Reference no: EM132235971
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Supply Chain Techniques Applied to Six Sigma Saves SeaDek Marine Products $250,000
Supply chain management can have profound effects on quality when it goes awry. It can affect product quality, on-time delivery, and customer satisfaction. Proper supply chain management can reduce material and storage costs while ensuring adequate material is always available for production. Opportunities for cost reduction can be found in many areas, primarily ones lacking proper lines of communication or basic inventory control.
Dustin Emanis, who was at the time quality manager at SeaDek, saw an opportunity to apply supply chain management techniques at the recreational marine industry manufacturer. Using existing inventory numbers, the history of material was statistically analyzed to see what was trending and what was not.
With this data, a method for forecasting demand was created, allowing greater confidence in processing larger orders over longer periods of time. Suppliers can then establish a longer term economic production quantity (EPQ). For suppliers, an EPQ is the quantity at which goods can be produced the most efficiently, allowing for lower costs. The EPQ reduces equipment changeover times, cleaning/maintenance costs, etc. The discounts led to a 9 percent reduction in materials cost for the year 2015.
About SeaDek Marine Products
Founded in 2004, SeaDek Marine Products is a custom and stock marine non-skid products manufacturer based in Rockledge, FL, that serves original equipment manufacturer (OEM) boat builders and the aftermarket. SeaDek produces unique, customizable flooring for use in recreational and commercial vessels, and is sold as an alternative to indoor/outdoor carpet and molded-in non-skid fiberglass. The primary material ordered are sheets of ethyl-vinyl acetate (EVA) foam. The sheets come in a variety of colors and thicknesses. Approximately 25different colors are available in five different thicknesses. The sheets are typically laminated with a top color over a bottom, contrasting color. The bottom color is revealed via CNC routing, which is a cutting machine. This routing is what allows for the computer-aided designed logos and slogans that customers love. An inventory of each color and thickness must be maintained independently from the other (e.g., the number of black 3 millimeter (mm) sheets has no bearing on the number of blue 5 mm sheets). SeaDek is a custom, made-to order product and the color combinations theoretically occur randomly. Having experienced 45-55 percent year-over-year growth for the past five years, SeaDek’s rapid expansion brought significant challenges with regards to inventory. Many OEMs were changing the way they built boats to better accommodate SeaDek, and unprecedented acceptance of the product by customers complicated forecasting, hindering effective materials planning Why Quality?
At the end of 2014, Emanis sought root causes to the on-time delivery rate of 44 percent. It was determined a methodological process to forecast demand for the multiple colors and thicknesses of material available was sparse. Stockouts and late deliveries were common for many materials, especially with the company’s astronomical growth. That same year, the company relocated from a 17,000 square foot building to a 72,000 square foot manufacturing facility, further adding to their growing pains with the immense amount of resources devoted to completing the move. In addition to the challenges of the move and limited warehouse space at their previous facility, OEMs and SeaDek certified fabricators were experiencing difficulties forecasting demand, with fabricators facing the challenges of planning for a made-to-order custom product with shifting popularity in colors.
In 2014, there were 14 major stockouts of primary material causing late orders and leading to emergency material orders to fulfill the customer orders. These emergency orders were 250 percent more expensive than normal ordering costs.
As a small business experiencing rapid growth, the struggles of handling the stockouts and late order fulfillments were handled in a reactionary manner to focus on keeping the production lines running and maintaining relationships with customers. The problem was seen by top management as a frustration and symptom of rapid growth, however they realized it was not an unavoidable cost. It was obvious to top management to avoid over-stock of certain inventory, and the primary challenge was determining what to order and how much. Predicting which color would be trendy for each season could be difficult. A bad scenario would be to have a warehouse full of colors that the customer would not want for that year, only to have stockouts for the colors customers actually wanted. Upper management knew Six Sigma could help, and sent Emanis to an ASQ Lean Six Sigma Green Belt training course, which resulted in Emanis becoming certified. He immediately sought ways to utilize the newly acquired knowledge and certification. Given the root cause analysis of on-time deliveries in 2014, the chief executive officer Kurt Wilson, chief operating officer Serenity Gardner, and Emanis focused on inventory control as an application of Six Sigma. If the team could garner control of the stockouts taking place, then it could fix the late orders and avoid the costs of emergency orders.
SeaDek’s Quality Journey
The project started in January 2015 and continued through September 2015. The methods and techniques used overlapped heavily with the techniques of supply chain management, but were applied using the define, measure, analyze, improve, control (DMAIC) approach. The team drew up a project charter, a supplier, input, process, output, customer (SIPOC) diagram, and more to show the goals, timelines, and the interaction of processes. In addition to traditional DMAIC tools, the team used: • Inventory sawtooth diagrams to reflect inventory trends • Inventory forecasting via moving averages and incorporating anticipated growth • Weighted absolute percentage error (WAPE) analysis to measure forecasting error • Safety stock and reorder points to determine a justifiable inventory level and how often orders should be placed • Cycle counts to gauge the accuracy of our inventory models and levels Gardner assigned Emanis and inventory control specialist Brian Grooms to complete the project. The team began by examining the inventory levels for each color and thickness of material from 2014. That was it. The pair deemed they could not solely rely on data prior to 2014 as it was too sporadic and inconsistent. As the team plotted the data in sawtooth diagrams, it immediately became apparent that seasonal trends were causing multiple stockouts. A sawtooth diagram is useful because it can summarize massive amounts of data in an Excel spreadsheet into a single chart showing the consumption and replenishment of inventory levels. They also allow for a visual identification of patterns as well as a comparison of actual inventory levels against a forecast.
Overall, the team found 14 stockouts in 2014. This was a major issue, as each one of these stockouts represented an emergency order of material at a higher cost and probable late customer deliveries. As can be seen in Figure 1 on the next page, there were three stockouts of black 3 mm material in 2014; one at the end of January and two at the end of the year. It follows a classic “bullwhip effect” of running low on material, then ordering too much, only to crash again later in the year. The team then took the data from 2014 and performed a moving average calculation to determine, quarterly, the volume of material moved by color and thickness per day. This data was used to apply an estimated growth value, for instance, if 100 sheets were used per day in first quarter 2014, then we assumed at 40 percent growth, that 140 sheets per day would be used during the same period in 2015. The 40 percent growth number was derived from revenue data from the past few years and through discussions with the sales department as to whether the trend would continue (actual growth turned out to be slightly higher than 40 percent in 2015). As seen in Figure 2 on the next page, the inventory levels for the year were adjusted to ensure adequate 3 mm black material would be available without stockouts in 2015. Trending data was derived from the moving average with assumed growth added. The moving average data with growth was plotted in a sawtooth diagram to the assumed inventory levels throughout the course of 2015. Once the first quarter of 2015 was completed, the team felt confident its models were highly accurate for the materials that were used the most. There was a less than 5 percent error found in the WAPE analysis. Considering this was their first attempt, they were pleased with the results and proceeded to set up a safety stock and reorder point for each color and thickness of material. As seen in Figure 3, the inventory levels of the year were plotted against the calculated safety stock and reorder points. They continued monitoring throughout the year, adjusting the forecast as necessary via the WAPE analysis and began in the second quarter of 2015 to order material based upon the projection charts.
As seen in Figure 4, the actual inventory levels of the year were tracked against the forecast levels to determine the accuracy of the forecasts. If a sufficiently large deviation was detected (as found via WAPE analysis), then corrective action would be undertaken to determine the root cause of variation from the forecast.
Results
The results of this project were highly satisfactory. The number of stockouts decreased from 14 major in 2014 to one minor in 2015. The lone stockout was deemed “minor” as it did not cause any late orders. On-time delivery data increased from 44 percent in 2014 to more than 95 percent in 2015. This was due to the success of the project, as well as increases in personnel and production capacity, and exceeded all original project objectives. There were further gains from this project. In addition to a demand-driven increase in purchasing volumes, inventory needs could be forecasted with greater accuracy, and the company could discuss larger quantities of materials more confidently with its suppliers. This allowed the supplier to apply EPQ principles to lower material costs for SeaDek by 9 percent, saving an estimated $250,000 in 2015. Enhanced communication also improved the delivery schedule of the supplier, allowing for the maintenance of lower safety stock levels at higher production volumes. The savings are expected to continue through 2016.
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