1. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Distribution Game

2. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 1 The Distribution Game

3. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 2 Distribution Layout Supplier Warehouse Retailer 1 Retailer 2 Retailer 3

4. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 3 Distribution Delivery Lead Times 15 Days for Delivery 5 Days for Delivery Supplier Warehouse Retailer 1 Retailer 2 Retailer 3

5. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 4 Customer Demand Customer Demand is Random! Supplier Warehouse Retailer 1 Retailer 2 Retailer 3

6. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 5 Cost Considerations Cost Report -Sales Selling Price $100 per piece -Cost of Goods Sold Purchase Price $70 per piece -Order Cost Supplier to Warehouse $200 per order Warehouse to Retailer $2.75 per order -Holding Cost Retail $.25 per Average Inventory Dollar - Total Cost = Days of Inventory * Purchase Cost * Hold Cost / 365 days Warehouse $.21 per Average Inventory Dollar - Total Cost = Days of Inventory * Purchase Cost * Hold Cost / 365 days

7. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 6 Placing Orders -Orders are placed once each day Remember - 15 days from Supplier to Warehouse - 5 days from Warehouse to Retailer -Demand is random for the three retailers -Warehouse delivery trucks capacity 99pc per load -Supplier delivery trucks capacity 999pc per load -Only one product style to deal with -Teams must distribute product to three retailers -Team with highest profit wins (don’t forget Fill Rate%)

8. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 7 Distribution Metrics Units Sold Units Demanded Fill Rate% Total Warehouse orders Total Retailer Shipments Total Warehouse Inventory Days Total Retailer Inventory Days Inventory Turns Total of Backorder Days (Rain checks) Number of Days Played

9. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 8 Cost Report Cost Report Output -Sales$30,500.00 -Cost of Goods Sold$21,350.00 -Order Cost$1,444.00 -Holding Cost$793.61 -Net Profit$6,912.39

10. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 9 Play One Open 1stRun.PRM Supplier to Warehouse 15 days Max order 999 Warehouse to Retailer 5 day Max order 99 Each day make decisions on -Order to Supplier -Order to (3) Retailers There will be no backorders (missed sale) Team with Highest Net Profit and Highest Fill Rate% Wins

11. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 10 Play One Break Out Discussion What went right? What went wrong? What drove lot size decisions? Did we satisfy our customers? Did we satisfy our stockholders? What would you do different? -Where would you focus?

12. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 11 Play Two Open 2ndRun.PRM Supplier to Warehouse 5 days Max order 999 Warehouse to Retailer 1 day Max order 99 Each day make decisions on -Order to Supplier -Order to (3) Retailers There will be no backorders (missed sale) Team with Highest Net Profit and Highest Fill Rate% Wins

13. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 12 Play Two Break Out Discussion What went right? What went wrong? Did changing lead time solve our problems? Was it easier to satisfy customers? Are the stockholders happy? What would you do different? -Where would you focus?

14. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 13 Play Three Open 3rdRun.PRM Sigma Lean teams reduced cost 5% -Fixed costs at Warehouse -Holding costs at Retailer Supplier to Warehouse 5 days Max order 999 Warehouse to Retailer 1 day Max order 99 Each day make decisions on -Order to Supplier -Order to (3) Retailers There will be no backorders (missed sale) Team with Highest Net Profit and Highest Fill Rate% Wins

15. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 14 Play Three Break Out Discussion What drove lot size decisions? Did shorter lead times with reduced cost solve our problems? How does lead time relate to inventory levels? What about customer satisfaction? What about customer (stockholders) satisfaction? Are there still opportunities? -Where would you focus next? How would you reduce warehouse deliveries to the retailers? How would you go about reducing the supplier lead time?

16. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 15 Lessons From The Game First focus on the high level Value Stream Understand the process step linkage and dependencies Understand demand/material signals and triggers Define current performance How long does the demand signal take to reach the supplier for replenishment – How accurate when it gets there What internal processes affect product getting to the customer Quantify process outputs Inventory levels/turns Key performance indicators Resource requirements Look for restrictions in Material and Information flow Where does Material stagnate Where does Information stagnate

17. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 16 Key Learning Points Lean operations focus on reducing lead time Shorter lead times equate to: Less Work in Process (WIP) Lower inventory levels Reduced holding costs Freed up cash Lead time reduction enables our operation to respond quicker to fluctuations in customer demand Lower inventory means less shrink, and less excess and obsolescence Lower inventory levels uncover inefficiencies which can be eliminated through Sigma Lean tools and methodology

18. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 17 Trademarks And Service Marks Trademarks of Six Sigma Academy: Breakthrough Design Breakthrough Software Design Breakthrough Diagnosis Breakthrough Execution Breakthrough Lean ® Breakthrough Sigma Lean Breakthrough Six Sigma Breakthrough Strategy ® Breakthrough Value Services ® FASTART INTELLEQ METREQ WE WEAVE EXCELLENCE INTO THE FABRIC OF BUSINESS Six Sigma is a federally registered trademark of Motorola, Inc. SigmaFlow is a trademark of Compass Partners, Inc. MINITAB is a trademark of Minitab, Inc. VarTran is a trademark of Taylor Enterprises

19. Copyright © 2001-2004 Six Sigma Academy International LLC All Rights Reserved Pg 18 Six Sigma Academy www.6-sigma.com US Tel: (480) 515-9501 US Fax: (480) 515-9507 International Tel: +44-1403-783456 International Fax: +44-1403-218788 8876 E. Pinnacle Peak Road, Suite 100 Scottsdale, AZ 85255