a conceptual model of the application of six sigma methodology to sm improvement

A conceptual model for the application of Six Sigma methodologies to supply chain improvement

Guide: Dr Lê Ngọc Quỳnh LamPresenter: Trần hà Duy

SUMMARY

This paper hypothesises that, whilst Six Sigma as a change and improvement strategy is delivering significant business benefit to practitioner organisations, it has not been successfully adapted to deliver similar benefits across supply chains. It demonstrates by reference to the literature that most published applications of Six Sigma in supply chains are related to the application of traditional internal Six Sigma methodologies to the internal processes of a supplier to the “Six Sigma Organisation”.

In this paper, a conceptual model is proposed that is consistent with the literature and has potential to support such an introduction. The model integrates the Balanced Scorecard, SCOR model (Supply Chain Reference model) and Six Sigma DMAIC (define, measure, analyse and improve) methodology in a two-level framework. This is a strategic-level cycle, developing focused projects to generate maximum business benefit, and an operational-level cycle, applying Six Sigma and lean tools in a DMAIC cycle to deliver supply chain improvements. Cautions and requirements for the success in practice of such a model are discussed and it is concluded that the model should be tested in practice to validate and develop further the methodology.

Introduction

Supply chain performance is a topic of much significance in organisations today. There has been much activity in both academic and industrial circles aimed at generating improvements. The principal focus of this activity has been waste reduction. Little effort has been expended on the reduction of variation.

However, variation in supply chains can be shown to have a significant effect on performance and thus deserves more consideration. Six Sigma has been shown to be successful in delivering business benefit through variation reduction in many internal processes, but is unproven in the reduction of supply chain variation.

Objectives and structure

The objectives of this paper are:• to establish the potential of the Six Sigma approach as a

mechanism for generating significant improvement across a supply chain, rather than just within an organisation’s internal processes;

• to formulate a model that would support such an introduction;• to establish some key factors that might contribute to the success or

failure of such a model.

The structure of the paper is a review of the literature on supply chain performance improvement and Six Sigma, followed by the development of a model and a discussion of the key factors that might support its success or failure

Supply chain management (SCM)

Christopher (1998) noted that it is no longer viable for an organisation to operate as an “isolated and independent entity” in competition with other, similar organisations. Instead, organisations must seek to work with others in the supply chain to identify sources of competitive advantage.

According to Porter (1990) and Poirier (1999), competition is moving to being between effective value systems or supply networks rather than individual corporations.

Porter goes on to argue that, increasingly, improving competitive advantage is as much about how well a company manages its external linkages as its internal ones. This moves the focus for improvement on to the supply chain as a whole, rather than the individual organisations within it.


SUPPLY CHAIN COUNCIL

Supply Chain Council (SCC) is a global nonprofit organization whose framework, improvement methodology, training, certification and benchmarking tools help member organizations make dramatic, rapid, and sustainable improvements in supply chain performance.

The Supply Chain Council considers SCM to be the mechanism for integrating the key business processes in any supply chain.


The Supply Chain Reference model:

SCOR model was developed and endorsed by the Supply Chain Council as a cross-industry standard for evaluating and improving enterprise-wide supply chain performance and management

SCOR is a consensus model. It was developed and continues to evolve with the direct input of industry leaders who manage global supply chains and use it daily to analyze and improve the performance of their organizations


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The purpose of Supply Chain Reference model:

The SCOR framework makes it possible for organizations to quickly determine and compare the performance of supply chain and related operations within their organization and against other organizations

Furthermore, SCC’s frameworks, network, benchmarking, research, and training help your management team analyze your supply chains faster, quickly recognize opportunities, implement changes, improve operational processes, track results, and sustain gains.

It is especially useful for describing value chains that cut across multiple departments and organizations, providing a common language for managing such processes.


Key issues in supply chain improvement:

• View the supply chain as a single entity

• It requires a new approach; integration not simple interface

• Supply chain management calls for strategic decision-making

• Focus on satisfying end customer

• Foster seamless supply chains

• Effective performance measurement (PM) systems

The significance of variation in supply chains

Variation is studied and analysed by statistics. “Variation is all around us and present in everything we do; all works is a series of interconnected processes and identifying, characterizing, quantifying, controlling, and reducing variation provide opportunities forimprovement” (Snee 1990).

Pullim (2002) believes supply chain performance is impaired because of different variation causes, such as: demand fluctuations, supplier deliveries quantities and quality, people and equipment inconsistencies. McGuffog andWadsley (1999) summarise key contributors to supply chain variation in terms of supply and demand:

The significance of variation in supply chains

The significance of variation in supply chains:George (2002) and Geary et al. (2002) describe the effects of

variation in lead times for supply networks: creating a huge variation that the supply chain has to cope with by use of excess inventories, expediting, etc.

Figure 2 indicates some of the costs to the organisation of excessive variation in lead times.

The need for a variation-driven approach

Overall, it can be seen that variation both within and between elements of the supply chain has significant potential to disrupt and damage the supply chain process

The lack of such a focus has already been noted, but it is difficult to estimate how much value might be added by the application of variation reducing approaches such as Six Sigma. A survey of aerospace companies conducted for Aviation Week & Space Technologies also revealed 100% agreement that intercompany exchanges would benefit from the standardised application of Six Sigma, and that no such framework existed (Velocci 2002).

These issues argue strongly for variation reduction in supply chains. The model presented in this paper is not intended to replace current approaches, but to add a further dimension to both the structure and the conduct of supply chain improvement activity.

SIX SIGMA

Six Sigma is the latest in a long line of approaches to quality and performance improvement.

A comprehensive and flexible system for achieving, sustaining and maximising business success. Six Sigma is uniquely driven by close understanding of customer needs, disciplined use of facts, data, and statistical analysis, and diligent attention to managing, improving, and reinventing business processes.

Six Sigma focuses on reduction of defects and variation and drives towards excellence measured in terms of defects per million opportunities (dpmo).

A strong structure and clear alignment to organisational goals (particularly financial) arekey parts of the Six Sigma approach

Black Belts: who usually work full time on projects at process level to solve critical problems and achieve bottom-line results

Master Black Belts: who provide mentoring, training and expert support to the Black Belts.

SIX SIGMA

6 SIGMA LEVELS:

SIX SIGMA

SIX SIGMA

6 SIGMA PROCESS

The driving force of Six Sigma is the define, measure, analyse, improve, control (DMAIC) process, which is used to structure the individual projects

The essence of the process is that it is an exploratory approach, which is a refinement of Deming’s plan, do, check, act cycle (Deming 1990).

SIX SIGMA

SIX SIGMA

6 SIGMA TOOLS AND TECHNIQUESThere is a myriad of tools and techniques available for application

within the DMAIC process. Whilst it is not the purpose of this paper to explore them in detail but indicative list

DEVELOPING A CONCEPTUAL IMPROVEMENT MODEL

The Supply Chain Conceptual Improvement model (SCCIM), shownin figure below,was developed to address the issues raised in previous sections based on the DMAIC methodology.

It addresses the following points: The need to link improvement activities strongly to strategy. The need to view the supply chain as a single entity. The need to integrate improvement actions across the entire supply chain. The need to focus on the end customer. The need to develop effective performance measurement systems for the supply chain. The need to incorporate variation reduction into any improvement approach for maximumeffect.

This model is organised in two complementary cycles, the strategic cycle and the operational cycle

DEVELOPING A CONCEPTUAL IMPROVEMENT MODEL

The Stragic Cycle

The strategic cycle ensures that the organisational strategies are developed into useful objectives and deployed into a set of measures for supply chain performance that are consistent with and aligned to organisational drivers.

Projects will be defined that are seen as having maximum strategic impact on key goals and areas of poor performance and driven by a largely standard Six Sigma process, with some additional tools suggested to support the implementation in supply chain applications. On project completion,

The Stragic Cycle

The use of the Balanced Scorecard (Kaplan and Norton 1992) in the improvement process (model) will enable organisations to link supply chain performance to strategy.

The Balanced Scorecard allows the strategic goals and the focus of the supply chain improvement model.

Thus, the intention is that the SCOR model will provide the identification and definition of the critical supply chain processes and metrics while the Balanced Scorecard will provide ongoing guidance to ensure the achievement of the strategic goals.

It is worth noting here that, although the model recommends the Balanced Scorecard, it is not intended to exclude other techniques or methods for linking supply chain performance to business strategy. If an organisation is already using another approach (Hoshin Kanri, for example), the model is flexible enough for this to replace the Balanced Scorecard provided it fulfils the same purpose.

The operational cycle

In the “model and measure”, “analyse”, “improve” and “control”, standard Six Sigma approaches would be used but supplemented by appropriate time compression techniques and an operational scorecard linking the performance on key measurables back to performance on the higherlevel measurements.Time compression techniques have been developed through the lean focus on supply chains, have developed approaches such as lean supply, value stream management and time-based process mapping (TBPM).

TBPM is a visual tool that incorporates the concepts of “business process” and “value-added/non-value-added time”. The operational scorecard is the deployment of organisational goals to the key measurable elements of the process and serves to focus effort on improvement of critical factors

The operational cycle

The “model and measure” stage focuses on the creation of a “big picture” of the supply chain (George 2002) and breaking this picture down by means of detailed process mapping—using more sophisticated mapping techniques such as the SCOR model mapping tool (SCC 2001). The “analyse”, “improve” and “control” phaseswould also incorporate the previously mentioned lean systems for identifying waste and standard Six Sigma tools for driving variation out.Verification of the improvement during the “improve” stage would require the use of simulation techniques in order to test improvements in a controlled fashion prior to “going live”. The final stage is to ensure that benefits gained are shared as per the pattern agreed in the initial collaboration agreement and that the results and actions from the project are shared across the interested parties

Benefits of the approach

The likely benefits of this system are:

• A strong linkage to strategic objectives for the supply chain should ensure that improvement activity focuses on the most important areas and is not ad hoc in nature.

• Collaboration issues are actively addressed at the start of the process so that they do not become an issue later.

• By using the SCOR model a supply chain focus is applied to the Balanced Scorecard so that it is more useful in this application.

• The combination of waste reduction and variation reduction tools during the project allows for the complementary benefits of taking out non-value-added activities and reducing variation in the remaining “core” activities.

• Feedback from the operational level to the strategic level allows for refinement of the focus for improvement for future projects.

• The systematic approach should deliver robust solutions to supply chain issues.

Conclusions

Six Sigma thinking offers the potential to refine current approaches to supply chain improvement. It offers likely benefits in delivering reduced variation over and above the elimination of waste and non-value-added activity delivered by existing approaches. However, if it is to be successful, particularly in the messy pluralistic context of supply chains, it needs to have strong linkages to strategy, a clear collaborative framework and a combination of tools for addressing the twin goals of waste and variation reduction.

The SCCIM addresses these issues and meets the criteria in the literature for a successful supply chain improvement approach. It has been conceptually validated and will be validated further in practice in the near future.

a conceptual model of the application of six sigma methodology to sm improvement

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