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

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

Learning Six Sigma What is Six Sigma? Why apply Six Sigma to the Supply Chain? Six Sigma People Breakthrough Strategy

What is Six Sigma? A.Customer Focus B.Data Driven C.Robust Methodology

What is Six Sigma? Key Concepts 1.Critical to Quality: What attributes are most important to the customer? (CTQ, CTC, CTD) 2.Defect: Failing to deliver what the customer wants / expects (DPMO) 3.Variation: The level of unpredictability the customer experiences

What is Six Sigma? Key Concepts 5.Process Capability: What your process can deliver – consistently 6.Stable Operations: Stable ops are predictable 7.Design for Six Sigma: Designing to meet customer needs and process capability

Why Use Six Sigma?

Why TQM Fails Startup Lack of Top Management Commitment Poor Timing & Pace –No burning platform –Competing change efforts –Overlapping efforts Wasted Education & Training Lack of Short-Term, Bottom-Line Results Brown, Hitchcock, and Willard Commitment Up Front Business Case Single Process Appropriate Training Results Threshold

Why TQM Fails Alignment Divergent Strategies (Lack of integration of quality improvement into all functions) Outdated Appraisal Methods Inappropriate Measures Inappropriate Rewards Brown, Hitchcock, and Willard Integrated Strategy Measurement Focus Team-based

Why TQM Fails Integration Failure to Transfer power to employees Mandating Outmoded Management Practices (integrity) Poor Organizational and Job Design Outdated Business System Failure to Manage Learning & Innovation Brown, Hitchcock, and Willard Charter BB’s ? DFSS Toll Gate Process Map Q-Tools

Why Apply Six Sigma to the Supply Chain? Materials represent 55% of COGS. Outsourcing trends make the SC even more important. It is consistent with a process focus to include the supply chain. SupplyMakeSell Feedback

Why Apply Six Sigma to the Supply Chain? If you are in a 6  company or serving 6  customers, they will understand (and support) this process.

Why Apply Six Sigma to the Supply Chain? A.Customer Focus B.Data Driven C.Robust Methodology

Warning Applying Six Sigma to SC Caveat The Six Sigma process should be mastered in your company before requiring it of your suppliers. Your team leaders could use the process before requiring that suppliers invest in it.

Six Sigma Six Sigma People Executives Champions (deployment, project) Master Black Belts Black Belts Green Belts

Six Sigma Breakthrough Strategy Existing Processes Define Measure Analyze Improve Control New Processes Define Measure Analyze Design Verify

DMADV - DMAIC

Define - Process Flow Develop Charter Map Processes Understand Voice Of Customer Feedback

Defining Six Sigma Charter Development Pareto of Current Supply Performance Supply Base Segmentation CT-Trees: Defining What is Important to Supply Business Case Communication Plan

Defining Six Sigma 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

Defining Six Sigma Charter Development Charter – An agreement between management and project team members about what the team will accomplish.

Defining Six Sigma Charter – What it does Clarifies expectations (what and why) Keeps team focused –Reduces tampering –Reduces wandering –Reduces goal creep Transfers ownership from management to team

Defining Six Sigma Charter – What it does Provides overview of purpose Describes why you are working on this project (business case) Defines scope of project Determines deliverables Defines measures of success Determines resources available

Charter Problem statement Business case Goals, milestones, success criteria, & deliverables Project scope / boundaries Roles & responsibilities Stakeholder support / approval needed

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

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

Defining Six Sigma Charter – Business Case What is the financial impact of a successful project?

Business Case Potential ImprovementPotential Impact Improve qualityReduce cost, inventory Improve OTDShortages , inventory  Select better suppliersQ, $, LT, reduce inventory Implement rating systemImprove supply efficiency, better suppliers Reduce priceReduce cost

Defining Six Sigma Business Case Screens What will be the impact on the customer and the business? How will this project affect functional (e.g., supply management or supplier operations) goals? Is it feasible? Are we likely to succeed?

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

Defining Six Sigma Charter – Measures (examples) A defect is a late delivery from a supplier. The cost is estimated to be $1500. A defect is a line shutdown due to a late delivery from a supplier. The cost is estimated at $100,000. A defect is a rejected part. The cost is estimated at $5,000.

Defining Six Sigma Charter – Deliverables Completion date Savings Reduced defect levels Reduced number of suppliers Increase in inventory turns

Defining Six Sigma Charter – Deliverables New supplier approved for critical item Training program for new buyers New process for supplier certification –or selection –or survey FMEA complete for key commodity or supplier

Defining Six Sigma Selecting Projects The project must relate to customer satisfaction The project’s results must reduce defects by some threshold amount The project should achieve some threshold of cost savings.

Criteria for Project Selection Does it involve recurring events? Is the scope narrow? Do measures exist? Do you have control of the process?

Defining Six Sigma Continued If these criteria are met then: 1)Identify the customers involved, both internal and external to the function. 2)Find out what the customer’s CT’s are (Critical to Quality, Critical to Delivery, Critical to Cost, etc). 3)Define the project scope and goals. 4)Map the process to be improved.

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?

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

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 Reqts Improved Supplier Perform. Engineering Mfg. Rating system Commit. to suppliers Mfg. Suppliers Supplier Complaint Suppliers

SWOT Analysis PositiveNegative InternalStrengthsWeaknesses ExternalOpportunitiesThreats

Failure Modes Effects Analysis Assess risk to customers if a key process input fails Document processes Document process improvements Ranks processes or products by risk

Failure Modes Effects Analysis Identify failure modes – How can this product or process fail? Identify failure effects – What happens when this failure occurs? Identify potential causes of the effects & their probability of occurring. Rate the likelihood of detecting the occurrence.

Failure Modes Effects Analysis Multiply the severity number times the occurrence probability time the detection probability to create a Risk Priority Number. Identify ways to reduce or manage risk of high RPN’s. Revise occurrence and detection numbers as control actions dictate.

FMEA - Risk Assessment

FMEA – Risk Management

FMEA - Output Ranked list of products that contribute to risk List of actions and persons responsible for addressing the risk Revised ranked priority list

Control Plans Structured approach for designing value added control methods Control actions necessary to ensure output quality May include controls anywhere in the process

Failures may occur in Quality Cost Delivery Service Supply process

Supplier Failure - Causes

Supplier Risk Failures in relationships can lead to failures in performance.

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

Relationship Success Factors Commitment / trust Communication Conflict resolution Shared goals

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)

Supply Base Risk Internal focus –People –Processes –Technology –Information –Environment –Measures

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

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

SWOT Analysis: 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 Analysis: 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?

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

Measuring Six Sigma 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?

Measuring Six Sigma Outputs 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

Measuring Six Sigma 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

Measuring Six Sigma Supply Control Charts Radar Charts Process Sigma Operational Definitions

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 data collected accurately depicts the variation in the process

Analyzing Six Sigma The analyze phase allows the Project Team to target improvement opportunities by taking a closer look at the data.

Analyzing Six Sigma Cause Hypotheses Identifying Obvious Process Problems –Disconnects –Bottlenecks –Redundancies –Rework –Decision points

Analyzing Six Sigma Cause Hypotheses Quantifying Value-Added Steps –Value-Adding –Value-Enabling –Non-Value-Adding

Analyzing Six Sigma Cause Hypotheses Process Time Analysis –Work time (value, but often only 5%) –Wait time (usually dominates) –Setup time (tremendous leverage) –Move time (process dependent)

Analyzing Six Sigma Tools Brainstorming... And beyond! Process Maps Cause-and-Effect Diagrams Focused Problem Statement Statistical Tools

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

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

Verifying Six Sigma Supply Process Management Chart Back to the CT’s Communication Plan Update

Elements of Improve Phase  Generate Improvement Alternatives  Create a “Should Be” Process Map  Conduct FMEA  Perform Cost/Benefit Analysis  Pilot  Validate Improvement

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

Generating Improvement Alternatives  Define Improvement Criteria  Generate Possible Improvements  Evaluate Improvements and Make Best Choice

Pilot Benefits of Pilot Determine best way to implement the improvement Lowers risk of failure Increases opportunity for feedback Obtain buy-in from affected personnel Provides opportunity to revise the improvement before full implementation

Review of Implementation Phase Generate Improvement Alternatives Create a “Should Be” Process Map Conduct FMEA Perform Cost/Benefit Analysis Pilot Validate Improvement

Control Phase Why is it important? The Control Phase begins as the project team tries to eliminate errors by “Mistake Proofing” their improvement alternative. Mistake Proofing attempts to eliminate the opportunities for error.

Control Phase Why is it important? Mistake Proofing tries to make it impossible for an operation to be performed incorrectly, and/or correct errors before they are passed to the next worker, where they might become a defect.

Control Phase #2 During the Control Phase the Project team will: 1)Develop a plan to make sure the measurement system will remain relevant over the long term. 2)Establish Control Charts the process owner will use to manage the process. 3)Create a Reaction Plan to address situations that might cause the process to move out of control.

Control Phase #3 The Control Phase ends when: 1) Standard Operating Procedures have been updated. 2) Process Operators, the people who do the job, have been trained for the new process. Once completed, the Control Phase should sustain the gains the project made while implementing ongoing process controls.

Control Phase #4 When is a project complete? 1) When other Black Belts can see the ongoing controls work 2) When the customer sees the results 3) When the business sees the money.

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, et al) The Vision of Six Sigma: A roadmap for breakthrough (Harry) Why TQM Fails and What To Do About It (Brown, Hitchcock, & Willard) Web sites:

Appendix Statistics Lite

Statistics Lite Centered    Process LSLUSL

Statistics Lite Centered  Process LSLUSL 

Statistics Lite Centered  Process LSLUSL  Non-conforming Product 1,300 DPMO

Statistics Lite Centered  Process LSLUSL  Non-conforming Product 2,600 DPMO

Statistics Lite Shifted  Process LSLUSL  1.5  mean shift

Statistics Lite Shifted  Process LSLUSL  Non-conforming Product 66,800 DPMO 1.5  mean shift

Statistics Lite Shifted  Process Cost to your company – 20-30% of sales LSLUSL  Non-conforming Product 66,800 DPMO 1.5  mean shift

Cost of Poor Quality Lost Opportunity Downtime Rework Inspection Overtime Rejects Lost sales Late delivery Long cycle times Expediting costs Inaccurate Reports (less obvious) Lost Customer Loyalty Redundant Operations Cost of Capital Excessive Planning 5-8% of Sales 15-22% of Sales

Statistics Lite Centered 6   Process LSLUSL 

Statistics Lite Shifted 6   Process LSLUSL  1.5  mean shift

Statistics Lite Shifted 6   Process LSLUSL  1.5  mean shift Non-conforming Product 3.4 DPMO