Supply Chain Management Six Sigma A Management Inn
Supply Chain Management Six Sigma A Management Inn
Supply Chain Management Six Sigma A Management Inn
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Abstract
Purpose This paper seeks to introduce a six-sigma based methodology for the SCM domain which was developed and has been used in Samsung.
Design/methodology/approach The paper provides a detailed description of how and why a six-sigma-based methodology for the SCM domain
was developed in Samsung and presents a real industry case to illustrate the usage of the methodology.
Findings In Samsung, the effort and investment in synthesizing SCM and six sigma, and developing a unique six-sigma-based methodology to
improve its SCM operation, have turned out to be fruitful. The Black Belt program has produced highly qualified and talented SCM specialists, who are
currently training the methodology to members in their organizations and leading SCM projects. SCM projects are being prepared and conducted in a
more disciplined way and their outcomes are continuously monitored and shared through the companys repository.
Research limitations/implications To generalize its usefulness, the methodology needs to be applied to the SCM projects of those companies
whose organizational and cultural contexts are different from those of Samsung. In addition, the overview of an illustrative SCM project presented in
the paper is brief due to space limitations.
Practical implications Today, SCM is increasingly recognized as a strategic way to innovate a companys business operation. This paper shows that
a methodology such as Samsungs SCM six sigma can be the key to conducting SCM projects in a more disciplined way and for fruitful outcomes.
Originality/value The paper introduces a unique six-sigma-based methodology for the SCM domain which has been developed and applied in a
leading global manufacturing, financial, and services conglomerate. This methodology could be adapted by other companies for their SCM projects to
increase the likelihood of project success.
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profits since the 1990s. The flagship unit, Samsung an important issue in SCM in general and manufacturing
Electronics Company (SEC), was one of only two planning and control system in particular (Vollmann et al.,
manufacturing companies worldwide to post profits of more 1997). Six sigma complements this need through the
than $10bn in 2004 (Toyota Motors being the other). control stage in a DMAIC methodology or verify
Samsung was ranked twentieth in global brand value, stage in a DMADOV methodology. Therefore, six sigma
according to a report by Interbrand (2006). Many regard supplemented by a Samsungs own centralized system of
these successes as reflecting a continuous and relentless effort capturing and tracking all of its projects beyond their
at Samsung to improve the way it conducts business. For the completion ensures that improvements be sustained.
last few years, SCM and six sigma have been two pillars of 3 Well-established HR framework At Samsung, a key area
business innovation at Samsung. for the potential improvement of SCM activities centered
The Samsung Group of companies has large, complex, on people. The company continually faces a shortage of
global supply chains in most of the products it manufactures trained, qualified, and talented people to harness the
and makes extensive use of SCM solutions and process maximum potential that its systems and processes offered.
innovations to support and improve its operations. Most Consequently, SCM solutions were not being fully
notably, at SEC, advanced planning and scheduling (APS) utilized and the innovative processes could not be
systems have been adopted since the 1990s and have brought wholeheartedly adopted. The shortage of SCM talent
the company many successes in terms of operational decreased the potential for return on investment that the
excellence. Recently, Samsung Electronics was ranked system and process innovations could bring to the
seventh in a respected analysts ranking of the global top 25 company. Six sigma was seen as a proven framework for
companies in supply chain excellence (AMR, 2005). developing people. Its colored belt system clearly
Six sigma has been a key enabler for the groups success. The delineated levels of competency and thus helped manage
Chairman of the Group proclaimed the adoption of a business people in a differentiated way from the HR perspective.
innovation approach called new management (pronounced Six sigma was already prevalent in Samsung as a
in Korean as shin kyung young) in 1993. New management is management innovation methodology with programs
the pursuit of quality-oriented management in business and structures in place. Leveraging the belt system with
operations as well as in manufacturing. Along with the SCM expertise was a way to keep track of and continue to
quality movement in industry, new management evolved develop SCM talent within the Group.
from initial product quality assurance but later shifted its focus 4 Quantitative strength Six sigma was seen as a
to include the quality of the entire business process, which is methodology which would, by its nature, drive a
the rationale behind six sigma. The outcomes were high- heightened usage of quantitative analysis (Breyfogle,
quality, innovative product developments, and consequently an 1999). Quantitative data about operational activities and
increase in customer satisfaction and profits, and are well performance was abundant, but not used sufficiently for
demonstrated by many of the worlds best technological problem solving or decision-making. Appropriate usage of
resources, including DRAM, SRAM, TFT-LCD, digital TV, numerical data was expected to uncover flaws in SCM
and Flash memory, to name but a few. processes and further enhance the quality of SCM
decisions made at Samsung.
2.2 Why SCM 1 six sigma?
Despite the extensive use of SCM solutions and process Based on the above rationale, the company put together a
innovation to improve global business operation, in 2004 the methodology to formally combine SCM and six sigma, by
company still felt that its supply chain operations had training and developing supply chain staff to be more capable
significant room for improvement. In the early 1990s, the of leading SCM innovations. Over the last two years of
Groups senior management decided to capitalize on the implementation, SCM six sigma has become a unique and
potential synergy between SCM and six sigma, which they useful component of Samsungs strategy for systematic and
believed were based on four key areas: continuous improvement of its SCM activities.
1 Project discipline Six sigma uses a structured process of
defining, measuring, analyzing, improving, and controlling 3. Samsung SCM six sigma
(DMAIC) products or processes, which provides the
discipline to deal with operational vulnerabilities and Samsung SCM six sigma comprises two building blocks. The
variability in business operation (Hammer, 2002). Six first block is a core methodology that was developed by the
sigma would enforce a more disciplined approach to SCM SCM Business Team (subsequently referred to as SBT).
projects and ensure that SCM projects were defined This team researched various six sigma approaches of selected
rigorously and executed methodically. Also six sigmas global companies and then tailored its learning to the SCM
analytical emphasis would steer the improvement projects domain. The second element of SCM six sigma is some key
to investigating and resolving root causes, rather than mere design principles derived from the teams SCM experience
symptoms of SCM problems at Samsung. base to guide the implementation of the methodology
2 Sustaining results One of the key challenges of SCM is throughout its different stages.
sustaining the results of a successful project after
completion. Too often, as project groups move on to 3.1 Research and tailoring
future projects, the past process improvement successes SBT researched six sigma approaches at General Electric (GE),
become just that past successes rather than a since GE is a recognized global leader in six sigma.
sustained base of improvement on which to build further. Additionally, the team researched two other companies
However, the link between planning and execution DuPont and Honeywell to get perspectives on how other
through feedback (also known as closed-loop) has been companies have innovatively applied six sigma to similar needs:
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.
General Electric A key element of GEs approach to six Group. DMADOV stems from a product design space
sigma is the tailoring of underlying methodologies to while one requirement is to support projects in the supply
specific needs and characteristics of its business units. chain space. The key difference is that after performing
SBT researched GE business that has taken the generic six analyses, the task for the project team would be not to
sigma methodology for process innovation (PI), and has optimize or design as in DMADOV, but to specify how a
tailored them to specific needs of system design and suggested improvement would be realized in practice.
implementation, and product development activities. Therefore, a step, Enable, in place of Design and
Particularly, DMADV (define, measure, analyze, design, Optimize, is introduced to address this activity. This is
and verify) by GE Medical System is an attempt to include similar to Design in GE Medicals DMADV.
process management and process redesign in six sigma, .
System development option SCM six sigma projects, in
while moving beyond DMAIC (often regarded as a most cases, result in system development. Accordingly, a
synonym of six sigma), originally developed for high- new approach is needed to cover a process enablement
quality product developments (Hammer, 2002). GE step to support system building activity. However, many
Capitals DABTL (define, architect, build, test, launch) SCM innovation projects may call for changes that can be
is a six sigma approach designed for systems development. enabled within existing system capabilities. Therefore, it
.
DuPont DuPont had just been selected as the 2006 Six was necessary to consider an approach in which system
Sigma Company by the International Society of Six Sigma implementation would be an optional enablement activity.
Professionals (ISSSP) (Forloines, 2005). Additionally, We used DABTL (define, architect, build, test, launch)
DuPont also combined six sigma principles with the approach (used by GE Capital for systems development),
SCOR (Supply Chain Operations Reference) model, incorporating proven software engineering discipline to six
which is a process reference model for SCM developed sigma based SCM methodology.
by the Supply Chain Council and enables effective
3.2 DMAEV
communication among SCM partners. SCOR scopes
The resulting approach is termed DMAEV (define, measure,
five core management processes, including plan, source, analyze, enable, and verify) (Figure 1). Additionally, we
make, deliver, and return (See SCOR Model 7.0 for incorporated the concept of five design parameters (process,
details). The use of SCOR for analyzing supply chains has operation rule & policy, organization role & responsibility,
been of interest (Burgess and Singh, 2006). DuPonts Six performance measure, and system), process modeling and
Sigma approach utilizes a quality function deployment value chain map techniques, and SCM related investment
(QFD) tool, a method or technique for converting value analysis methods.
customers requirements to products, processes or The goal of the Define phase is to define the overall project,
services. including the problem(s) to be tackled, project goal(s) and
. Honeywell Honeywell was selected because of its scope, expected outcomes, and project schedule. The first
extensive application of lean methodologies, which has step identifies key issues and problems through the voice of
become a major tool in the implementation of six sigma, the customer (VOC) and the voice of the business (VOB) as
as evidenced by the Proceedings of the ISSSP (2005). well as the analysis of SCM related processes. This step elicits
Honeywell developed a proprietary Six Sigma approach customers critical to quality (CTQ) criteria or characteristics.
called Six Sigma Plus (DMAIC) which links lean The next step finds the CTQ-dependent variable (Y). The
manufacturing concepts and tools (e.g. value stream outcomes from the Define phase become essential for the next
map, thought process map) into a general six sigma. phases.
Each of the above approaches was analyzed and the following The Measure phase identifies the current level of CTQ-Y,
conclusions drawn, which fed into the subsequent sets up a new target level, and finds the key explanatory
development of the Samsung SCM six sigma methodology: variables (Xs). The first step verifies CTQ-Y and then, if
. Nature of SCM projects may involve either design or necessary, further identifies several specific indicators that can
improvement Six sigma projects usually focus on either substitute CTQ-Y. The next step measures the current level of
redesigning processes and systems or improving CTQ-Y and sets up an improved target level of CTQ-Y. The
performance levels of existing systems. In six sigma following step elicits potential Xs (or causes of the problem)
parlance, the former is addressed most commonly through with respect to five design parameters:
DMADOV (define, measure, analyze, design, optimize, 1 process;
verify), while the latter is addressed using DMAIC 2 operation rule and policy;
(define, measure, analyze, improve, control). SBT 3 organizational role and responsibilities;
estimated that among the SCM projects at Samsung, 4 performance measure; and
5 system.
about 75 percent would involve re-designing processes,
while the remaining 25 percent would focus on process The Analyze phase generates and evaluates hypotheses as to
improvement. Accordingly, extant six sigma approaches the potential Xs. This phase cycles between hypotheses and
were adapted in order to accommodate both redesigning fact-based analysis to prove or reject the hypotheses. This
and improving processes. Consistent with the expected process involves both quantitative and qualitative analyses for
mix of projects stated above, this new approach was closer evaluating hypotheses. The quantitative analysis includes
to supporting process redesign, but still incorporated all various statistical tools such as ANOVA, Pareto analysis and
relevant elements for process improvement. correlation, while the qualitative analysis uses process
.
DMADOV is not enough The DMADOV methodology, mapping, cause and effect diagrams and value stream maps.
while useful, could not provide the necessary support to In the end, the goal is to select the vital few Xs, representing a
execute the entire range of SCM projects at the Samsung few key explanatory variables.
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(design, analyze, build, test, launch) roadmap for system techniques in that methodology in particular. To illustrate the
implementation, which incorporates proven software application of the SCM six sigma methodology in practice, this
engineering discipline into our methodology. section presents a brief overview of a SCM project conducted
.
Five design parameters The underlying belief is that any in a manufacturing firm (its name and detailed information are
organizational change requires a comprehensive, multi- not revealed). This project, completed in the early 2006, had
faceted approach. Thus, DMAEV uses the five design applied the methodology from its beginning in 2005.
parameters to characterize the changes that need to be
managed throughout the DMAEV process stages 4.2.1 Define
process changes; operation rule & policy changes; role & The VOC/VOB analysis began with investigating internal and
responsibility changes; performance measures/KPI external business environments and identifying clients of the
changes; and system and master data changes. A project project. Increases in crude oil price and the devaluation of the
will need to identify latency cause factors and Korean won represented a challenging external business
improvement plans for each of the parameters to ensure environment while an increasing cost associated with surplus
comprehensive treatment of root causes. inventory was a critical pain point. Top management and
various business units including sales, planning &
administration, production, purchasing, global operation
4. Adoption of SCM six sigma at Samsung center (GOC), and transportation in the company were
There are two courses in implementing SCM six sigma identified as the projects clients. Then, the VOC/VOB was
methodology at Samsung: education (SCM Six Sigma Black elicited from interviewing those business units (Figure 3).
Belt) and application of the methodology in practice. The next step was to identify problems and inefficiencies in
SCM-related business processes, typically encompassing
4.1 SCM Six Sigma Black Belt production (e.g. material purchasing, manufacturing), global
The first course is the institutionalization of the methodology operation management (e.g. order fulfillment, weekly
at the Group through a four-month training program. The production plan, inventory management) and sales (e.g.
training program, known as SCM Six Sigma Black Belt forecasting, order management, sales, transportation). Eight
training and mentoring, consists of one week per month of issues were identified, including a lack of visibility in inventory
full-time training for four months, supplemented by and demand forecasting, in the process of replenishment,
mentoring of SCM Black Belts on their selected projects. weekly production planning and packing & shipping. Drawn
The prospective SCM BBs have to complete three such from the VOC/VOB and process analysis, two potential CTQs
projects to get full certification as a SCM Black Belt. were elicited:
By leveraging the established HR belt system of six sigma, 1 demand stabilization; and
Samsung aims to alleviate the shortage of SCM talent that has 2 inventory visibility.
been the primary obstacle in improving SCM performance. The priority of these two was evaluated with respect to the
Samsung expects that SCM six sigma will elevate the findings of the VOC/VOB and process analysis. As a result,
effectiveness of its SCM function as people will now the latter (development of inventory management process)
understand the overall supply chain process and ways of was chosen as the CTQ and surplus (or unpegged) inventory
enabling it. Samsung also expects that greater effectiveness of rate, defined through the formula:
its people in managing its supply chains will improve the X
X
companys ROI. The current training program is within the Unpegged inventory= Inventory 100;
Groups Six Sigma Academy, the goal of which is to develop
talent and future leaders at Samsung. As of today, over 100 was selected as CTQ-Y (or the key performance indicator of
SCM Black Belts have been trained. the CTQ).
4.2 An illustrative case 4.2.2 Measure
As of 2005/6, SCM projects at Samsung are being conducted The baseline level of surplus inventory rate was measured to be
by following the SCM six sigma methodology in general and over 10 percent. A new target was set at 6 percent. This required
utilizing DMAEV and various data and process analysis a 42 percent reduction in surplus inventory. Next, potential root
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causes or Xs were identified in terms of the five design After considering the importance by the project owners,
parameters, (process, operation rule & policy, organizational including representatives of the client groups, finally, seven
roles and responsibilities, performance measure, and system) causes associated with three parameters process, role &
and further prioritized using an X-Y matrix (Table I). policy, and system were selected as the final Xs (Table II).
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Table II Selected Xs (Figure 4). Then, using benchmarking, the to-be image for
each of the three possible solutions was developed. Then,
Type Selected Xs Web-based user interface design for inventory management
Process Recording past surplus inventory was found to be highly relevant to the overall improvement
Planning surplus inventory
subjects identified in the QFD. To design and implement the
selected optimal solution (named Web-based early warning
Early detection and advanced managing of surplus
system for surplus inventory), necessary changes were
inventory
identified with respect to the five parameters. For example,
Rule & policy Standard for managing excess inventory as to the process parameter, a list of processes which
Standard for managing surplus inventory needed to be improved was identified.
Standard for managing safety stock As for the system parameter, DABTL was employed to
define system requirements and to architect, build, test, and
System Web user interface design put the web-based system into operation.
4.2.5 Verify
4.2.3 Analyze Two stages of pilot test were conducted with a business unit in
For those selected Xs, data collection was planned and the company. The first stage, which took place in October
executed (Table III). For each question posed in Table III, a 2005, aimed to prove the applicability of newly proposed or
detailed data analysis was conducted, including both improved processes, rules and policies, roles and
quantitative (e.g. graph, statistics) and qualitative (e.g. responsibilities, and performance measure. The pilot test of
benchmarking, Delphi method, on site visit, document the system was excluded during this stage. The second stage
review) tools. piloted all improvement subjects associated with the five
Based on the results of the data analysis, three Xs parameters between 9 January and 28 January 2006. The pilot
recording past surplus inventory, standard for managing test resulted in a 37 percent reduction in surplus inventory
excess inventory, and web user interface design for inventory (CTQ-Y), from 10.4 percent to 6.5 percent. Although slightly
management were determined to be the vital few Xs. These short of target, the cost associated with surplus inventory
were the factors considered to significantly affect the CTQ-Y. decreased from over $2.7 million to $1.9 million.
Next, in order to proceed and accelerate the adoption of the
4.2.4 Enable optimal solution, control plan and change management
The three vital few Xs led to three possible solutions or plan were developed. The control plan included factors or
actions to improve the current SCM. For each solution or performance indicators (e.g. inventory consumption rate) to
action, detailed improvement subjects were elicited with be controlled, methods to control, business unit responsible
respect to the five parameters. This overall information was for each factor, and actions to be taken for unexpected events.
constructed through a quality function deployment (QFD) The change management considered such elements as critical
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