3 Steps for Reducing Complexity

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Six Sigma Integration, Inc.

1 March 2010

3 Steps for Reducing

Supply Chain Complexity: Creating Safer Operations

James William Martin (2011), Unexpected Consequences,- Why

The Things We Trust Fail, Copyright 2011 by Praeger Publications

. Publishing date July 2011. Not to be reproduced or modified

without written permission from Praeger Publications.

Copyright 2010 Six Sigma Integration, Inc.

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James William Martin is a consultant and president of a

management consulting firm, located south of Boston. He

is also the author of several books focused on product

and process design. He has coached thousands of

people across Japan, China, Korea, Singapore, Malaysia,

Thailand, Australia, and North America to use fact based

methods to improve their products and services. As a

management consultant and teacher for more than twenty

years, he also served as an instructor at the Providence’s

College Graduate School of Business where he

instructed courses in decision analysis and related

courses, and counseled graduate students from

government organizations and leading corporations in the

greater Boston/Providence area. His interests include

environmental friendly design as well as personal and

organizational ethics, productivity and change

management. He holds a Master of Science in

Mechanical Engineering, Northeastern University; Master

of Business Administration Providence College; and

Bachelor of Science degrees in Industrial Engineering,

and Biology from the University of Rhode Island.

Introductions


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Our Competitive Advantage

We know supply chain

We know complexity

and risk

We know how

to reduce risk

We can sustain

results

Our mission: Reducing supply

chain complexity, improving

productivity and safety


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Complexity is:

“the condition of being difficult to analyze, understand, or solve …. the condition of being made up of many interrelated parts” (Encarta Dictionary)


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You can see it in these ways:

Organizational cultural issues resulted in significant previous failures

A lack of risk analysis and contingency planning

Dependent on complicated logistical systems and resources for failure mitigation

Poor root cause analysis and mitigation

• Item proliferation

• High percentage non-value

adding operations (time)

• Long lead-times

• High demand variation

• Low productivity

• Low asset utilization

• High unit costs

• Near misses

• Known issues

• Accidents

• Etc.

Higher level symptom: Measured by:


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How is it measured?

• Item proliferation

• High percentage non-value

adding steps (time)

• Long lead-times

• High demand variation

• Low productivity

• Low asset utilization

• High unit costs

• Near misses

• Known issues

• Accidents

• Etc.

NVA BVA VA

You must identify and measure complexity drivers to

improve performance


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It is most dangerous if:

Dangerous equipment

Dangerous application environment

People dependent or cognition issues

Significant potential financial loss or loss of life if failure

occurs

Would impact many people across large geography

Politically sensitive


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We analyzed the effects of complexity:

Complexity increases demand

variation and lead-time, requires

higher inventory levels and lowers

asset utilization.

Increases operating cost, reduces

cash flow and lowers revenues.

Increases risk and the likelihood of

unsafe operations.

We wrote the books for supply chain

complexity reduction….


http://search.barnesandnoble.com/Operational-Excellence/James-William-Martin/e/9781420062502/?itm=1&USRI=operational+excellence

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What are recurrence risks?

Risk Example Risk Example

1. Organizational cultural

issues resulted in

significant previous failure

Interference by key stakeholders, misalignment of

resources, ethical lapses.

8. Significant potential

financial loss or loss of life

if failure occurs

Operations which pose risks of injuries and death,

widespread damage or environmental contamination.

2. A lack of risk analysis

and contingency planning

Project the future using historical information rather

than considering worst case scenarios.

9. Would impact many

people across large

geography

Typically natural events or man-made events such as

environmental contamination over wide areas. Also,

poor relief responses to such events.

3. Regulatory laxness Inefficient or ineffective laws and regulations which

permit an industry to short-cut and take inordinate

risks.

10. Politically sensitive

If these occur, the public and media complain to the

extent politicians become engaged.

4. Dangerous equipment Rotating equipment which can injure or kill people.

Equipment which can crush people.

11. Application technology

ahead of control

technology

Creating systems for production without systems to

monitor, and control them to prevent injury, deaths or

property and environmental damage.

5. Dangerous application

environment

Environmental extremes of temperature, noise, light,

vibration or other dangerous conditions.

12. Dependent on

complicated logistical

systems and resources for

failure mitigation

Non-existent, resource starved or poorly managed

logistical systems to coordinate and provide relief

after a catastrophic event.

6. Complex systems

Systems relying on combinations of people,

technology and information for their operation. These

may be best solutions and cannot be simplified.

13. Poor root cause

analysis and mitigation

A chronic failure to investigate the causal factors for

failure or to implement effective solutions to prevent

their recurrence.

7. People dependent or

cognition issues

Systems requiring people gather , interpret and act on

information.

James William Martin (2011), Unexpected Consequences,- Why The Things We Trust Fail, Copyright 2011 by Praeger Publications . Publishing date July 2011. Not to be reproduced or modified without written permission from Praeger Publications.


Supply chain complexity causes

process breakdowns

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Finance

•Accounts payable cycle time

•Variance to budget

•Margin improvement

•Overtime expense

•Account receivable cycle time

Quality Assurance

•Defects

•Customer complaints

•Claims

•Rework

•Scrap

•Warranty

Billing

•Billing errors

•Excess mailing expense

Purchasing

•Suboptimum year over year cost

reduction

•Too many suppliers

•Too many contractors

•High cost per invoice

•Purchasing errors

Call Center

•Long average handling time

•Unnecessary call transfers

•Cost per call

•Abandoned calls

Administration

•High utilities expense

•High insurance costs per employee

•High facility costs per employee

•High material and supplies expense

HR

•HR staff per total employees

•Absenteeism rate

•Training hours per employee

•Employee cost to hire and retain

•Health costs per employee

•Lost time accidents

•Disability costs

•HS&E issues

Operations

•Lead-times too long

•Late orders

•Average cycle time per order too

long

•Emergency maintenance

Distribution

•Shipments exceeding standard

•Excess freight charges (inbound

and outbound)

•High inventory investment and low

turns

•Excess and obsolete inventory

•Order shortages

•Premium freight costs

•Retuned product

•Unnecessary product transfer

between facilities

•Poor on-time delivery

James W. Martin, Lean Six Sigma for Supply

Chain Management- The 10 Step Improvement

Process, McGraw-Hill Professional; 1 edition

(October 12, 2006).


Behavior influences supply chain complexity

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Akiyoshi KITAOKA, Professor, Department of Psychology,

Ritsumeikan University, Kyoto, Japan

studying visual perception, visual illusion, optical illusion,

trompe l'oeil AIC2009 ICP 2016

http://www.ritsumei.ac.jp/~akitaoka/index-e.html

(Not incorporated into the book)

• Cognition and group behavior

influence how products and

services are designed and

used…

• This picture is not

moving!

Attitudes and behaviors increase supply chain complexity


http://www.psy.ritsumei.ac.jp/index-e.html

http://www.ritsumei.ac.jp/eng/

http://www.city.kyoto.jp/koho/eng/index.html

http://www.kantei.go.jp/foreign/index-e.html

http://www.psy.ritsumei.ac.jp/~akitaoka/AIC2009.html

http://www.psych.or.jp/english/event/ICP2016.html




There are universal principles for good

design of supply chain operations

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• Influence

• Learning

• Usability

• Appeal

• Decision making

Effective designs accentuate the positive and neutralize the negative influences of cognition and

group behavior…there are perhaps more than 100 non-technical factors to consider…

Alignment Issue

Alignment Issues

http://australianpolitics.com/news/2000/00-11-12.shtml








Cognition influences process complexity, how people

work and misuse products and services

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Law of Pragnanz (Interpret ambiguous images as simple and complete)

http://www.marsartgallery.com/pragnanzlaw.html

Interpret ambiguous images

as simple and complete


Same color! Perception Issues

http://www.lottolab.org/articles/illusionsoflight.asp

http://picocool.com/culture/color--the-brain-beau-lottos-optical-

illusions/ (Not incorporated into the book)


http://www.marsartgallery.com/pragnanzlaw.html

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Cognitive errors cause mistakes

• Forgetfulness ( not concentrating)

• Misunderstanding ( jumping to conclusions)

• Identification ( sensory error)

• Inadvertent errors ( distraction & fatigue)

• Delay in task execution ( information processing)

• Inability to compensate for new situations

• Intentional errors ( sabotage)


Things fail because error conditions align

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Failure Model

Failure condition A

Failure condition B

Failure condition C

Failure condition D

Catastrophic failures occur when contributing factors align … We must detect weak signals

and “near misses” … and apply failure analysis to products, services and logistical systems

Failure James William Martin (2011), Unexpected Consequences,- Why

The Things We Trust Fail, Copyright 2011 by Praeger

Publications . Publishing date July 2011. Not to be reproduced

or modified without written permission from Praeger

Publications.


Organizational structure and culture can

help or hinder complexity reduction

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Structure Culture Formal and

informal groups Individuals Efficiency of

design

• Organizational

culture, norms,

values

• Team organization

and dynamics

• Personal attitudes,

concept of self,

values, norms

• Bureaucratic,

functional, divisional,

matrix, collaborative,

virtual

•Performance, schedule,

cost, customer, suppliers

and other project risks and

issues

Arbitrary goals … Conflicts of interest… Tolerating a violation of organizational policies, procedures or laws and

regulations... Tolerating incompetence … Violations of law or regulations … Lying and falsifying information …

Making threats to others … Engaging in disruptive or demoralizing conduct with peers, employees, customers or

suppliers … Leaking or misusing confidential information … Stealing property … Misrepresenting intellectual

capital and other rights … Making untrue claims regarding product or service features

Transportation … Inventory … Motion … Waiting … Overproduction … Over processing … Defects … Safety

James William Martin (2011), Unexpected Consequences,- Why

The Things We Trust Fail, Copyright 2011 by Praeger

Publications . Publishing date July 2011. Not to be reproduced

or modified without written permission from Praeger

Publications.


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4 hour executive workshop agenda: 3 steps for

reducing supply chain complexity:

Step 1: Complexity

• Become aware of risk (recurrence risks)

• Design low risk processes (supply chain focus)

Step 2 Human factors

• Social psychological effects on supply chain safety (error conditions, culture and

ethics)

• Estimating and reducing risk (reduce variation and errors)

Step 3 Next steps

• Where to focus? / Prioritization?

Next step: 2 day supply chain workshop to identify and reduce supply chain complexity

and improve safety

The workshop goal: become familiar with the concepts, identify areas of

applications and integrate with current programs e.g. OMS and CI Essentials.


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Questions?
