Background

At Apex Tools (fictional name), a mid-sized supplier of specialized mechanical components, inventory management and safety concerns had long been interwoven issues. As demand surged, materials flowed continuously into the warehouse, often in excessive amounts, cluttering aisles and creating unsafe conditions. This surplus inventory led to various issues: obsolescence, shrinkage, and frequent safety hazards for workers navigating crowded spaces.

The breaking point came when the finance department discovered that the company was losing over $850,000 annually due to these inventory-related problems, with an added safety risk to employees. Determined to solve these issues, the leadership team launched a Lean Six Sigma project focused on implementing a replenishment pull system to target waste reduction, inventory control, and safety improvements.

Initiating the Lean Six Sigma Project

The Lean Six Sigma project was launched with a clear goal: reduce inventory levels, eliminate obsolescence, and improve safety conditions in the warehouse. A multidisciplinary team was assembled, including members from operations, procurement, warehouse management, and safety compliance. They began by analyzing the current processes and identifying the primary causes of inventory excess and related safety risks. This is what the team did using the Lean Six Sigma DMAIC methodology.

Define

The project’s objective was straightforward: use a replenishment pull system to save over $850,000 annually by reducing inventory-related costs, improving safety for employees, and streamlining workflows. The team established specific goals: a 40% reduction in on-hand inventory, a 90% reduction in obsolete stock, a 50% reduction in shrinkage, and a zero-tolerance policy on safety incidents related to inventory clutter.

Measure

The initial measurement phase was critical. The team assessed current inventory levels, turnover rates, lead times, and order frequency, uncovering that the push-based system had led to a disconnection between purchasing and actual production needs. Over-ordering, driven by inaccurate demand forecasting, contributed to overstock and crowding in the warehouse, creating unsafe pathways and increasing the chance of accidents.

The team conducted a detailed audit of safety incidents and inventory shrinkage, realizing that roughly 70% of shrinkage incidents occurred when items were misplaced or damaged due to overcrowded storage. Safety reports also highlighted that crowded aisles and misplaced items had led to multiple minor injuries among workers. It was clear that a streamlined, demand-based approach to inventory was needed.

Analyze

Through a root cause analysis, the team identified several critical problems:

• Overstocking from a push system based on forecasted demand, rather than real-time requirements
• Supplier bulk ordering practices, where Apex often ordered excessive stock to meet volume discounts
• Inventory placement issues, with crowded aisles creating obstacles and unsafe working conditions
• High rates of obsolescence and shrinkage due to poor tracking and lack of accountability in stock management

These factors pointed toward a need for a replenishment pull system, which would replace the push-based ordering method with a demand-driven approach, ordering materials only as needed for production.

Improve: Implementing the Replenishment Pull System

Armed with data and a clear plan, the team initiated the improvement phase. Here’s how they tackled each issue:

1. Transition to a Replenishment Pull System: The push-based ordering was replaced with a pull system using Kanban cards and digital signals. These signals would trigger orders only when stock levels reached a specified minimum threshold or reorder point, which was calculated based on real-time consumption data. By ordering materials only when needed, the warehouse inventory immediately dropped by nearly 35%, opening up space and improving safety.
2. Collaborating with Suppliers for Frequent Deliveries: The team worked closely with suppliers to replace large bulk orders with smaller, more frequent deliveries. This shift required some renegotiation, but suppliers recognized that more frequent, smaller deliveries would benefit both sides by maintaining smoother demand. Suppliers were also encouraged to implement their own Lean practices, aligning more closely with Apex’s demand.
3. Reconfiguring Warehouse Layout for Safety: With inventory levels reduced, the team optimized the warehouse layout to create clearer, safer pathways. High-frequency items were positioned closest to production areas, while less commonly used materials were stored in more remote sections. Designated pathways and storage zones were marked clearly to avoid overcrowding and ensure that employees had safe, unobstructed access to materials. A 6S system was implemented to be sure the changes were maintained.
4. Strengthening Inventory Tracking and Accountability: The team implemented a new inventory management system with barcode scanning and RFID technology, which improved tracking accuracy to over 95%. Employees were trained on the new system and taught to scan items upon receipt, relocation, or withdrawal for production. With real-time inventory visibility, shrinkage dropped significantly as misplaced items could now be quickly located.
5. Safety Training and Compliance: To sustain these improvements, the team introduced Lean Six Sigma safety training, emphasizing safe handling practices, clutter management, and emergency protocols. The new safety training also encouraged employees to report potential hazards, fostering a proactive approach to safety. Managers conducted daily inspections to ensure adherence to the new safety standards and promptly addressed any risks.

Control: Sustaining the Gains

To sustain these improvements, the team implemented a robust control plan. Inventory levels, turnover rates, safety incidents, and supplier lead times were tracked continuously. Monthly audits ensured that inventory was kept within the newly established thresholds, and quarterly reviews of demand patterns allowed for adjustments to reorder points as necessary.

Additionally, Lean Six Sigma safety training was made a permanent part of new employee onboarding and included in annual refresher courses. This focus on safety created a culture of accountability and vigilance, ensuring that employees felt empowered to report issues before they became hazards.

Results and Financial Impact

Within the first six months, the project yielded significant results. Inventory levels dropped by over 40%, cutting carrying costs and opening up valuable floor space. Safety incidents related to inventory clutter were reduced to zero, marking the first time in years that the company went without a warehouse-related safety incident.

Financially, the project met and even exceeded its initial goal. The breakdown of savings included:

• Reduction in carrying costs from lower inventory levels: $400,000
• Reduced obsolescence through better demand alignment: $250,000
• Shrinkage reduction due to improved tracking and layout: $100,000
• Reduced safety incidents, avoiding costly workers’ compensation claims and lost productivity: $150,000

By year-end, the project had saved Apex Tools $900,000 in direct costs, achieving both financial and safety improvements that strengthened the business’s bottom line and employee well-being.

Last Word

This success story became a model for the company, encouraging other departments to adopt similar Lean Six Sigma initiatives for continuous improvement. In the end, Apex Tools emerged not only as a leaner and more cost-effective organization but also as a safer workplace where employees could work with confidence and peace of mind.

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