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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
Copyright 2010 Six Sigma Integration, Inc.
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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
Copyright 2010 Six Sigma Integration, Inc.
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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….
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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 laxnessInefficient 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.
Copyright 2010 Six Sigma Integration, Inc.
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Supply chain complexity causes process breakdowns
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).
Copyright 2010 Six Sigma Integration, Inc.
Behavior influences supply chain complexity
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Akiyoshi KITAOKA, Professor, Department of Psychology, Ritsumeikan University, Kyoto, Japanstudying 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
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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 Issueshttp://australianpolitics.com/news/2000/00-11-12.shtml
(Not incorporated into the book)
Copyright 2010 Six Sigma Integration, Inc.
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
(Not incorporated into the book)
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)
Copyright 2010 Six Sigma Integration, Inc.
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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)
Copyright 2010 Six Sigma Integration, Inc.
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
FailureJames 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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Organizational structure and culture can help or hinder complexity reduction
Structure CultureFormal and
informal groups IndividualsEfficiency 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.
Copyright 2010 Six Sigma Integration, Inc.
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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?
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