Managing Risk in the Supply Chain Kimball Bullington, Ph.D., P.E. Professor Middle Tennessee State University Kimball E. Bullington

Define Phase - Tools Project Charter Stakeholder Analysis Affinity Diagram SIPOC Voice of the Customer CT Tree Kano Model SWOT Analysis Cause-and-Effect Diagrams Supplier Segmentation Project Management

SWOT Analysis PositiveNegative InternalStrengthsWeaknesses ExternalOpportunitiesThreats

SWOT Analyses: Exercise Strengths What are the strengths of your supply organization? What are the strengths of your operations as a customer of supply? Weaknesses What are the weaknesses of your supply organization?

Define Phase - Tools Project Charter Stakeholder Analysis Affinity Diagram SIPOC Voice of the Customer CT Tree Kano Model SWOT Analysis Cause-and-Effect Diagrams Supplier Segmentation Project Management

SWOT Analyses: Exercise Supply personnel Supply Management Processes Supply Management Technology Operations Environ Successful Supply

SWOT Analyses: Exercise Strengths What are the strengths of your supply organization? What are the strengths of your operations as a customer of supply? Weaknesses What are the weaknesses of your supply organization?

SWOT Analyses: Example Strengths Extensive experience with supply base Supplier performance history Procurement engineering ISO-quality process documentation

SWOT Analyses: Exercise Supply personnel Supply Management Processes Supply Management Technology Operations Environ Supply Failure

SWOT Analyses: Example Weaknesses Politically weak Lack of commitment to suppliers Tactically-focused Limited time for improvement activities Data is suspect Little visibility to sister-division data

SWOT Analyses: Exercise Opportunities What positive developments have occurred? What are the untapped strengths of your suppliers? Weaknesses What are the weaknesses of your supply base? What are the weaknesses of your supporting functions?

SWOT Analyses: Example Opportunities Untapped intra-business unit leverage Consortia opportunities Supplier capabilities not used Opportunities for expanding business with a key good performer

SWOT Analyses: Example Threats Financially unstable suppliers Incapable suppliers Cost increases Poor performance in a key supplier (quality, cost, delivery, service, technology development)

Define Phase - Tools Project Charter Stakeholder Analysis Affinity Diagram SIPOC Voice of the Customer CT Tree Kano Model SWOT Analysis Cause-and-Effect Diagrams Supplier Segmentation Project Management

Critical 2: Special Situations Critical 1: Long-term Relationship Non-Critical 1: Contractual High Low High Risk Annual Spend Supply Base Characterization Non-Critical 2: Transactional

Critical 2: Special Situations Critical 1: Long-term Relationship Non-Critical 1: Contractual High Low High Risk Annual Spend Supply Base Characterization Non-Critical 2: Transactional Consolidate Risk reduce & Consolidate

Define Phase - Tools Project Charter Stakeholder Analysis Affinity Diagram SIPOC Voice of the Customer CT Tree Kano Model SWOT Analysis Cause-and-Effect Diagrams Supplier Segmentation Project Management

Define Outputs Once completed, the Define Phase should answer the following questions: 1)Who is the customer? 2)What matters? 3)What is the scope? 4)What defect am I trying to reduce? 5)What are the improvement targets?

The Measure Phase Purpose To collect current performance of the process identified in the Define phase This data is used to determine sources of variation and serve as a benchmark to validate improvements

Measurements Benefits of having good data need to outweigh the costs of getting it What does this measure do for the Project?

The Measure Phase Upon completion of the measure phase, Project Teams will have: A plan for collecting data that specifies the type of data needed and techniques for collecting the data A validated measurement system that ensures the accuracy and consistency of the data collected A sufficient data set for problem analysis

Measure - Key Concepts Measurement Variation Exists naturally in any process and is the reason Six Sigma projects are undertaken Data Data Collection Plan Measurement System Analysis Ensures measurement techniques are reproducible and repeatable

Recording Measurements 3 stages The output stage These tell how well customer needs are being met Parts of the process These are taken at critical points in the process The input stage These evaluate contributions to the process that are turned into value for the customer

Recording Measurements Output Stage Shortages Line shutdowns Quality – discrepant material Material price variances Internal customer survey

Recording Measurements Parts of the process Project milestones Supplier ship on time performance Supplier OTD Supplier internal throughput yield Supplier suggested cost reductions

Recording Measurements The input stage Supplier base size % Buyers with degrees % of spend covered by LTC’s % of spend from reverse auction Supplier FMEA’s

FMEA (Failure Mode Effects Analysis) Recognizes potential failure and the effects of that failure Identifies actions that would reduce chance of failure Documents the process

Determining Data Type What do we want to know? Review materials developed during design phase What characteristics do we need to learn more about?

Data Collection Plan What data will be collected? Why is it needed? Who is responsible? How will it be collected? When will it be collected? Where will it be collected?

Measurement System Analysis After Data Collection Plan is complete, it needs to be verified before actual data is collected MSA is performed on a regular basis MSA ends when a high level of confidence is reached that the date collected accurately depicts the variation in the process

Supplying Six Sigma February 13, 2004 Kimball Bullington, Ph.D., P.E. Copyright 2004, Kimball E. Bullington

Learning Six Sigma Objectives Learn how the breakthrough strategies can be applied to supply. Learn which Six Sigma tools are most useful to supply. Learn the terminology of Six Sigma so you can supply to a Six Sigma company. Identify additional resources for more in-depth application of Six Sigma.

Define – Process Flow Inputs Transform Processes Outputs Feedback SuppliersOperationsCustomers Environment

Define - Process Flow Inputs Transform ProcessesOutputs Feedback

Defining Six Sigma If these criteria are met then: Identify the customers involved, both internal and external to the function. Find out what the customer’s CT’s are (Critical to Quality, Critical to Delivery, Critical to Cost, etc). Define the project scope and goals. Map the process to be improved.

CT Tree Low Cost Product Efficient Design Process Control Material Control Supplier Input VOC Accurate Specs Control Plan Training Capable Process Communication Buying Inv. Control

Defining Six Sigma Charter – Boundaries Commodity Supplier Project Are we there yet?

Defining Six Sigma Supply Defining Priority Pareto Diagrams Prioritization Matrix Defining Risk – FMEA Defining Commitment Commitment Scale Involvement Matrix Defining Capability – Process Sigma

DMADV Project Charter Project Title: Opportunity Statement:Project Leader: Team Members / Roles: Business Case: Goal Statement (milestones, success criteria, deliverables) : Stakeholders: Project Scope / Boundaries: PlanPlan DateActual Date Define Measure Analyze Design Verify

Stakeholder Analysis People or Groups Level of Commitment BuyMfgEng Enthusiastic Support Help it work Compliant HesitantX Indifferent UncooperativeX Opposed HostileX

SIPOC Example SuppliersInputsProcessesOutputsCustomers Ops Mgt Supplier Perf. Supplier Evaluation SurveyOps Mgt Buyers ComplaintRating system Buyers Engrg. Tech ReqtsImproved Supplier Perform. Engineering Mfg. Rating system Commit. to suppliers Mfg. Suppliers Supplier Complaint Suppliers

CT - Cost Tree Low Cost Product Efficient Design Process Control Material Control Supplier Input VOC Accurate Specs Control Plan Training Capable Process Communication Buying Inv. Control

Analyzing Six Sigma Nominal Group Technique Advantages Combines brainstorming with affinity Eliminates (or reduces) tendency for one person to dominate brainstorming Gives everyone time for private idea generation

Cause-and-Effect Diagrams Supplier Failure - Causes

Cause-and-Effect Diagram Effect MaterialsMethods EquipmentPeople Environment Cause

Analyzing Six Sigma Capability Analysis - establishing current performance level Graphical Analysis - a visual indication of performance using graphs Root Cause Analysis – developing a hypothesis about the causes of variation Root Cause Verification – verifying that the planned action will generate the desired improvement

SWOT Analyses: Exercise Strengths What are the strengths of your supply organization? What are the strengths of your operations / engineering as a customer of supply? Weaknesses What are the weaknesses of your supply organization?

SWOT Analysis: Exercise Supply personnel Supply Management Processes Supply Management Technology Operations Environ Successful Supply

SWOT Analysis: Exercise Supply personnel Supply Management Processes Supply Management Technology Operations Environ Supply Failure

Stakeholder Analysis People or Groups Level of Commitment BuyMfgEng Enthusiastic Support Help it work Compliant HesitantX Indifferent UncooperativeX Opposed HostileX

CT Tree Low Cost Product Efficient Design Process Control Material Control Supplier Input VOC Accurate Specs Control Plan Training Capable Process Communication Buying Inv. Control

DMAIC Project Charter Project Title: Opportunity Statement:Project Leader: Team Members / Roles: Business Case: Goal Statement (milestones, success criteria, deliverables) : Stakeholders: Project Scope / Boundaries: PlanPlan DateActual Date Define Measure Analyze Improve Control

Conclusion DMAIC can be helpful in the strategy development process. The tools of Define are most helpful, followed by Control. Training in the tools of Define and Control is not difficult. Actual implementation in the supply chain requires significant investment.

References Books: Six Sigma Pocket Guide (Rath & Strong’s) The Black Belt Memory Jogger (GOAL / QPC) Six Sigma (Harry and Schroeder) Implementing Six Sigma (Breyfogle) The Six Sigma Way Team Fieldbook (Pande, Neuman, Cavanagh) The Vision of Six Sigma: A roadmap for breakthrough (Harry) Supplier Strategies (Goldfeld) Web sites: