This article will provide an overview one of the Six Sigma methodologies that can be used in improving supply chain processes, called Design For Six Sigma (DFSS). DFSS is a systematic way to structurally improve any process.
The DFSS methodology encompasses four phases: Identify, Design, Optimize and Validate.
Phase One, Identify - The focus of the Identify phase is to understand the inputs, process and outputs of a particular process. Inputs of the process are any steps which impact the process, while outputs are items the process produces. Process steps should be listed at a high level. A great 6S tool to start this phase is an IPO diagram, which lists the inputs, process steps and outputs of the process, each in its own column. Outputs can be items such as completed procurement actions, received goods, signed contracts, or completed services.
It is critical in the Identify phase that we clearly-identify what is truly important to the customer for each output. Six Sigma practitioners refer to each of these process outputs as a "Critical to Customer" (CTC). Improving a process doesn't make any difference, if that makes no difference to the organization's stakeholders and customers. CTCs are qualitative concepts such as no defects, timeliness, appropriate approvals, etc. CTC's should be listed and prioritized for each process element.
In the procurement field, we need to also consider who is our actual "customer", because we have different groups who rely upon the supply chain, including:
(i) Our company's actual customer (or governmental agency's
constituent) who uses finished goods or services [downstream];
(ii) The firm's owners/shareholders who have invested in our
company's operations with expectation of a Return on Investment (ROI);
(iii) Internal departments who utilize goods or services we acquire
from suppliers [upstream], such as manufacturing production, administration, sales, marketing, etc.; and
(iv) Stakeholder departments who rely on the supply chain process
to efficiently perform their own roles. These might include groups like Receiving, Inventory, Accounts Payable, Logistics, Finance, and other departments which touch the supply chain.
In the supply chain, procurement leaders are sometimes guilty of ignoring CTCs and focusing just on what makes their own jobs easier. For example, selecting and implementing a finance-driven procurement system that is difficult for internal customers to use ...rather than seeking a user-friendly solution that meets the customer's needs. But a true DFSS approach will result in a process that produces higher CTC outputs...and results in higher customer satisfaction and enterprise performance.
Phase 2, Design - The initial step in the Design phase is to assign "specs" to each CTC. "Specs" are measurable boundaries around the CTCs that simply differentiate a defect from a satisfactory output. Understanding the specs are extremely important in developing the process but are often forgotten by those who claim to be Six Sigma experts. For example, if lead time was identified as a CTC, the spec may be 14 days....where <14 days is acceptable, but >14 days is not.
The second step within the design phase is to formulate the future process. A major theme in designing a process is to "Give the customer what they want, when they want it and how they want it". In other words, giving the customer the outputs and CTCs they requested, within the specs desired. All process steps should then be classified as either "value-added", "non-value added" or "non-value added but required" (more on this in the another article).
Phase 3, Optimize - In order to produce our outputs within the "specs" our customers require, we must understand our inputs. The focus of the Optimize phase is to review the process and understand the relationship between inputs, outputs and CTCs. We can accomplish this by identifying which inputs have the highest impact on the outputs and CTCs.
A statistical tool to help with this step is a sensitivity analysis, which uses historical data to understand the variation within each input - and which input's variation has the most significant impact on the final CTC. The historical data can be plugged into the new process, and the variation on CTC's measured. This part of the analysis identifies the input(s) which can have a negative effect on the CTCs and the team can take action to reduce it's impact.
Phase 4, Validate - Once a new process has been designed and implemented, we need to manage it to ensure the desired results continue to be achieved. The Validate phase establishes proper metrics and controls so the process can be continually-monitored and adjusted to meet the customer requirements. The primary tool within the Validate phase is a control plan. A control plan is a scorecard or dashboard to monitor your key inputs, outputs and CTCs. The control plan should also serve as guide to inform process owners what to do when targets are missed.
The control plan should address such questions as, "If my process is not hitting my target (CTC is not within specs), then which inputs or process components are the cause?" In this case, we can think of inputs as "leading" indicators and outputs as "lagging" indicators. Others characteristics of the control plan are data collection method/frequency, lower and upper spec limit, target value and reaction plan.
A common failure in the Validate phase is when process owners fail to measure and continually-manage the new process into the future. Even Six Sigma experts sometimes forget that a process will degrade if not continually-managed and improved. Installation and management of "metrics that matter" is an important step in the Validate phase.
Six Sigma is a powerful tool, which has many applications that can be used in improving supply chain performance. DFSS is just one such application, and its focus upon Critical to Customer (CTC) outputs is an important principle in improving supply chain processes.
Strategic Procurement Solutions is currently-supporting several major supply chain organizations (involving staff groups between 10 and 140 persons) which are being transformed into an advanced sourcing process orientation. If you would like information about our firm's 360o Supply Management Efficiency Review, a procurement transformation project, or even support in applying LEAN Six Sigma techniques, please email Info@StrategicProcurementSolutions.com
Mark Schieffer, LEAN Six Sigma Master Black Belt, PhD (ABD), MBB is one of the supply chain experts who is available through Strategic Procurement Solutions.