In 2020, due to COVID issues, the inbound freight cost is projected to be approximately $300,000.00. To meet a companies CSF#4 (Achieving Breakthrough Reduction) they need their freight costs to be at $17,000.00 per month. This equates to $100,000.00 cost reduction per year.

Opportunity statement

To meet the cost reduction pressures and position ourselves for future business, remain a key vendor and have future opportunities, we need to reduce our freight costs by 33% due to the problem that the company does not negotiate market pricing, manage inventory well enough leading to premium shipments, and communicate freight terms w/ vendors and accounting consistently and correctly.

Goal statement

The goal of a LSS project was to reduce inbound freight costs by 33% by reducing cost paid, consolidating freight shipments, getting prepaid shipments and minimizing air freight shipments.

KPI (Y) Reduce inbound freight to 0.0085% of revenue.

X = ? (Vendor freight costs?)

In the Analyze phase, LSS team collected data from a variety of freight companies (vendors) to test the hypothesis that vendor costs were significantly different. The LSS team identified several vendors, some that already serviced the company with freight, some new vendors.

Each vendor was given 6 months of freight shipments that they would charge to the LSS teams company. The team wants to validate that their root cause, that the companys shipping costs is due to the root cause that what the vendors charges, through a significance test.

1. Write hypothesis statements (Ho, Ha) to validate the root cause.