Optimizing the Truckload / Less Than Truckload (TL/LTL) Optimizing - - PDF document

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ASQ Team Excellence Competition

Optimizing the Truckload / Less Than Truckload (TL/LTL) Decision for Bayer MaterialScience Optimizing the Truckload / Less Than Truckload (TL/LTL) Decision for Bayer MaterialScience

ASQ 2008 Team Excellence Competition

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ASQ Team Excellence Competition

Bayer MaterialScience Global Business Units Bayer MaterialScience Global Business Units

Polyurethanes Coatings, Adhesives, Specialties Polycarbonates Inorganic Basic Chemicals

52 % 52 % Euro 10.4 billion 27 % 15% 15% 4% 4% 2% 2%

Thermoplastic Polyurethanes

Sean Good Morning, I’m Sean Ritchie … Bayer MaterialScience is a global manufacturer of polymers used as raw materials for products ranging from compact disks to automotive finishes to furniture. Bayer MaterialScience ships billions of pounds of material each year to thousands of customers.

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ASQ Team Excellence Competition

Transportation reps assign packaged shipments to carriers

• Larger shipments are assigned to full Truckload Carriers (TL)
• Smaller shipments to what are known as Less Than Truckload Carriers (LTL)

Carrier choice in the 16,000 to 25,000 pound range is a grey zone

• Optimal shipping cost depends on several factors

One transportation rep suspected this grey zone was causing problems

• He took a sample of recent shipments in that weight range and compared the cost
• f each with the cost if optimal carrier choices had been made
• He found 83% of the shipments among his sample were sub-optimal

Bayer MaterialScience could be overspending by more than $1 million!

• But … was the extrapolation valid?
• And … if it was, what were the root causes of failure in the shipping process?

A team of experts and a disciplined method was needed to investigate this potential opportunity….

Bayer MaterialScience Ships a Large Volume of Packaged Goods Bayer MaterialScience Ships a Large Volume of Packaged Goods Sean Shipping costs are a significant component to the Cost of Goods Sold. In July, 2005 one of our transportation representatives identified a potential problem with the way we choose carriers. While examining a sample of shipment data for truck shipments in the 16,000 to 25,000 lb range he

• bserved that 83% were shipped “sub-optimally”, hence more costly.

Extrapolating this rate of sub-optimal shipping implied over $1 Million could be saved by shipping correctly. But … was his extrapolation valid? And … if so, what were the root causes

• f failure in the shipping process?

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Introducing the Team Introducing the Team Sean Ritchie Team Leader Kristen Hermick Customer Master Data Laurie Colao Business Intelligence Sam Phipps Finance Marko Dodig Technology Services Ron Gadzinski Logistics Amy Prevade Freight Payment & Audit Sean Ritchie Team Leader Kristen Hermick Customer Master Data Laurie Colao Business Intelligence Sam Phipps Finance Marko Dodig Technology Services Ron Gadzinski Logistics Amy Prevade Freight Payment & Audit

Sean

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Section 1: Project Selection & Purpose Section 1: Project Selection & Purpose

Sean Project Selection and Purpose

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High Low Medium Medium High Low Medium Low High

Feasibility ROI Alignment

Alignment with Overarching Goals Feasibility Return on Investment (ROI)

Preliminary Assessment

• f Truckload versus Less

than Truckload Project

• Strong Alignment
• High ROI
• Highly Feasible

1A.a Types of Data and Tools Used to Select the Project and Why 1A.a Types of Data and Tools Used to Select the Project and Why

Sean A preliminary assessment of the problem led us to believe correcting it:

• 1. Strongly aligned with four overarching organizational goals:
• Improving profitability. (Order to Cash thread)
• Improving Customer Relations
• Encouraging “Grass Roots” initiatives
• Developing Lean Six Sigma as an Organizational Core Competency
• 2. The Return of Investment appeared high because we were confident the project

would cost much less than the opportunity of $1 million

• 3. Was feasible because key stakeholders agreed that this was a significant problem

they would provide resources to correct.

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1A.a Types of Data and Tools Used to Select the Project and Why 1A.a Types of Data and Tools Used to Select the Project and Why

Xbar-R Chart of Cost / Lbs July 2005 to January 2006 Percent of TOTSHIPWG T TYPE Weight Bracket LTL TL 1 2 3 1 2 3 70 60 50 40 30 20 10 Percent within levels of TYPE. Mode of Shipment versus Weight Brackets July 2005 to January 2006 1 = 14 to 16K 2 = 16 to 20K 3 = 20 to 25K

• gistics

• g

• te

• cation

• rt

• r LTL

• TM3

• w

• r tail? How does

Trend Analysis Voice of the Customer Voice of the Business Baseline Statistics SIPOC Project Charter Process Mapping Discovery Kaizen Gantt Chart Stakeholder Mapping

Sean Our first step was to identify potential stakeholders and bring them together in a Discovery Kaizen event. During highly focused brainstorming sessions we developed a SIPOC diagram, (Suppliers, Inputs, Process, Outputs, Customers) and a value stream map to clearly view the “as is” process flow and identify decision points, organizational transitions and potential non-value added steps. Based on the results of these tools, we checked for identification of all key stakeholder groups. We then interviewed key stakeholders both within our business and as customers of the process. Using baseline data available to us from our transportation system we examined trends and measured baseline performance. We evaluated questions of feasibility and resource requirements and developed a preliminary timeline for the project in Gantt chart format. We then consolidated all of this into a document which we call a Project Charter. The Project Charter is an integral part of a formal signoff process in which senior management representing key stakeholder groups must endorse a project before it can move forward.

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ASQ Team Excellence Competition Stakeholder Mapping Voice of the Customer Voice of the Business Data Supporting Case for Change High Level Process Map (SIPOC Diagram) Cross Functional Process Mapping Discovery Kaizen Project Charter DEFINE DEFINE MEASURE MEASURE ANALYZE ANALYZE IMPROVE IMPROVE CONTROL CONTROL

The Bayer MaterialScience Lean Six Sigma Process

Alignment Feasibility Return on Investment

A Compelling Case for Change?

1A.a Types of Data and Tools Used to Select the Project and Why 1A.a Types of Data and Tools Used to Select the Project and Why

Sean The project would only move forward if the key stakeholders agreed this project represented a compelling case for change that aligned with

• rganizational goals, had a good chance of success and would be a decent

investment of resources

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ASQ Team Excellence Competition

Xbar-R Chart of Cost / Lbs

July 2005 to January 2006 Percent of TOTSHIPWG T TYPE Weight Bracket LTL TL 1 2 3 1 2 3 70 60 50 40 30 20 10 Percent w ithin levels of TYPE.

Mode of Shipment versus W eight Brackets

July 2005 to January 2006 1 = 14 to 16K 2 = 16 to 20K 3 = 20 to 25K

A larger sample size and segmentation of data both chronologically and by mode, increased our confidence in the extrapolation estimate of $1 million.

• r LTL

Organizational Process Mapping revealed numerous hand-offs,

• pportunities for error, communication gaps and non-value added steps

Organizational Alignment

• Improve profitability

Organizational Alignment

• Encourage “grassroots” Initiatives
• Improve customer relations
• Opportunity to apply Lean Six Sigma Methodology

1A.b Reasons Why the Project Was Selected 1A.b Reasons Why the Project Was Selected Sean The collective resources and process knowledge of our working team of stakeholder representatives gave us the horsepower to extract a much larger sample of data from

• ur transportation system. Moreover, we now had the capability to extract fields which

allowed us to segment data chronologically and in terms of issues such as mode of

• shipment. This greatly increased our confidence in the original extrapolation and

verified the problem was potentially a $1 million savings opportunity. The “swim lane” organizational process map we developed allowed us to see the hand-offs between different parts of the organization, decision points and… potential root causes for sub-optimal shipments. We discovered that root causes for sub-optimal shipment were too complex to be solved by a simple policy change of the truckload (TL) and less than truckload (LTL) weight breakpoint.

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• Identification and involvement of stakeholders
• Definition of process being studied
• Clear boundaries of scope of the project
• More accurate estimate of impact
• Estimate of cost and time to implement
• Assessment of alignment with overall organizational priorities

DEFINE DEFINE

The output deliverable of the Define Phase is a Project Charter which includes the following: A project moves beyond the Define Phase only after the preliminary estimate has been validated by stakeholders, and key management stakeholders have formally endorsed the initiative.

1A.c Involvement of Potential Stakeholders in Project Selection 1A.c Involvement of Potential Stakeholders in Project Selection Sean Bayer’s Define Phase is a rigorous study of the project’s potential impact, cost and feasibility. A project moves forward only if the stakeholders are enrolled and formally endorse the project. The foundation of the Define Phase is the identification and involvement of stakeholders from the outset providing them with the information they need to make an informed decision. A project is formally sanctioned and resources provided only if the stakeholders are convinced of its alignment with organizational priorities, return on investment and feasibility.

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Senior Management Champions & Sponsors

Process Owner Sponsor Business Excellence Champion Finance Business Excellence Transportation Operations Logistics Strategy & Procurement Customer Master Data Material Master Data

Core Team of Stakeholder Representatives

Business Intelligence Financial Bayer Technology Services Customer Service

1A.c Involvement of Potential Stakeholders in Project Selection 1A.c Involvement of Potential Stakeholders in Project Selection Sean Several segments of the organization were identified as potential stakeholders. Representatives from these groups participated in the development, evaluation and eventual endorsement of the Project Charter. They also went on to take the project through the measurement, analysis, improvement and control phases.

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1B.a Affected Organizational Goals, Performance Measures, and Strategies 1B.a Affected Organizational Goals, Performance Measures, and Strategies

Goals

• Cost management
• Simplification

Performance Measures

• Cost per lb
• On Time in Full (OTIF)
• Carrier turndown rates

Strategies

• Overall Order to Cash objectives
• Premium Freight
• Development of Lean Six Sigma competency

Laurie Another fundamental element of the project charter is an assessment of the degree of alignment of the project with overarching organizational goals. We found this project to align strongly with our goals of cost reduction and simplification. Existing performance metrics of cost per pound, on time in full and carrier turndown rates were all projected to be positively affected. Finally, we found it aligned well with our strategic

• rganizational thread, “Order to Cash”, was synergistic with a multi-million dollar project

involving premium freight costs and advanced our strategy to increase Lean Six Sigma competency.

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ASQ Team Excellence Competition

1B.b/c Degree of Impact on Organizational Goals, Performance Measures and Strategies 1B.b/c Degree of Impact on Organizational Goals, Performance Measures and Strategies

Goals

• Cost Management – Shipping Costs Reduced by $800M
• Simplification – Streamlined the Process

Performance Measures

• Cost per lb – Reduced by 0.8 cents/lb
• On Time in Full (OTIF) – Held Constant
• Carrier Turndown Rates – Reduction of 30-50%

Strategies

• Order to Cash Objectives – Increased Carrier Contract Compliance
• Premium Freight – Increased Visibility of TL & LTL costs
• Development of Lean Six Sigma Competency – Team DMAIC Completion

Laurie Each of the goals, performance measures and strategies identified in our project charter were affected in a positive way. Cost per pound went down by eight tenths of a

• cent. It may not sound like much but given the size of our transportation expenses, that

translates into over a million dollars per year. Elimination of non-value added steps reduced the complexity of the process and supported our goal of simplification. On- Time-in-Full is a key performance indicator of importance to our customers. In our project charter one of the objectives we established was to reduce cost without adversely affecting On time in Full. We achieved this; it actually edged up a bit.

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1C.a Identification of Potential Internal and External Stakeholders 1C.a Identification of Potential Internal and External Stakeholders

Representatives chosen for participation as members of:

• Core Team
• Resource Providers
• Sponsors and Champions

DEFINE DEFINE

The first step in our DMAIC process is to identify and involve stakeholders

Potential stakeholders are evaluated considering their:

• Involvement
• Impact
• Influence

Laurie Before beginning any Lean Six Sigma project we must identify and engage

• stakeholders. The preliminary analysis discussed on previous slides was

developed by a stakeholder team.

Meeting and working together, representatives from potential stakeholder groups evaluated if the right groups and the right representatives were present.

Potential stakeholders are evaluated considering their: Involvement (Are they working within or accountable for the performance of the current process?) Impact (How integral are they to current processes? Are they suppliers to, customers of, or workers within the current process? How might they be affected by potential change?) Influence (What would happen if they don’t support the project and it’s potential changes) Based on this evaluation: we formed a core team, established management champions, sponsors and identified people required as technical support resources.

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1C.a Identification of Potential Internal and External Stakeholders 1C.a Identification of Potential Internal and External Stakeholders

SIPOC Cross- functional Process Map

Involvement? Impact? Influence? Stakeholder Mapping is Absolutely Fundamental

D D M M A A I I C C

• r LTL

Laurie As we just discussed, identifying and engaging stakeholders as participants in a cross functional team is fundamental to our methodology. Our high level process description or SIPOC, (supplier, inputs, process, outputs and customers) and a cross-functional process map helped us identify stakeholder groups.

Initial identification of champions and working team was an ad hoc assignment by the logistics sub- process owner, and discussions with process experts. This ad hoc working team used SIPOC and organizational “swim lane” value stream process mapping to validate and add to the core team. Support resources were identified when the working team developed a preliminary Gantt chart. The final core team emerged as a result of this process. Shipment carriers were recognized as an external stakeholder group. After much consideration we decided against including carrier representatives on the core team, however, because proprietary and confidential information concerning the negotiated transportation rates of all carriers would have to be part of the data we would analyze.

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ASQ Team Excellence Competition

1C.b Degrees of Potential Impact to Stakeholders 1C.b Degrees of Potential Impact to Stakeholders

Percent of TOTSHIPWGT TYPE Weight Bracket LTL TL 1 2 3 1 2 3 70 60 50 40 30 20 10 Percent w ithin levels of TYPE. Mode of Shipment versus W eight Brackets July 2005 to January 2006 1 = 14 to 16K 2 = 16 to 20K 3 = 20 to 25K

• r LTL

Xbar-R Chart of Cost / Lbs July 2005 to January 2006

Cause and Effect Value Stream Mapping Data Segmentation and Performance KPIs (OTIF)

Subjective Tools Objective Tools Assessment of Impact on Each Stakeholder Group Positives

• High
• Medium
• Low

Negatives

• High
• Medium
• Low

Laurie Brainstorming together, our core team of stakeholder representatives took information from both subjective tools like our cause and effect analysis and value stream mapping as well as from objective tools like customer data segmentation and on time and full performance KPI. From this we could see which stakeholders had higher potential positive and negative impacts and we could plan accordingly

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1C.c Types of Potential Impact to Stakeholders 1C.c Types of Potential Impact to Stakeholders

Carrier damages from cross-docking more LTL Better customer service from BMS Better OTIF Customers Project Failure would damage LSS Credibility Increasing Organizational LSS Competency Business Excellence Carrier damages from cross-docking more LTL Better performance against KPI, OTIF Logistics Loss of some revenue Contract compliance, More business Carriers New KPI’s to create and monitor Participation in a project that improves profitability Finance Conflict with existing workload Could make their job easier Material Master Data Loss of decision making power over carriers Simplified decision making process Transportation Operations Conflict with existing workload to obtain data for team use Increased project competency Business Intelligence Conflict with existing workload, Could cause confusion Could make their job easier Customer Master Data

Potential Negative Impact Potential Positive Impact Stakeholder

Laurie Potential positive and negative impacts were assessed in a variety of ways.

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Section 2: Current Situation Analysis Section 2: Current Situation Analysis

Sean Current Situation Analysis

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2A.a Methods and Tools to Identify Root Causes and Opportunities 2A.a Methods and Tools to Identify Root Causes and Opportunities

Identifying the critical X’s begins with verifying the integrity of data DEFINE DEFINE MEASURE MEASURE

Shipping Cost (Y) = f (x1,x2,x3 …)

Measurement Systems Analysis

• Data segmentation strategy
• Data extraction strategy
• Data integrity challenge

Cause & Effect Matrix Process Variables Map

Sean A fundamental principle of our Lean Six Sigma methodology is the recognition that the output of the process, “Y” is a function, potentially, of several contributing input variables or “Xs”. Before beginning problem analysis there is a critical need to assess the accuracy of the data used in our analysis. Otherwise there is a risk in drawing incorrect conclusions regarding root cause, along with implementation of corrective actions which at best may fail and at worst may degrade performance. We began with Process Variables Mapping. Building upon the SIPOC developed in the Define Phase we identified input variables and assessed the degree to which each are under our control. Building on the SIPOC and the Process Variables Map, we developed a Cause and Effect Matrix in which we estimated the degree of impact of various input variables on output performance. This information helped us to think ahead about data segmentation desirable for analysis and clarified appropriate requests of the technical support staff who would be extracting data from various systems. Even though we weren’t dealing with data that lent itself to traditional Gage R&R or Attributes Agreement, we understood a need to test the integrity of our data. Each step along the way the team challenged the origin, operational definitions and potential sources of inaccuracy or bias in our data.

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Process Variables Map Process Variables Map

2A.a Methods and Tools to Identify Root Causes and Opportunities 2A.a Methods and Tools to Identify Root Causes and Opportunities

D D M M A A I I C C

Sean A Process Variables Map provided insight into which input variables were within our control and which not. For example …other orders coming from same sites/warehouses going to same area.

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Cause & Effects Matrix Cause & Effects Matrix

2A.a Methods and Tools to Identify Root Causes and Opportunities 2A.a Methods and Tools to Identify Root Causes and Opportunities

D D M M A A I I C C

Sean The Cause and Effects Matrix improved our understanding of the degree of correlation and impact of process inputs on the output value to the customer. It gave us a numerical basis for ranking issues from the customer’s set of priorities. For example, we drilled further into consolidation decision making and the actions related to transportation requests in order to assist the Logistics reps’ in their decision-making.

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DEFINE DEFINE MEASURE MEASURE ANALYZE ANALYZE

Failure Modes and Effects Analysis (FMEA) Data segmentation Statistical analysis

Shipping Cost (Y) = f (x1,x2,x3 …)

2A.a Methods and Tools to Identify Root Causes and Opportunities 2A.a Methods and Tools to Identify Root Causes and Opportunities Sean Having become confident in the reliability of the data, we began the analysis phase to identify potential root causes and opportunities. Failure Modes and Effects Analysis (FMEA) and data segmentation were our principle analysis tools.

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ASQ Team Excellence Competition Process Variables Map Cause & Effects Matrix Failure Modes and Effects Analysis Multiplying

• Severity of occurrence
• Probability of occurrence
• Ability to detect

Yielded 50 potential failure modes ranked by their Risk Probability Number (RPN) What went in

• Process input
• Potential failure mode
• Potential failure cause
• Potential failure effect

2A.b Analysis of Data to Identify Possible Root Causes and Opportunities 2A.b Analysis of Data to Identify Possible Root Causes and Opportunities

D D M M A A I I C C

Sean During the development of the Cause and Effect Matrix in the Measure Phase we began to identify and prioritize potential root causes based on the Voice of the Business and the Voice

• f the Customer. The Process Variables Map identified which inputs were within our control

and which were not. Now, in the Analysis Phase we conducted a Failure Modes and Effects

• Analysis. Facilitated as another Kaizen event, the team spent six hours over two days

identifying potential failure modes and ranking each in terms of: their probability of occurrence, the severity of the impact should they occur and our ability to detect the failure. For each potential failure mode we ranked the Severity, Frequency and Detectibility of the risk with 1 low risk and 10 high risk. Multiplying these three yielded a Risk Probability Number (RPN)

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Percent of TOTSHIPWG T TYPE Weight Bracket LTL TL 1 2 3 1 2 3 70 60 50 40 30 20 10 Percent within levels of TYPE.

Mode of Shipment versus Weight Brackets

July 2005 to January 2006

1 = 14 to 16K 2 = 16 to 20K 3 = 20 to 25K

2A.b Analysis of Data to Identify Possible Root Causes and Opportunities 2A.b Analysis of Data to Identify Possible Root Causes and Opportunities

Data stratification example Data segmentation example

Data stratification and segmentation

$/Lb. (Y) = f (origin, destination, carrier, customer, product, mode, date…)

Aug Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul 0.7 0.6 0.5 0.4 0.3 0.2 Month Percent Shipped TL Instead of LTL _ P= 0.4368 UCL= 0.5596 LCL= 0.3141

1 1 1

P Chart of Shipments in 16 -20 K Weight Range

Defect Defined As a TL Shipment as Opposed to an LTL Shipment 1 Sigma 2 Sigma Note: Sigma Levels Assume a Goal of Zero TL in This Weight Range

D D M M A A I I C C

Sean With a sample size of over three hundred shipments per month and extraction of granular data for each shipment such as date, carrier, mode, origin, destination, product, customer and, of course, cost per pound we were in a position to stratify and segment the data in an attempt to gain insights into the relationship between cost per pound and a variety of potential input variables. At the outset of this project we suspected the reason shipping costs were high was because we were incorrectly shipping too much with full truck load carriers as

• pposed to LTL. In this data stratification example, we grouped shipments into

arbitrary weight brackets and examined the percentage of shipments shipped LTL versus full truckload. It was clear there was an opportunity to direct more shipments to the lower cost LTL mode. We defined a defect as a shipment within a certain weight range shipped as full truckload instead of LTL. The proportion shipped incorrectly according to this definition gave us a different perspective when viewing baseline performance.

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Senior Management Champions & Sponsors

Process Owner Sponsor Business Excellence Champion Finance Business Excellence Transportation Operations Logistics Strategy and Procurement Customer Master Data Material Master Data

Core Team of Stakeholder Representatives

Business Intelligence Financial Bayer Technology Services Customer Service

2A.c How Stakeholders were Involved in Identifying Root Causes and Opportunities 2A.c How Stakeholders were Involved in Identifying Root Causes and Opportunities Sean Several segments of the organization were identified as potential stakeholders. Representatives from these groups participated in the development, evaluation and eventual endorsement of the Project Charter. They also went on to take the project through the measurement, analysis, improvement and control phases.

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2B.a Analysis of Data to Select Final Root Causes and Opportunities 2B.a Analysis of Data to Select Final Root Causes and Opportunities

(FMEA: page 1 of 5 ranked by RPN) Sean In the previous section we discussed the FMEA as a method to identify potential root causes. During the selection of final root causes we ranked each potential failure mode on the basis of its Risk Probability Numbers. Those with the highest RPNs were judged to be root causes with the highest impact. For example, the failure mode with the highest RPN was found in shipment consolidations. The failure mode identified that consolidation opportunities were not visible to the transportation rep in the system. The severity of this error was ranked a 10, the highest possible value. Because the reps could not consolidate these shipments, the probability of

• ccurrence was also ranked a 10. And the ability to detect the error was ranked as 10,

meaning virtually undetectable, because there was no way to know when this type of error

• ccurred. The RPN, therefore, was 1000. The fact that the transportation system did not

provide transportation reps with visibility of consolidation opportunities was, therefore, selected as one of our final root causes.

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2B.b Analysis of Data to Select Final Root Causes/Improvement Opportunities 2B.b Analysis of Data to Select Final Root Causes/Improvement Opportunities

Using data to eliminate potential confounding factors Shipping Cost (Y) = f (x1,x2,x3 …) $/Lb. = f (origin, destination, carrier, customer, product, mode, date…)

• Some Xs are not significant contributing factors.
• Some Xs are not significant by themselves but interactions with other Xs

may be.

• Changes in Xs over time may bias your perception of root

cause/improvements.

• Activities of concurrent improvement efforts may bias your perception
• Knowledge of stability or instability in shipping patterns is essential.

D D M M A A I I C C

Sean We have described the use of data in identifying and selecting root causes. We feel it is equally important to use data to challenge assumptions of root cause, and both identify and quantify potential confounding issues. In section 2Ab we discussed the use of data to identify the potential root cause of a transportation rep making an incorrect mode selection (TL/LTL). In our analysis of all such issues we were careful to consider data which would contradict our conclusions. We found, for example, if the shipment was a rush with agreed upon carrier lead times, available LTL shippers may refuse the shipment forcing the shipment to be placed via full truckload. In this situation the root cause was not incorrect carrier selection but rather the handling of rush orders. The origin of rush orders was outside the scope of

• ur Project Charter but it was helpful to understand this issue and its possible affect on
• ur data.

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TL LTL Process.igx Revised 5/19/2006 Customer Regional Service Center Customer Service Logistics Logistics Strategy Logistics Operations Plant / Whse CTL Order Preparation Phase Order Preparation Phase Shipment Preparation Phase Shipment Preparation Phase Start 1 Create SAP Delivery 4 Carrier Bid Results 26 Select open TR, review requirements / notes 6 Transportation Request sent to TM3 from SAP 5 Tender TL Load to preferred carrier 9 Carrier Accept load? 10 Order Quantity 31 Update PVD Tables 29 Prepare PVD update spreadsheet 27 Select TL carrier and tender load 25 No Load Carrier 11 Generate BOL 13 Enter PGI 14 Daily File? to CTL 15 Carrier Freight Bill 24 Network Optimization Results 2 BMS Carrier rates (TL by lane, LTL general discount only) 28 Place Order 30 Material Type 32 Delivery Date 33 Ship to Location 34 Special Instructions 35 Plant Schedules Pickup with LTL Carrier 41 Receive Shipment 42 Preferred Carrier from PVD 43 Transport Query YTO4 45 Send Shipment Unit to Plant / Whse 46 KNMT Customer Material Record 47 Consolidate Shipments TL / LTL 50 Yes Ship asTL

• r LTL

51 Override Preferred TL Carrier 53 No No Yes Yes Missing Data - Transport Rep does not see rates! 59 Ship as TL 60 Ship as LTL 61 Override Preferred LTL Carrier 62 No Yes End 22 Tender LTL Load to preferred carrier 63 Carrier Accept load? 64 No Yes Select LTL carrier and tender load 65 TL LTL Yes Missing Data - TM3 does not show consolidations in an easy format 66 How is the choice made to consolidate on TL or LTL . How is master bill of lading generated - load nose or tail? How does system pull PVD for consolidation 67

2B.b Analysis of Data to Select Final Root Causes/Improvement Opportunities 2B.b Analysis of Data to Select Final Root Causes/Improvement Opportunities Sean This process map is laid out so we could visualize the hand-offs between various internal and external stakeholder groups. Steps are color coded: Those important to the customer are green, important to business or required by the business are in yellow, those identified at important to neither, and hence non-value added, are in red. Analysis of the value stream map revealed non-value added steps. As we compared this process map to the FMEA, we realized some important steps were missing and correlated to failure modes, root causes and improvement opportunities.

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2B.c Identification and Validation of Final Root Cause 2B.c Identification and Validation of Final Root Cause

1. Text messages require a two step drill-down

– Only checked if Reps have time – Accuracy of data was not verified when transported into new ERP

2. YTO-4 screen is “really ugly”

– Cannot sort for important information – Special requirements and consolidation opportunities are all but invisible

3. Guidelines of when to choose TL or LTL are unclear

– Tribal knowledge – no statistically based guideline – Reps often do not know backup carriers

• Routing Guide usage is spotty
• If all else fails, shipments are sent TL (higher rates in this range)

4. Lack of planning time consumes Logistics Reps

– Three-day “Delivery Window” – Carrier turndown rates are high – Significant rework when turndowns occur D D M M A A I I C C

Sean As part of our FMEA we had assigned each failure mode a potential cause. Looking down the list of failure modes ranked in terms of their RPN, these four root causes, or variants of them, appeared repeatedly. Grouping these similar potential causes for each failure mode resulted in the list you see here. Thus, “affinity” mapping provided us with our first level of validation. Another validating observation was the reaffirmation of the links between failure modes in our FMEA and the key input and output relationships in our cause and effects matrix. The identification of non-value added steps and the correlation between missing steps in the current process with failure modes, potential cause and improvement

• pportunities provided further validation that these four major categories represented

the significant root causes for shipping errors in this weight class.

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Section 3: Solution Development

Marko Solution Development

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• Solution Design Kaizen
• Design FMEA
• Organizational Process Mapping

DEFINE DEFINE MEASURE MEASURE ANALYZE ANALYZE IMPROVE IMPROVE

3A.a/b Methods and Tools to Analyze and Develop Possible Improvements 3A.a/b Methods and Tools to Analyze and Develop Possible Improvements Marko The key tools employed in developing solutions were the Design FMEA and Organizational Process Mapping.

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An improvement action item was developed for each failure mode.

3A.a/b Methods and Tools to Analyze and Develop Possible Improvements 3A.a/b Methods and Tools to Analyze and Develop Possible Improvements

D D M M A A I I C C

Marko Design FMEA entailed developing a potential improvement or corrective action for each of the fifty failure modes identified within our FMEA.

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TL LTL Process revised 101306.igx Revised 10/24/2006 Customer Regional Service Center Customer Service Logistics Logistics Strategy Logistics Operations Plant / Whse CTL Order Preparation Phase Order Preparation Phase Shipment Preparation Phase Shipment Preparation Phase Start 1 Create SAP Delivery 4 Carrier Bid Results 26 Select open TR, review requirements / notes 6 Transportation Request sent to TM3 from SAP 5 Tender TL Load to preferred carrier 9 Carrier Accept load? 10 Order Quantity 31 Update PVD Tables (As needed & Quarterly) 29 Prepare PVD update spreadsheet 27 Load Carrier 11 Generate BOL 13 Enter PGI 14 Carrier Freight Bill 24 Network Optimization Results 2 BMS Carrier rates (TL by lane, LTL general discount only) 28 Place Order 30 Material Type 32 Delivery Date 33 Ship to Location 34 Special Instructions 35 Plant Schedules Pickup with LTL Carrier 41 Receive Shipment 42 Preferred Carrier from PVD 43 Transport Query YTO4 45 Send Shipment Unit to Plant / Whse 46 KNMT Customer Material Record 47 Consolidate Shipments 50 Ship asTL

• r LTL

51 Accept Preferred TL Carrier 53 No No Yes Ship as TL 60 Ship as LTL 61 Accept Preferred LTL Carrier 62 No End 22 TL LTL Sort for consolidation

• pportunities

67 Consult routing Guides for Carrier Selection 68 Prepare Routing Guides 69 Yes Yes LTL TL Select carrier & Tender load 71 Decline

Revised Process Map 1. Eliminated 3 non-value added steps 2. Consolidation opportunities visible in YTO-4 Sort 3. Rate data available from CTL through inquiry

3A.a/b Methods and Tools to Analyze and Develop Possible Improvements 3A.a/b Methods and Tools to Analyze and Develop Possible Improvements Marko We then developed a new, “to be” process flow which eliminated non-value added steps and added missing steps based on what we had learned from cause and effect, FMEA and our original process map.

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1 2 3 4 5 6 7 8 9 10

Severity Occurrence Detection RPN

Average

FMEA Results Before After

Reduced frequency of

• ccurrence and improved

detection Reduced frequency of

• ccurrence and improved

detection

3A.c Criteria Used to Select Final Improvement Actions 3A.c Criteria Used to Select Final Improvement Actions

Identifying possible solutions to reduce RPN

Marko Each corrective action or improvement was designed to mitigate or significantly reduce the probability of occurrence and/or increase the detectability of a given failure mode. For example, the failure mode discussed in section 2B.a in which shipping consolidation

• pportunities were not visible to transportation reps had a baseline RPN of 1000. A potential

corrective action was identified which could reduce the RPN to 225. Just as we had experienced in the grouping of root causes in section 2B we now saw groupings of corrective actions with similar themes emerging.

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Feasibility R P N

High Low High

Increase TL/LTL Breakpoint Improve YT0-4 Sorting Update carrier data Enable Routing Guides Code carrier selection “tiers” into system Move Text Messages to Master Data

Simplify Transportation Mgt Software Retrain logistics reps on “contiguous routing”

Quick Hits

Specific Measurable Achievable Responsible Time-Bound

Encourage timely notification on “rush” shipments

3A.c Criteria Used to Select Final Improvement Actions 3A.c Criteria Used to Select Final Improvement Actions

Marko A force field analysis of the feasibility for implementing an improvement versus the risk probability number (RPN) of the failure mode it addressed was used to select and prioritize final improvements. The team wanted to reduce shipping costs as rapidly as possible. Having already grouped and ranked improvement opportunities based on RPN, we now took another cut and overlaid feasibility criteria. Which could we implement immediately? Which required some effort but could be done in the near term? Which involved significant or expensive changes? The improvements highlighted in green were selected for implementation. Those in orange are examples of potential improvements which were deemed to have an unfavorable feasibility to RPN ratio and not selected for implementation. We also set the criteria of SMART design: specific, measurable, achievable, responsible, time-bound.

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Resistance to solution paradigm

“A simple policy change stipulating an increase to the TL/LTL breakpoint will fix this problem.”

• Stakeholder mapping
• Discovery Kaizen
• SIPOC
• Value Stream Mapping
• Process Variables Mapping
• Measurement Systems Analysis
• Cause and Effect Matrix
• Data stratification and segmentation
• Control charts
• FMEA

Open-minded application of DMAIC 3A.c Criteria Used to Select Final Improvement Actions 3A.c Criteria Used to Select Final Improvement Actions

D D M M A A I I C C

Marko There were members of the management stakeholder group and the core team who believed that a simple policy change increasing the breakpoint at which shipments should be sent TL versus LTL would suffice to reduce the cost per pound. We are proud, as a core team, to have shrugged off that developing paradigm and continued on applying the Lean Six Sigma methodology with open-mindedness; following the data wherever it led. Not only were there root causes unaffected by a change in the TL/LTL breakpoint, there were other root causes acting to prevent a breakpoint policy change from being effective.

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3B.b Analysis of Data to Select Final Improvements 3B.b Analysis of Data to Select Final Improvements

• r LTL

• pportunities

FMEA Force Rank by RPN Value Add vs. Non-Value Add Impact vs. Feasibility

Final improvements to be implemented

D D M M A A I I C C

Marko The key analysis used to select final improvements was therefore a synthesis of results obtained from:

• Improvement opportunities associated with FMEA failure modes with the highest risk

probability numbers

• Analysis of value added and non-value added steps within the organizational process

map

• Assessment of feasibility of implementation versus impact of implementation

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3B.c Stakeholder Involvement in Selection of Final Improvements 3B.c Stakeholder Involvement in Selection of Final Improvements

Informed Informed Informed Informed Informed

Customer Service

Informed Consulted Consulted Consulted Consulted

Bayer Technology Service

Accountable Informed Consulted Informed Consulted

Finance

Informed Accountable Consulted Accountable Consulted

Material Master Data

Consulted Consulted Accountable Consulted Accountable

Logistics

Accountable Accountable Responsible Accountable Responsible

Transportation Operations

Informed Informed Consulted Informed Consulted

Business Intelligence

Accountable Accountable Consulted Accountable Consulted

Customer Master Data

Responsible Responsible Accountable Responsible Accountable

Business Excellence

Improvement Implementation Final Improvement Potential Improvement Final Cause Potential Cause Stakeholder Group

Marko Internal stakeholders covered various roles and responsibilities in the selection of final improvements to be implemented. Responsible – “The Buck Stops Here” with overall responsibility to make certain this step happens. Accountable – The people who perform the identification based upon the data and information available through work with the team. Consulted – People with specific knowledge to the project focus area that bring their specific abilities (such as datamining) to the project to enable decision making. Informed – People who are told the project is in progress and updated where their specific area is impacted or change on their part may be required.

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3C.a Final Improvement Actions and Validation 3C.a Final Improvement Actions and Validation

• 1. Established New Weight Breakpoint in Carrier Tables

– Historical basis rather than a “best guess” – Coded LTL carrier recommendation into shipments up to 20K lbs.

• 2. Improved Sorting Capability in Transportation Software

– Reps can now see consolidation opportunities – Enables system sorts based on origin, destination, weight

• 3. Enhanced Carrier Table Update Process

– Dramatically improved identification and updates of carrier records – Provides carrier recommendations (replaces a guess)

• 4. Enabled Use of Routing Guides

– Routing guides show four carrier choices – Online freight payment vendor carrier rating system for new customer locations

D D M M A A I I C C

Ron The team identified four major improvements. 1) We established a new TL/LTL weight breakpoint but we did so based on data, not

• conjecture. Moreover, we hard coded carrier recommendations into our system.

2) We gave the transportation reps visibility of consolidation opportunities and the ability to sort on origin, destination and weight. This, as you may recall, addressed the failure mode with the highest Risk Probability Number. 3) Enhancement of the carrier tables offered a software and process execution upgrade which provided transportation reps with accurate carrier recommendations based on weight and origin-destination pair and a vendor managed lane rating system created a closed loop with our external transportation billing service. 4) Enabling the routing guides provided another level of visibility to the transportation

• reps. For any proposed shipment the routing guide now provides four carrier options

consistent with established BMS Logistic and Procurement contracts. Concurrently, we worked to inform product planning about missed opportunities to utilize lower cost intermodal equipment due to lack of planning time, and we embedded text messages in our master data for a Poke-Yoke or mistake proofing solution.

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3C.b Tangible Benefits 3C.b Tangible Benefits

Project Projected Cost Savings: $590,000 2006 Savings: $505,000 2007 Savings: $804,000

$41,889 $98,284 $76,397 $52,226 $49,670 $56,236 $83,376 $74,498 $55,526 $62,489 $58,725 $94,508 $- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 J-07 F-07 M-07 A-07 M-07 J-07 J-07 A-07 S-07 O-07 N-07 D-07 0.000 0.010 0.020 0.030 0.040 0.050 0.060 Sav ings Current Cost / Lb Baseline Cost / Lb New/Old Cost/Lb Dollar Savings

D D M M A A I I C C

Ron Cost reduction was our key objective and the most tangible measure of the affect of our improvements. Implementation of improvements began in February of 2006 and we validated a savings of $505,000 for that year. In 2007 we have reduced cost by over $800,000, and the project continues to generate results. New measurements were established to chart the cost per pound of shipments within the affected range. These charts are published and pushed electronically to 15 people each month. In addition, backup files show that the cost per pound of shipments within the range studied are within controls established by the team.

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3C.b Tangible Benefits 3C.b Tangible Benefits

• 5% of BMS shipments shifted to shorter leadtimes

– Carrier turndown rates improved! – Remaining turndowns were primarily due to product shortages – Less Non-value Added rework trying to find backup carriers

• No negative impact to On-Time in Full (OTIF) Metric
• No Increase in carrier damages (possible due to increased handling)

Percent of total Carrier Rejections Percent of total Carrier Rejections 2+ days notice 75% 10% 70% 5% 1 day notice 17% 40% 18% 20% Same day notice 8% 62% 11% 47% Apr-06 Aug-06

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Same Day 1 day 2 day Days Lead Time

Carrier Acceptance

Apr-06 Aug-06

Ron Carrier shipment refusals are down by 50% in the one to two day notice timeframe and down about 30% for same day notice. This effect had a collateral positive impact on transportation reps because they now spent less time chasing backup carriers to make transportation arrangements.

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3C.b Intangible Benefits 3C.b Intangible Benefits

• Customer Service Reps, Logistics Reps and Planners were trained via a

series of Lunch and Learns about what costs are generated through the use of certain requirements.

• “Best Value” Transportation decisions are visible to Logistics Reps
• Smoother workflow/ less hassle for Transportation Reps
• Faster training times for new Transportation Reps
• Better relationship with carriers
• Better compliance with routing guides
• Cross-functional process knowledge
• Increased competency and confidence in Lean Six Sigma

Ron As an outcome of the project, we held a number of Lunch and Learn events open to all employees engaged in transportation planning entitled “Transportation: Balancing Costs and Service”. Feedback from these meetings showed there were a number of cost drivers that were not clearly communicated to people influencing carrier selection. One such cost driver was the use of the word “guaranteed” when discussing freight arrangements with a carrier. “Guarantees” can drive costs for transportation upwards by as much as 40%.

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3C.c Final Improvement Validation 3C.c Final Improvement Validation

Month Sample Mean Aug Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul 0.060 0.055 0.050 0.045 _ _ X= 0.04821 UCL= 0.05255 LCL= 0.04388 1 2 3 4 Month Sample StDev Aug Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul 0.040 0.035 0.030 _ S= 0.03200 UCL= 0.03507 LCL= 0.02894 1 2 3 4

1

Xbar-S Chart of Cost / Lbs by Period

Baseline and Improvement Stages July 2005 through Aug 2006

X-Bar S charts - $/Lb. segmented by improvement implementation phases

D D M M A A I I C C

Marko Control charts and hypothesis testing were used to validate that the improvements had the desired effect. Care was taken to consider any confounding issues like carrier price negotiations or fuel surcharges. As we said, we ranked improvements based on feasibility. Those which could, were implemented immediately, followed within a month or two by a next wave as we developed and implemented changes to SAP software. Here we see the impact of improvements over these various implementation phases. Note: Not only did the mean cost per pound decrease in a statistically significant way, the variance in cost decreased as well.

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3C.c Final Improvement Validation 3C.c Final Improvement Validation

Aug Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul 0.7 0.6 0.5 0.4 0.3 0.2 Month Percent Shipped TL Instead of LTL _ P= 0.4368 UCL= 0.5596 LCL= 0.3141

1 1 1

P Chart of Shipments in 16 -20 K Weight Range

Defect Defined As a TL Shipment as Opposed to an LTL Shipment 1 Sigma 2 Sigma Note: Sigma Levels Assume a Goal of Zero TL in This Weight Range

D D M M A A I I C C

Marko Another way to view improvement. This is a p-chart: the defect is defined as a shipment which should have gone LTL but was incorrectly shipped via a full truckload carrier.

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Hypothesis Testing 2-Sample T-Test Results Hypothesis Testing 2-Sample T-Test Results

Two-Sample T-Test and CI: Cost / Lb, Period

Period N Mean StDev SE Mean 1 2111 0.0562 0.0342 0.00075 4 1495 0.0482 0.0320 0.00083 Difference = mu (1) - mu (4) Estimate for difference: 0.008026 95% CI for difference: (0.005841, 0.010211) T-Test of difference = 0 (vs not =): T-Value = 7.20 P-Value = 0.000 DF = 3341

• Minimum difference is $0.006/lb. Mean is $0.008/lb.
• Over 74,000,000 lbs in this weight range annually

Annual Cost savings at $0.008/lb. = $590,000

3C.c Final Improvement Validation 3C.c Final Improvement Validation

D D M M A A I I C C

Marko A two sample t test had a P value of zero indicating that a shift in mean cost per pound from baseline to post improvement was statistically significant. We also checked the confidence interval and used it to provide our management sponsors and champions with a statistical projection of the upside and downside potential for savings.

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Section 4: Improvement Implementation Section 4: Improvement Implementation

Kristen

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4A.a Involvement of internal and external stakeholders in implementation 4A.a Involvement of internal and external stakeholders in implementation

Informed Informed Customer Service Informed Consulted Bayer Technology Service Accountable Informed Finance Informed Accountable Material Master Data Consulted Consulted Logistics Accountable Accountable Transport Ops Informed Informed Business Intelligence Accountable Accountable Customer Master Data Responsible Responsible Business Excellence Improvement Implementation Final Improvement Stakeholder Group

Consolidated Action Plan D D M M A A I I C C

Kristen Internal stakeholders were integral to the selection and implementation of each improvement. Due to internal proprietary issues and legal implications of confidentiality agreements with our carriers, we could not involve them in the decision making process. Normal communications channels through our Logistics and Procurement Group were employed to obtain feedback from these external stakeholders.

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4A.b How resistance to change was identified and addressed 4A.b How resistance to change was identified and addressed

• 4. Have core team members actively

communicate and solicit feedback from the groups they represent. New role Need to analyze results and impact of change Finance

• 3. Include core team members in identification
• f root cause and corrective action plan

development Time required vs. benefit Need to transfer material data to fields Material Master Data

• 5. Proactive communication of core team

decisions. Decline in service to customer Communications with Transport ops Customer Service

• 7. Demonstrate consistent or improved results

Damages / carrier rejections Considerations for bids Logistics Strategy

• 6. Proactive meetings such as Lunch and Learn

to communicate impending changes. Training on new procedures Procedures and Methods for carrier decisions Transport Ops

• 2. Obtain respected members of each key

stakeholder group to serve on the core team. New role Need to track results Business Intelligence

• 1. Identify the key stakeholder groups

Time required vs. benefit Need to map text messages Customer Master Data

Strategy to Identify and Defuse Resistance Potential Resistance Change Required Stakeholder Group

Kristen The principal strategy to identify and address potential resistance to change was to ensure … 1. we had the right stakeholder groups represented on the core team,

• 2. that stakeholder group was represented by respected people from that group
• 3. identification of root cause and planning for corrective action was a collaborative

process

• 4. core team stakeholder representatives provided good two way communication with

members of their respective groups to discuss potential changes and resistance in advance of implementation

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4A.c How stakeholder buy-in was assured 4A.c How stakeholder buy-in was assured

Consensus of core team Two-way communication of core team members with functional colleagues Implementation involvement of core team On-going, formal updates to sponsor group Project completion signoff by key stakeholders D D M M A A I I C C

Kristen Stakeholder buy-in was assured first through consensus of the core team who represented all major stakeholder groups. In addition, core team representatives communicated with their colleagues throughout all phases of the project. Logistics and Procurement communicated with carriers as appropriate.

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4B.a Plan Developed to Implement Solutions - Consolidated Work Plan (Sample) 4B.a Plan Developed to Implement Solutions - Consolidated Work Plan (Sample)

MS Project Web Access Plan Consolidated Action Items Plan

Kristen A detailed action plan was developed for implementation in which each task was identified, assigned and a deadline established. The core team met regularly to assess progress and make adjustments as necessary. By meeting and communicating regularly we were able to stick pretty close to

• ur original plan.

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4B.b Approach Used to Implement Improvements 4B.b Approach Used to Implement Improvements

1. Established New Weight Breakpoint in Carrier Tables Approach: Hard coding breakpoint into the carrier tables was made “live” on a proscribed date and communicated to all users. Result: Eliminated potential errors due to judgment or training. 2. Improved Sorting Capability in Transportation Software Approach: Sorting capability changes implemented based on core team directions and communicated to all users outside the core team through one-on-one training sessions. Result: Enhanced consolidation opportunity visibility. 3. Enhanced Carrier Table Update Process Approach: Systematizing the carrier table update process was implemented based on core team directions and communicated to users outside the core team through formal training sessions. Result: Eliminated previous process of guessing. 4. Enabled Use of Routing Guides Approach: Users were retrained on the use of Routing Guides. Result: Routing guides provide four carrier choices and a freight payment rating system is available for new customer locations. D D M M A A I I C C

Ron The team implemented four major changes through Kaizen events. 1) We established a new TL/LTL weight breakpoint and entered carrier recommendations into our system. 2) We improved the ability to sort based on origin, destination and weight. 3) We enhanced the carrier tables through a software and process execution upgrade to provide transportation reps with accurate carrier recommendations based on weight and origin-destination pair. 4) We provided routing guides and trained reps on their use. We kept in touch with our stakeholders’ needs and educated production planners to take

advantage of lower cost intermodal freight. We also verified text messages as they were converted into Master data and eliminated “whisper down the lane” errors.

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4B.c Creation/Installation of Measuring System 4B.c Creation/Installation of Measuring System

Routing Guides

– Indicates preferred carriers – Published and educated reps – MS Excel-based – Sortable

• Origin
• Destination
• Zip Code

– Includes hazardous and temperature information – Based on actual BMS customers

Online lane rating tool

– Freight Payment Vendor rates lanes on request – Provides actual carrier rates

Whse Origin City ST Zip Destination City ST Zip Miles Temp Haz- Mat TOFC Carrier #1 Carrier #2 Carrier #3 Carrier #4 3612 COLUMBUS GA 31907 CARSON CA 90810 2177 N N Exel National Stevens Marten Bear 3612 COLUMBUS GA 31907 ONTARIO CA 91761 2141 N N Exel Metropolitan National Arctic Landstar 3612 COLUMBUS GA 31907 CLEARWATER FL 33760 436 N N National Empire Marten Bear 3612 COLUMBUS GA 31907 COVINGTON GA 30209 132 N N Dart Marten Empire Bear 3612 COLUMBUS GA 31907 ELLAVILLE GA 31806 51 N N Dart Empire Landstar Bear 3612 COLUMBUS GA 31907 BELLWOOD IL 60104 832 N N National Central Ref Waller Bear 3612 COLUMBUS GA 31907 CALUMET CITY IL 60409 798 N N National Central Ref Marten Bear 3612 COLUMBUS GA 31907 COLUMBIA IL 62236 662 N N Waller National Central Ref Bear 3612 COLUMBUS GA 31907 ELGIN IL 60120 854 N N National Central Ref Waller Bear 3612 COLUMBUS GA 31907 MELROSE PARK IL 60160 835 N N National Metropolitan Arctic Dandy 3612 COLUMBUS GA 31907 ROCKFORD IL 61102 902 N N National Central Ref Marten Bear 3612 COLUMBUS GA 31907 TINLEY PARK IL 60477 810 N N National Central Ref Waller Bear 3612 COLUMBUS GA 31907 WARSAW IN 46580 750 N N National Central Ref Arctic Bear 3612 COLUMBUS GA 31907 LOUISVILLE KY 40299 520 N N Empire Marten National Bear 3612 COLUMBUS GA 31907 BROWNSVILLE TX 78527 1074 N N Exel National Arctic Landstar 3612 COLUMBUS GA 31907 GAINESVILLE TX 76240 802 N N Exel National Central Ref Arctic 3612 COLUMBUS GA 31907 HOUSTON TX 77041 721 N N Exel National Arctic Landstar 3612 COLUMBUS GA 31907 LAREDO TX 78045 1072 N N Exel National Waller Arctic 3612 COLUMBUS GA 31907 PASADENA TX 77507 717 N N Exel National Landstar Arctic Metropolitan 3612 COLUMBUS GA 31907 WYTHEVILLE VA 24382 483 N N Empire National Central Ref CANADIAN 3612 COLUMBUS OH 43207 SAINT-LAURENT QC H4S1Y1 899 N N CanaAmTra Wheels Challenger MEXICAN - DAF Border 3612 COLUMBUS GA 31907 LERMA TX Laredo 1072 N N National Landstar Wheels 3612 COLUMBUS GA 31907 MONTERRAY NL TX Laredo 1072 N N National Landstar Wheels 3612 COLUMBUS GA 31907 AQUASCALIENTES TX Laredo 1072 N N National Landstar Arctic 3612 COLUMBUS GA 31907 RUSTICA XABOSTOC TX Laredo 1072 N N National Landstar Arctic 3612 COLUMBUS GA 31907 NUEVO LEON TX Laredo 1072 N N National Landstar Arctic 3612 COLUMBUS GA 31907 SANTA CLARA TX Brwns 1074 N N National Landstar Arctic

D D M M A A I I C C

Ron A Microsoft Excel based lane-rating measurement tool was published, distributed and personnel trained for the Logistics Reps to use when choosing carriers. This tool provided a simple, sort-able method to show which carrier would be preferred for a particular shipment. In addition, the freight payment vendor has an online query available to rate lanes that include the actual cost for the shipment. This is particularly useful when shipping to a new customer location. Coding the information from the routing guides into our transportation management software provided a virtually mistake proof or Poke Yoke way for transportation reps to chose an appropriate carrier.

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Aug Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul 0.7 0.6 0.5 0.4 0.3 0.2 Month Percent Shipped TL Instead of LTL _ P=0.4368 UCL= 0.5596 LCL=0.3141

1 1 1

P Chart of Shipments in 16 -20 K Weight Range

Defect Defined As a TL Shipment as Opposed to an LTL Shipment 1 Sigma 2 Sigma Note: Sigma Levels Assume a Goal of Zero TL in This Weight Range

Aug Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul 0.060 0.055 0.050 0.045 Month Sample Mean _ _ X= 0.04821 UCL= 0.05255 LCL= 0.04388 1 2 3 4 Aug Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul 0.040 0.035 0.030 Month Sample StDev _ S= 0.03200 UCL= 0.03507 LCL= 0.02894 1 2 3 4

1

Baseline and Improvement Stages July 2005 through Aug 2006

Xbar-S Chart of Cost per Pound by Period

Tests performed with unequal sample sizes

4C.a Validation of Sustained Tangible Results 4C.a Validation of Sustained Tangible Results

DEFINE DEFINE MEASURE MEASURE ANALYZE ANALYZE IMPROVE IMPROVE CONTROL CONTROL

Sam As we said, we ranked improvements based on feasibility. Those which could, were implemented immediately, followed within a month or two by a next wave as we developed and implemented changes to SAP software. Here we see the impact of improvements over these various implementation phases. Note: Not only did the mean cost per pound decrease in a statistically significant way, the variance in cost decreased as well. . This p-chart in the lower right hand corner is another way to monitor improvement. It tracks when a shipment should have gone LTL but was incorrectly shipped via a full truckload carrier.

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Project Charter is used to summarize alignment with BMS overarching goals Project Charter is used to summarize alignment with BMS overarching goals

4C.b Link to Organizational Goals 4C.b Link to Organizational Goals Sam Bayer MaterialScience goals, performance measures and strategies were linked to our project through the charter and ended up in positive territory as a result of the teams efforts.

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4C.b Link to Organizational Goals 4C.b Link to Organizational Goals

Strategies Performance Measures Project Charter Results Goals

Utilized Bayer Lean Six Sigma Methodology in Process Improvement Roll out Bayer Lean Six Sigma Black Belt Methodology Lean Six Sigma Competency Gained Visibility into Sub- Processes and Enabled Cost Reduction Push Beyond Mode, Source, Carrier View Premium Freight Synergy Enabled “Best value” Decision making Simplify, Standardize and Automate Transportation Order to Cash Objectives Reduced by 30 to 50% Hold Constant or Reduce Carrier Turndown Rates Increased Slightly (2%) Hold Constant or Increase On Time in Full (OTIF) 0.8 cents per pound 0.6 cents per pound Cost per lb Eliminated Five NVA Steps Reduce Process Complexity Simplification $800,000 Annually $600,000 Annually Cost Reduction

D D M M A A I I C C

Sam Shipping cost per pound went down by eight tenths of a cent. Given the size of our transportation expenses, this small amount translated to $800,000 dollars per year of cost reduction. Elimination of 5 non-value added steps reduced process complexity hence supporting Bayer’s goal of simplification. “On Time in Full” is a key performance indicator of importance to our customers. We managed to reduce cost without adversely affecting On time in Full, in fact the metric edged up a bit.

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4C.c How Results were Shared with Stakeholders 4C.c How Results were Shared with Stakeholders

D D M M A A I I C C

Sam Business stakeholders (Customer Service, Transportation, Product Planning and Master Data) were provided with the opportunity to attend “lunch and learns”. These meetings were well attended by management stakeholders and persons involved in the transportation decision making process. Following completion of the project we also communicated results to the project sponsor and key stakeholders.

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Section 5: Team Management and Project Presentation

Laurie

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• r LTL

SIPOC Value Stream Map Potential Internal and External Stakeholders Gantt Chart

5A Selection of Team Members and Their Involvement 5A Selection of Team Members and Their Involvement Laurie The first step in identifying team members occurred during our Define Phase in which we used a high level SIPOC, process map and preliminary Gantt chart to identify functional groups involved in the process, potentially impacted by any change to the process, and technical support functions required to obtain data, analyze data and help implement any required changes to software or SOPs.

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5A Selection of Team Members and Their Involvement 5A Selection of Team Members and Their Involvement

Participant Participant Participant Facilitator Participant Participant Facilitator Training Facilitation Participant Advisor Participant Participant Participant Participant Expert Lean Six Sigma Skills Marko Dodig Advisor Expert Participant Bayer Technology Services Sam Phipps Participant Expert Advisor Finance Kristin Hermick Participant Advisor Expert Material Master Data Ron Gadzinski Participant Facilitator Expert Logistics Laurie Colao Participant Expert Advisor Business Intelligence Kristin Hermick Participant Advisor Expert Customer Master Data Sean Ritchie Expert Advisor Facilitator Business Excellence Person Selected Team Facilitation Skills Datamining Expertise Process Involvement & Expertise Selection Criteria

Laurie Once we had a list of functional groups required for the project, we began the process

• f selecting core team members. The criteria for selection varied depending on the

functional group. We felt strongly that functional groups directly involved in the current process needed to have a representative on the core team with expertise in the details

• f their functional group’s role in the process. They would not, however, necessarily

require expertise in… let’s say… the SAP system and its software. Likewise, those providing systems expertise in data mining or software development would not need to have prior intimate knowledge of the shipping process. We needed to find people with both the time, and the backing of their functional management to attend meetings and do the work required of the project. Our sponsor group helped us with this task.

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5B How the Team Prepared To Work Together 5B How the Team Prepared To Work Together

Roles and Responsibilities Lean Six Sigma Orientation Planning/ Time Management Mutual Expectations Goals Decision Making Communications Management Expectations Concerns/Obstacles Team Composition

Laurie Before we began to work on the project itself, we needed to talk about how we were going to work as a team. What were our relative roles and responsibilities? Did we need any additional team members? What were our mutual agreements regarding how we would conduct ourselves? What did we expect of each other? What did we think management expected? How much of our time will this require and over what period? How will we make decisions? What is Lean Six Sigma and how is it different from what we’ve been doing? We spent some extra time reviewing the DMAIC process and some

• f the tools we would be using along the way.

Working out these basics before we began laid the foundation for us to be an effective team.

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5C How We Managed Team Performance 5C How We Managed Team Performance

D D M M A A I I C C

Laurie We didn’t just talk about roles and responsibilities or mutual expectations in that first meeting and then forget about it. Here is an example page of our consolidated work plan. Having identified and prioritized improvement

• pportunities, we made commitments to one another relative to who would

do what and when it should be completed. We published the list so that all could see if we were on track and make adjustments as necessary.

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BMS • 6 May 2008 • Page # 62

ASQ Team Excellence Competition

5C How We Managed Team Performance 5C How We Managed Team Performance

Senior Management Champions & Sponsors Core Team Of Stakeholder Representatives Two meetings per month Minutes published Commitments to each other

DEFINE DEFINE MEASURE MEASURE ANALYZE ANALYZE IMPROVE IMPROVE CONTROL CONTROL

Laurie As a part of our Lean Six Sigma methodology, the core team was required to provide regular, face to face, presentations to the sponsors and champions outlining the team’s progress, findings, and performance against plan. This not only helped motivate and keep the team on track, but more importantly managed the expectations of the sponsors and provided regular and formal

• pportunities for the team to identify potential roadblocks and solicit the help of the

sponsor group. As a team, we agreed to meet weekly or bi-weekly depending upon project objectives and resource loading. Project action item updates were published following meetings. We also ran special meetings whenever the team felt they were necessary to take remedial action to put things back on track.

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BMS • 6 May 2008 • Page # 63

ASQ Team Excellence Competition

Bayer MaterialScience – Science for a Better Life Bayer MaterialScience – Science for a Better Life

Working together as a cross-functional team utilizing the Bayer Lean Six Sigma Methodology, we were able to

• ptimize the Truckload / Less than Truckload Decision

Making Process and reduce Bayer MaterialScience Transportation costs by over $800M in 2007.

Thank You for Your Attention

Laurie Thank you for providing us the opportunity to obtain your feedback on our on-going process improvement endeavors. We would now like to take your questions.

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Questions? Questions?

ASQ Team Excellence Competition

Laurie