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3 Steps for Reducing Supply Chain Complexity- Creating Safer Operations
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1
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.
2
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
Copyright 2010 Six Sigma Integration, Inc.
3
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.
4
Complexity is:
“the condition of being difficult to analyze, understand, or solve …. the condition of being made up of many interrelated parts” (Encarta Dictionary)
Copyright 2010 Six Sigma Integration, Inc.
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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:
Copyright 2010 Six Sigma Integration, Inc.
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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
Copyright 2010 Six Sigma Integration, Inc.
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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….
Copyright 2010 Six Sigma Integration, Inc.
9
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.
Copyright 2010 Six Sigma Integration, Inc.
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).
Copyright 2010 Six Sigma Integration, Inc.
Behavior influences supply chain complexity
11
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
Copyright 2010 Six Sigma Integration, Inc.
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
(Not incorporated into the book)
Copyright 2010 Six Sigma Integration, Inc.
Cognition influences process complexity, how people
work and misuse products and services
13
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
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.
Copyright 2010 Six Sigma Integration, Inc.
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.
Copyright 2010 Six Sigma Integration, Inc.
17
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.
Copyright 2010 Six Sigma Integration, Inc.
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Questions?
Copyright 2010 Six Sigma Integration, Inc.