Edition 58
Rolls-Royce Corporation reduces cost and improves efficiency in the Reverse Logistics
by James Tilton, CPIM, LSS GB, Logistics Manager, Rolls-Royce Corporation

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By reducing and / or eliminating waste from the reverse logistics processes in their remanufacturing supply chain Rolls-Royce Corporation, located in Indianapolis, Indiana, achieved over two million dollars in benefit.

These benefits were achieved through two separate LEAN Six Sigma projects.

The two issues facing Rolls-Royce were; ensuring they get the “right” materials returned for remanufacture. (A review of the old process showed an inappropriate volume of non-repairable inventory), and improving the process for receiving CORE inventory into their ERP system as quickly and efficiently as possible making it readily available for remanufacture.

LEAN Six Sigma DMAIC - Lean Six Sigma is simply a process for solving a problem. It consists of five basic phases: Define, Measure, Analyze, Improve, and Control. This process is also known as DMAIC (pronounced “duh-may-ik”), its acronym.

This article attempts to address each project from the DMAIC phases of Define, Measure, Analyze, Improve, and Control. Both Projects will be addressed in the Control phase. This article will also discuss; challenges to the process, how those challenges were overcome, the process(es) of finding the solution, what was implemented, and how those implementations made a difference.

Rolls-Royce is a world-leading provider of power systems and services. They design, develop, manufacture and support gas turbine engines for use on land, sea and air.

Unlike industries where materials are returned primarily for the recapturing of the base raw material value through a revert and recycle program, Rolls-Royce operates a remanufacturing business to repair and return components to airworthiness condition. Rolls-Royce Global Repair Services/ Americas (GRSA) manages this operation.

GRSA is an internal ‘third party service provider’ (3PSP) within Rolls-Royce providing the repair and support services for engine components around the world. The Rolls-Royce Corporation Customer Facing Business Units, or CFBU’s, make up GRSA’s customer base.

GRSA is made up of the following departments: Repair Engineering, Program Management, Aftermarket Supply Chain, Scheduling, Logistics, Quality, and Finance.

The mission of GRSA is to develop and oversee component repair processes and suppliers, create additional revenue opportunities for Rolls-Royce, offer the CFBU’s a one-stop shop for repaired serviceable components, and provide a mechanism to turn technology into revenue.

GRSA’s services help reduce engine overhaul turn times by having a pool of repaired, serviceable, inventory available, that will reduce the carbon footprint through the repair and reuse of parts, when possible, and recycling those parts which cannot be repaired or reused by reverting “scrap” to original billet form.

Roll-Royce has a global recycle/revert program whereby our scrap metals are reintroduced into the raw materials supply chain for both Rolls-Royce and our supply base.

The Process
When aircraft engines enter the maintenance cycle they are taken off-wing and replaced with recently overhauled units so that the aircraft can return to service with minimal delay.

The engines are shipped to an authorized maintenance center, or “AMC”, where they are dis-assembled and the components are fully inspected. Inspection will route these components for; Recertification- cleared for re-use and be reinstalled, Scrap- be replaced with a new or remanufactured part, or deemed Repairable and sent to Rolls-Royce Global Repair Services Americas as a CORE. These COREs become the ‘raw material inputs’ into the remanufacturing supply chain.

Rolls-Royce utilizes a centralized receiving and distribution model.

Project #1 Getting the Right Stuff…
Define / Problem statements:

Returned COREs are rejected for “first finding” during the overhaul inspection and then returned to GRSA to enter the remanufacturing supply chain. Obvious scrap, (defined as thru-holes, distorted, missing material, etc.), was not segregated from potential ‘repairable’ inventory.

Note: An earlier project established a “MAX” Inventory level but failed to address the reparability of the COREs. As a result, excessive stock levels of repairable and non-repairable cores co-existed in inventory. This process would drive newly returned cores to be immediately scrapped regardless of serviceability due to max inventory levels to be reached.

This type of “inventory management” also contributes to lower repair yields.

Examples of Repairable / Repaired CORE and an “obvious scrap”

Analysis of on hand inventories showed fallout rates for a specific family of ”high volume” cores was running on average about 50% potentially repairable / 50% obvious scrap.

The basic process flow for a returned CORE is as follows; a CORE is sorted, packaged, (in a manner to protect the part with bubble wrap/paper, etc.), stored, and shipped. Then received, inducted, possibly re-packaged, and stored. Then to go out for repair it is; picked, shipped, and inspected (again). If repairable, the part enters the remanufacturing process. If it is not repairable (scrap), it would also be … “packaged, (in a manner to protect the part bubble wrap/paper, etc.), stored, returned/shipped, received, and scrapped…

By removing the “Obvious Scrap” Components from the repairable CORES the remanufacturing yields rates have increased as well making the repair process more profitable for stakeholders.

It quickly became evident excessive shipping, storage, and inspection fees were incurred with the old process and its redundancies.

Analysis verified there was approximately a $950K annual savings potential in logistics and handling costs alone just due to the redundant activity for non-repairable ‘obvious scrap’ parts.

A 3-phased approach was implemented to rid the pipeline of obvious scrap from existing and future shipments.

1.) Immediate Plan:
a. Continue to sort existing on hand inventory (scrap/repairable)
b. Implement process for sorting all incoming cores
2.) Intermediate Plan:
a. Segregate scrap vs. potential at AMCs & ship back separately
3.) Long-Term Plan: Amend processes at AMC
a. Evaluate & Expand Procedures to implement new requirements
b. Sort inventory (1st), and
c. Scrap on-site at AMCs to Eliminate the need to send / re-sort

Project # 2 Moving the right stuff with the “Speed of Light” …

Rolls-Royce, like all businesses, faces growing cost reduction demands. One result is an increased focus on the utilization of remanufactured parts.

The receipting and inducting of CORES into the system was a bottleneck of manual processes producing an excessive lead-time. These steps required a high level of labor, tribal knowledge, and manual data entry, often accompanied by error.

Now that Rolls-Royce are getting the ‘right stuff’ the next challenge was to get it into the supply chain as quickly and efficiently as possible. This project team needed to focus their attention to ‘leaning out’ the logistics of CORE receiving and induction

The process for getting COREs properly entered into the (ERP) System begins at the receiving dock. This is a “determination” point in the process where parts are routed to the proper induction areas. AMC CORES are separated and routed by customer/application type, (i.e. Civil, Defense, Marine, and Energy). Other receipts could also include Customer Owned parts, Investigation parts, scrap, etc.

Some scrap is sent directly back to Rolls-Royce for proper disposal and Intellectual Property controls.

COREs are part of an “engine set” sent in on a unique order number tied to the Engine Serial number. Traceability to the particular engine serial number is critical in this process. Multiple engine sets of COREs would come in boxed and wrapped on the same skid without any segregation other than the information on the paperwork. So the receiver would have to sort not only by customer but also by engine set.

Further complicating matters, delivery informational paperwork was usually found somewhere inside the package. And since there was no established ‘standard’ for the management of documentation, locating that information was often a game of ‘seek and find’. When the paperwork was buried wrapped around the part, inside bubble wrap, in a baggie, wrapped in paper... the process would border on spelunking.

For Receiving and Routing, an average day would see approximately 45 deliveries containing an average of 10 items per delivery. The average time spent to locate documents with the required data to route a delivery to the proper induction lanes was about 2½ minutes. That’s almost 18 man-hours a day.

Because no standard existed, everyone had his or her own system. And oftentimes the sorting and identifying process was repeated at the induction area. This could consume up to two thirds of the inductors time leaving only one third of their day to be spent on value-added induction activity.

The analysis of this project indicated that 75% of the time spent to receive and induct materials into inventory was spent looking for 3-5 basic pieces of information.

1. The Order #
2. Valuation types - (CORE, SCRAP, Investigation,)
3. Part Number, and associated data,
a. Serial number
b. Quantity

These data points are entered into the ERP System multiple times through multiple transaction codes and depending upon complexity it could involve up to 12 different screens. The data was all hand entered with keystrokes.

Why was this? A “5-WHY” analysis highlighted that prior to this project the directions guiding the returns of CORE hardware focused on the “What” and the “Where” to send, but lacked focus on the “HOW” to send it.

The 5-Why analysis method is used to move past symptoms and understand the true root cause of a problem. It is said that only by asking “Why?” five times, successively, you can delve into a problem deeply enough to understand the ultimate root cause. By the time you get to the 4th or 5th why, you will likely be looking squarely at management practices.

The initial goal of this project was to expedite the induction process with barcoded pack slips and replacing ‘keystrokes’ with a scan of the barcodes.

Following the DMAIC process, the data showed the receiving and routing processes also had an excessive amount of non-value added time.

Most of that activity was time spent looking for data that could easily and clearly be captured in one barcoded number. The unique order number was that number.

Researching the Reverse Logistics Associations website for process improvement ideas produced an article on Returns Management Systems (RMS). Using this resource, an RMS was created and implemented to add focus on the “HOW” along with the “what & where” and moved the ‘SORTING’ activity upstream to point of discovery at the AMC. This is now a documented Rolls-Royce Corp. CFBU policy.

RMS in Brief
Before an item can be refurbished, repaired, repackaged, recycled, or sold, it has to be properly identified and recorded into inventory. Our DMAIC “Critical to Quality” (CTQ) goal was to get the most required information from the least amount of data to manage. Our CTQ was leveraging the Return Order Number.

A robust RMS can enable this function with minimal data points. A Return Order Number can provide the following data:

Where did the shipment come from?
Where is the shipment headed?
What is the total “inventory” of the shipment that has been received?
What is the SKU / Model number / Serial number or other identifying number for item identification?
What is the condition of the item? (CORE, SCRAP, INVESTIGATION, etc.)
What is the value of each item received?
What quantity is received?
Is the asset “hazardous” or some other regulated classification?

Basically all the sorting and identifying was pushed upstream to the supply sources. Like components, from the same engine set, in the same conditions (core / scrap), would be packaged and identified as such with a barcoded labels. They would be over-packed into a larger container with a barcoded label using the Return Order Number as the primary piece of data.

Test Case:
The team targeted a 50% improvement in the Receiving process. The project was base-lined with an average delivery packaged in the ‘BEFORE State’ manner and timed. Then the team implemented the disciplines of the new RMS packaging and labeling guidelines for the ‘AFTER state’. Then the two times were compared.

Using the old method an average delivery comprised of 17 materials (both CORE and Scrap) was received in and sorted. Time: 22 minutes: 35 Seconds.

50% would give us a target of about 11 minutes.

After repacking to the proposed method with segregated materials, and easily attainable Bar-coded Order information on the outside of the box the delivery was received and routed in 21 Seconds. The result was actually closer to a 600% improvement.

Subsequently the inductor could now create up to 200 % more inductions because the engine sets are presorted. So the 66% of their time spent sorting can now be spent inducting. Pack slips are now barcoded doing away with the manual data entry vastly minimizing data entry errors by over 95%.

This project delivered approximately $180,000 annual savings in time, labor and error corrections.

Both of these projects employ a similar set of control methods. These would include an auditable process for identifying and reporting key metrics / accountabilities that can be easily attained and communicated for compliance.

Some Background
The CFBU owns oversight of their inventory and the relationships with their customer and AMC bases.

GRSA is responsible for the repair process of the CFBU’s inventory.

The Global Repair Services / Remanufacturing organization is relatively new to the rest of the company and was born within one of the Rolls-Royce Corp business units. It started as an idea to in one Business Unit and grew faster than expected and was adopted into all CFBU’s.

Over time GRSA and the CFBU had to face which parts to keep as core and which ones to revert/scrap directly. In the early days absolutely everything was kept and f storage space ran out. It got to the point of needing to make decisions on what was kept and what was scrapped. Eventually maximum inventory levels were set on some of the cores that didn’t have an active repair.

The bigger, more multifaceted, and diverse, an organization, so becomes the challenge to implement change. Program coordination can be challenging without a solid understanding of the bigger picture across the stakeholder base.

Another big issue in a remanufacturing / reverse logistics program is relationship management. The relationship requires a bit of “role swapping” if you will. In a program such as this, the customer becomes the supplier, and vice versa. The customer now supplies you with their core returns. This is where the ability to think and act collaboratively comes in full steam. The more complex and diversified the organizations involved are, the more challenging the relationship becomes to manage.

Additionally the same people aren’t always the ones controlling what comes in and what goes out. Sometimes the parties that would be the most accountable or responsible for these types of initiatives don’t even know they are plainly due to lack of awareness, or inability to visualize the bigger picture.

Deficiencies in awareness, an unshared sense of urgency, collaborative environments vs. competitive environments, can all stem from a disconnected organizational structure and impede progress if not careful.

How We Overcame Those Challenges
It didn’t happen overnight…

Louis Pasteur said, “Chance favors only the prepared mind.” By this he meant that sudden flashes of insight don’t just happen— they are the products of preparation. Sometimes that preparation just means repeating a story until someone is ready to hear it. Not everyone “gets it” the first time they are introduced to a different way of thinking... so repetition becomes key…

For the Obvious Scrap project the significant emotional event came during a conversation (during the OLD process) when a service engineer asked about a group of seemingly repairable parts that were about to be scrapped. When the Process of how MAX inventory levels were managed he asked “… well then what is the quality of the COREs in stock if you are scrapping out everything beyond the MAX quantity “

The response of “You don’t know…. “Became the catalytic spark that launched the LEAN Project.

Process Of Finding The Solutions
You need the right team, tools and partners. Fortunately Rolls-Royce and their 3PL partner share a LEAN philosophy in their corporate culture and approach to sustainability. Their local management team employs at least one LEAN Certified / SIX SIGMA Black Belt.

Both Rolls-Royce and the 3PL are experiencing improved efficiencies and cost savings. Each party had plenty of win-win opportunities with these projects.

For the Obvious Scrap /CORE Reduction project we basically 5-S’d our CORE Inventory.

5S is a targeted list of activities that promotes organization and efficiency in the workplace. The 5S terms are sorting, straightening, shining, standardizing, and sustaining.

What we did
Sorted: Scrap vs. Repairable (keep)
Set in Order: scrapped the scrap / repackaged re-stocked our cores
Shined: (cleaned up the process) took the project to the source at the AMC’s
Standardized: amended the inspection criteria to either scrap on site or label and separate scrap for controlled scrapping at our facility.
Sustain – Compliance checks via on site audits @ the AMC’s

For the CORE Induction process we went back to the basics following the K.I.S.S. Rule (Keep It Simple, Sxxxxx). We implemented a universally accepted barcode tool to leverage our data by barcoding the order number and pack slips.

One big shared lesson from this project was “A bar code is a font”, that can be easily used in practically any document or spreadsheet.

How Those Implementations Made A Difference
By implementing Standardized processes Rolls-Royce and their 3PL were able to drive overall operational costs down while decreasing Dock-to-Stock times.

Thus improving Inventory visibility and availability for the remanufacturing supply chain.

The spend value for logistics also increased by the weeding out the undesirables and removing non-value added activity from the handling, packaging, shipping, storing, of materials.

Overall these projects produced a $2M Plus benefit to Rolls-Royce.

Additionally an improved Repair Yield-Rate benefit is also being realized.

It is of immeasurable value when you have a team of professionals possessing the proper skillsets to help collaboratively attain your goals.

Clearly having a good team in place is paramount. Having a cross-organizational or cross-company team share in a common goal, with the proper skillsets, without concern for who gets all the credit – Priceless!
James W. Tilton, CPIM, LSSGB. Jim Tilton is a
logistics manager for RR Corporation Global Repair
Services: Americas in Indianapolis, Indiana. He Holds
a BS in Management from Indiana Wesleyan University.
Jim is APICS Certified in Production and Inventory
management through the APICS CPIM Program. He
is past president of the Central Indiana APICS Chapter
and currently holds a position on the APICS Great Lakes
District Staff. He is an APICS associate level instructor.
He earned his Lean Six Sigma Green belt through Rolls-

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