TERM PROJECT

Mani Prakash Pilla (0931416)

Contents:

1) SYNERGY OF SUPPLY CHAIN OPERATIONS REFERENCE MODEL

o 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
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 with
membership 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 Council’s 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 improvement
activities. 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:

 Process Modeling
 Business Process Reengineering: It captures the “as-is” state of a process and
derives the “to-be” future state.
 Benchmarking: Quantify the operational performance of similar companies and
establish internal targets based on “best-in-class” results.
 Performance Measurements: Standard metrics to measure process performance
 Best Practices Analysis: Characterize the management practices and software
solutions that result in “best-in-class” performance
 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 Standard
alignment 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 supplier’s supplier to
your customer’s 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
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.

 Plan - Processes that balance aggregate demand and supply to develop a course
of action which best meets sourcing, production, and delivery requirements.
 Source - Processes that procure goods and services to meet planned or actual
demand.
 Make - Processes that transform product to a finished state to meet planned or
actual demand.
 Deliver - Processes that provide finished goods and services to meet planned or
actual demand, typically including order management, transportation
management, and distribution management.
 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:

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

 All product (physical material and service) transactions, from your supplier’s
supplier to your customer’s customer, including equipment, supplies, spare
parts, bulk product, software, etc.
 All market interactions, from the understanding of aggregate demand to the
fulfillment of each order.
 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.

 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.

 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”. These
children 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
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 M2.03
“Produce & test” process will be company-specific, and therefore fall outside the
model’s scope.

The Performance Measurements Pillar The 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.
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.

ƒ 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 accelerate
business 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:

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

 reaped significant cost savings and economic returns on SCOR-related
investments
 grown in aggregate share value two to three times faster than the Dow Jones
and S&P 500 indexes

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 chain
performance 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 of SCOR 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 to
proactively plan, drive, and manage the inventory levels and better achieve the balance
of cost and service.
Suggested Solution:

 Used SCOR to identify performance gaps in key metrics between current and
required to reach parity status
 Used SCOR to identify process disconnects, drivers of inventory, and projects
required for improvement
 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

 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 of 50 improvements that addressed key problem areas
4. Implemented a “Drive Chain” that was the basis of an enterprise-wide
transformation program

Benefits Achieved:

 Sales per employee increased by 20%

 Cost of goods sold reduced by 10%
 Inventory days of supply improved by 20%
 Cash-to-cash cycle improved by 15%

 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 accelerate
business 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

 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:

 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 products
o 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
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 in

improvement

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 the
prioritized 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 model’s 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
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 1980’s 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 world’s 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 Best
Bank in US & Euro money’s 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 by
Quality 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 and
Form teams.
 Measure: Collect data on size of the selected problem, identify key customer
requirements and determine key product and process characteristic.

 Analyze: Analyze data, establish and confirm the “ vital few “ determinants of the
performance and validate hypothesis

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

 Control: Establish standards to maintain process, Design the controls, implement

and 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 and
delivery within +/- 1 hour of schedule delivery time needs level 3 CTQ. Its main goal is
to reduce number of delayed deliveries and better meet customer requirement of timely
delivery within scheduled delivery time.

Performance Standards:

 Output unit: A scheduled delivery of freight

 Output Characteristic: Timely delivery

 Project Y measure: Process starts when an order is received, Ends when goods are
received & signed for at customer’s desk. Process measurement – Deviation from
scheduled delivery time in minutes.

 Specification limits: LSL = -60 minutes; USL= +60 minutes

 Target: Scheduled time or zero minutes deviation

 Defect: Delivery earlier or later than 1 hour

 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, Deliver
goods 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 out
that larger tires took longer time at certain routes where area was cramped and time
lost in maneuvering. High incidence of tire failures since tight turns led to stress on tires
thus increasing number of flat tires. Team modified planning of dispatch process by
routing smaller trucks at more restrictive areas.

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 inefficient data gathering; Lack of measures and Lack
of speed in execution and challenges of identifying best practices were analyzed for
developments. Improvements were made to remove the root causes and controlled.

“Define“is 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.

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 been
resolved. 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 customer’s perspective)

It is a principle driven, tool based philosophy that focuses on eliminating waste so that
all activities/steps add value from the customer’s perspective. It is all about continuous
waste 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 processing

V. 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 customer’s perspective and express value
in terms of a specific product. Ask how your current products/services and
processes disappoint your customer’s 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.

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 is a product
or service for a customer, there is a value stream. The challenge lies in seeing it.”
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 only
necessary 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 what’s wanted exactly when it’s 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. It’s 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. Continuous
improvement 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 to
prevent 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 arm’s length,
Standard work has been practiced to perfection, Continuous observation and
analysis drives continuous improvement.

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) Program’s 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
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 faster
response 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 company’s 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
(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
supplier’s supplier to your customer’s 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 company’s
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 aren’t 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 company’s strategic and tactical needs
will help answer the scope question.
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 opportunities
that 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

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.
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 inventory
drivers 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
 Gross inventory reduced from €59 million to €38 million in 10 months
 Inventory days of supply reduced 47% from initial score card

2) Douglas Pharmaceuticals Limited

Challenge: 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%) and Enterprise 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, provided
early 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 of 50 improvements addressed
key problem areas. “Drive Chain” now forms basis of an enterprise wide transformation
program
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 Frameworks
and 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; Rapid

growth 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 supplier
partners 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
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 and 98%
supplier conformance to contract
References

 Rolf G. Poluha: Application of the SCOR Model in Supply Chain Management.

Youngstown, New York 2007, ISBN 1934043230.
 Peter Bolstorff, Robert Rosenbaum (2003). Supply Chain Excellence: A Handbook
for Dramatic Improvement Using the SCOR Model. AMACOM Div American Mgmt
Assn. ISBN 0814407307. http://books.google.com/books?id=AbQlV9ulC-EC.
 http://supply-chain.org/companies/scor-helps-companies
 SCOR-Six Sigma-Lean Convergence Forum '07 Program
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chain management and lean manufacturing strategy for low-cost on-demand
production
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2004.
 Halpin T (2007) Object role modeling: An overview. URL=dn2.microsoft.com/en-
us/library/aa290383(vs.71).aspx

 www.pragmatek.com
 Supply Chain Council Forums
 Breyfogle, Forrest W. III, “Implementing Six Sigma – Smarter Solutions Using
Statistical Methods, 2nd Edition”, Wiley, 2003.
 Nave, Dave, How to Compare Six Sigma, Lean and the Theory of Constraints.
Quality Progress, March 2002.
 Supply Chain Council, Supply Chain Operations Reference Model, version 7.0,
www.scc.org