 $55,896 $62,308 $6,412
8/22/11 195 2082 10.7 $52,046 $55,287 $3,241
8/29/11 173 1587 9.2 $39,670 $49,175 $9,505
9/5/11 228 1419 6.2 $35,464 $64,809 $29,345
9/12/11 281 1560 5.6 $39,002 $79,874 $40,872
9/19/11 331 1821 5.5 $45,527 $94,087 $48,560
9/26/11 309 1623 5.3 $40,587 $87,833 $47,247
10/3/11 263 1522 5.8 $38,058 $74,758 $36,699
10/10/11 399 1842 4.6 $46,050 $113,416 $67,365
10/17/11 190 1587 5.8 $27,550 $54,008 $26,458
10/24/11 260 1562 6.0 $39,038 $73,990 $34,952
10/31/11 247 1542 6.2 $38,553 $70,210 $31,657
11/7/11 191 1577 5.6 $26,740 $54,292 $27,552
11/14/11 131 1273 7.1 $23,270 $37,265 $13,995
11/21/11 97 880 6.5 $15,763 $27,572 $11,810
11/28/11 241 1352 5.6 $33,804 $68,504 $34,700
12/5/11 261 1466 5.6 $36,660 $74,189 $37,530
12/12/11 252 1481 5.9 $37,026 $71,631 $34,605
12/19/11 180 1515 5.4 $24,300 $51,165 $26,865
12/26/11 120 1296 5.3 $15,750 $34,110 $18,360
1/2/12 132 1283 4.7 $15,475 $37,436 $21,961
1/9/12 167 1339 4.5 $18,754 $47,384 $28,631
1/16/12 152 1167 4.1 $15,580 $43,206 $27,626
Total Cost savings $679,634
Table 3: Weekly production data labour savings

14. Page 75 of 19
3.8.1 Lower Inventory carrying cost associated with Inventory Investment
Table below shows the actual Cost of Goods Sold and Average Inventory for
January 2011 to September 2011. Monthly inventory turnover are calculated.
Month
Cost of
goods sold Average INV
Monthly
Inv Turns
January-11 $913,940 $2,013,100 5.4
February-11 $881,613 $2,088,060 5.1
March-11 $1,478,514 $2,421,609 7.3
April-11 $906,814 $2,412,354 4.5
May-11 $1,069,399 $2,618,155 4.9
June-11 $3,181,141 $2,866,157 13.3
July-11 $2,993,854 $3,367,676 10.7
August-11 $3,136,896 $3,691,196 10.2
September-11 $3,727,579 $3,160,295 14.2
October-11 $1,963,531 $3,477,543 6.8
November-11 $2,443,917 $3,756,958 7.8
December-11 $4,250,515 $3,951,636 12.9
January-12 $3,198,319 $3,118,958 12.3
Table 24: Monthly Inventory Turnover
Figure 53: Monthly Cost of goods sold vs Average Inventory

15. Page 76 of 19
Return on Investment Capital
Five years Projected ROI
Year 2011 2012 2013 2014 2015 2016
Assets:
CurrentAssets
Cash $173,100 $95,738 $331,217 $1,176,148 $1,111,766 $1,127,500
Accounts receivable $43,056 $202,916 $335,060 $749,869 $975,028 $1,084,627
Professional Membership $42,500 $42,500 $60,500 $72,505 $75,218 $86,020
Long Term Assets:
Furniture/Fixture $35,000 $24,650 $60,661 $106,614 $106,614 $106,614
Software / Hardware $56,000 $61,000 $66,000 $71,000 $94,000 $105,000
Investment $91,000 $85,650 $126,661 $177,614 $200,614 $211,614
Accumulated Depreciation:
Furniture ($7,000) ($14,800) ($23,400) ($32,800) ($43,000) ($54,000)
Software / Hardware ($11,200) ($44,400) ($57,600) ($68,800) ($80,000) ($56,000)
Total Assets $331,456 $367,604 $772,438 $2,074,536 $2,239,626 $2,399,761
Liabilities:
Accounts payable $30,056 $25,016 $32,115 $50,285 $160,152 $215,025
Long term liabilities
Bank Loanpayable $180,000 $325,000 $450,000 $1,500,000 $1,000,000 $500,000
Commissions payable $0
Total Liabilities $210,056 $350,016 $482,115 $1,550,285 $1,160,152 $715,025
Owner's equity:
Retained earnings $121,400 $17,588 $290,323 $524,251 $1,079,474 $1,684,736
Total Liabilities+ Owner's equi $331,456 $367,604 $772,438 $2,074,536 $2,239,626 $2,399,761
ROI 33% -79% 129% 195% 438% 696%

16. Page 141 of 19
Breakeven Analysis
Breakeven point is achieved at Q1 2013. As per break even analysis graph,LSC generates enough
revenue after getting six customers by Q1 2013. The company will start making profit in the second
quarter of the year 2013.
Year 2012 2013 2014 2015 2016
Fixed Cost $396,500 $397,380 $398,961 $399,561 $402,995
Variable Cost $117,313 $319,885 $589,185 $697,762 $1,021,834
Total Revenue $ 410,000 $ 990,000 $ 1,300,050 $ 1,890,500 $ 2,356,000
# of Customers 3 7 11 35 60
Five years ProjectedROI
Year 2011 2012 2013 2014 2015 2016
Assets:
CurrentAssets
Cash $173,100 $95,738 $331,217 $1,176,148 $1,111,766 $1,127,500
Accounts receivable $43,056 $202,916 $335,060 $749,869 $975,028 $1,084,627
Professional Membership $42,500 $42,500 $60,500 $72,505 $75,218 $86,020
Long TermAssets:
Furniture/Fixture $35,000 $24,650 $60,661 $106,614 $106,614 $106,614
Software /Hardware $56,000 $61,000 $66,000 $71,000 $94,000 $105,000
Investment $91,000 $85,650 $126,661 $177,614 $200,614 $211,614
Accumulated Depreciation:
Furniture ($7,000) ($14,800) ($23,400) ($32,800) ($43,000) ($54,000)
Software /Hardware ($11,200) ($44,400) ($57,600) ($68,800) ($80,000) ($56,000)
TotalAssets $331,456 $367,604 $772,438 $2,074,536 $2,239,626 $2,399,761
Liabilities:
Accounts payable $30,056 $25,016 $32,115 $50,285 $160,152 $215,025
Long termliabilities
Bank Loanpayable $180,000 $325,000 $450,000 $1,500,000 $1,000,000 $500,000
Commissions payable $0
Total Liabilities $210,056 $350,016 $482,115 $1,550,285 $1,160,152 $715,025
Owner's equity:
Retained earnings $121,400 $17,588 $290,323 $524,251 $1,079,474 $1,684,736
Total Liabilities+Owner'sequi $331,456 $367,604 $772,438 $2,074,536 $2,239,626 $2,399,761
ROI 33% -79% 129% 195% 438% 696%
Table 28: 5 years projected Profit & Loss and Forecasted Revenue generation statement

17. Page 142 of 19
:
Balance Sheet
We expect to have a positive cash flow after 4 quarters. During the first four quarters ( in year 2012) LSC
require a cash investment of $850 thousand dollars.
Five years Projected Balance Sheet
Year 2011 2012 2013 2014 2015 2016
Assets:
Current Assets
Cash $173,100 $95,738 $331,217 $1,176,148 $1,111,766 $1,127,500
Accounts receivable $43,056 $202,916 $335,060 $749,869 $975,028 $1,084,627
Professional Membership $42,500 $42,500 $60,500 $72,505 $75,218 $86,020
Long Term Assets:
Furniture/Fixture $35,000 $24,650 $60,661 $106,614 $106,614 $106,614
Software / Hardware $56,000 $61,000 $66,000 $71,000 $94,000 $105,000
Accumulated Depreciation:
Furniture ($7,000) ($14,800) ($23,400) ($32,800) ($43,000) ($54,000)
Software / Hardware ($11,200) ($44,400) ($57,600) ($68,800) ($80,000) ($56,000)
Total Assets $331,456 $367,604 $772,438 $2,074,536 $2,239,626 $2,399,761
Liabilities:
Accounts payable $30,056 $25,016 $32,115 $50,285 $160,152 $215,025
Long term liabilities
Bank Loan payable $180,000 $325,000 $450,000 $1,500,000 $1,000,000 $500,000
Commissions payable $0
Total Liabilities $210,056 $350,016 $482,115 $1,550,285 $1,160,152 $715,025
Owner's equity:
Retained earnings $121,400 $17,588 $290,323 $524,251 $1,079,474 $1,684,736
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
($100,000)
Cost
Revenue
Profit
Quarter of Year
Q1‐
Q2‐
Q3‐
Q4‐
Q1‐
Q2‐
Q3‐
Q4‐
Q1‐
Q2‐
Q3‐
Q4‐
Q1‐
Q2‐
Q3‐
Q4‐
Q1‐
Q2‐
Q3‐
Q4‐16

18. Page 143 of 19
Total Liabilities+ Owner's equity $331,456 $367,604 $772,438 $2,074,536 $2,239,626 $2,399,761
Table 29: Five year Projected Balance sheet
5.1 Income Statement Five years Projected Income statement:
5 Years Projected Income statement
5 years Projected IncomeStatement
Period Ended (Year) 2011 2012 2013 2014 2015 2016
Revenue:
ServiceRevenue $112,500 $307,500 $520,000 $ 980,245 $1,417,875 $1,767,000
Training Charges $ 37,500 $102,500 $247,500 $ 325,013 $ 472,625 $ 589,000
Total Revenue $150,000 $410,000 $990,000 $1,300,050 $1,890,500 $2,356,000
Selling Expenses:
Sales commission $ 4,500 $ 9,000 $ 16,500 $ 52,500 $ 90,000
Office Staff $ 35,000 $ 90,000 $ 150,000 $ 200,000
Marketing/ Advertising
Expenses $ 150,000 $ 160,000 $ 170,000
TechnicalStaff $150,000 $ 160,000 $ 180,000 $ 220,000
TravelExpense $ 18,000 $ 18,360 $ 18,911 $ 19,478 $ 224,000
General and Admin:
Officer's FixedSalary $175,000 $380,000 $380,000 $ 380,000 $ 380,000 $ 380,000
Interest Expenses $ - $ - $ - $ - $ - $ -
Software $ 1,000 $ 8,000 $ 8,160 $ 8,405 $ 8,657 $ 8,917
Depreciation Expense $ 18,200 $ 41,000 $ 48,000 $ 48,000 $ 50,000 $ 52,000
Other overheads $ 1,000 $ 20,000 $ 20,000 $ 21,012 $ 21,642 $ 22,292
Utilities $ 2,000 $ 12,000 $ 12,240 $ 12,607 $ 12,985 $ 13,375
Janitorial $ 1,500 $ 2,500 $ 3,100 $ 4,253 $ 4,411 $ 5,573
Rent $ 3,000 $ 14,000 $ 14,280 $ 14,708 $ 15,150 $ 17,422
TotalExpenses $201,700 $500,000 $698,140 $ 924,396 $1,054,823 $1,403,579
Net Income before taxes $ (51,700) $ (90,000) $291,860 $ 375,654 $ 835,677 $ 952,421
Income Tax $ - $ - $ - $ 93,914 $ 250,703 $ 333,347
Net Income / (Loss) $ (51,700) $ (90,000) $291,860 $ 281,741 $ 584,974 $ 619,074

19. Page 144 of 19
5 years Projected Income statement