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TERM PROJECT

Mani Prakash Pilla (0931416)

Contents:

1) SYNERGY OF SUPPLY CHAIN OPERATIONS REFERENCE MODELo What is SOCR?

o 5 distinct Management Process

o How SCOR Helps Companies Perform Better

o Examples of how SCOR and Supply Chain Council membership have

helped companies improve their supply chain.

2) Six-Sigma and Lean Experiences of Bank of America

5 principles, S-tools, performances and improvements.

Waste elimination and achievements

Key Issues and Benefits

Strengths and weakness

SOCR integration with Six-Sigma and Lean

3) Case Studies

ADVA Optical Networking

Douglas Pharmaceuticals Limited

SAAB AB

Raytheon IDS

Bank Of America

References

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SYNERGY OF SUPPLY CHAIN OPERATIONS REFERENCE MODEL

What is SCOR?

The Supply Chain Operations Reference model (SCOR) is the product of the

Supply Chain Council, Inc. (SCC), an independent, not-for-profit, global corporation withmembership open to all companies and organizations interested in applying and

advancing the state-of-the-art in supply chain management systems and practices. The

SCOR-model captures the Councils consensus view of supply chain management. It is a

management tool, spanning from the supplier's supplier to the customer's customer.

While much of the underlying content of the Model has been used by

practitioners for many years, the SCOR-model provides a unique framework that links

business process, metrics, best practices and technology features into a unified

structure to support communication among supply chain partners and to improve the

effectiveness of supply chain management and related supply chain improvementactivities. Member companies pay a modest annual fee to support Council activities. All

who use the SCOR-model are asked to acknowledge the SCC in all documents describing

or depicting the SCOR-model and its use. The complete SCOR-model and other related

models of the SCC are accessible through the members section of the www.supply-

chain.org website. SCC members further model development by participating in project

development teams- SCOR and other related SCC Models are collaborative ongoing

projects that seek to represent current supply chain and related practice.

The model is based on major "pillars" like:

y Process Modelingy Business Process Reengineering: It captures the as-is state of a process and

derives the to-be future state.

y Benchmarking:Quantify the operational performance of similar companies and

establish internal targets based on best-in-class results.

y Performance Measurements: Standard metrics to measure process performance

y Best Practices Analysis: Characterize the management practices and software

solutions that result in best-in-class performance

y Process Reference Model: contains Standard descriptions of management

processes; A framework of relationships among the standard processes;

Management practices that produce best-in-class performance and Standardalignment to features and functionality.

SCOR spans all its customer interactions, from order entry through paid invoice, all

product (physical material and service) transactions, from your suppliers supplier to

your customers customer, including equipment, supplies, spare parts, bulk product,

software, etc. and all market interactions, from the understanding of aggregate demand

to the fulfillment of each order

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By describing supply chains using process modeling building blocks, the model can be

used to describe supply chains that are very simple or very complex using a common set

of definitions. As a result, disparate industries can be linked to describe the depth and

breadth of virtually any supply chain.

SCOR is based on five distinct management processes: Plan, Source, Make, Deliver, and

Return.

y Plan - Processes that balance aggregate demand and supply to develop a course

of action which best meets sourcing, production, and delivery requirements.

y Source - Processes that procure goods and services to meet planned or actual

demand.y Make - Processes that transform product to a finished state to meet planned or

actual demand.

y Deliver- Processes that provide finished goods and services to meet planned or

actual demand, typically including order management, transportation

management, and distribution management.

y Return - Processes associated with returning or receiving returned products for

any reason. These processes extend into post-delivery customer support.

With all reference models, there is a specific scope that the model addresses. SCOR is no

different and the model focuses on the following:

y All customer interactions, from order entry through paid invoice.

y All product (physical material and service) transactions, from your suppliers

supplier to your customers customer, including equipment, supplies, spare

parts, bulk product, software, etc.

y All market interactions, from the understanding of aggregate demand to the

fulfillment of each order.

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y SCOR does not attempt to describe every business process or activity.

Relationships between these processes can be made to the SCOR and some have

been noted within the model. Other key assumptions addressed by SCOR

include: training, quality, information technology, and administration (not supply

chain management). These areas are not explicitly addressed in the model but

rather assumed to be a fundamental supporting process throughout the model.y SCOR provides three-levels of process detail. Each level of detail assists a

company in defining scope (Level 1), configuration or type of supply chain (Level

2), process element details, including performance attributes (Level 3). Below

level 3, companies decompose process elements and start implementing specific

supply chain management practices. It is at this stage that companies define

practices to achieve a competitive advantage, and adapt to changing business

conditions.

y SCOR is a process reference model designed for effective communication among

supply chain partners. As an industry standard it also facilitates inter and intra

supply chain collaboration, horizontal process integration, by explaining the

relationships between processes (i.e., Plan-Source, Plan-Make, etc.). It also can

be used as a data input to completing an analysis of configuration alternatives

(e.g., Level 2) such as: Make-to-Stock or Make-To-Order. SCOR is used to

describe, measure, and evaluate supply chains in support of strategic planning

and continuous improvement.

For example the Level 1 relates to the Make process. This means that the focus of the

analysis will be concentrated on those processes that relate to the added-value

activities that the model categorizes as Make processes.

Level 2 includes 3 sub-processes that are children of the Make parent. Thesechildren have a special tag - a letter (M) and a number (1, 2, or 3). This is the syntax of

the SCOR model. The letter represents the initial of the process. The numbers identify

the scenario, or configuration. M1 equals a Make build to stock scenario (Products

or services are produced against a forecast). M2 equals a Make build to order

configuration (Products or services are produced against a real customer order in a just-

in-time fashion). M3 stands for Make engineer to order configuration (In this case a

blueprint of the final product is needed before any make activity can be performed).

Level 3 processes, also referred to as the business activities within a configuration;

represent the best practice detailed processes that belong to each of the Level 2

parents.

The breakdown of the Level 2 process (Make build to order) into its Level 3 components

identified from M2-01 to M2-06. Once again this is the SCOR syntax: letter-number-dot-

serial number. The model suggests that to perform a Make build to order process,

there are 6 more detailed tasks that are usually performed. The model is not

prescriptive (not mandatory) that all 6 processes are to be executed, It only represents

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what usually happens in the majority of organizations that compose the membership

base of the Supply Chain Council.

The Level 3 processes reach a level of detail that cannot exceed the boundaries

determined by the industry- agnostic and industry-standard nature of the SCOR model.

Therefore all the set of activities and processes that build - for instance - the M2.03Produce & test process will be company-specific, and therefore fall outside the

models scope.

The Performance Measurements PillarThe SCOR model contains more than 150 key

indicators that measure the performance of supply chain operations. These

performance metrics derive from the experience and contribution of the Council

members. As with the process modeling system, SCOR metrics are organized in a

hierarchical structure. Level 1 metrics are at the most aggregated level, and are typically

used by top decision makers to measure the performance of the company's overall

supply chain. Level 1 Metrics are primary, high level measures that may cross multiple

SCOR processes. Level 1 Metrics do not necessarily relate to a SCOR Level 1 process

(PLAN, SOURCE, MAKE, DELIVER and RETURN).

The metrics are used in conjunction with performance attributes. The Performance

Attributes are characteristics of the supply chain that permit it to be analyzed and

evaluated against other supply chains with competing strategies. Just as you would

describe a physical object like a piece of lumber using standard characteristics (e.g.,

height, width, depth), a supply chain requires standard characteristics to be described.

Without these characteristics it is extremely difficult to compare an organization that

chooses to be the low-cost provider against an organization that chooses to compete on

reliability and performance.

Associated with the Performance Attributes are the Level 1 Metrics. These Level 1

Metrics are the calculations by which an implementing organization can measure how

successful they are in achieving their desired positioning within the competitive market

space.

The metrics in the Model are hierarchical, just as the process elements are hierarchical.

Level 1 Metrics are created from lower level calculations. (Level 1 Metrics are primary,

high level measures that may cross multiple SCOR processes. Level 1 Metrics do not

necessarily relate to a SCOR Level 1 process (PLAN, SOURCE, MAKE, DELIVER and

RETURN). Lower level calculations (Level 2 metrics) are generally associated with a

narrower subset of processes. For example, Delivery Performance is calculated as the

total number of products delivered on time and in full based on a commit date.

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The Best Practices Pillar

Once the performance of the supply chain operations has been measured and

performance gaps identified, it becomes important to identify what activities should be

performed to close those gaps. Over 430 executable practices derived from the

experience of SCC members are available.

The SCOR model defines a best practice as a current, structured, proven and repeatable

method for making a positive impact on desired operational results.

I. Current - Must not be emerging (bleeding edge) and must not be antiquated

II. Structured - Has clearly stated Goal, Scope, Process, and Procedure

III. Proven - Success has been demonstrated in a working environment.

IV. Repeatable - The practice has been proven in multiple environments.

V. Method- Used in a very broad sense to indicate: business process, practice,

organizational strategy, enabling technology, business relationship, business

model, as well as information or knowledge management.

Positive impact on desired operational results The practice shows operational

improvement related to the stated goal and could be linked to Key Metric(s). The impact

should show either as gain (increase in speed, revenues, quality) or reduction (resource

utilizations, costs, loss, returns, etc.).

How SCOR Helps Companies Perform Better

SCOR helps manage a common set of business problems through a standardized

language, standardized metrics, and common business practices which acceleratebusiness change and improve performance. Applying SCOR streamlines communication

and dramatically improves the overall effectiveness of daily management and targeted

improvement initiatives. As demonstrated by the SCOR index, companies that use SCOR

are consistent top performers in their industries.

Organizations that use SCOR have:

y achieved consistent annual bottom-line improvements of 1-3%

y reaped significant cost savings and economic returns on SCOR-related

investments

y grown in aggregate share value two to three times faster than the Dow Jones

and S&P 500 indexes

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SCOR helps managers address perennial supply chain challenges:

1. Customer service SCOR helps evaluate cost/performance tradeoffs, develop

strategies for meeting customer expectations, and respond to domestic and

global market growth.

2. Cost control SCOR metrics are used in conjunction with supply chainperformance attributes, making it possible to compare different supply chains,

industries, and strategies.

3. Planning and risk management Using SCOR leads to faster implementation,

more comprehensive identification of potential risks, and easier coordination

with customers, suppliers, and stakeholders.

4. Supplier and partner relationship management SCOR provides a common

language for supply chain classification and analysis across organizational

boundaries.

5. Talent development The release ofSCOR 10.0 adds a strategic talent

framework that complements SCOR metrics, process, and practice components.

Examples of how SCOR and Supply Chain Council membership have helped companies

improve their supply chain.

A Global Market Leader in Optical Networking

The Challenge: A 370.2M enterprise focused on capturing rapid growth in demand

while maintaining profitability needed to identify inventory drivers and optimize

inventory levels to enable the company to reach inventory reduction targets, while

improving customer satisfaction in Order Fulfillment Cycle Time (OFCT) and On-time

Delivery (OTD). They also needed a transformation plan that would allow them toproactively plan, drive, and manage the inventory levels and better achieve the balance

of cost and service.

Suggested Solution:

y Used SCOR to identify performance gaps in key metrics between current and

required to reach parity status

y Used SCOR to identify process disconnects, drivers of inventory, and projects

required for improvement

y Prioritized proposed projects based on potential impact and amounts of

effort/risk

Benefits Achieved:

Gross inventory reduced from 59 million to 38 million in 10 months

Inventory days of supply reduced 47% from initial scorecard

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A Rapidly Growing Pharmaceuticals Company

The Challenge:The Company sustained significant growth in a 5 year period. That

growth, along with a conversion to a new ERP system created the perfect storm of

supply chain issues. Customers were complaining, which impacted new licensing

opportunities, future earnings growth, and shareholder value.

Suggested Solution:

1. Established process to evaluate options

2. Initiated 17-week program using SCOR

3. Created portfolio of50 improvements that addressed key problem areas

4. Implemented a Drive Chain that was the basis of an enterprise-wide

transformation program

Benefits Achieved:

y Sales per employee increased by 20%

y Cost of goods sold reduced by 10%

y Inventory days of supply improved by 20%

y Cash-to-cash cycle improved by 15%

y Shareholder returns: $4.1 million; internal rate of return 300%; enterprise value

uplift = $12.1 million

SCOR helps manage a common set of business problems through a standardized

language, standardized metrics, and common business practices which acceleratebusiness change and improve performance. Organizations which use SCOR enjoy

consistent annual bottom-line improvements of 1-3%. Business problems commonly

solved are:

Business Management Challenges

Strategy Development - identify, instrument, and deploy supply chain strategies

within and across organizations

Merger, Acquisition or Divestiture (companies or supply chains) - merge or split

up functioning supply chains to achieve merge, acquisition, or divestiture

operational goals

Supply optimization and Re-engineering - improving individual, clusters, or

networks of supply chains

Standardization, Streamlining - improve operational control and cost by

standardizing core processes

Management alignment - create standardizes management tools, reporting, and

organizational structures

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New business start-up (company and supply chain startups) - create and deploy

supply chains

Benchmarking - competitive assessment of qualitative and quantitative

performance

Process Outsourcing - identifying and outsourcing non-value add processes

Technology Services

Software implementation (ERP, PLM, QC) - pre-implementation definition and

optimization of supply chains

Workflow & Service Oriented Architecture - optimization of IT service

provisioning

Evolving:

y Skills development - standardization of skills definition, sourcing, and

performance criteria

SCOR is typically used to identify measure, reorganize and improve supply chain

processes. This is accomplished by a cyclic process of:

Capturing the configuration of a supply chain A supply chain configuration is

driven by:

o Plan levels of aggregation and information sources

o Source locations and products

o Make production sites and methods

o Deliver channels, inventory deployment and productso Return locations and methods

Measuring the performance of the supply chain and comparing against internal

and external industry goals Supply chain performance is focused on:

o Reliability - achievement of customer demand fulfillment on-time,

complete, without damage etc.

o Responsiveness - the time it takes to react to and fulfill customer

demand

o Agility - the ability of supply chain to increase/decrease demand within a

given planned period

o Cost - objective assessment of all components of supply chain cost

o Assets - the assessment of all resources used to fulfill customer demand

Re-aligning supply chain processes and best practices to fulfill unachieved, or

changing business objectives This re-alignment is achieved through a

combination of:

o Classic process re-engineering from "As-Is" to "To-Be"

o Lean Manufacturing analysis and process change

o Six-Sigma analysis of defective processes

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o Theory-of-Constraints analysis of systems of processes to elucidate root-

cause issues

o ISO-9000 style process capture and control

o Balanced SCOR cards and benchmarking

And a host of other combined industrial engineering based best-practice techniques inimprovement

Six Sigma and Lean Manufacturing:

Using SCOR, a cross-industry model designed to analyze supply chains and identify

improvement opportunities in both Material flow and Work & Information flow, as a

prelude to Six Sigma/Lean offers distinct advantages. For example, providing a

comprehensive analysis of a supply chain performance internally, while focusing on

achieving the expectations of the external customer (VOC) and identifying a selection of

projects will have the most impact on achieving strategic objectives and enabling

positive impacts to the bottom-line. Six Sigma/Lean professionals are discovering much

added value in using the SCOR model as a tool for locating and identifying potential

projects and measuring the project success at completion.

The SCOR model is a very powerful tool for creating supply chain visibility to identify the

opportunities for improvement that yield the greatest system effect for the relative

investment. Using the SCOR model for convergence enables continuous improvement

for practitioners to address their supply chains as complete systems, rather than

optimizing individual pieces for sub-optimal effects. SCOR also provides a common

language and metric system for both horizontal and vertical metric measurement and

roll-up. SCOR however, lacks the tactical techniques to effectively attack and repair theprioritized disconnects. The next logical step is to transition activities to Six Sigma, Lean,

or Six Sigma and Lean Teams.

The Six Sigma methodology is very effective at establishing a systematic procedure for

problem solving and root cause detection. The strengths of Six Sigma complement and

fill the gaps that a high-level architecture such as the SCOR model is limited by Six

Sigma. However, is in turn complemented by the SCOR models ability to identify high-

impact projects, prioritized across the supply chain. Six-Sigma is strengthened from a

potentially narrow exercise with separate efforts to a coordinated enterprise

improvement effort through SCOR.

The lean methodology is very effective at identifying waste at the process level, and

making relevant flows smoother to reduce inefficiencies. The process-centric focus of

lean complements the SCOR framework by providing the necessary tools to drill-down

into specific and detailed issues. The SCOR framework supports lean by identifying

opportunities across the supply chain to focus kaizen and value stream events that have

the greatest impact on overall system performance. SCOR metrics also provide a

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systematic way to measure improvements and ensure that changes made have the

desired effect, and continue to work the way they were designed. SCOR, together with

these methodologies, emerges stronger and even more effective.

Six-Sigma:

It is developed in 1980s at Motorola by Bill Smith. It is a Process Control; its level is

measured in terms of defects and process capability and a commitment to customers to

achieve an acceptable level of performance.

It is defined as a break through to significantly improve customer satisfaction and

shareholder value by reducing variability in every aspect of business And technically

defined as a statistical term signifying defects per million opportunities.

Six Sigma Experiences: Bank of America

Its goal is to achieve the worlds most admired and largest company with #1 in customer

satisfaction. It created Quality and Productivity Division.

Strategy: Develop business process excellence by applying voice of the customer to

identify and engineer critical few business processes using Six Sigma. It wanted a rapid

development within a year so hired people from different systems; introduced

computer simulation of processes and training facilities to all the hired people.

Results: After having a 2 year SS experience the ATM withdrawals losses of Bank of

America are reduced; Reduced counterfeit losses in nationwide cash vaults by 54%;

customers are delighted; increased stock value by the year 2002 end BOA named as BestBank in US & Euro moneys Worlds Most Improved Bank.

Strategically it is used by Leadership as a vehicle to develop sustainable culture of

Customer, Quality, Value and Continuous improvement and Operationally it is used byQuality Managers to reduce cycle times, costs, errors, rework, inventory, equipment

downtime. Deployment across all types of processes and industries worldwide

Six Sigma Methodology Phases:

Define:Identify, evaluate and select projects for improvement, Set goals andForm teams.

Measure:Collect data on size of the selected problem, identify key customerrequirements and determine key product and process characteristic.

Analyze:Analyze data, establish and confirm the vital few determinants of theperformance and validate hypothesis

Improve:Improvement strategy, develop ideas to remove root causes, design andcarry out experiments, optimize the process and final solutions.

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Control:Establish standards to maintain process, Design the controls, implementand monitor; Evaluate financial impact of the project

Critical to Quality (CTQ): it gives in improved delivery performance.

Timely delivery needs level 1 CTQ; on time delivery to schedule needs level 2 CTQ anddelivery within +/- 1 hour of schedule delivery time needs level 3 CTQ. Its main goal isto reduce number of delayed deliveries and better meet customer requirement of timely

delivery within scheduled delivery time.

Performance Standards:

y Output unit: A scheduled delivery of freight

y Output Characteristic: Timely delivery

y Project Y measure: Process starts when an order is received, Ends when goods arereceived & signed for at customers desk. Process measurement Deviation from

scheduled delivery time in minutes.y Specification limits:LSL = -60 minutes; USL= +60 minutesy Target:Scheduled time or zero minutes deviationy Defect:Delivery earlier or later than 1 houry No. of defect opportunities per unit: 1 opportunity for a defect per scheduled

delivery of freight.

SIPOC

Supplier: Stores Manager

Input: Stores Order

Process steps: Receive order, Plan delivery, Dispatch Driver with goods, Delivergoods to stores and Receive delivery

Output: received freight with documents

Customer: Store Manager

Improvements:

To make improvements some measurements and analysis were made like Driver and

Distance identified as key factors influencing delivery performance. Driver selected for

focus. Potential root causes as to why Driver influenced the time: Size of the vehicle,

Type of engine, Type of tires and fuel capacity

Experiments designed and conducted using truck type and tire size. It was found outthat larger tires took longer time at certain routes where area was cramped and timelost in maneuvering. High incidence of tire failures since tight turns led to stress on tiresthus increasing number of flat tires. Team modified planning of dispatch process byrouting smaller trucks at more restrictive areas.

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Key issues learned:

Difficulty in identifying the right project and defining the scope; Difficulty in applying

statistical parameters to Voice of the Customers; Trouble with setting the right goals

So measurements were made for inefficientdata gathering; Lack of measures and Lackof speed in execution and challenges of identifying best practices were analyzed for

developments. Improvements were made to remove the root causes and controlled.

Defineis ranked most important step but gets the lowest resource allocation. Project

scoping and its definition is critical to its success/ failure and Measure is considered

most difficult step and also gets the highest resources

Six-Sigma is different from others because of its versatility, breakthrough

improvements, financial results focus, Structured & disciplined problem solving

methodology using scientific tools and techniques, Customer centered, Involvement of

leadership, Mandatory Training, action learning and dedicated organization for problem

solving.

Benefits of Six Sigma

Generates sustained success

Sets performance goal for everyone

Enhances value for customers;

Accelerates rate of improvement;

Promotes learning across boundaries;

Executes strategic change

Six-Sigma is both a business improvement program and a powerful set of statistically

based improvement tools. As a business improvement program, it stresses the

development of an appropriately structured and disciplined infrastructure designed to

translate strategic and operational opportunities into resourced, well-scoped executable

projects that can be implemented in order to obtain substantial return. It could be

accomplished by training, coaching and mentoring a group of highly-skilled product and

process improvement experts that are assigned to execute these projects. A significant

part of the program infrastructure is the ability to monetarily validate expectation and

certify financial results at the completion of each project. The Six Sigma tool set is an

evolution of the best of quality and variation reduction techniques from the past

century, i.e., Deming, Crosby, Taguchi, Wheeler, etc. A problem solving methodology

called DMAIC (Define, Measure, Analyze, Improve, and Control) structures the use of

these tools to achieve optimal results and insures stable controlled processes as an

outcome. Over the last few years the relevance of Six Sigma has been heavily extensive

into product expansion and research areas and transactional areas such as shared

services and supply chain.

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Although Six Sigma has been proven highly triumphant in many industries and

functional applications, one of the critical weaknesses of Six Sigma is the lack of a

fundamental methodology for leveraging strategic and operational opportunities to

motor the selection and execution of projects which has higher importance. This

weakness becomes more obvious to a company as the Six Sigma program matures and

the low hanging fruit or the more apparent improvement opportunities have beenresolved. The Six Sigma relies upon the existence of deep-seated process capability and

some level of organizational maturity around the process. In highly jumbled, wasteful or

poorly controlled process environments it is more difficult to identify and apply the

defect and variation reduction techniques on critical bottlenecks they are essentially

buried in inefficiency.

Lean (Eliminating waste to add value from the customers perspective)

It is a principle driven, tool based philosophy that focuses on eliminating waste so that

all activities/steps add value from the customers perspective. It is all about continuouswaste elimination.

What is Waste?

Activities that add no value, add cost and time; Symptoms: need to find root causes and

eliminate them. There are 7 types of waste:

I. (Unnecessary) inventory Overproduction

II. Waiting

III. Transporting

IV. Inappropriate processingV. Unnecessary motion

VI. Defects

It strives for higher customer satisfaction, shorter lead time, higher flexibility, higher

quality, Lower costs and higher employee satisfaction. It reduces the cycle time, Cost,

Defects, Inventory, Space and Waste and thereby increasing Productivity, Customer

satisfaction, Profit, Customer responsiveness, Capacity, Quality, Cash flow and On time

delivery.

Five principles:

1. Specify Value: Define value from the customers perspective and express value

in terms of a specific product.Ask how your current products/services andprocesses disappoint your customers value expectation like price, quality,

reliable delivery, rapid response to changing needs, fundamental definition of

the product. It is a capability provided to a customer at the right time at an

appropriate price, as defined in each case by the customer.

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2. Map the Value Stream: Map all of the steps value added and non-value added

that bring a product of service to the customer. Whenever there isa product

orservice fora customer, there isavalue stream. The challenge liesinseeingit.

Identify all of the steps currently required to move products from order to

delivery. Challenge every step: Why is this necessary? Would the customer think

the product is worth less if this step could be left out? Many steps are onlynecessary because of the way firms are organized and previous decisions about

assets and technologies. All activities, both value added and non-value added,

required to bring a product (or provide a capability) from raw material

(initialization) into the hands of the customer

3. Establish Flow:The continuous movement of products, services and information

from end to end through the process. Line up all steps that truly create value in a

rapid sequence. It could be established by continuous movement of products,

services and information through the various transactions from end to end in the

process. Flow appears impractical and illogical because we have been trained to

think in terms of departments, batches, queues, efficiencies and backlogs. It

requires that every step in the process be: Capable right every time (six sigma),

Available always able to run (TPM), Adequate with capacity to avoid

bottlenecks and overcapitalization (right-sized tools)4. Implement Pull: Nothing is done by the upstream process until the downstream

customer signals the need. Through lead time compression & correct value

specification, let customers get exactly whats wanted exactly when its wanted:

At the pull of the customer/next process and Using signals (kanbans)

5. Work to Perfection: The complete elimination of waste so all activities create

value for the customer. Its a continual cycle of improvements. There is always

some waste that can be removed; People learn and exercise more creativity-

Involve employees in the process, training them as you proceed. Continuousimprovement leads to innovation, Use root cause analysis to solve problems

promptly and permanently and make objectives visible.

Common S tool used in operations: Sort, Set in order, Shine, Standardize and

Sustain/Systemize. It is the first step in Lean transformation.

1. Standardization of work by establishing explicit methods for manual tasks with

respect to quality, quantity, cost and safety to prevent wastes. There can be no

improvement in the absence of standards. Abnormal situations show that

something is going on. Specify content, sequence, timing and outcome toprevent and to expose waste. However, keep in mind that the details have to

improve the flow of value as drawn in a value stream map. But more important,

it hinders learning and improvement in the organization. Perfect example is:

Each worker understands their task. All tools and equipment are at arms length,

Standard work has been practiced to perfection, Continuous observation and

analysis drives continuous improvement.

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Types of Waste Eliminated

Searching

Finding

Selecting

Transporting Waiting

Success can be achieved by

a) Influencing outside of the public sector, usually a leader with business

experience

b) Experienced little leadership turnover

c) Programs implementation by removing organizational barriers and modifying its

culture

d) Focused on certain underlying principles and maintain a consistent conceptual

framework

e) Made conscious efforts to communicate program successes internally

f) Maintained reasonable expectations did not achieve success overnight, with

most taking several years to create a culture that characterizes and sustains their

program

g) Active leadership in both words and actions is a must.

Lean and Six Sigma Integration

Companies which have been experienced in the application of Lean and Six Sigma

techniques have for some time recognized the compatibility and power of combining

these approaches under the umbrella of a single business improvement program. There

is a natural linkage between Lean and Six Sigma both at the program-level as well as the

project execution level (see Table below). The strength of the Six Sigma program

communications, roles and responsibilities definition, top-to-bottom organization

training and development, project tracking and financial accountability improve the

effectiveness of Lean efforts and the speed at which they can be deployed. Six Sigma

tools and methodology provide Lean the means to resolve critical process bottlenecks

that impede flow by eliminating process variability and minimizing process defects.

Design for Six Sigma (DFSS) tools insures that products are designed to be robust to

known sources of process variation and defects. Likewise, Lean provides Six Sigma the

necessary methodology and tools to eliminate non-value added process waste and

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improve process flow. Lean, in effect, surfaces the rocks or bottlenecks that are

inherent in a given process. These become ideal targets for Six Sigma.

The net effect of Lean and Six Sigma assimilation is tremendously powerful program

that drives rapid, focused execution of projects and tremendous gains in product and

process improvement i.e., results. The results of an integrated Lean and Six Sigma

program are controlled, sustainable, and validated financially to impact the bottom-line.

There is an inherent benefit in the program which is the rapid growth of product and

process enhancement skills and their use throughout the organization. The challenge

that the company faces is leveraging an integrated Lean and Six Sigma program,

however, is the lack of a specific methodology to align business goals and strategic

improvement opportunities with the selection of projects and the skilled resources to

execute them. This challenge is particularly critical in an organization with complex

Supply Chains and significant product line diversity.

The Combination of Lean and Six Sigma

Lean Manufacturing focuses on reducing cycle time and increasing process speed. Its

goal is the removal of non-value-added process steps or time traps from the process.

Lean is a great method to help organize work areas, reduce WIP (Work-In-Process), and

speed material flow through the entire manufacturing process. Successful Lean

initiatives yield lower inventory cost, higher productivity and flexibility, and fasterresponse time to the customer.

Six Sigma is a statistical quality goal that represents the achievement of a quality level

equal to no more than 3.4 defects per million opportunities. For most companies, this is

a significant if not radical improvement in quality. But Six Sigma is more. It also focuses

on reducing defects and variability within a formalized project management structure.

In fact, the management structure for executing and managing projects is a real strength

of the Six Sigma approach. When executed well, Six Sigma can help an organization

achieve very significant improvements in quality, reduction of defects, and ultimately

lower cost. Six-Sigma is not only for manufacturing, but any operation where an

opportunity exists for error, including order entry, customer service, sales, HR, etc.

By combining Lean and Six Sigma, it is possible to achieve highly effective improvements

in a companys operations. There are, however, weaknesses in this approach: First, the

project selection process is not well defined. It does not require the company to

methodically select, rank, and assign projects, but usually relies on more subjective

methods. Projects may or may not be aligned with the corporate business strategy and

goals. Second, Lean Six Sigma efforts tend to be aligned by organizational functions

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(silos) rather than by supply chains. This can result in departmental improvements, but

fall short in achieving end-to-end supply chain improvements.

Since Lean Six Sigma depends primarily on brainstorming for project ideas, it can be

difficult to sustain long-term momentum once the initial waves of projects are

complete. Brainstorming will identify the most obvious issues, but eventually runs out of

steam.The Addition of SCOR to Lean Six Sigma

SCOR is a cross-industry model designed to analyze a supply chain and identify

improvement opportunities in both Material flow and Work & Information flow. The

SCOR model defines a supply chain as:

The integrated processes of Plan, Source, Make, Deliver and Return, spanning your

suppliers supplier to your customers customer, aligned with Operational Strategy,

Material, Work & Information Flows.

The SCOR model is implemented in phases, starting at a high level (usually Enterprise or

Supply Chain) and progressing down to Material flow and Work & Information flow

activities.

During Phase I, company strategy and priorities are aligned and clarified from a supply

chain standpoint. This phase also focuses on the development of a balanced SCOR card

complete with competitive data and a gap analysis that identifies where a companys

improvement efforts can be most effectively applied.

Phase II involves the analysis of material flow throughout the supply chain from

suppliers through to customers. This analysis provides the basis for identifying

disconnects that eventually become Lean Six Sigma projects. Continuing deeper into the

organization, Phase III focuses on the efficiency of key transactions in the supply chain

such as Purchase Orders, Work Orders, Sales Orders, and Planning Events. These

transaction types represent the functions of PLAN, SOURCE, MAKE, DELIVER, and

RETURN and will result in a detailed map of how work and information flow.These maps identify operational disconnects, i.e. processes that arent working the

way they should. The final result of completing the three phases of a SCOR project is a

prioritized portfolio of projects that vary from strategic to tactical initiatives and short-

term (< 1 yr.) to longer-term (2-5 years). When properly conducted, a SCOR project

should yield opportunities equal to 3% of sales.

Once SCOR is applied to develop the portfolio of supply chain improvement initiatives,

Lean Six-Sigma can be effectively employed to carry out the improvement projects.

Applying All Three Methods to Achieve Competitiveness

A SCOR project begins by educating management and developing a SCOR sponsor and

design team. The design team will do the project work as outlined in phases 1-3 above.

Next, a scope for the project must be determined that can range from multiple supply

chains to only a portion of one supply chain. The companys strategic and tactical needs

will help answer the scope question.

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Phase I: As shown above, the design team develops a SCOR card, listing competitors,

and collecting competitive data. This phase is crucial because it answers the first two

competitiveness questions How is competitiveness defined for the business? and

What are the performance gaps between our company and our competitors?

Phase II: A detailed analysis of material flow will identify improvement opportunitiesthat will help close competitive gaps.

Phase III: Material flow is followed by Work & Information flow where the efficiency of

major transaction types is evaluated. Transactions usually included, for example, are

Purchase Orders, Sales Orders, Work Orders, and Planning Events. The outcome is a

portfolio of improvement opportunities that feeds implementation teams, including

Lean Six Sigma teams.

In conclusion, using SCOR as a prelude to Lean Six Sigma offers several advantages:

SCOR aligns improvement efforts with the supply chain, not organizations.

SCOR provides a comprehensive analysis of a supply chain, focusing on the

customer as the end-point.

SCOR enables the selection of projects, which will have the most impact on

achieving strategic objectives and improving the P&L.

Strengths and weakness of SOCR, Six-Sigma and Lean

SOCR strengths:Planned methodology for placement of Strategic and operational

metrics and goals to identify business improvement opportunity. Homogeneous Supply

Chain process reference model and framework with multi-level process performance

metrics. Industry and competitive benchmark data sources, Macro-level approach for

identification of improvement opportunities. Level 1-3 material, work and information

flow analysis. Source for best-in-class supply chain management practices and Identifies

enabling IT capabilities to optimize the Supply Chain, delivers a comprehensive

opportunity and project portfolio with detailed ROI.

SOCR weakness:Inadequate organization-wide training and development, lesser

analytical tools for cause effect analysis and problem solving at the macro-level.

Insufficient tools, methodologies, or techniques to focus on executing projects identified

by the SCOR efforts. Little programmatic infrastructure for organizing and managing

concurrent project activities

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Six-Sigma strengths: Planned methodology for diagnosing and executing defect and

variation reduction projects in any process. Devoted roles, responsibilities, and program

infrastructure with Top-to-Bottom Organization training and development. Highly

structured problem solving approach (DMAIC) with Level 1-4+ variation and defect

reduction techniques. Concurrent training/projects applied skills development.

Customer and data driven decision making with unique methodologies for product

development, operations, and transactional applications. Rigid project tracking and

financial accountability for results.

Six-Sigma weakness:No specific methodology for aligning strategic and operation, No

methodology to develop understanding of the confounding relationships between

projects. Inadequate macro-level analytical techniques to validate projects. Data

dependent tools and techniques difficult to use in poorly controlled and wasteful

operating environments.

Lean strengths: Planned methodology for diagnosing and executing waste elimination

projects in any process. Typically focused on a factory/cell/ process level scope and

Focus on workplace organization (5S) and preventative techniques (TPM) with Level 4+

material, work and information flow analysis. Concurrent training / projects applied

skills development; Best-in-class operating practices at a factory and cell level. Standard

Work Development, Visual Controls and Cell Management Tools for Control of new

processes. Very effective at rapidly reducing cost through waste elimination.

Lean weakness:Few tools for focusing Lean efforts on strategic and operational process

priorities. Inadequate program, infrastructure and training to drive breakthrough

improvement. Poor capability for addressing support system issues and transactional

processes. Inadequate analysis of financial expectations and accountability for bottom-

line results.

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Case Studies:

1) ADVA Optical Networking:Challenge: Rapid growth in demand for storage, voice & data transport; Focus on

capturing this growth while maintaining profitability; needed to identify inventorydrivers and optimize inventory levels to enable ADVA to reach inventory reduction

targets whilst improving customer satisfaction in Order Fulfillment Cycle Time (OFCT)

and On-time Delivery (OTD); Created a transformation plan that would allow ADVA to

proactively plan, drive and manage the inventory levels and better achieve the balance

of cost and service.

Solution: Using SCOR, ADVA identified performance gaps in key metrics between

current and required to reach parity status; also using SCOR, identified process

disconnects, drivers of inventory and projects required for improvement; Grouped and

prioritized proposed projects based on potential impact and amount of effort/risk

Agreed to project list including: New S&OP process, Supplier scorecards and quarterly

business reviews with suppliers,Information transparency and others

Benefits Achieved

y Gross inventory reduced from 59 million to 38 million in 10 months

y Inventory days of supply reduced 47% from initial score card

2) Douglas Pharmaceuticals LimitedChallenge: Significant growth from 2003 to 2007, 300% increase in new product

development, 122% growth in production volume, 61% growth in employees.Burning Platform:Customer DIFOT (Export) Down to 20%, Product Lead Times Up to 8

months,New Product Introduction Lead Times Up to 9 months,Stock Turns Down to

2.1x and YTD Sales Down 30%. Available spare capacity is unknown.Customer

complaints impact new licensing opportunities and future earnings growth. Impact on

2007/8 earnings and shareholder value:EBIT (15.9%) andEnterprise Value ($25.2M).

Solution:Turning point for organization DIY not always best, Board mandated

review at its April 2007 meeting, Process established to evaluate options, SCE program

initiated using SCOR and 17 week SCE program between May and September 2007.

Benchmarking and Defect Analysis:Established emphasis on reliability and supply chain

cost,Confirmed size and relative importance of current performance gaps, providedearly direction on root causes, generated basis for calculating opportunity cost, created

immediate visibility over supply chain performance and built confidence to move onto

Phase 2

24 problem areas impacting reliability and COG Portfolio of50 improvements addressed

key problem areas. Drive Chain now forms basis of an enterprise wide transformation

program

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Benefits Achieved: Sales per employee increased by 20%, COGS by 10%, Inventory

days of supply by 20%, Cash to cash cycle by 15% and Share Holder returns are $4.1

million; IRR 300%; EV Uplift= $12.1m.

3) SAAB AB

Challenge: US$3 1B Aerospace Technology Enterprise1. Three strategic business

segments: aeronautics, defense and security solutions, systems and products.

Challenged to execute profitable and customer adapted logistics intensive businesses.

The degree of coordination of logistics operations highly impact Saabs cost level for

logistics;Coordination enables CEL processes to ensure delivery to customers demands.

Needed to build a competitive operations, planning, logistics and support. To do so,

wanted to move to a full life cycle based support concept

Solution:One backbone system (based on ERP and/or Best of Breed);Cross-functional collaboration and common trust; Increased Interoperability; Align SCM

Strategy with Corporate Strategy; Key Enablers are: Common Supply Chain Frameworksand Roadmaps; Standardization; Codification and Information Systems.

Step by step approach - no big bang; multiple supply chains and methods; Lack of

structured methods and processes;Knowledge tied to individuals; Lack of information

sharing.

Use of the SCOR model:Common definitions and process mapping,Sustainable and

structured methodology being used as framework for realization of all logistics and SCM

activities within Project CEL throughout all of its phases from cradle to the grave

Project management; Change management and Engineering technique

Benefits Achieved:Creating Saab Common Logistics and Supply Chain Management

Framework. Delivering incremental capabilities using SCOR Methodology, Processes and

Metrics hierarchy. Initial business cases have identified savings of 73 FTEs and a total of

US$15M.

4) Raytheon IDS

Challenge:US$4.7B subdivision of US$23.1B Defense Services Provider1; Rapidgrowth but antiquated processes and procurement focus in supply chain left IDS facing

non-competitive operating costs; No skills within existing team to background and skills

for transformational change required.

Solution: SOCR/Six-Sigma program accessing all supply chain processes within IDS,

with focus all SCOR process areas.8550 people within Raytheon IDS, and 7600 supplierpartners went through transformation for accomplishing five key challenges:

Improving world-class performance

Connecting every employee to the business

Creating purposeful, collaborative partnerships

Accelerating top-line, double-digit growth

Achieving predictable, best-in-class bottom-line performance

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Benefits Achieved:37 Percent reduction in headcount but increase of college-educated population to 66%;75% reduction in transactional processing for material

acquisition;25% improvement in SC Cost-to-Sales;$57M in bottom-line savings and98%

supplier conformance to contract

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