Logistics project: Diagnostic

Before the diagnostic:

• Choose an obvious problem within an existing process

• Choose something that would make a difference but would not be overly complex to address
(“meaningful but manageable”)
• Make sure there is potential to reduce lead time or defects while resulting in cost savings or
improved productivity
• Check if you can collect data about the selected process—you want to
achieve measurable improvement

1. Define the Scope of Diagnosis

➢ Which area of logistics? (Warehousing, transportation, inventory management,

sustainability)
➢ What is the goal? (Reducing costs, improving efficiency, increasing sustainability, etc.)
➢ Which company? (Retail, manufacturing, e-commerce, healthcare, etc.)

2. Gather Data from the Company

Methods:

• Interviews: Speak with supply chain managers, warehouse staff, and logistics teams.
• Surveys & Questionnaires: Collect insights from employees and customers.
• Site Visits: Observe operations in warehouses, distribution centers, and transport hubs.
• Company Reports & Documents: Analyze sales reports, supplier contracts, and operational
KPIs.
• Publicly Available Data: Use company websites, industry reports, and government logistics
data.

3. Identify Key Performance Indicators (KPIs)

Measure company performance using industry-standard KPIs, such as:

• Warehousing Efficiency: Inventory turnover, space utilization, order picking accuracy

• Transportation Performance: Delivery times, cost per shipment, fuel efficiency
• Customer Service Metrics: On-time delivery rate, return rates, customer satisfaction scores
• Supply Chain Agility: Lead times, response to demand fluctuations, supplier reliability
• Cost Efficiency: Logistics costs as a percentage of sales, cost per unit shipped

4. Use Diagnostic Tools & Techniques

Analytical tools to identify inefficiencies and bottlenecks:

 • SWOT Analysis – Evaluate the company’s logistics strategy.
• Lean & Six Sigma Tools – Identify waste and process inefficiencies in logistics.
• Value Stream Mapping – Visualize how products and information flow through the supply
chain.
• Benchmarking – Compare the company’s logistics performance against competitors or
industry best practices.
• ABC Analysis – Prioritize inventory items based on their value and demand patterns.
• DMAIC Methodology (Define, Measure, Analyze, Improve, Control) – A structured Six Sigma
approach to solving logistics inefficiencies:
• SCOR Model – Assess supply chain performance across five areas: Plan, Source, Make,
Deliver, and Return.

5. Analyze Findings & Identify Bottlenecks

After gathering data, students should:

• Identify patterns & inefficiencies (e.g., high transportation costs, delays, stockouts).
• Find pain points (e.g., supplier delays, excessive returns, poor warehouse layout).
• Compare with industry benchmarks to see how the company performs relative to
competitors.

6. Propose Solutions & Recommendations

Based on their analysis, students should develop realistic and actionable recommendations, such as:

• For Warehousing: Implement warehouse automation (RFID, robotics, WMS), optimize

storage layout.
• For Transportation: Use route optimization software, shift to eco-friendly delivery vehicles.
• For Inventory Management: Apply Just-in-Time (JIT) inventory, demand forecasting models.
• For Sustainability: Adopt green packaging, use electric or hybrid transport.

Each recommendation should include cost-benefit analysis and potential implementation challenges.

7. Present the Findings to the Company

a professional report and presentation including:

• Executive Summary – Briefly outline key findings and recommendations.

• Diagnostic Findings – Present data analysis and bottlenecks.
• Proposed Solutions – Explain improvement strategies.
• Implementation Plan – Roadmap for short-term and long-term changes.

create visuals such as:

• Charts & graphs for KPIs

• Supply chain maps
• Process flow diagrams
 Lean & Six Sigma Tools
Lean principle

Lean manufacturing is a systematic approach to minimizing waste and maximizing productivity in

manufacturing processes. It focuses on creating more value for customers with fewer resources by
eliminating activities that do not add value to the final product. Lean manufacturing principles
originated from the Toyota Production System and have since been adopted by many industries
worldwide.

Six sigma

Six Sigma is a data-driven methodology used by organizations to improve processes and reduce
defects. Originating from Motorola in the 1980s and popularized by General Electric, Six Sigma aims to
achieve near-perfect quality by minimizing variability and enhancing efficiency. Six Sigma
methodologies are widely used across industries to enhance customer satisfaction, increase
profitability, and drive continuous improvement.

➔ Lean Six Sigma

Lean and Six Sigma are two powerful methodologies that, when combined, create Lean Six Sigma – a
comprehensive approach to process improvement. Lean focuses on eliminating waste and increasing
efficiency by streamlining processes, while Six Sigma aims to reduce defects and variations in
processes to improve quality and consistency. By integrating the principles of both Lean and Six Sigma,
organizations can achieve significant improvements in operational performance, customer satisfaction,
and profitability. Lean Six Sigma emphasizes the importance of data-driven decision-making,
continuous improvement, and a customer-centric approach, making it a highly effective strategy for
organizations looking to optimize their processes and drive sustainable growth.

Lean Six Sigma Principles

1. Focus on the Customer – Prioritize customer needs and expectations to improve quality,
reduce waste, and enhance satisfaction. Gather feedback and use data to make informed
improvements.
2. Map the Value Stream – Visualize every step in the process to identify inefficiencies. This helps
eliminate waste and streamline operations for better productivity.
3. Remove Waste for Better Flow – Identify and eliminate unnecessary activities (e.g., delays,
excess inventory, defects) to improve efficiency and reduce lead times.
4. Effective Team Communication – Clear and open communication ensures alignment, better
collaboration, and quicker problem-solving within teams.
5. Create a culture of change and flexibility – Foster a culture of continuous improvement where
employees adapt to new processes, making the organization more efficient and competitive.

The most popular Lean Six Sigma tools and techniques

Various Lean Six Sigma tools and techniques are widely used for process improvement. From the
versatile DMAIC (Define, Measure, Analyze, Improve, Control) framework to the powerful fishbone
diagram (Ishikawa) for root cause analysis, these tools play a crucial role in streamlining operations
and enhancing quality.
 Value stream mapping (VSM)

A value stream map illustrates the flow of materials and information from supplier to customer. Value
stream mapping (VSM) is a lean manufacturing technique used to analyze, design, and manage the
flow of materials and information required to bring a product to a customer. VSM helps identify waste
and streamline the production process.

Value stream maps are most commonly used in

lean manufacturing, but identifying the value
stream—the sequence of activities required to
design, produce, or provide goods and services
to customers—is a beneficial practice for any
company in any industry. Value stream maps
are used in healthcare, software development,
supply chain logistics, even government and
service industries. Regardless of industry, the
main goal of a value stream map is to visually
record information such as:

• Work and wait times along each step in a

process

• Labor needs at individual work steps,

including the identification of overtime, if
necessary

• Error rates at individual work steps

• Downtime at individual work steps

• Inventory excess or shortfall

• Production or process delays

How to Make a Value Stream Map

Start by mapping the current state. This map illustrates working on and completing a specific product
(or project). View it as a high-level look at the flow of work for that project.

There is no single way to create a value stream map but there are generally six steps to follow. What
we are after is current information, not historical data.

1. Identify the product or process. That is, what is it that you wish to map? If multiple products
are involved, you may want to start with those with the highest value, volume, or potential.

2. Define the scope of the mapping project. Most value stream maps follow the production
process from supplier to customer. Some map the supply chain, which would continue
upstream to raw materials.

3. Map the process steps. This may take some time and will certainly require "working the floor."
Some document the process from customer back to supplier, others go from start to finish. We
are not breaking down tasks; these are the major steps in the operations performed on the
product.

4. Include information flow. How does communication flow during the order, production, and
delivery steps?

5. Collect process data. This will require some effort to develop a clear understanding of
important aspects of each step in the process. Some of the data needed may include:

• Inventory
• Cycle time (how long it takes to make one unit of product)
• Actual work time versus unused/wait time (including number of operators, shifts)
• Machine uptime and downtime
• Unnecessary movement (of items, material, and workers)

6. Create a time line. This information tells us about total process time, inventory demands, and
total lead time. This usually shows how lead times may be considerably longer than processing
times, indicating how much waste exists in the system.
Evaluation of the Current State and Creating the Ideal State Map

The current state map provides a starting point for applying lean principles to improve the system. This
may involve:

• Reducing excess inventory

• Improving cycle time
• Reducing equipment downtime
• Improving quality, reducing errors, and focusing on delivering what the customer wants when
they want it

Once the desired improvements are identified, create the ideal state VSM. Identify improvement areas
by using the kaizen burst symbol on the map.

Benchmarking
Benchmarking is a systematic process where a business measures its success against competitors to
discover how to improve performance. The goal is to identify gaps, learn from the best, and make
necessary improvements to achieve superior performance.

In benchmarking, businesses compare metrics, processes, and practices to industry leaders,

competitors, and other organizations⁠—gaining an understanding of where they excel and where they
lag. The goal is to not just mimic successful growth strategies, but to adapt and innovate based on these
insights, ultimately enhancing their own performance.

Types of benchmarking

Benchmarking can be approached in various ways, each with its unique focus and benefits.

Internal benchmarking: Internal benchmarking involves comparing business processes and

performance data within an organization. It's often the first step in benchmarking as it helps identify
the best practices within the company. This type of benchmarking is particularly useful for large
organizations with several departments performing similar tasks. It allows for the sharing of best
practices and promotes consistency across the organization.

External benchmarking: External benchmarking, on the other hand, involves comparing a company's
performance with companies outside its industry. This can provide fresh insights and innovative
strategies that may not be found within the industry. It broadens the perspective and can lead to the
adoption of new methodologies and practices that can significantly improve performance.

Competitive benchmarking: Competitive benchmarking involves a company comparing its

performance against its direct competitors. This type of benchmarking is crucial for understanding a
company's position in the market. It helps to identify strengths to be leveraged and weaknesses to be
improved upon, providing a clear direction for strategic planning.

Process benchmarking: Process benchmarking focuses on a business's specific processes. The aim is to
compare these processes with those of industry leaders to identify areas for improvement. It's about
understanding the 'how' behind the success of top-performing companies and adapting their methods
to improve one's own processes.
Strategic benchmarking: Strategic benchmarking involves the examination of how successful
companies operate on a broader scale. It's about understanding their overall business strategies and
how they drive success. This type of benchmarking can provide valuable insights into long-term
strategies that have proven successful in the industry.

Performance benchmarking: Performance Benchmarking involves a company's tracking of key

performance indicators (KPIs) such as email sign-ups, conversion rates, or customer retention rates
over time. This allows businesses to compare their current performance against their own historical
data, providing a clear picture of their progress.

Technical benchmarking: Technical benchmarking is used when a company wants to compare its
technical products, processes, or services against the best in the field. This type of benchmarking is
common in industries where technology plays a crucial role. It helps companies stay up-to-date with
the latest technological advancements and maintain a competitive edge in the market.

Benefits of benchmarking

In an increasingly competitive market, benchmarking can provide valuable insights that can drive
strategic decisions and foster continuous improvement.

Specifically, it can help:

• Plan and set goals: By providing a clear picture of a business's current standing, benchmarking
informs strategic planning and facilitates the setting of realistic, data-driven goals.

• Improve procedural inefficiencies: Benchmarking can help identify procedural inefficiencies

that might be hard to spot, providing a clear path for operational improvements.

• Reduce operating costs: Benchmarking identifies areas where costs can be reduced without
compromising on quality or performance, leading to significant savings and improved
profitability.

• Understand your competitive advantage: By benchmarking against competitors, businesses

can understand and leverage their unique strengths, differentiating themselves in the market.

• Encourage innovation: Exposure to new business ideas, processes, and practices through
benchmarking can spark innovation, inspiring businesses to think creatively and develop
unique solutions.

Benchmarking process

The benchmarking process helps businesses compare their performance against industry standards or
competitors to identify areas for improvement. It typically involves five key steps:

1. Planning – Define what to benchmark (e.g., process efficiency, KPIs) and identify suitable
comparison sources (competitors, industry leaders, or past performance).
2. Data Collection – Gather relevant performance data using analytics tools, tracking software,
or competitor insights.
3. Analysis – Compare collected data to benchmarks to identify gaps, trends, and areas needing
improvement.
4. Action – Implement necessary changes, such as process enhancements, technology
upgrades, or staff training, based on analysis findings.
5. Monitoring – Continuously track performance metrics to assess the impact of changes and
ensure ongoing improvements.
 ABC Analysis
ABC analysis is a strategic approach within inventory management that sorts inventory items into three
distinct categories based on their value and sales frequency. ABC analysis method is pivotal for efficient
inventory control and optimizing the use of resources in supply chain management.

Each category demands different management strategies. Due to their high value, Class A items might
require more robust security and accurate records, whereas Class C items may benefit from streamlined
checkout processes and frequent restocking to handle high turnover rates.

• Class A: These are typically your most expensive items, requiring significant investment but
selling slower than others. Examples include luxury cars in automotive manufacturers or high-
end electronics in retail locations.

• Class B: These items don’t require as much capital as Class A items and sell more frequently,
i.e., Moderate-value items with moderate frequency of sales. An example would be furniture
in a home goods store or branded apparel in a fashion outlet.

• Class C: Often inexpensive but with a high frequency of sales. They are crucial for maintaining
steady cash flow and customer satisfaction. Common examples include office supplies in
enterprise resource planning or grocery items in supermarkets.

By understanding and implementing ABC analysis, businesses can better manage inventory costs,
improve cash flow, and enhance customer satisfaction. This method is adaptable across various
industries, making it a versatile tool in the inventory management system.

Importance of ABC Analysis in Inventory Management

ABC analysis is an essential tool in inventory management, allowing businesses to streamline

operations and enhance financial efficiency. This segmentation aids in critical decision-making across
various aspects of the supply chain.

Optimize Stock Levels: ABC analysis helps in optimizing stock levels. By identifying Class A items,
businesses can ensure that capital is not tied up in excess inventory that moves slowly. This is crucial
for managing cash flow effectively.

Conversely, Class C items, though less costly, are high in demand and require frequent replenishment
to prevent stockouts that could lead to lost sales and dissatisfied customers. This strategic approach to
categorizing stock helps maintain the right balance, ensuring that resources are allocated efficiently
and stock levels are adjusted to meet customer demand.

Improve Order Prioritization: Implementing ABC analysis improves order prioritization. It enables
inventory managers to focus their efforts and resources on managing Class A items more closely due
to their high value and lower sales volume.

This prioritization helps in minimizing holding costs and optimizing safety stock levels. For Class B and
C items, strategies can be adjusted to ensure a smooth supply chain flow without over-investing in
inventory control efforts.

Enhance Supply Chain Efficiency: ABC analysis also enhances supply chain efficiency. By understanding
which items require more attention and resources, companies can make more informed decisions
about purchasing, restocking, and resource allocation. This leads to more efficient operations and can
significantly reduce waste and inefficiency in the supply chain.
For instance, high-value items (Class A) may require more robust relationships with fewer, more reliable
suppliers to ensure quality and availability, while Class C items might benefit from more flexible
sourcing strategies due to their higher turnover rate and lower impact on cash flow.

ABC Analysis Implementation:

1. Data Collection – Gather inventory data, including item costs, sales frequency, and annual
usage value. Reliable data is essential for accurate classification.

2. Inventory Classification – Use the Pareto Principle (80/20 Rule) to group inventory:
• Class A: High-value, low-quantity items (≈80% of total value, 20% of stock).
• Class B: Moderate value and frequency.
• Class C: Low-cost, high-volume items.

3. Strategy Development – Apply different management strategies:

• Class A: Tight control, accurate demand forecasting, and secure storage.
• Class B: Balanced monitoring and inventory reviews.
• Class C: Streamlined procurement and frequent replenishment.

4. Implementation & Monitoring – Apply the strategies and track performance. Adjust as
needed to adapt to demand fluctuations and market conditions.

This method improves stock control, reduces costs, and enhances efficiency, ensuring better resource
allocation and customer satisfaction.
 DMAIC Methodology (Define, Measure, Analyze, Improve, Control)

DMAIC is a data-driven quality strategy used to

improve processes. It is an integral part of a Lean Six
Sigma initiative.
Today, DMAIC remains a popular and widely used
methodology for process improvement, not only
within the Six Sigma context but also in other quality
management and continuous improvement initiatives
including lean manufacturing and project
management. It has been applied across a range of
industries, including manufacturing, healthcare,
finance, and services, with the aim of achieving
operational excellence and delivering value to
customers.

The Five Phases of DMAIC

Define Phase – Establishes the project’s goals, scope, and objectives, ensuring alignment with
organizational priorities. This phase includes defining the project charter, identifying stakeholders,
understanding customer needs, and setting improvement targets.

Measure Phase – Focuses on collecting data to assess the current state of the process. Key
performance indicators (KPIs) are determined, and data collection plans are created. The gathered data
is analyzed to quantify performance and highlight areas for improvement.

Analyze Phase – Examines the collected data to identify root causes of inefficiencies and process
variations. Tools like statistical analysis, cause-and-effect diagrams, and process mapping help uncover
critical factors affecting performance. The goal is to pinpoint the main issues that need resolution.

Improve Phase – Develops and implements solutions to address identified problems. Potential
improvements are evaluated and tested on a smaller scale before full deployment. The focus is on
achieving measurable enhancements in key process metrics.

Control Phase – Ensures that improvements are sustained over time. Control plans define
monitoring activities, set performance benchmarks, and introduce necessary process controls.
Continuous tracking helps maintain stability and long-term success.