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Risk and Lean Initiatives in

Extended Supply Chains


Chad Kymal, CTO, Omnex Inc.

Copyright 2016 Omnex, Inc. All Rights Reserved.

www.omnex.com
About Omnex
• Headquartered in Ann Arbor, Michigan with offices in major global markets.
• In 1995-97 provided global roll out supplier training and development for Ford Motor
Company to support their emerging market strategy.
• Trained more than 100,000 individuals in over 30 countries.
• Workforce of over 500 professionals, speaking over 18 languages.
• Former Delegation Leader of the International Automotive Task Force (IATF) responsible for
ISO/TS16949.
• Served on committees that wrote QOS, ISO 9001:2000, QS-9000 and its Semiconductor
Supplement, and ISO IWA 1 (ISO 9000 for healthcare).
• Member of AIAG manual writing committees for FMEA, SPC, MSA, Sub-tier Supplier
Development, Error Proofing, and Effective Problem Solving (EPS).
• Provider of Lean and Six Sigma to the Automotive Industry as a partner of AIAG

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Presenter — Chad Kymal
• Chad is the CTO and founder of Omnex Inc., an international consulting and training
organization headquartered in the United States. He spent a number of years working at
General Motors and KPMG prior to founding Omnex Inc. in 1986.
• Chad and Omnex have helped improve the supply chains in the Automotive,
Semiconductor, and Aerospace industries. In the late 1990s Omnex worked with Ford
Motor Company in support of their Emerging Market Strategy. Omnex is also a provider of
Lean and Six Sigma services for AIAG members globally and has implemented and
continues to implement Lean and Six Sigma programs worldwide.
• In addition to a bachelor’s degree from General Motors Institute, Chad holds both a
master’s degree in industrial and operations engineering from the University of Michigan
and an MBA from the University of Michigan. He has published numerous papers and
seven books on the subjects of Management Standards, Quality and performance
improvement. Chad also is a founder of American Quality Standards Registrars (AQSR) and
Software provider Omnex Systems.

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Table of Contents
• Introduction to Risk and Lean & Six Sigma Concepts

• Defining Risk, Lean and Six Sigma

• Risk in an Extended Supply Chain

• Case Studies on Risk

• Changes in the Supply Base and Balance of Power

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Extended Supply Chains

The Automotive supply chains extend globally to every hemisphere. The semiconductor
and electronics supply chain extend to the US, Europe, SE Asia, Taiwan, and China.
The Aerospace supply chain is based more in the US and Europe, but is quickly moving
into China and India.

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Extended Supply Chain – Loaf of Bread

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What is Risk?
• 157 ISO standards use the word “risk” and together have 45 unique definitions
(21 specialized to hazards)
• Of these, most only consider events with negative outcomes:
– “A function of the probability of occurrence of a given threat and the potential adverse
consequences of that threat's occurrence”
• There is a subset that takes a broader view of risk, for example:
– “The effect of uncertainty” (ISO 9000:2015)
– “The combination of the probability of occurrence or harm and the severity of harm” (ISO
13485:2016)
– These are consistent with PMBOK definition “uncertain event or condition that, if it occurs, has
a positive or negative effect on a project's objectives”*
*Source: A Guide to the Project Management Body of Knowledge (PMBOK® Guide) — Fourth Edition

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Definition of Risk in Automotive, Aerospace, and
Semiconductors
Risk – Effect of Uncertainty
• Note 1 – An Effect is a deviation from the expected, positive or negative
• Note 2 – Uncertainty is the state, even partial, of deficiency or information related to
understanding or knowledge of an event, its consequence and likelihood
• Note3 – Risk is often characterized by reference to potential events and consequence
or a combination of these
• Note 4 – Risk is often expressed in terms of a combination of the consequences of an
event and the associated likelihood of occurrence
• Note 5 – Risk is often used when there is the possibility of only negative consequences

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Typical Risk Table – Used in the Automotive Industry

• Risk is defined as Severity x Occurrence

• Risk with Controls used Severity x Occurrence x Detection – this is known as residual risk

• Risk mitigation is often focused on items with High Severity, High Risk, or High Residual Risk

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Typical Risks in an Extended Supply Chain (Discussion)
• What do we see as the typical risks in the supply chain?
Let us know from your company’s perspective…

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What is Lean?
• Maximizes “value-added” content
– Define value in the eyes of the Customer
– Eliminate waste

• Optimizes “flow”
– Cost of Poor Flow
– Pull systems
– One piece flow

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Cost of Poor Flow (COPF)
We Only See the Tip of the Iceberg
Long Lead-times

Premium Late Deliveries


Freight
Charges

Opportunity cost if sales Cost to Customer


Potential is greater than
Expediting Costs
Current capacity

Excess Labor Costs Excess Inventory

Excess Scrap & Rework


Lost Customer loyalty

Extra Handling & Storage


Excess Capacity
Costs

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Lean – Value Added vs. Non Value Added

Value Added – 5%

Non Value Added –


Waiting time, inspection, setup time…others

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Waste or “Muda”
• Inventory – Sleeping money
• Defects – Cost to find, fix or replace
• Transportation of Parts & Materials
• Unnecessary Motions
• Unnecessary Operations
• Waste of Waiting
• Waste of Overproduction
• Waste of Human Potential

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Lean Strategies
• Implement Continuous Flow Processing
• Work Cells
• Use Pull not Push Scheduling
• Supermarket Pull With Kanban
• Level Demand
• Heijunka
• Control Quality at the Source
• Source Control & Error proofing
• Develop Flexible Production Equipment
• Quick changeovers – SMED
• Manage Overall Equipment Effectiveness
• Total Productive Maintenance
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What is Six Sigma?
Six Sigma is a systematic, scientific, fact-based, data-driven breakthrough process

Systematic:
– Projects follow the Six Sigma process

Define Measure Analyze Improve Control

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What is Six Sigma? Y= f(x)
Six Sigma is a systematic, scientific, fact based, data-driven breakthrough process
What Kind of Problems?
– Large, usually more than $150,000 annual savings
– Cross-functional
– Problems affecting major company Y’s
• Market Share
• Growth
• Profitability
– Problems that have been worked on before

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DMAIC Tollgate Process

Define Measure Analyze Improve Control

• Project proposal and • Select project Y • Identify possible • Identify and test • Process control plan
selection • Data collection causes solutions • Plan and implement
• Building your team • Display data • Narrow to root cause • Refine solutions • Align systems and
• Building a sense of • Compute Process • Quantify opportunities • Pilot solutions structures
urgency Sigma • Tollgate presentation • Cost benefit analysis • Close and hand-off
• Define customer • Tollgate presentation • Tollgate presentation project
requirements
• Tollgate presentation

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Cost of Poor Quality (COPQ)
We Only See the Tip of the Iceberg
Maintenance and service

Rejects Warranty
claims
Rework
Additional
Scrap labor hours

Opportunity cost if sales Cost to customer


greater than plant
capacity Expediting

Improvement program costs Excess inventory


Lost customer loyalty
Quality engineering
Process control and administration
Vendor control
Quality audits
Inspection/test (materials,
equipment, labor) Longer cycle times

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Cost of Poor Quality and Flow
COPQ/F Inventory
(% of Sales) Sigma PPM Turns Competitive Position
40-50% 2.0 308,537 8 to 10 Non Competitive
30-40% 3.0 66,807 10 to 20 Average Company
20-30% 4.0 6,210 20 to 50
10-20% 5.0 233 50 to 100
< 10% 6.0 3.4 100 Plus World Class

“The cost of a LOST CUSTOMER is THE GREATEST COST OF ALL!”

– Dr. W.E. Deming

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Lean Six Sigma
Business demands reduced cost, improved quality, reduced lead times and new
innovative products and packages.
• Lean means speed and improved flow
• Six Sigma means less variability and fewer defects
• Lean Six Sigma combination of projects requiring improved flow and
reduced defects
– Lean Six Sigma is the use of Lean and/or Six Sigma techniques within a
DMAIC-driven process

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Discussion on Savings with Lean and Six Sigma
Measure Baseline Current Future

R.T.Yield 50% improv.

Process Leadtime 50% improv

Head Count Difference Green Belt


50% improv Black Belt
Savings of Project $50,000 to $90,000 Greater than $150,000
Inventory in Days 50% improv
Implementation Effort Lesser Effort Greater Effort
Floor Space 50% improv
Duration 2 to 3 months 4 to 6 months
Workshop Days 7 days 20 days
Discussion on most successful Cost to Company ½ of Black Belt
initiatives
Savings $1 to 2 Million (up to 15 $1.5 Million to $4
Extended Supply Chain Lean projects) Million (up to 15
projects)
Project Local Cross-functional

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Risk in an Extended Supply Chain

New Product Development – Risk of Poor Quality, Late Prototypes and PPAP/FAI

Risk of unsafe products – Toyota braking system and Samsung battery

Risk of Poor Quality and Delivery

Reputational Risk – Volkswagen

What is Risk?
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New Product Development
Risk Mitigation – Supply Chain One supplier in the
supply chain can hold
up a product launch
- Product or Process
problems can equally
cause problems

Most organizations do
not have visibility
beyond one tier

What tools do we use?


How can we get more
visibility and mitigate
risk further

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Risk Tools Used for Product Launch Risk
• Project and Supplier Risk: Conducted during initial RFP/RFQ. (Supplier Risk, Project Risk,
Feasibility Risk (S), Capacity Risk (S))
Only for the Tier One? Story of the Automotive Battery Supplier in China.
– There is no Lean or Six Sigma Evaluation required by the supplier or customer

• New Product Launch Tracking: Timing and completion of deliverables and use of Quality of
the Event Checklists
– The supplier is required to implement DFSS (Design for Six Sigma) and or DFM/DFA

• PPAP or FAI: Risk tools in use – DFMEA, PFMEA, Control Plan,


SPC (PP, PPk), MSA (Gage Capability)

How about Lean and Six Sigma during New Product Development Launch?

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Risk in Product Safety & Managing Requirements
BOM Elements

Hazard and Risk Analysis Safety Safety


ASILs Requirements
Req.

Functional Design
Functional
Safety Concept Technical Safety
Safety Concept Concept

These standards (ISO 26262) Focus on Electronics and Electrical and extend to software and hardware

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Ongoing Quality and Delivery Risks
PPAPs –

Detection – Dimensional Results,


Manage the Change –
Performance Tests, Material Certs
Product and Process Change
– Supply Chain Based
Prevention – FMEA/Control Plan,
MSA, Capability Studies

+ +
Capacity Analysis and Run at Rate
Ongoing Monitoring (ERP)
& MMOG for Shipping/Logistics Contingency Planning
and Scorecards

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Case Study of The Semiconductor Industry
• Customers worked together to focus on SE Asia Semiconductor Supply Base.
• Conducted industry-based second party certification based on customer audits,
conducted training, and used a common dash board. Companies had a customer
sponsor that coached them in becoming certified to the most stringent Best-In-Class
supplier standards.
• Focused on Quality System, Lead Times, FMEA, APQP/PPAP, SPC, and disciplined
Problem Solving.
• Focused efforts made US and European Semiconductor industry competitive again –
see improvements on next slide.

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Case Study – Semiconductor Industry
RESULTS
• Productivity improvements 10% – 30%
– Equipment and People

• Yield improvement
– Subcontractor yields improved to 99.6%

• Performance to schedule improvement


– Consistently sustaining 100%

• Number of customer complaints decreased


– Up to 15x reduction

– Ron Ramos, Philips Semiconductor, SAC Board

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Case Study
VOLVO Trucks – Asia
• Supported Product Launch of Quester Truck assisting suppliers in 5 countries: India, Thailand, China,
Malaysia and Singapore
• Assignment involved a host of supply chain programs starting with Supplier integration audits of over
150 VOLVO suppliers from all over Asia
– Omnex audited the suppliers on critical metrics that included Volvo-specific requirements
– Helped suppliers arrive at a prioritized action plan that were mission critical to SOP
– The assessments and improvements covered Quality, Lean, Safety, Environmental
• Included APQP, PPAP, Process qualification, design , plant layouts and ergonomics
– Trained and implemented these actions for suppliers
– Ensured the program was in sync with the overall product launch date and Start of Production
– Hand over sites to Volvo SQE/ SQA teams
Duration: 1.5 years

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Supply Chain Changes 1980s to 2015
• Vertically integrated with customers responsible for Design to Tiered Structure with
Tier Ones responsible for Design
• Tier Two - generally smaller family owned businesses typically supplying multiple
markets changing to larger multi plant suppliers
• Tier Three – small suppliers supplying a component to Tier Ones or Tier Twos
generally supplying multiple markets
• Tier Four – larger raw material suppliers
 Changes in the region of the suppliers from mostly US to now Global, this globalization will continue
 Large European and Japanese Tier Ones are evident today, soon this will turn to large Indian and
Chinese Tier Ones as well
 Tier Twos will become larger entities supplying large Tier Ones. Forces driving this change are the
same forces that drove Tier Ones into becoming larger, ie. industry expectations, technology, and
capital needs
 Tier Threes will be affected as well. The same forces of changes will be felt by Tier Threes.

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Supply Chain Changes 2015 to 2050
• Electronics and software content in vehicles along with Autonomous cars, braking
and Electric cars will bring many new suppliers into the Automotive Industry
– The risk for quality and delivery will suddenly jump
– This is evident from looking at the JD Power scores for Tesla
• Suppliers from Silicon Valley that do not believe in ISO standards and any of the
Automotive Industry standards for eg problem solving can be a problem
– Eg. of large software supplier
• Hardware suppliers from China and software suppliers from India will increase risk in
many ways including Security and Code of Conduct
• The weakened balance of power of large OEMs will be still weakened when
partnering with large software or electronics companies eg. Microsoft or Nvidia

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Discussion on Balance of Power and Implications on Supply
Chain Initiatives
Automotive Aerospace Semiconductor

OEM OEM OEM

Tier One Tier One Tier One

Tier Two Tier Two Tier Two

Tier Three Tier Three Tier Three

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Discussion: Top 12 Disruptive Technologies and their Impact on Supply Chain Risk
Speed, scope, and economic value at stake of 12 potentially economically disruptive technologies

Source : McKinsey Global Institute Report

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Track APQP & UPPAP Projects
Software the has the capability to track APQP and PPAP

APQP Projects

PPAP Projects

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APQP Task Documents
Routed and accepted deliverables are saved in a folder structure in a document manager (link with suite)

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Linked DFMEAs, PFMEAs, Control Plans and Standardized Work
using Enterprise Software Connects
Dynamic Linkage of Documents
DESIGN to
Shop floor
Linkages of Print Documents
requirements
To Shop Floor

Link between Process


Engineering to Shop
Floor

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Linked DFMEAs, PFMEAs, Control Plans and Standardized Work
DASHBOARD

All requirements in FMEA?


All requirements tested?
Requirement
All requirements in PPAP/FAI?
Manager
Links SFMEA/DFMEA Indicated via color coding
Linkages to

DVP&R System/Design
(Test Plan) FMEA System

Cause and Effect


Relationship
Sub-system
As per Bill of
DFMEA Component
Materials
(BOM) DVP&R Cause and Effect
(Test Plan) Relationship

DFMEA

DVP&R
(Test Plan)
Cause and Effect
Relationship
(Requirements decompose to characteristics)

PPAP/FAI Process Flow PFMEA Control Plan

Link VOC to System Requirements to Components and Supply Chain

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Requirements Management – Internally and Flow Down to Suppliers
Functions/Requirements Characteristics
ASILs ASILs
Critical Functions
Critical Critical KPC/KCC

Important
Important

System

Sub-System
Traceability between Functions, Testing, and Characteristics

Component

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Lessons Learned Design Process

Planning ASILs ASILs

Critical Critical KPC/KCC

Important
Important

Design Process
Failures Failures

Historical
Product Family
Warranty,
Field Failure,
Plant Failure.

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Thank You!
Questions?
info@omnex.com
734.761.4940
Ckymal@omnex.com

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Appendix

42
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LEAN SIX SIGMA – LOGISTICS
Case Study

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Project Definition
Project Name: Logistics

Problem Definition: The transit time for units to analysis /


repair can average more than 3 days.
(from the dock to the availability of the
part to the Workshop; including ERP
registration)
The transit time for units from analysis
/ repair to the dock has a median of 6
working days
Units are being refurbished as they
arrive; not based on expected need

Project Scope: Improve and ensure efficient and


effective processing of OEM /
Aftermarket units

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Project Definition
Project Name: Logistics

Problem Objectives: 1) To eliminate or minimize any non-


value added shipment of products,
before or after refurbishment.

2) To eliminate or minimize any non-


valued added handling of products,
before or after refurbishment.

3) Refurbish only those returned parts


which will be used; i.e. eliminate
refurbishment of parts which will
languish in storage.
Don’t repair what isn’t needed
Send parts to where they are needed

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Project Metrics
Lead Time between delivery and workshop

Receiving: Current = 46% same day; 27% next day;


27% 2 or more days through first segment
Current = 43% same day; 26% next day;
31% 2 or more days through second segment
Goal = 80% same day; 20% next day;

Lead Time between end repair and stock

Receiving : Current = 17% same day; 7% next day; 76% 2 or more days
Current = 4% same day; 4% next day; 92%
2 or more days through second segment
Goal = 80% same day; 20% next day;

Average overall handling time per unit


Current: 20 min/unit
Goal: 10 min/unit

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Approach
Phase I
• Outsourcing of Re-Labeled devices
• Provide a disciplined approach for all aftermarket returns
• Eliminate redundancy within OEM return process
Phase II
• Utilize a pull system for refurbishment to storage
• Utilize a pull system/supermarket for replacement / spare parts (raw goods) with
inventory to be managed by an external agency

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Current State Map

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DC Porsche Audi
Future State
Future StateMap
-- OEM
Rest
Test Warranty

Avg 18% of DC total Stores units to be repair (1100)


and repaired (1800);
1-3 days lead time
Stores units to be repair; zcs1 entered when received
14 days lead time

Test Warranty rmcTech Nuss Customer

Nuss
Avg 43% Vol EES

HB Shipping requests per


EOQ (Kan Ban)
scheduling

Sorting and Move to


Receipt of
Goods
Scanning zcs2 storage Workshop
Delivery Note racks

CT Avg 3 min 1 day 5 min 1 day ? min


Test Warranty
6.4 days ? min ? days ? min Move to
Receipt of Sorting of
Goods Goods
zcs1 zcs2 storage Workshop
racks

CT Avg 3 min 1 day 2 min 5 min 0.5 min electronic 1 day 1 min 1 day ? min

Nuss

Packaging Shipping Customer

HB April 25, 2007

1 day 2.5 min 1 day 3 min

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Results
Implementation of these recommendations will:
• Reduce the logistical content at the client’s facility from an average of
14.6 to 5.2 man months per month
– Reduce time handling the units by an average of 6.5 min
– Reduce the non-Test Goods Receipt volume to an average of 2885 per month
(reduction of 65%)
• This assume the current levels of OEM and Aftermarket returns
• Note: Test receipts averaged 366 per month for cy 2006
– Eliminate the handling of OEM parts which will be refurbished outside the
client’s facility.
• Currently an average of 43% of OEM receipts
This provides an estimate yearly savings
(gross) of $1,020,000 or 9.4 FTEs

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LEAN SIX SIGMA IN SUPPLY CHAIN

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Lean and Six Sigma in the Enterprise

Enterprise

Our Sub Raw


Customer Mat
Site System

Raw
Part A
Supply Chain management Mat
encompasses planning and
management of all activities
involved in sourcing, procurement,
conversion, and logistics. CSMP

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Lean in the Enterprise
Lean within the
Four Walls of a
Organization

Versus

Enterprise
Sub Raw
Customer Mat
System

Raw
Part A
Mat

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Lean in the Enterprise

This is the opportunity for


Supply Chain Professionals.
While many companies
have practiced lean within
the four walls. Lean in the
Supply Chain or Enterprise
is an opportunity waiting
to happen.

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Supply Chain Six Sigma Projects
• Nonconforming product from • Financial Transaction Errors
suppliers
• Data Entry Errors
• Wrong Shipment from suppliers
• Packaging problems from
• Recall of products from supplier suppliers
(300 recalls from suppliers a
• Reduce Inspection
month in a major hospital)
• Reduce Rework
• Billing errors from suppliers
• Defect reduction during product
ramp up

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LEAN AND SIX SIGMA AND HOW IT WORKS

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Options for Implementation
• Option I: Six Sigma – Green Belt Projects

• Option II: Six Sigma – Black Belt Projects

• Option III: Lean – Lean Transformation of a Site

• Option IV: Lean and Six Sigma – Green Belt Projects that have COPF and
COPQ mixed together for improvement

• Option V: Lean and Six Sigma – Black Belt Projects that have COPF and
COPQ mixed together for improvement

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Difference Between Green Belt and Black Belt Projects

Difference Green Belt Black Belt


Savings of Project $50,000 to $90,000 Greater than $150,000
Implementation Effort Lesser Effort Greater Effort
Duration 2 to 3 months 4 to 6 months
Workshop Days 7 days 20 days
Cost to Company ½ of Black Belt
Savings $1 to 2 Million (up to 15 $1.5 Million to $4
projects) Million (up to 15
projects)
Project Local Cross-functional

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Examples of Lean Projects
• Lean Logistics – reduce time to repair • Uptime Improvement of key
and reduce time to analyze the technologies
problem, and inventory of repair and • Flow of material/service in a Process –
finished goods high receiving and high in-process
• Reduce on-hold lots before final operation or step; ability
to transform to a continuous flow
• Increase capacity
• Excessive labor costs
• Cycle time reduction
• Reduce tool repair time
• Diagnostic Test Cycle Time Reduction
• Lead time to reply to customer sales
• Lead time to reply/respond to
opportunity
customer problems

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Six Sigma Projects
• Scrap due to contamination on • Financial Transaction Errors
machine • Data Entry Errors
• Scrap rate from XYZ machine during • Wrong Medication
setup
• Wrong Treatment
• Any 100% inspected Dimension
• Reduce Scrap Rate
• Yield Improvement
• Reduce Inspection
• Diagnostic Test Errors
• Reduce Rework
• Reduce Customer Reject
• Defect reduction during product ramp
• Reduce Test Failures
up
• Reduce Sentinel Events
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Summary
• Six Sigma focuses on variation reduction and Lean on time (reducing lead
times). Put them together and you have a powerful improvement process that
can work on improving quality and also on reducing waste
• Lean uses Value Stream Mapping and an assortment of tools ranging from set
up reduction to work cell layouts for improvement
– Opportunity for Supply Chain professionals is Extended Value Streams or Value Streaming
the enterprise
• Six Sigma uses DMAIC or the methodology of Define, Measure, Analyze,
Improve and Control
– Black Belts and Green Belts work on projects
• There is much opportunity for savings in the Supply Chain by using extended
value streams to reduce lead time and inventory or six sigma for variation
reduction
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