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

Positive Negative

Internal Strengths Weaknesses

External Opportunities

Threats

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: ExerciseSupply personnel

Supply ManagementProcesses

Supply ManagementTechnology

Operations Environ

SuccessfulSupply

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: ExerciseSupply personnel

Supply ManagementProcesses

Supply ManagementTechnology

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

Ris

k

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

Ris

k

Annual Spend

Supply Base Characterization

Non-Critical 2:Transactional

Consolidate

ConsolidateRisk 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, 2004Kimball Bullington, Ph.D.,

P.E.

Copyright 2004, Kimball E. Bullington

Learning Six SigmaObjectives 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

InputsTransformProcesses Outputs

Feedback

Suppliers Operations Customers

Environment

Define - Process Flow

InputsTransformProcesses Outputs

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 SpecsControl PlanTraining

Capable Process

Communication

Buying

Inv. Control

Defining Six SigmaCharter – 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 CharterProject Title:

Opportunity Statement: Project Leader:

Team Members / Roles:

Business Case:

Goal Statement (milestones, success

criteria, deliverables):Stakeholders:

Project Scope / Boundaries:

Plan Plan Date Actual Date

Define

Measure

Analyze

Design

Verify

Stakeholder AnalysisPeople or Groups

Level of Commitment Buy Mfg EngEnthusiastic Support

Help it work

Compliant

Hesitant X

Indifferent

Uncooperative X

Opposed

Hostile X

SIPOC ExampleSuppliers Inputs Processes Outputs Customer

s

Ops Mgt Supplier Perf.

SupplierEvaluation

Survey Ops Mgt

Buyers Complaint

Rating system

Buyers

Engrg. Tech Reqts

Improved 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 SpecsControl PlanTraining

Capable Process

Communication

Buying

Inv. Control

Analyzing Six SigmaNominal 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

People

Materials

Equipment

Processes

Environment

Measurement

FireEarthquake

Mat'l price increase

Bankruptcy

Illness

Turnover

Process upset Commodity allocation

Bad specs

Inaccurate PO

New employees

New source

IncompetenceIncapable equip

Lack of PM

FraudLawsuit

Tornado

Flood

StrikeStrikeBusiness down

Business up

Different standards

Cause-and-Effect Diagram

Effect

MaterialsMethods

EquipmentPeople

Environment

Cause

Cause

Cause

Cause

Cause

CauseCause

Cause

CauseCause

Cause

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 ManagementProcesses

Supply ManagementTechnology

Operations Environ

SuccessfulSupply

SWOT Analysis: Exercise

Supply personnel

Supply ManagementProcesses

Supply ManagementTechnology

Operations Environ

Supply Failure

Stakeholder AnalysisPeople or Groups

Level of Commitment Buy Mfg EngEnthusiastic Support

Help it work

Compliant

Hesitant X

Indifferent

Uncooperative X

Opposed

Hostile X

CT Tree

Low

Cost

Product

Efficient Design

Process Control

Material Control

Supplier Input

VOC

Accurate SpecsControl PlanTraining

Capable Process

Communication

Buying

Inv. Control

DMAIC Project CharterProject Title:

Opportunity Statement: Project Leader:

Team Members / Roles:

Business Case:

Goal Statement (milestones, success

criteria, deliverables):Stakeholders:

Project Scope / Boundaries:

Plan Plan Date Actual 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: www.isixsigma.com www.ge.com/sixsigma