Solving Retail Problems Using Lean Six Sigma

About Accenture Process & Innovation Performance

The Accenture Process & Innovation Performance service line takes an end-to-end, process-based approach to address key business challenges such as complexity reduction, lean manufacturing and operations, process innovation, strategic cost reduction and growth through innovation, in order to create competitive advantage for clients globally. We help our clients become high-performance businesses by enhancing the internal capabilities needed to continuously improve operational and innovation performance. Accenture enhanced its longstanding operations and strategy expertise with the 2007 acquisition of George Group, a recognized market leader in process, operational and business transformation, and innovation strategy, whose capabilities and offerings form the foundation of this new service line.

The rise of Lean Six Sigma in retail

Lean Six Sigma (LSS) is a continuous improvement methodology that combines two of the most powerful improvement engines available to business today. Lean provides mechanisms for quickly and dramatically slashing lead times and waste in any process, anywhere in an organization. Six Sigma provides the tools and organizational guidelines that establish a foundation for sustained, data-based improvement in strategically important, customercritical targets. Today, Lean Six Sigma has grown beyond these problemsolving roots and now encompasses high-level analytical tools and deployment guidelines. These tools and guidelines give executives the means to establish and maintain strategy-to-execution links in their efforts to become high-performance businesses.

3. Leadership in Retail Lean Six Sigma Deployments to Achieve High Performance: An exploration into the necessary leadership roles and discussion of leadership support in successful LSS deployments.

Summary of first article

In the first article in this series, Applying Lean Six Sigma Principles in Retail Stores, we discussed how the robust problem-solving methodology of Lean Six Sigma (LSS) has been effectively adapted to many industries, including retail, despite Lean Six Sigmas start in traditional manufacturing and services industries. Proven by companies across industries, the flexibility of LSS and the DMAIC (define-measure-analyze-improvecontrol) methodology helps companies, including retailers, adjust to specific industry needs quite well. Based on Accentures experience, we believe LSS and DMAIC have achieved strong results in retail for a number of reasons. The use of LSS and DMAIC: Enables retailers to better define the problem. Retailers tend to list numerous issues but lose the focus on what measures are not performing at the right level. Oftentimes, companies cannot express what output measures will be different and/or quantify the improvement in the output measure. LSS also helps get to the process behind the problem. Maps and measures the process. Retail companies tend to miss the process aspects of everyday work and therefore miss the nonvalue-add aspects of the process. Mapping and measuring the process highlights the non-value add (waste) in the process. Identifies critical process factors that have the most influence on key output measures. LSS forces the team to identify the critical factors in the process that drives the performance of the output measure by using data analysis to replace experiential or reactionary methods. Addressing these critical factors is the best way to get step-change performance that is sustainable.

Helps ensure change will be sustainable through a control plan by identifying: 1) The process; 2) The critical process factors that should be monitored; 3) Methods to monitor them (for example, the more visual the better); 4) Standard state for the critical factors (in other words, how they should be performing to get the desired process performance); and 5) The response plan when the critical factors in the process are not performing to standard. Following these steps allows corrections to be made early in the process, before the output misses targets.

Lean Six Sigma in retail series

This series of three articles explores how LSS deployments designed specifically for retail can drive operational excellence throughout a company, from corporate offices to individual stores, and help retailers drive high performance. The series provides retail-specific insights gained in working with pioneering retailers deploying LSS. The articles in this series cover the following topics: 1. Applying Lean Six Sigma Principles in Retail Stores: A discussion of the specific challenges retail companies face and case examples highlighting what some retailers have done to overcome these challenges in applying LSS in stores. 2. Solving Retail Problems Using Lean Six Sigma: A look into solving simple to complex business problems using LSS tools and approaches.

Lean Six Sigma deployments designed specifically for the retail industry hold the potential to drive high performance for companies.
Lean Six Sigma (LSS) has long been applied in other industries to drive operational excellence. More recently, the retail industry is discovering ways to tailor this continuous improvement methodology to the industrys unique challenges to solve problems, execute methodical changes and make process-change decisions. By addressing the unique challenges of the industry as well as of store environments, LSS can drive high performance in retail as it has in other industries. Increasingly, retailers are applying LSS using a variety of tools to address problems with a wide range of scope, complexity and impact. From Kaizens to accelerated improvements to enterprisewide Black Belt projects, the LSS toolkit is large and diverse. This article discusses various approaches retailers can take to effectively solve problems on their journeys to high performance. Few retailers would dispute the unique nature and challenges of retailing. With Lean Six Sigma, different approaches drawing on a large toolkit can be applied to solve a diverse array of problems. If an issue affects all stores in the United States, for example, a solution may entail executing a project at the corporate level, but perhaps require implementing another approach using DMAIC (define-measure-analyzeimprove-control) methodology to address local or district concerns. In general, the use of LSS allows a concurrent top-down, middle-out and bottom-up approach to process improvement, creating a synergy of activities designed to satisfy customers, stakeholders and associates. Not only can LSS be applied to a wide range of problems, it also is flexible. The flexibility of LSS is demonstrated in the various ways in which the approaches can be used effectively in solving problems. Factors such as scope, available resources, time to complete, and complexity can all impact the overall project approach. Along with the ability to lead and influence a team, application of the appropriate approach differentiates the best LSS project leaders from the average. From the basic to complex, choice of LSS approaches is as much an art as it is a science. LSS projects use a disciplined approach not only through the DMAIC process, but also with strong project and change management applications to increase the probability of long-term success. Even with the most carefully crafted approaches and the best project management, the success of LSS projects also hinges on the people factor, specifically the ability of team members to unite. True problem solving becomes attainable the moment team members understand that even the most diverse areas of the business have similar issues and ways of thinking. Although people are creatures of habit, there are reasons they continue to perform in the same way. LSS approaches help bring entrenched issues to the forefront

LSS DMAIC Methodology

DMAIC (pronounced d-may-ick) is the incremental process improvement methodology of Lean Six Sigma. It is an acronym that stands for five interconnected phases: Define, Measure, Analyze, Improve and Control. Practitioners who use LSS follow the DMAIC process strictly to ensure the improvements are data-driven instead of led by conventional wisdom. The five phases of the methodology are: DefineWhat exactly is the problem? Identify and/or validate the improvement opportunity. MeasureWhat data do we have? Identify and collect critical metrics/data to demonstrate and understand the problem. AnalyzeWhat does the data tell us about how good (or bad) we and the primary drivers of the process are? Identify and validate that the true root causes are being addressed. ImproveWhat does the data tell us are the best possible solutions both from an impact standpoint as well as cost/ benefit? Identify, evaluate and select the right improvement solutions. ControlWhat do we put in place to ensure the problem stays fixed? Establish process controls and metrics so we dont have to solve the problem again next year.

where they can be resolved and remove the we vs. they mentality. Removing this mentality is required for fundamental process improvement. Both change management techniques and data analysis are powerful sets of tools that help build this necessary alignment of team members. During any project, project leaders must collect and use data appropriately to remove the possibility of decisions based on emotion or experiential anecdotes. In one case, accepted conventional wisdom drove different goals for each distribution center because the mix of product was different between centers. Over time, the centers met or slightly exceeded the established goals. During a Black Belt project, test runs and data analysis proved that despite the variety of products, all of the centers should perform similarlyand, in fact, at a higher rate than any of the centers were currently expected to perform. The vice president over the distribution centers raised the goals to the new rates and within six months every distribution center consistently met the new goals. With the many challenges in the retail environment, use of basic project management approaches to gain buy-in and consensus are also critical to project success in all projects, whether simple or complex. When the problem scope is straightforward and the risk of implementation is low, some basic approaches tend to be used successfully and quickly. Nevertheless, a question that often arises is: why does a simple project using a basic approach take three months to complete? The answer is: it does not, and probably should not, have to take three months with the appropriate LSS approach. The project duration is usually driven by the scope, complexity, project leaders experience and leadership, the strength of the LSS knowledge and the leadership support on the project.

LSS approaches to simple problems

Depending on scope, implementation risk and degree of complexity, some projects can be completed using an accelerated improvement approach. Accelerated improvement is often used within projects to drive faster completion of a particular phase or component (an example: value stream mapping). However, used properly, accelerated improvement can be used effectively to execute projects. The technique is straightforward, but requires strong facilitation skills and DMAIC knowledge, intense preparation and follow-up management. Characteristics of an accelerated improvement approach: A core team of six to eight crossfunctional representatives prepares the logistics, designs the agenda and determines the participants and pathway for the event. An accelerated improvementI event can work effectively with as many as 35 participants. The pathway consists of a series of questions designed to drive the group to quick understanding of the problem, leading to solution generation. Questions are answered by small breakout groups, and each group reports back its best answers to the overall team. The overall team then discusses each answer and determines the best next steps. Typically, solutions are not implemented during an accelerated improvement event; therefore, developing detailed follow-up action items with due dates and identifying ownership is imperative to success. The event is considered complete upon full implementation of the follow-up list and sign-off of the control plan. The accelerated improvement approach is very effective when used appropriately, but it is not always adequate. More complex projects require statistical analysis in addition to the basic tools to identify and solve the root cause or causes of problems.

As project complexity and scope increases, the accelerated improvement approach no longer becomes functional or effective. When project scope exceeds the accelerated improvement approach, but is still fairly narrow, a Kaizen is often the answer. Kaizen is often called accelerated DMAIC or DMAIC in a week. To be more precise, the event lasts for a week, but is preceded by one to two preparation weeks and followed by a 20-day follow-up period. The primary differences between accelerated improvement and Kaizen are scope, team size (accelerated improvement can have up to 35 members compared to six to eight in a Kaizen) and speed of implementation (accelerated improvement develops a future plan while a Kaizen takes immediate action). Characteristics of a Kaizen process: Kaizen events consist of three steps: planning, the event and follow-up. The one- to two-week planning phase requires a Kaizen leader not only to select the team and plan the necessary logistics, but to also complete the define phase and collect initial data for the event. The Kaizen event itself, which is typically five days in duration, completes the measure, analyze and improve phases of the DMAIC methodology. During the event, additional data is collected and analyzed, potential solutions are brainstormed and prioritized, and implementation of the best solutions is begun. As in all LSS work, a control plan is required. The plan is developed in the event along with a follow-up action plan for the solutions that were not completed during the week, and appropriate sign-off is obtained.

Accelerated improvement: Weekly insert process

A large US retailer determined the advertising portion of the weekly insert took 14 work days to create. The defect rate with its current process exceeded 90 percent resulting in extensive rework. Although the retailer never missed an insert, the process to meet printer deadlines was costly. After determining that more than 30 hand-offs were involved in the process of creating the insert, the Accenture team determined that the accelerated improvement approach was the most appropriate to help resolve the issues. Three major planning activities were necessary: determining the necessary team members, socializing the process and creating the agenda for the event itself. During the 12-hour session, 40 crossfunctional team members determined the as-is value stream map, the root causes of the process delays, the future state, and the steps and ownership needed to implement the improvement changes. The team implemented multiple solutions with the most important being a distinct timeline for each step in creating the insert, based on hard deadlines. The solutions were piloted in one class of product, and then implemented throughout the organization over the next few months. Once completed, the cycle time from the first touch by advertising was reduced to four days, and the defect rate decreased to less than 5 percent.

Kaizen: In-store cost reduction

A new store upgrade for high-scale products was implemented in a faster-than-normal pace in order to be first to market. After the project was complete, the team reviewed the new process and determined cost overruns of more than $500,000 per store were controllable. After determining the appropriate cross-functional team, the Kaizen team reviewed the construction process and each component of the new store design using LSS tools and the Kaizen focus on action. The construction process was reduced by two weeks by reducing process inefficiencies and timelines and improving communication between functions. Using voiceof-customer data from existing store upgrades, the team was also able to identify and eliminate wasteful pieces of the design that were not valued by customers. An example of this waste reduction was the elimination of wood paneling in the storage area (the initial plan created matching wood paneling for all areas of the display). Over the course of the week, the team discovered more than 30 unnecessary components of the original design. They created a new construction process and timeline resulting in more than $5 million in annual savings and increased margin from earlier store upgrade openings. Through this project, Accenture helped demonstrate how LSS can help drive high performance.
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LSS approaches to complex problems

A combination of accelerated improvement and Kaizen often prove to be quite effective in solving a number of problems. So why not use them to solve every problem? The answer is that these methods should be used when practical, particularly in stores because of the relative short time requirements for team members. However, not every problem fits the faster methods of accelerated improvement and Kaizen and instead requires Green Belt- or Black Belt-level analysis to solve. When the scope, complexity and/or difficulty of obtaining buy-in from key stakeholders increases, accelerated improvement and Kaizen methods are not as effective. In most LSS deployments, the primary vehicle for problem solving is Green Belt and Black Belt project approaches. Projects at these levels use DMAIC in a methodical, analytical approach to determine the best possible solution or solutions. Where accelerated improvement and Kaizen use some data to help drive solutions, the necessary discipline is less than typical Green Belt or Black Belt projects. The quick improvements identified in Kaizens are intended for action and typically based on directional data or tribal knowledge, targeting 80 percent confidence. Green Belt and Black Belt projects require more detailed analysis and target decisions with a much more stringent confidence level of 95 percent. Green Belt and Black Belt projects are the necessary approach for more complex and higher risk problems. The project timelines vary tremendously due to scope, experience level, leadership support, data availability and other reasons, but a typical expectation is three to six months for Black Belt projects and two to four months for Green Belt projects. The primary differences between Green Belt and Black Belt project leaders are the level of training, depth of knowledge and scope of projects. Black

Belts are most effective when the role is a full-time process improvement position in the organization. They receive four or five weeks of deep DMAIC theory and application training, and can lead large, complex, crossfunctional projects with coaching from more experienced, certified Master Black Belts. The Green Belt typically gets two weeks of training that provides enough knowledge to complete focused, single functional projects with coaching support from either a Master Black Belt or a Black Belt. Retail executives often ask how Green Belt/Black Belt projects in stores can be completed when they require resources for three to eight months to finish. Gaining traction in stores is difficult with the traditional approach to LSS projects due to not only tight labor constraints, which does not allow associates time away to work on long-term improvement efforts, but also turnover at the store level that makes a sustainable team difficult to design. One solution is the project accelerator (PA), a new model for DMAIC projects. Project accelerator is an intensive one-to-two-day event designed to complete an entire phase of DMAIC or to complete a complex task (such as value stream mapping). A complex LSS project in the store can be completed in the original or possibly shorter timeline by a combination of project accelerator and research/ planning. Characteristics of the project accelerator method: Project leader, either Green Belt or Black Belt, plans the event and creates the agenda. The scope of the event is determined based on DMAIC phase, need and team dynamic after discussion with the project sponsor. During the event, decisions are made and a follow-up plan is implemented. The project leader is responsible for completing the follow-up plan prior to the next event or phase.

A DMAIC project could be completed by a series of project accelerator events depending on the scope of the project. As an example of how the project accelerator method can be used, a define/measure project accelerator was conducted in a retailers copy print center where some team members were located in the corporate office and others were scattered among multiple stores. In the project accelerator event, the following were completed: the team launch, voice of the customer, communication plan, value stream mapping (VSM), perational definitions and data collection plan. Also, the project charter, SIPOC diagram and project timeline were nearly complete in the project accelerator (see also sidebar on LSS Tools Primer). At the end of the project accelerator, the project leader was nearly ready for the define and measure tollgates. Tollgates are formal reviews between the DMAIC team and the project sponsor and champion. Held at the end of each phase, tollgates have three major functions: 1) presentation of the methodology and learnings from the just-completed phase; 2) a go/no-go decision from the sponsor and champion to pass the tollgate and continue the project to the next phase; and 3) a full discussion on next steps in the project.

Green Belt and Black Belt projects

Reduction of misdelivery errors
A large US retailer incorrectly loaded more than 20,000 boxes of customer orders per year, placing boxes on the wrong delivery trucks. These errors resulted in increased labor and transportation costs to redeliver boxes to customers as well as reduced customer satisfaction. The retailers project team addressed this problem, beginning with a single distribution center in their network. Using basic LSS tools such as value stream maps and value-add analysis to analyze the issue, the team determined that repetitive route changes, lack of visual tools and an inefficient label-delivery process were driving these delivery errors. The project team identified and implemented several solutions including making permanent route moves, installing large white boards with planning data and relocating the label printing. These relatively simple and low-risk solutions resulted in $30,000 of cost savings for the distribution center with the potential for $200,000 of benefits upon replication across the other centers and a 65 percent reduction in errors. routing responses unnecessarily; and 3) current allocation of resources did not provide freight optimization process support. These causes reduced the time available and shipment visibility for the retailer to analyze opportunities and consolidate freight. Enlisting the expertise of crossfunctional associates, the team generated a large list of solutions and identified two primary solutions for implementation that were chosen using a cause-and-effect diagram (also know as a fishbone diagram). By removing suppliers ability for instant routing and reallocating internal resources to freight optimization, the team was able to eliminate four critical controllable defects and generate $752,000 in annualized savings. then analyzed and tested data that actually proved conclusions directly opposite of supposed widely accepted truths. The Black Belt leveraged a crossfunctional team of corporate and store inventory associates to redistribute workload and accountability between the store inventory and service desk associates to increase inventory accuracy. Also, the complexity of the damaged inventory processing was reduced by balancing process loads balancing, allowing the inventory associates to control damage-onhand inventory and process damaged inventory a minimum of three times per week. This change enabled the inventory process to be executed more often and reduced the cycle time of processing damaged inventory. As a result, the running average of damaged inventory was reduced by 26 percent or $3.5 million, resulting in capital improvement of $409,000 and a turn improvement of 2.25bp. Additionally, the cycle time of items in the damaged inventory was reduced by 37 percent to less than 10 days.

Reduction of damage inventory

The damaged inventory levels in a leading global retailers US stores averaged around $11.5 million, tying up costly working capital and slowing down replenishment of necessary product inventory in stores. In the early analysis of the data, the Black Belt discovered that 30 percent of the return reason codes entered were incorrect. This discovery highlighted a problem much greater than initially expected: the actual damaged inventory was 23 percent higher than the recorded financial reports, the cycle time to process and clear some damaged inventory exceeded a year, and significant complexity was added to the store inventory positions. Analyzing the drivers of inventory using deep LSS tools such as Lean value stream mapping, process balancing and advanced ANOVA statistical analysis, the team uncovered several critical root causes: 1) multiple process failure points were uncovered before the damaged product inventory was placed in the cage; 2) cashiers were not trained on returns and exchanges; and 3) an audit process did not exist for damaged product reports. The team

Improved freight consolidation

By missing opportunities to consolidate freight transported from their suppliers to several distribution centers, a large global retailer incurred higher-thannecessary freight expenses. A freight optimization process was executed twice each business day; however, the consolidation of additional supplier shipments was estimated to potentially reduce annual inbound freight costs by more than $750,000. The project team used histograms and process complexity identification tools to uncover three main root causes that resulted in inefficient freight optimization: 1) suppliers were required to request routing instructions at least 48 hours in advance of their ship date; 2) suppliers were given instant

Progressing to high performance through operational transformation

Understanding the variety of approaches for different business issues and how they can be applied increases the effectiveness of the project solutions and program growth, ultimately contributing to achieving high performance. LSS can be and is successful in the retail industry because its robust and flexible nature fits into the fast-paced, variable competitive environment and organizational cultures. Moreover, in retail, flexibility and diversity are requirements for any sustainable cultural change agent. Whether a project is a complex, cross-functional enterprisewide effort or a local improvement implementation, the LSS toolkit

applies. Determining which option or set of options to use is the art of the process. Each companys project selection process should include a determination of the best methodology and approach to successful completion. LSS and its ability to match the needs of the business is a strong solution for operational transformation and cultural change.

Third article in series

In the final article in this series of achieving high performance through Lean Six Sigma in retail, we discuss the importance of leadership and explore the necessary key leadership roles in successful LSS deployments. To learn more, please go to www.accenture.com/ processandinnovationperformance.

Criteria Approach Project Accelerator (PA) Accelerated Improvement (AI) Kaizen Description short, intensive event designed to complete an entire phase of DMAIC or to complete a complex task Short burst of activity concerning a specific issue to determine an agreed upon set of actions Intense event utilizing DMAIC methodology in which root causes and solutions of smaller scoped issues are determined, and solutions are implemented immediately Focused projects within a functional area utilizing DMAIC methodology to solve smaller problems Project utilizing DMAIC methodology to solve root causes to major issues and establish permanent controls Complexity Extremely low Scope Small Implementation Risk Low Typical Timeframe 1-2 days

Low

Small

Low

1-2 days with variable follow-up

Low to moderate

Small to medium

Low to moderate

4-5 days with 15-30 days follow-up

Green Belt (GB)

Low to moderate

Medium

Moderate

2-4 months

Black Belt (BB)

High

Large

Moderate to high

3-6 months

Lean Six Sigma Tools Primer

Basic tools
Affinity Diagram: An approach for organizing facts, opinions and issues into natural groups as an aid to diagnosing a complex problem. Cause-and-Effect Diagram (also known as a Fishbone or Ishikawa Diagram) and 5 Whys: Strong brainstorming approach to determine the relationship between a problem symptom and its main causes and subcauses. Force-field Analysis: An approach to assist in examining the factors that will aid (called driving forces) or hinder (called restraining forces) in reaching an objective. Also, aids in helping understand the forces that keep things the way they are. Histogram: A basic graph that displays relative frequency or occurrence of data values and enables easier observation of patterns in a set of data as compared to a simple table of numbers. Nominal Group Technique (NGT): A structured approach that supplements brainstorming, used to generate additional ideas, survey the opinions of a small group and prioritize brainstormed ideas, issues or solutions. Pareto Chart: A type of bar chart that helps quantify and prioritize problems so effort is focused on the vital few causes as opposed to the trivial many. The Pareto principle suggests that 80 percent of the effect of the problem is attributed to 20 percent of the causes. Process Map: Visual representation of the steps of work path used to produce a product or perform a function to better understand processes, comprises a stream of activities that transforms defined inputs into a set of outputs. SIPOC (which stands for suppliers, inputs, process, output and customers): A high-level process chart that primarily helps identify the process output(s) and the customers of the output. Stakeholder Analysis: A visual tool used to help identify key stakeholders level of support in order to develop an action plan and enlist support for a project or change. Value Stream Mapping (VSM): Process mapping technique that helps identify and understand the flow of material and information as a product or service makes its way through the process work path.

More advanced tools

ANOVA: Statistical models to estimate the variance components associated with total amount of observed variation, assists in identifying the critical causes of a problem. Boxplot (also called box-and-whisker diagrams): A graph used to visualize both the median and the range of a process and allow for easy graphical comparison of multiple sets of data. Control Chart: A graphical approach for monitoring changes within a process, distinguishes variation that is inherent in the process (common cause) from variation that indicates a change to the process (special cause). Design of Experiment (DOE): A structured, organized method for planning, conducting and interpreting controlled tests to determine the relationship between factors affecting the outputs of a process. Process Capability: A statistical measure of the inherent process variability for a given characteristic and refers to the ability of a process to produce a defect-free product or service. Regression Analysis: A statistical method to describe and quantify the relationship between two or more variables. Trend Analysis: An approach to chart and analyze data to identify underlying long-term trends (e.g., failure patterns).

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About Accenture
Accenture is a global management consulting, technology services and outsourcing company. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. With more than 186,000 people in 49 countries, the company generated net revenues of US$23.39 billion for the fiscal year ended Aug. 31, 2008. Its home page is www.accenture.com.

Contact us
To learn more, see our thought leadership on www.accenture.com/ processandinnovationperformance or call one of our senior directors: Tony Curtis +1 804 683 8914 or anthony.e.curtis@accenture.com Jin An +1 804 387 8555 or jin.m.an@accenture.com Robert Gettys +1 404 312 1762 or george.gettys@accenture.com

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