ROLE OF INFORMATION TECHNOLOGY IN SUPPLY CHAIN Legacy systems are older IT systems based on mainframe technology that usually

work at an operational level on only one stage or even one function within a stage of the supply chain. ''Legacy system" is a very broad label and applies to a wide variety of systems with applications that can range from order entry to manufacturing scheduling to delivery Although these functions are very different, they are all called legacy systems because of the older technology involved and because these systems continue to exist past their intended life span through numerous updates of the original code. Two important characteristics of legacy systems are the very narrow scope across which they have visibility and the operational nature of the tasks they perform. Legacy systems end to focus solely on a particular function and are built as independent entities witnlittle regard for other systems. Therefore, communication between systems is often minimal, and visibility across functions and supply chain stages is very limited. Legacy systems also have very limited analytical capabilities because they focus more on gathering information rather than on analyzing information to make decisions. The following are the main advantages of legacy systems: 1,Legacy systems tend to be able to get the operation done. They may not be very efficient and they may be slow, but because legacy systems have often been up and running for more than a decade, they do work. Using legacy systems, therefore, is less risky in some respects than installing an untested new system whose operational abilities are unknown. 2.Legacy systems sometimes take less incremental investment to run than installing new applications because legacy systems already exist. The complex layers of code, however, often turn modifications into a quagmire that can be more difficult to complete than starting from scratch with a new system.

legacy systems have a large number of disadvantages, which are summarized as follows 1. Legacy systems focus on only a small part of a stage within the supply chain. 2. Legacy systems usually have only transactional capabilities, which relegates them to an operational rather than a planning or strategic role. 3. Legacy systems are usually based on mainframe technology that is difficult to modify and takes a long time to run when situations change. PresentEnterprise Resource Planning Enterprise resource planning (ERP) systems are operational IT systems that gather information from across all of a company's functions, resulting in the entire enterprise having a broader scope. ERP systems monitor material, orders, schedules, finished goods inventory, and other information throughout the entire organization. ERP systems' main advantage over legacy systems is the clearly superior scope they provide to make better supply chain decisions. ERP systems are good at monitoring transactions but generally lack the analytical capability to determine what transactions ought to happen.

The ability to keep track of orders and have broad visibility in general has become more important as supply chains become more global and more complex. Today's trend of using a product-based instead of a function-based organizational structure has also helped make ERP systems more attractive, because this structure increases the importance of the crossfunctional scope that ERP systems provide. ERP systems typically have many modules, each covering different functions within a company. These modules are linked together so that users in each function can see what is happening in other areas of the company. There are several key modules.to an ERP systern, each of which can be installed on its own or with a combination of other modules: 1. Finance. This module tracks financial information such as revenue and cost data through various areas within the company. 2. Logistics. This module is often broken into several sub modules covering different logistics functions such as transportation, inventory management, and warehouse management. 3. Manufacturing. This module tracks the flow of products through the manufacturing process, coordinating what is done to what part at what time. 4. Order fulfillment. This module monitors the entire order fulfillment cycle, keeping track of the progress the company .has made in satisfying demand. 5. Human resources. This module handles all sorts of human resources tasks, such as the scheduling of workers. 6. Supplier management. This module monitors supplier performance and tracks the delivery of supplier's products. ERP systems not only allow a company to track items throughout the system, they also allow a company to automate processes. By automating processes, companies are often able to increase efficiency and reduce errors. This combination can result in significant cost savings if executed properly. It is important to keep in mind, however, that automating poor processes only guarantees that they will be executed poorly each time. Thus, firms should review their processes before implementing ERP systems. Beyond merely automating old processes, which can be akin to paving the cow paths, installing an ERP system often serves as a catalyst for a firm to redefine processes to make them more effective. ERP vendors build different versions of their software packages for different industries that are consistent with that industry's functional requirements.

Placing Enterprise Resource Planning Systems on the Supply Chain Information Technology Map
ERP systems were developed to provide an integrated view of information across functions within a company and with the potential to go across companies. The enlarged scope of visibility along the horizontal axis is what chiefly differentiates ERP from legacy systems and is the main reason why the ERP industry was so successful during the mid-and late 1990s. Within a company, an ERP system will provide visibility of both incoming supplies and orders so that manufacturing managers can be sure when they schedule production that demand will be met and that appropriate materials will arrive on time. Salespeople can view production schedules and warehouse inventory levels in order to determine when a product might be delivered to a customer. ERP systems can also create the opportunity to share data across firms so that managers have visibility across the entire supply chain, although few companies have reached this stage of

implementation. Nonetheless, the enlarged scope of visibility is the largest benefit that ERP systems offer because it allows company and supply chain managers to make much better decisions. ERP systems have a number of disadvantages: 1. ERP systems still have relatively weak analytical capabilities because their focus is at an operational level. The ERP players are trying to move upward on the IT map, but it is a difficult move to make because software for the planning level requires quite a large amount of specific expertise to develop. 2. ERP systems have a reputation for being very expensive and difficult to implement. This can be especially true when the standard modules must be customized to accommodate different business processes. 3. There are many stories of companies that have spent large amounts of time and money installing an ERP system only to have it fail and be forced to rip the entire system out and return to the old legacy systems. Of course, these are countered by great success stories. The Enterprise Resource Planning Players There are five major ERP players in the marketplace, which we describe here. In addition to these five, there are many smaller players that focus on small and midsize companies as their customers. The larger players have moved into these smaller markets, though, and these giants may become the major players there as well. 1 SAP The clear ERP market leader with around a 30 percent share of the market, SAP has its roots writing software for manufacturing environments. The firm has a strong tradition of building capabilities in-house, and they are expanding their product offerings vertically by developing more analytical functions to be used in supply chain planning. 2. Oracle The second largest player with about, half the share of SAP, Oracle is the only one of the Big Five ERP players that is not solely an ERP firm. Oracle also writes database software, which led it to begin creating ERP systems. Oracle initially added financial applications to its database programs and eventually grew to be a full ERP provider. Oracle has had the most success with consumer packaged goods companies, although they have successfully expanded into other industries. 3. Peoplesoft Whereas SAP started with manufacturing applications and Oracle with finance, Peoplesoft started with human resources applications. It has acquired an analytical software firm in the supply chain realm (Red Pepper) in order to push its products up the vertical scale of the IT map. 4. J. D. Edwards This firm started out building cross-functional systems that were

targeted toward midsize, firms, generally those with around $1 billion in sales. J. D. Edwards has purchased Numetrix, a supply chain software company, in an effort to increase its offering in the analytical applications realm. 5. Baan Baan, like J. D. Edwards, began with the entire integrated view in mind rather than a specific function as is the case with the three leaders. Baan also focuses on midsize companies. Baan tends to perform better in manufacturing environments, although they have attempted to break out of this vertical industry. In order to im-prove its supply chain The PresentAnalytical Applications Whereas an ERP system's greatest advantage is the broad scope it provides, an analytical application's advantage lies in the fact that it can be used for both planning and strategic decisions. Analytical systems are not focused at an operating level but rather on planning and strategic decisions. They analyze information supplied to them by legacy or ERP systems in order to help supply chain managers make good decisions. For example, ERP systems may provide demand history, inventory levels, and supplier lead times, and then an analytical application would determine what the inventory level should be to maximize profitability. Analytical applications rely on sophisticated algorithms including linear programming, mixed integer programming, genetic algorithms, theory of constraints, and many types of heuristics. These algorithms are most often proprietary to the software company, and large amounts of R&D go into developing them. Due to the level of sophistication, this technology is relatively hard to develop if a firm has not had much experience in this area. Procurement and Content Cataloging Applications Procurement and cataloging applications focus on the relationship between a manufacturer and its suppliers and the procurement process that takes place between them. Though there are many such applications, the basic purposes of supplier-focused applications are to enable a streamlined procurement process, replace the supplier's catalog, and keep track of parts, specifications, prices, order processes, and the suppliers themselves. Supplier management systems allow analytical comparisons of supplier versus supplier and part versus part to help buyers make decisions on whom to buy from and what to buy. . Advanced Planning and Scheduling Advanced planning and scheduling (APS) has been one of the fastest growing areas in analytical applications. APS systems produce schedules for what to make, where and when to make it, and how to make it while taking into account material availability, plant capacity, and other business objectives. APS can also encompass the functions of strategic supply chain planning, inventory planning, and available to promise (ATP). These systems are highly analytical and use sophisticated algorithms such as linear programming and genetic algorithms. APS systems can be used to develop detailed production schedules in plants, perform manufacturing planning, and perform supply chain planning to optimize the use of manufacturing, distribution, and transportation resources to meet demand. APS systems require inputs of transaction-level data that arc collected by ERP or legacy systems. APS systems are an area that

Transportation Planning and Content Systems Transportation planning and content systems perform the analysis to determine how, when, where, and in what quantity materials ought to be transported. Comparisons of different carriers, modes, routes, and freight plans can be made using these systems. The planning vendors produce the engine that performs the analysis, and content vendors provide the data needed to perform the analysis, such as mileage and tariff requirements. Demand Planning and Revenue Management The demand planning and revenue management application helps companies fore-cast their demand using proprietary analytical tools. These systems take as inputs historical data and any information regarding future demand and come up with models to help explain past sales and forecast future demand. Good systems take into account demand trends as well as seasonality along with modifications for promotions to forecast future demand. The idea of revenue management is also often placed under the demand planning umbrella. Revenue management deals with using price discrimination to maximize the amount of consumer surplus one can get from product sales. Customer Relationship Management (CRM) and Sales Force Automation (SFA) The customer relationship management (CRM) and sales force automation (SFA) applications automate relations between sellers and buyers by providing product and price information. They also allow for detailed customer and product information to be available in real time so that salespeople can direct their efforts or customers can configure orders themselves. Supply Chain Management Supply chain management (SCM) systems are a combination of many of the preceding applications and are used to span the stages in the supply chain. They are delivered as a suite of different supply chain applications that are tightly integrated. SCM systems allow for a more global scope because they can span many supply cha stages with their different modules. For instance, an SCM system could come with APS, demand planning, transportation planning, and inventory planning. SCM systems have the analytical capabilities to produce planning solutions and strategic level decisions. Although they .do not usually span all of the supply chain stages and they rely on legacy. systems or ERP systems to provide the information necessary to perform the analysis, SCM systems currently provide the highest level of functionality with respect to the vertical axis of the IT map. SCM systems are the only systems to reach into the strategic level of functionality. i2 is the leader in developing SCM Inventory Management Systems These systems observe demand patterns: take inputs on forecasting, costs, margins, and service levels; and then produce a recommended stocking policy. They are best used to achieve an optimal balance between inventory costs and stock out costs.

Manufacturing Execution System A manufacturing execution system (MES) is less analytical than an APS system and is similar to the operationally focused ERP system, except that it concentrates only on executing production in a manufacturing facility. An MES generally produces short-term schedules and allocates resources with their analytical capabilities. The leading MES modules are from the ERP companies and a number of smaller players that develop only MESs. Transportation Execution Similar to an MES with respect to APS, transportation execution systems make transportation plans work. They are less analytical than their planning counterparts but serve as an operational link to the planning tools. Warehouse Management System Like transportation execution systems, warehouse management systems (WMSs) execute inventory planning commands and run the day-to-day operations of a warehouse. These systems also keep track of inventories in a warehouse. Placing Analytical Applications on the Information Technology Map-On our IT map, analytical applications generally reside within various stages of the supply chain at the planning level, as we can see in Figure 12.6. Some planning applications have operational counterparts, which are also shown. SCM stretches across many supply chain stages. Note that some applications, such as the transportation applications, can exist between any two stages in the supply chain, and not simply where they are shown in Figure 12.6. The IT map helps us see the major advantages of analytical applications, which are as follows: 1. Analytical applications have very sophisticated analytical capabilities and generate solutions that are far superior to what could be arrived at without them. Therefore, these applications can potentially greatly increase their users' profitability. This can be seen by analytic applications' penetration up the vertical scale of the IT map. 2. Analytical applications generally can respond in real time to problems and emergencies. For example, schedules can be instantly rerun if a machine goes down, thereby quickly shifting production. The Analytical Application Players Within each of the analytical applications discussed, there are different leading providers, and we point this out where there is a clear leader. However, because this industry is relatively young, there is quite a bit of fragmentation. For the purposes of our discussion, we list only the two major SCM providers (along with the ERP players) because they provide the best combination of cross-stage scope and analytical capability. , 1. i2 Technologies. i2 is the market leader in the SCM realm. i2's strength began with its powerful APS systems used for discrete manufacturers. i2 is particularly strong in the high-tech industry, although it now has a very broad base of customers. 2. Manugistics. The number-two player in SCM is Manugistics, although it is falling further behind i2. Manugistics' systems are best at demand planning and working with distribution-intensive products such as consumer goods. - 3. ERP players. Some of the ERP players are also developing SCM capabilities

using three different approaches. SAP is developing its capabilities in-house, Oracle has leaned toward partnering with existing SCM players (although it has developed an in-house supply chain solution as well), and Peoplesoft, J. D. Edwards, and Baan have acquired SCM companies and are incorporating their products into the ERP suites. At this writing, the ERP players have not made a significant dent in the analytical applications market, as their products are behind the leaders discussed. EVOLUTION OF ERP In the manufacturing industry; MRP (Material Requirements Planning) became the fundamental concept of production management and control in the mid 1970s. At this stage BOM (Bill of Materials), which is purchase order management that utilizes parts list management and parts development, was in the mainstream. And this concept (MRP) unfolded from order inventory management of materials to plant and personnel planning and distribution planning, which in turn became MRP-II (Manufacturing Resource Planning). (DURING 80S) This incorporated financial accounting, human resource management functions, distribution management functions and management accounting functions. It came to globally cover all areas of enterprise mainstay business and eventually came to be called ERP.(URING 90 S) What Is ERP? Enterprise Resource Planning (ERP) covers the techniques and concepts employed for the integrated management of businesses as a whole, from the viewpoint of the effective use of management resources, to improve the efficiency of an enterprise. ERP packages are integrated (covering all business functions) software packages that support the above ERP concepts. Figure 1.1 shows how information is integrated within an organisation using the ERP system.

Maintenance management

ERP software is a mirror image of the major business processes of an organization, such as customer order fulfillment and manufacturing. Its success depends upon reacha circumscribed ERP system isn't much better than the legacy system it replaces. . ERP systems' set of generic processes, produce the dramatic improvements that they are capable of only, when used to connect parts of an organization and integrate its various processes seamlessly Reasons for the Growth of ERP Market There is no doubt that the market for Enterprise Resource Planning (ERP) systems is in great demand. Industry analysts are forecasting growth rates of more than 30% for at least the next five years. Why are so many companies replacing their key business systems? The answer is: To enable improved business performance Cycle time reduction Increased business agility Inventory reduction Order fulfillment improvement To support business growth requirements New products/product lines, new customers Global requirements including multiple languages and currencies To provide flexible, integrated, real-time decision support Improve responsiveness across the organization To eliminate limitation in legacy systems Century dating issues Fragmentation of data and processing Inflexibility to change Insupportable technologies

 To take advantage of the untapped mid-market (medium size organizations) Increased functionality at a reasonable cost Client server/open systems technology Vertical market solutions These are some of the reasons for the explosive growth rate of the ERP markets and the ERP vendors. As more and more companies are joining the race, the ERP vendors are shifting their focus from bigFortune 1000companies to different market segments (medium size companies, small companies, etc.). The future will see fierce battle for market share and mergers and acquisitions for strategic and competitive advantage. The ultimate winner in this race will be the customer, who will get better products and better service at affordable prices. The Advantages of ERP Installing an ERP system has many advantagesboth direct and indirect. The direct advantages include improved efficiency, information integration for better decision making, faster response time to customer queries, etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction, and so on. The following are some of the direct benefits of an ERP system: Business Integration Flexibility Better Analysis and Planning Capabilities Use of Latest Technology

Benefits of ERP

Installing an ERP system has many advantagesboth direct and indirect. The direct advantages include improved efficiency, information integration for better decision-making, faster response time to customer queries, etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction, and so on. In this chapter we will see some of the benefits of the ERP systems. They are: Reduction of lead-time On-time shipment Reduction in cycle time Better customer satisfaction Improved supplier performance Increased flexibility Reduction in quality costs Improved resource utility Improved information accuracy and decision-making capability ERP and Related Technologies

Introduction

ERP is an abbreviation for Enterprise Resource Planning and means, the techniques and concepts for the integrated management of businesses as a whole, from the viewpoint of the effective use of management resources, to improve the efficiency of an enterprise. ERP systems serve an important function by integrating separate business functions materials management, product planning, sales, distribution, finance and accounting and othersinto a single application. However, ERP systems have three significant limitations: 1. Managers cannot generate custom reports or queries without help from a programmer and this inhibits them from obtaining information quickly, which is essential for maintaining a competitive advantage. 2. ERP systems provide current status only, such as open orders. Managers often need to look past the current status to find trends and patterns that aid better decision-making. 3. The data in the ERP application is not integrated with other enterprise or division systems and does not include external intelligence. There are many technologies that help to overcome these limitations. These technologies, when used in conjunction with the ERP package, will help in overcoming the limitations of a standalone ERP system and thus, help the employees to make better decisions. Some of these technologies are BPR, Data Warehousing, Data Mining, On-line Analytical Processing (OLAP), Supply Chain Management and so on. With the competition in the ERP market getting, hotter and hotter, and ERP vendors searching for ways to penetrate new market segments and expand the existing ones, tomorrows ERP systems will have most of these technologies integrated into them. Business Process Reengineering (BPR) Dr Michael Hammer defines BPR as "... the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed." One of the main tools for making this change is the Information Technology (IT). We have seen that the ERP systems help in integrating the various business processes of the organization with the help of modern developments in IT. With a good ERP package, the organization will have the capability of achieving dramatic improvements in critical areas such as cost, quality, speed and so on. So many BPR initiatives end up in the ERP implementation. Data Warehousing If operational data is kept in the databases of the ERP system, it can create a lot of problems. As time passes, the amount of data will increase and this will affect the performance of the ERP system. So it is better to archive the operational data once its use is over. When I say 'the use is over', it does not mean that the archived data is useless. On the contrary, it is one of the most valuable resource of the organization. However once the operational use of the data is over, it should be removed from the operational

databases. For example, once the financial year is over, the daily transactional data can be archived The primary concept of data warehousing is that the data stored for business analysis can be accessed most effectively by separating it from the data in operational systems. The most important reason for separating data for business analysis, from the operational data Data Mining Data mining is the process of identifying valid, novel, potentially useful and ultimately comprehensible information from databases that is used to make crucial business decisions. Modern data mining systems self learn from the previous history of the investigated system, formulating and testing hypotheses about the rules, which the system obeys. When concise and valuable knowledge about the system of interest has been discovered, it can and should be incorporated into some decision support system which helps the manager make wise and informed bus

On-line Analytical Processing (OLAP) According to Business Intelligence Ltd (http://www.OLAPReport.com), OLAP can be defined in five wordsFast Analysis of Shared Multidimensional Information. FAST means that the system is targeted to deliver most responses to users within about five seconds, with the simplest analysis taking no more than one second and very few taking more than 20 seconds. INFORMATION is refined data that is accurate, timely and relevant to the user. Simply put, OLAP describes a class of technologies that are designed for live ad-hoc data access and analysis. While transaction processing (OLTP) generally relies solely on relational databases, OLAP has become synonymous with multidimensional views of business data. OLAP technology is being used in an increasingly wide range of applications. The most common are sales and marketing analysis; financial reporting and consolidation; and budgeting and planning. Increasingly however, OLAP is being used for applications such as product profitability and pricing analysis; activity based costing; manpower planning; and quality analysis, or for that matter any management system that requires a flexible, top down view of an organization Look beyond how logistics and SCM can influence organizational success and to consider the issue of sustainability as it applies to logistics and SCM Green issues Economic sustainability Reverse logistics

Introduction
Look beyond how logistics and SCM can influence organizational success and to consider the issue of sustainability as it applies to logistics and SCM Green issues Economic sustainability Reverse logistics

Sustainability to include environmental management, close-loop supply chain and a broad perspective on triple-bottom-line(3BL) Sustainable logistics is concerned with reducing the environmental and other disbenefits associated with the movement of freight

Sustainable logistics and SCM

Three ways in which to improve the sustainability of logistics and supply chain system
Redesigning supply chain

Supply chain redesign

Promoting scale
Using scale to use the negative environmental effects of logistics activities

Enhancing efficiency
Promoting various efficiency solutions

10

An criteria for measuring organizational success: economic, environment and social The green revolution and supply chain redesign The link between economic growth and transport growth The role of scale in logistics and SCM Efficiency solutions Reverse logistics Green Revolution

The international Kyoto Protocol has called for a 60% reduction in carbon emissions by 2050 Carbon footprint: the environmental disbenefits associated with economic activities such as the movement of freight http://www.carbonfootprint.com/index.html Food miles: the distance by which the various components of a particular food item have to travel before final consumption http://www.food-mileage.com/calculator/ Green product design It is at the product design stage that the most contribution can be made towards reducing a products environmental footprint This is sometimes referred to as green product design Supply chain redesign Greening the supply chain: Largely about forward planning Over 80% of carbon savings are only achievable at the supply chain design stage, e.g.: deciding where to locate warehouses and distribution centres deciding which transport modes to use reconfiguring distribution networks so as replace small deliveries direct to all end customers with centralised deliveries to a hub from where end customers retrieve their goods Reverse logistics encompasses a number of streams of activity: Return of end of life products Return of defective, damaged and unwanted products Return of packaging and recovery of returnable equipment such as containers, pallets and barrels

Closed loop supply chains: those which also comprise reverse / return flows

Closed-loop supply chain

Material Supply
Recycle

Component Manufacturing

Assembly or Re-assembly
Repair

Distribution

Remanufacturing

Reuse

User

Material Recovery

Disassembly

Inspection Separation

Collection

Disposal

Waste Disposal

17

Reuse and Recycling: From Supply Chains to Supply Loops

GSCM Spring 2007 Session 16 May 24

From supply chains to supply loops Traditional supply chains end with the sale and delivery of the final product
Raw materials mining Primary materials production Component manufacture Final product assembly Product sale and delivery

Lee & Billington, for example, define a supply chain as

[] a network of facilities that procure raw materials, transform them into intermediary goods and then final products, and deliver the products to customers through a distribution system.

Product demand & use

What happens to the product after sale and delivery is of no concern for supply chain managers

End-of-life product disposal

GSCM Spring 2007 Session 16 May 24

Supply loops divert end-of-life products from landfill and reprocess these products, their components or their materials into secondary resources which replace primary resources in forward supply chains.
Raw materials mining Primary materials production Component manufacture Final product assembly Product sale and delivery

Materials reprocessing

Component reprocessing

Product reprocessing

Product demand & use

Eol product collection & inspection

End-of-life product disposal

GSCM Spring 2007 Session 16 May 24

Lean Thinking for the Supply Chain

Although lean thinking is typically applied to manufacturing lean techniques and focus are applicable anywhere there are processes to improve, including the entire supply chain. A lean supply chain is one that produces just what and how much is needed, when it is needed, and where it is needed. The underlying theme in lean thinking is to produce more or do more with fewer resources while giving the end customer exactly what he or she wants. This means focusing on each product and its value stream. To do this, organizations must be ready to ask and understand which activities truly create value and which ones are wasteful. The most important thing to remember is that lean is not simply about eliminating wasteit is about eliminating waste and enhancing value.

The Concepts of Value and Waste

Value, in the context of lean, is defined as something that the customer is willing to pay for. Valueadding activities transform materials and information into something a customer wants. Non-valueadding activities consume resources and do not directly contribute to the end result desired by the customer. Waste, therefore, is defined as anything that does not add value from the customer's perspective. Examples of process wastes are defective products, overproduction, inventories, excess motion, processing steps, transportation, and waiting. Consider the non-manufacturing example of a flight to the Bahamas. The value-adding part of that process is the actual flight itself. The non-value-added parts of that process are driving to the airport, parking at the airport, walking to the terminal and then to check-in, waiting in line at check-in, walking to the security check, and so on. Many times the non-value-added time far exceeds the value-added time in this type of process. Where should our improvement efforts be focusedon the non value-added steps or on making the plane fly faster? Understanding the difference between value and waste and value-added and non-value-added processes is critical to understanding lean. Sometimes it is not easy to discern the difference when looking at an entire supply chain. The best way is to look at the components of the supply chain and apply lean thinking to each one and determine how to link the processes to reduce waste.

Creating Value
Lean principles focus on creating value by:

Specifying value from the perspective of the end customer Determining a value system by: o o o Identifying all of the steps required to create value Mapping the value stream Challenging every step by asking why five times

Lining up value, creating steps so they occur in rapid sequence Creating flow with capable, available, and adequate processes Pulling materials, parts, products, and information from customers Continuously improving to reduce and eliminate waste

The value stream consists of the value-adding activities required to design, order, and provide a product from concept to launch, order to delivery, and raw materials to customers. To develop a value stream map for a product, you select a product family and collect process information. Then, you map the steps in sequence and by information flows; this is called a current-state map. The current-state map provides a clear picture of the processing steps and information flow for the process as it exists today. Next, you search the map for improvement opportunities using the concepts of lean, and create a future-state map. This will portray a vision of the future for the process or supply chain you are creating. This future-state map helps you to visualize the roadmap to get from the current state to the future state. Mapping the value stream for the supply chain is a similar process. However, the current-state map includes product flow, transportation links, defects and delivery time and steps, and information flow. After creating the current-state map for the supply chain's value stream, supply chain partners should scrutinize it for bottlenecks, waste, and process improvements. They should use what they discover to create future-state maps for the supply chain. An ideal-state map can also be created that provides a vision of how the supply chain could look if perfect integration of all components were to occur. This is in effect an entitlement map for the supply chain process. Here's how it works: A current-state map might indicate that flow within facilities is well defined, but that transportation methods between facilities is creating excess inventory and is not cost effective. The current state map may also show a weakness in the information flow that is not adding value to the process. The future-state map should create flow between facilities, leveling pull within each facility, and eliminating waste. The method for leveling pull might be to install frequent transport runs or milk runs. Information flow could be improved by installing a Web-based process to allow real-time flow of information between all supply chain partners as demand changes. The ideal-state map of this supply chain might have a greatly compressed value system with relocated operations and short transportation deliveries.

"Waste" Reduction
The "Waste" reduction process begins with the question "What can we do to improve?" Some answers may include: Stop defective products at their source Flow processes together or change the physical relationship of components of the process Eliminate excess material handling or costly handling steps Eliminate or reduce pointless process steps Reduce the time spent waiting for parts, orders, other people, or information

In manufacturing environments, these waste reductions create the benefits of reduced manufacturing cycle time, reduced labor expenditures, improved product quality, space savings, reduced inventory, and quicker response to the customer. When waste is reduced or eliminated across the supply chain, overall cycle time is improved, labor and staff costs are reduced, product quality and delivery are improved, inventories are reduced, and customer lead-times are shortened. The net effect is the entire supply chain is more efficient and responsive to customer needs.

Components of the Lean Supply Chain

Lean Suppliers Lean suppliers are able to respond to changes. Their prices are generally lower due to the efficiencies of lean processes, and their quality has improved to the point that incoming inspection at the next link is not needed. Lean suppliers deliver on time and their culture is one of continuous improvement. To develop lean suppliers, organizations should include suppliers in their value stream. They should encourage suppliers to make the lean transformation and involve them in lean activities. This will help them fix problems and share savings. In turn, they can help their suppliers and set continually declining price targets and increasing quality goals. Lean Procurement Some lean procurement processes are e-procurement and automated procurement. E-procurement conducts transactions, strategic sourcing, bidding, and reverse auctions using Web-based applications. Automated procurement uses software that removes the human element from multiple procurement functions and integrates with financials. The key to lean procurement is visibility. Suppliers must be able to "see" into their customers' operations and customers must be able to "see" into their suppliers' operations. Organizations should map the current value stream, and together create a future value stream in the procurement process. They should create a flow of information while establishing a pull of information and products. Lean Manufacturing Lean manufacturing systems produce what the customer wants, in the quantity the customer wants, when the customer wants it, and with minimum resources. Lean efforts typically start in manufacturing because they free up resources for continuous improvement in other areas, and create a pull on the rest of the organization. Applying lean concepts to manufacturing typically presents the greatest opportunity for cost reduction and quality improvement; however, many organizations have received huge benefits from lean concepts in other functions. Lean Warehousing Lean warehousing means eliminating non-value added steps and waste in product storage processes. Typical warehousing functions are: Receiving Put-away/storing Replenishment Picking Packing Shipping

Warehousing waste can be found throughout the storage process including: Defective products which create returns Overproduction or over shipment of products Excess inventories which require additional space and reduce warehousing efficiency Excess motion and handling Inefficiencies and unnecessary processing steps Transportation steps and distances Waiting for parts, materials and information

Information processes

Each step in the warehousing process should be examined critically to see where unnecessary, repetitive, and non-value-added activities might be so that they may be eliminated. Lean Transportation Lean concepts in transportation include: Core carrier programs Improved transportation administrative processes and automated functions Optimized mode selection and pooling orders Combined multi-stop truckloads Crossdocking Right sizing equipment Import/export transportation processes Inbound transportation and backhauls

The keys to accomplishing the concepts above include mapping the value stream, creating flow, reducing waste in processes, eliminating non-value-added activities and using pull processes. Lean Customers Lean customers understand their business needs and therefore can specify meaningful requirements. They value speed and flexibility and expect high levels of delivery performance and quality. Lean customers are interested in establishing effective partnershipsthey are always seeking methods of continuous improvement in the total supply chain to reduce costs. Lean customers expect value from the products they purchase and provide value to the consumers who they interact with.

Benefits of Lean Systems

Speed and Responsiveness to Customers Lean systems allow a supply chain to not only to be more efficient, but also faster. As the culture of lean takes over the entire supply chain, all links increase their velocity. A culture of rapid response and faster decisions becomes the expectation and the norm. This does not mean that decisions are made without careful thought. It simply means that a "bias for action" becomes the new corporate culture and anything less will not be tolerated. Slow response or no response becomes the exception, rather than the rule. Reduced Inventories In the lean paradigm, inventory is considered waste. Many would argue this point, but manufacturing can take place efficiently with little or no raw material, work in process (WIP), or finished goods inventory. Many companies today produce directly into trailers and maintain no other finished goods inventory. All quality inspections and checks are performed within the process, rather than after production is complete. In this true make-to-order scenario, all goods are shipped directly to the next link in the supply chain when the trailer is full, and overproduction is not possible and cannot be tolerated. No space is designated to store finished goods. The system is not designed to carry them. Applying one-piece flow and pull systems can reduce WIP dramatically. A Kanban or visual signal for more goods to be moved forward to the next process can accomplish this procedure. Although the ultimate goal is to eliminate WIP, minimal WIP is normally the result. The elimination of bottlenecks is one goal of a lean supply chain, but a bottleneck will always exist to some degree. As a result, WIP must always exist in front of a bottleneck or the bottleneck operation will be starved and will stop. Raw material inventory is a different matter. Although the leanest organizations have arranged just in time deliveries to support manufacturing, this approach requires the absolute highest degree of competency and coordination within the supply chain.

Reduced Costs Traditional mass production tries to minimize unit costs by increasing total production over the life cycle of the product. High development costs are the result of this model. To recover the enormous development and initial capital costs sunk into the product before it was produced, mass producers forecast and run long production cycles for each SKU. Consumer preferences and variety suffer in this scenario. Costs still need to be minimized, but not at the expense of what more sophisticated consumers now demand. Improved Customer Satisfaction Lean promotes minimizing new product development time and expense. This delivers the product to market faster, making it easier to incorporate current requirements into the product. Lean also promotes the use of less capital-intensive machines, tools, and fixtures, which results in more flexibility and less initial cost to recover. As a result, product life cycles may be shorter and product developments incorporated in newer versions of the product more frequently. Profitability does not suffer and brand loyalty is increased, as customers prefer to buy products and services from a perceived innovator. Supply Chain as a Competitive Weapon A strong supply chain enables the member companies to align themselves with each other and to coordinate their continuous improvement efforts. This synthesis enables even small firms to participate in the results of lean efforts. Competitive advantage and leadership in the global marketplace can only be gained by applying lean principles to the supply chain. Thought, commitment, planning, collaboration, and a path forward are required.

Path Forward to a Lean Supply Chain

Lean is a cooperative process for survival and for success. Supply chains that want to grow and continue to improve must adopt lean. Lean concepts require an attitude of continuous improvement with a bias for action. The concepts of lean apply to all elements of the supply chain, including support departments such as product development, quality, human resources, marketing, finance, purchasing, and distribution. The challenge is to bring all of these areas out of their traditional silos and make them work together to reduce waste and create flow. Duplication and a lack of appropriate and timely communication run rampant in these traditional organizations. A lean supply chain is proactive and plans for the unexpected by positioning all resources for effectiveness. Downturns in demand can be addressed without layoffs or significant productivity losses. Leaning "other" areas presents a larger challenge than it does in manufacturing. Supervisors and factory workers embrace change that results in making their lives less complicated and more successful. In the hierarchy of support areas, it is more challenging for the people to understand how lean can benefit them. The answer is simple: What benefits the organization as a whole benefits the supply chain. Because the Internet provides us with unprecedented opportunities for sharing information and conducting transactions across the supply chain, companies should have a sense of urgency about adopting lean concepts. But all chain partners have to be on the same playing field, and the lean concept is intended to let everyone reach new levels of efficiency and effectiveness. Supply chain leaders should not delayit's urgent to act now to implement lean concepts in the supply chain.

SIX SIGMA
six sigma training, history, definitions - six sigma and quality management glossary Six Sigma is now according to many business development and quality improvement experts, the most popular management methodology in history. Six Sigma is certainly a very big industry in its own right, and Six Sigma is now an enormous 'brand' in the world of corporate development. Six Sigma began in 1986 as a statistically-based method to reduce variation in electronic manufacturing processes in Motorola Inc in the USA. Today, twenty-something years on, Six Sigma is used as an all-encompassing business performance methodology, all over the world, in organizations as diverse as local government departments, prisons, hospitals, the armed forces, banks, and multi-nationals corporations. While Six

Sigma implementation continues apace in many of the world's largest corporations, many organizations and suppliers in the consulting and training communities have also seized on the Six Sigma concept, to package and provide all sorts of Six Sigma 'branded' training products and consultancy and services. Six Sigma has also spawned manay and various business books on the subject. Six Sigma, it might seem, is taking over the world. Interestingly while Six Sigma has become a very widely used 'generic' term, the name Six Sigma is actually a registered trademark of Motorola Inc., in the USA, who first pioneered Six Sigma methods in the 1980's. The original and technically correct spelling seems to be Six Sigma, rather than 6 Sigma, although in recent years Motorola and GE have each since developed their own sexy Six Sigma logos using the number six and the Greek sigma character s. Six Sigma is now a global brand and something of a revolution. But what is Six Sigma?...

six sigma definitions The answer is that Six Sigma is lots of things. First, Six Sigma is arguably a very clever way of branding and packaging many aspects of Total Quality Management that exist in their own right, regardless of the development of Six Sigma. Read the section about Total Quality Management and 'Excellence' and you will understand this. Six Sigma is lots of different things because it had different meanings over time, and also because it is now interpreted in increasingly different ways. And Six Sigma is still evolving.

Motorola Inc., who first developed the methodology in the mid-late1980's and who provide extensive Six Sigma training and consultancy services, provide the following definitions: six sigma according to motorola "...Six Sigma has evolved over the last two decades and so has its definition. Six Sigma has literal, conceptual, and practical definitions. At Motorola University (Motorola's Six Sigma training and consultancy division), we think about Six Sigma at three different levels:

As a metric As a methodology As a management system

Essentially, Six Sigma is all three at the same time." "...Six Sigma as a Metric: The term "Sigma" is often used as a scale for levels of 'goodness' or quality. Using this scale, 'Six Sigma' equates to 3.4 defects per one million opportunities (DPMO). Therefore, Six Sigma started as a defect reduction effort in manufacturing and was then applied to other business processes for the same purpose.." "...Six Sigma as a Methodology: As Six Sigma has evolved, there has been less emphasis on the literal definition of 3.4 DPMO, or counting defects in products and processes. Six Sigma is a business improvement methodology that focuses an organization on:

Understanding and managing customer requirements Aligning key business processes to achieve those requirements Utilizing rigorous data analysis to minimize variation in those processes Driving rapid and sustainable improvement to business processes.."

"..At the heart of the methodology is the DMAIC model for process improvement. DMAIC is commonly used by Six Sigma project teams and is an acronym for:

Define opportunity Measure performance Analyze opportunity Improve performance Control performance.."

"...Six Sigma Management System: Through experience, Motorola has learned that disciplined use of metrics and application of the methodology is still not enough to drive desired breakthrough improvements and results that are sustainable over time. For greatest impact, Motorola ensures that process metrics and structured methodology are applied to improvement opportunities that are directly linked to the organizational strategy. When practiced as a management system, Six Sigma is a high performance system for executing business strategy. Six Sigma is a top-down solution to help organizations:

Align their business strategy to critical improvement efforts Mobilize teams to attack high impact projects Accelerate improved business results Govern efforts to ensure improvements are sustained.."

"..The Six Sigma Management System drives clarity around the business strategy and the metrics that most reflect success with that strategy. It provides the framework to prioritize resources for projects that will improve the metrics, and it leverages leaders who will manage the efforts for rapid, sustainable, and improved business results.." General Electric (GE), the first large-scale adopters and advocates of Six Sigma after Motorola, and considered by most experts to have been responsible for Six Sigma's rapidly achieved high profile, provide the following definitions of Six Sigma: six sigma according to general electric "...Six Sigma is a highly disciplined process that helps us focus on developing and delivering nearperfect products and services. Why 'Sigma'? The word is a statistical term that measures how far a given process deviates from perfection. The central idea behind Six Sigma is that if you can measure how many 'defects' you have in a process, you can systematically figure out how to eliminate them and get as close to 'zero defects' as possible. To achieve Six Sigma Quality, a process must produce no more than 3.4 defects per million opportunities. An 'opportunity' is defined as a chance for nonconformance, or not meeting the required specifications. This means we need to be nearly flawless in executing our key processes." "...At its core, Six Sigma revolves around a few key concepts.

Critical to Quality: Attributes most important to the customer Defect: Failing to deliver what the customer wants Process Capability: What your process can deliver Variation: What the customer sees and feels Stable Operations: Ensuring consistent, predictable processes to improve what the customer sees and feels Design for Six Sigma: Designing to meet customer needs and process capability..."

six sigma according to isixsigma The Isixsigma organisation, which seems to be the biggest online 'community' of Six Sigma practitioners, was founded in 2000, and is owned and run by a number of 'quality professionals'. Isixsigma provides the following main definition of Six Sigma (which actually serves as an introduction to several other very detailed Six Sigma definitions contained in the Isixsigma resources): "...Six Sigma is a rigorous and disciplined methodology that uses data and statistical analysis to measure and improve a company's operational performance by identifying and eliminating 'defects' in manufacturing and service-related processes. Commonly defined as 3.4 defects per million opportunities, Six Sigma can be defined and understood at three distinct levels: metric, methodology and philosophy..." July 2005.

six sigma history Here's a brief history of Six Sigma, and the Six Sigma name. Additionally, comments I've received about Six Sigma contain aspects of Six Sigma history. Since the 1920's the word 'sigma' has been used by mathematicians and engineers as a symbol for a unit of measurement in product quality variation. (Note it's sigma with a small 's' because in this context sigma is a generic unit of measurement.) In the mid-1980's engineers in Motorola Inc in the USA used 'Six Sigma' an an informal name for an in-house initiative for reducing defects in production processes, because it represented a suitably high level of quality. (Note here it's Sigma with a big 'S' because in this context Six Sigma is a 'branded' name for Motorola's initiative.) (Certain engineers - there are varying opinions as to whether the very first was Bill Smith or Mikal Harry - felt that measuring defects in terms of thousands was an insufficiently rigorous standard. Hence they increased the measurement scale to parts per million, described as 'defects per million', which prompted the use the the 'six sigma' terminology and adoption of the capitalised 'Six Sigma' branded name, given that six sigma was deemed to equate to 3.4 parts - or defects - per million.) In the late-1980's following the success of the above initiative, Motorola extended the Six Sigma methods to its critical business processes, and significantly Six Sigma became a formalised in-house 'branded' name for a performance improvement methodology, ie., beyond purely 'defect reduction', in Motorola Inc.

In 1991 Motorola certified its first 'Black Belt' Six Sigma experts, which indicates the beginnings of the formalisation of the accredited training of Six Sigma methods. In 1991 also, Allied Signal, (a large avionics company which merged with Honeywell in 1999), adopted the Six Sigma methods, and claimed significant improvements and cost savings within six months. It seems that Allied Signal's new CEO Lawrence Bossidy learned of Motorola's work with Six Sigma and so approached Motorola's CEO Bob Galvin to learn how it could be used in Allied Signal. In 1995, General Electric's CEO Jack Welch (Welch knew Bossidy since Bossidy once worked for Welch at GE, and Welch was impressed by Bossidy's achievements using Six Sigma) decided to implement Six Sigma in GE, and by 1998 GE claimed that Six Sigma had generated over threequarters of a billion dollars of cost savings. (Source: George Eckes' book, The Six Sigma Revolution.) By the mid-1990's Six Sigma had developed into a transferable 'branded' corporate management initiative and methodology, notably in General Electric and other large manufacturing corporations, but also in organizations outside the manufacturing sector. By the year 2000, Six Sigma was effectively established as an industry in its own right, involving the training, consultancy and implementation of Six Sigma methodology in all sorts of organisations around the world. That is to say, in a little over ten years, Six Sigma quickly became not only a hugely popular methodology used by many corporations for quality and process improvement, Six Sigma also became the subject of many and various training and consultancy products and services around which developed very many Six Sigma support organizations.

six sigma central concepts You will gather from the definitions and history of Six Sigma that many people consider the model to be capable of leveraging huge performance improvements and cost savings. None of this of course happens on its own. Teams and team leaders are an essential part of the Six Sigma methodology. Six Sigma is therefore a methodology which requires and encourages team leaders and teams to take responsibility for implementing the Six Sigma processes. Significantly these people need to be trained in Six Sigma's methods - especially the use of the measurement and improvement tools, and in communications and relationship skills, necessary to involve and serve the needs of the internal and external customers and suppliers that form the critical processes of the organization's delivery chains. Training is therefore also an essential element of the Six Sigma methodology, and lots of it. Consistent with the sexy pseudo-Japanese 'Six Sigma' name (Sigma is in fact Greek, for the letter 's', and a long-standing symbol for a unit of statistical variation measurement), Six Sigma terminology employs sexy names for other elements within the model, for example 'Black Belts' and 'Green Belts', which denote people with different levels of expertise (and to an extent qualifications), and different responsibilities, for implementing Six Sigma methods. Six Sigma teams and notably Six Sigma team leaders ('Black Belts') use a vast array of tools at each stage of Six Sigma implementation to define, measure, analyse and control variation in process quality, and to manage people, teams and communications.

When an organization decides to implement Six Sigma, first the executive team has to decide the strategy - which might typically be termed an improvement initiative, and this base strategy should focus on the essential processes necessary to meet customer expectations. This could amount to twenty or thirty business process. At the top level these are the main processes that enable the organization to add value to goods and services and supply them to customers. Implicit within this is an understanding of what the customers - internal and external - actually want and need. A team of managers ('Black Belts' normally) who 'own' these processes is responsible for:

identifying and understanding these processes in detail, and also understanding the levels of quality (especially tolerance of variation) that customers (internal and external) expect, and then measuring the effectiveness and efficiency of each process performance - notably the 'sigma' performance - ie., is the number of defects per million operations (pro-rate if appropriate of course).

The theory is entirely logical: understanding and then improving the most important 'delivery-chain' processes will naturally increase efficiency, customer satisfaction, competitive advantage, and profitability. Easily said - tricky to achieve - which is what the Six Sigma methodology is for. Most practitioners and users of Six Sigma refer to Motorola's early DMAIC acronym (extended since to DMAICT) as a way of reinforcing and reminding participants what needs to be done: six sigma DMAIC and DMAICT process elements

D - Define opportunity M - Measure performance A - Analyse opportunity I - Improve performance C - Control performance, and optionally: T - Transfer best practice (to spread the learning to other areas of the organization)

Motorola emphasises that in order for Six Sigma to achieve 'breakthrough improvements' that are sustainable over time, Six Sigma's 'process metrics' and 'structured methodology' must be extended and applied to 'improvement opportunities' that are directly linked to 'organizational strategy'. It is difficult to argue with the logic. There is little point in measuring and improving things that have no significant impact on the strategically important organizational processes. Six Sigma team leaders (Black Belts) work with their teams (team members will normally be people trained up to 'Green Belt' accreditation) to analyse and measure the performance of the identified critical processes. Measurement is typically focused on highly technical interpretations of percentage defects (by a which a 'sigma' measurement is arrived at - see the one-to-six sigma conversion scale below), and a deep detailed analysis of processes, involving organizational structures and flow-charts. Many other tools for performance measurement and analysis are used, for example the 'balanced scorecard' method, and 'process mapping', etc., depending on the processes and systems favoured by the team leaders and project statisticians, and what needs to be measured and analysed. Six Sigma does not stipulate specifically what analytical methods must be used - the organization and particularly the team leaders decide these things, which is why implementation and usage of Six Sigma varies so widely, and why Six Sigma will continue to evolve. Any analytical tool can be included within Six Sigma implementation.

Six Sigma experts and commentators commonly refer to typical failure rates of organizations that have not put particular pressure on their quality performance levels. Aside from anything else this at least helps to put the 'Sigma' terminology into a simpler mathematical context: It is said that many ordinary businesses actually operate at between three and two and sigma performance. This equates to between approximately 66,800 and 308,500 defects per million operations, (which incidentally is also generally considered to be an unsustainable level of customer satisfaction - ie., the business is likely to be in decline, or about to head that way). Bear in mind that an 'operation' is not limited to the manufacturing processes - an 'operation' can be any process critical to customer satisfaction, for example, the operation of correctly understanding a customer request, or the operation of handling a customer complaint. Six Sigma is not restricted to engineering and production Six Sigma potentially covers all sorts of service-related activities. What matters is that the operation is identified as being strategically critical and relevant to strategy and customer satisfaction. A measurement of four sigma equates to approximately 6,200 DPMO, or around 99.4% perfection. This would arguably be an acceptable level of quality in certain types of business, for instance a roadside cafe, but a 99.4% success rate is obviously an unacceptable level of quality in other types of business, for example, passenger aircraft maintenance. A measurement of five sigma equates to just 233 defects per million opportunities, equivalent to a 99.98% perfection rate, and arguably acceptable to many businesses, although absolutely still not good enough for the aircraft industry. Here's a simplified one-to-six sigma conversion scale:

one to six sigma conversion table 'Long Term Yield' (basically the percentage of successful outputs or operations) % 99.99966 99.98 99.4 93.3 69.1 30.9

Defects Per Million 'Processs Opportunities Sigma' (DPMO)

3.4 233 6,210 66,807 308,538 691,462

6 5 4 3 2 1

You can see from the conversions above that the sigma scale is exponential. The difference between the DPMO equating to each whole number more than doubles as you move up through the scale. By my rough calculation, 'seven sigma' would equate to about 2 defects per 100 million opportunities (correct me if I'm wrong), which is perhaps a little over-demanding even for the aircraft industry, and that's perhaps why nobody bothers much with anything over six sigma.

Motorola and many other devotees of Six Sigma are increasingly at pains to point out that Six Sigma is nowadays far less concerned with the mathematical theory of the Sigma calculations, and a lot more concerned with the model's broader performance improvement methods, nevertheless, Six Sigma's complexity and variable interpretations are not helped by the difficulty in penetrating the original mathematical reasoning behind the essential Six Sigma metric: just exactly why does Six Sigma equate to 3.4 defects per million? What are the calculations which take us from 3.4 PPM (parts per million), ie., 0.0000034%, to 'Six Sigma'? Mathematical interpretations vary apparently. (If you can explain this in simple language, and less than a couple of hundred words, please do, and I'll gladly add the explanation to this page). There is also difficulty in phrasing a single simple definition of Six Sigma. For example, the task of creating a Six Sigma 'elevator speech' (in other words - explain Six Sigma inside 30 seconds) continues to challenge many of the Six Sigma enthusiasts who frequent the growing Six Sigma web forums. If you have a good Six Sigma 'elevator speech' please send it, and I'll gladly add it to this page. six sigma elevator speech Here is a suggested Six Sigma elevator speech (thanks Steven, Jun 2010): "Sigma is the symbol of standard deviation, a measurement of deviation of a sample from the population average. Each sigma you depart from the average, the event, in this case failure, becomes more an more improbable. At 6 sigma, the probability is about 3.5/million. But this is just the statistical side of Six Sigma. The bulk of the work in a Six Sigma project would be in defining failures, measuring deviations, and other activities which ultimately lead to product quality. In fact, Six Sigma is used as a term for a management style, with the ultimate goal of high levels of customer satisfaction." Can you offer a better Six Sigma elevator speech than this? If so please send it. See also the Six Sigma elevator speech funny story below.

Aside from its definitions, the Six Sigma concept now has a life of its own, open to a range of interpretations, beyond the control and reach of the early Six Sigma originators. I heard someone say once that Six Sigma is a bit like Naomi Campbell - an attractive, seductive, yet highly complex model. (Also, sexy, expensive, and has been known to fall over...) Advocates of Six Sigma, which include many highly respected people such as Jack Welch, are in no doubt that Six Sigma can produce immense results, and quickly too. You will see claims that Motorola saved in excess of $16bn resulting from implementing Six Sigma. The Six Sigma model may or may not be the most popular ever, but ultimately - as with any business methodology - it relies not on how it is defined, it relies instead on how well people use it.

six sigma - other points of note First and simply, Six Sigma is a quality improvement methodology. Six Sigma has also become a generic 'brand' for a set of concepts that many organizations have used, and continue to use, to improve quality, and to provide quality and performance improvement services and training.

In this respect Six Sigma has captured corporate imagination. Six Sigma is an immensely popular vehicle for initiating and supporting the process of organizational change. Six Sigma has become an industry in its own right. See the names of some of the major US organizations that have adopted Six Sigma in recent times. Six Sigma is a very flexible concept: to an statistical engineer Six Sigma might be a production quality metric; to a customer service employee, or a CEO, Six Sigma can represent a corporate culture. The expression Six Sigma was first used in the context of quality improvement by American Motorola engineers in the mid 1980's. Initially within Motorola Six Sigma was purely a quality metric that was used to reduce defects in the production of electronic components. Six Sigma was then simply a statistical term that specifically referred to a performance target of 3.4 defects per million operations or 'opportunities' (DPMO). The target of 3.4 defects per million operations which was set by Motorola engineers was to an extent arbitrary and subjective. Even the calculations which arrive at 3.4 defects per million and which correlate to precisely six sigma, are open to debate and different interpretation. At this level, Six Sigma is a highly complex science, so it is not surprising that the meaning of Six Sigma had to change in order for it to become something that managers and employees could relate to. Sigma is Greek for the letter 'S', and the term 'sigma' has been used for many years by statisticians, mathematicians and engineers, as a measurement unit of statistical variation. During the mid to late 1980's Motorola developed its Six Sigma ideas, which extended to and embraced many existing quality improvement methods and tools. Motorola quickly realised that they could extend Six Sigma principles beyond manufacturing - to reduce variation and defects in all aspects of organizational performance. Following Motorola's success in defining and applying the Six Sigma methodology, Six Sigma became a transferable model. The early adopters of Six Sigma aside from Motorola were Allied Signal (a large avionics company which merged with Honeywell in 1999), and then more significantly the massive GE (General Electric) corporation; (according to most commentators the Six Sigma model was transferred between the Chief Executives of the respective organizations). GE particularly trumpeted its successes and multi-billion dollars of bottom-line improvements derived from Six Sigma, and by the end of the millennium Six Sigma was established as a mainstream management methodology, and had been adopted by very many of the world's largest corporations. Strictly speaking the Six Sigma brand is trade-marked in the USA and belongs to Motorola Inc.. Motorola has since developed its own accredited, certified services and training for Six Sigma, within what is called the 'Motorola University'. Many other organizations and consultancies of all sizes also develop and deliver Six Sigma training, and this activity seems not to be subject to particular mandatory control or accreditation (although Motorola certainly do have established structures and competencies). Seemingly anyone can start up as a Six Sigma consultant, just like anyone can start up as a quality management consultant, or a performance management consultant.

Six Sigma grew quickly from a statistical process for reducing defects in production, to become a 'branded' and yet generic management methodology, whose elements extend far beyond the meaning of the original Six Sigma expression. So, Six Sigma is very flexible, and it continues to evolve, and it's difficult to describe. Perhaps the most objective way of looking at Six Sigma is to recognise that the Six Sigma methodology essentially provides a framework, and importantly a strongly branded corporate initiative, for an organization to:

train its people to focus on key performance areas understand where the organization wants to go (its strategy, related to its market-place) understand the services that the organization's customers need most understand and better organize main business processes that deliver these customer requirements measure (in considerable detail) and improve the effectiveness of these processes.

Motorola, and as a rule other advocates of Six Sigma, say that as a management system, Six Sigma is a top-down method (ie., instigated at CEO-level) for executing business strategy by using and optimising these process elements:

Aligning critical improvement efforts to business strategy. Mobilizing teams to attack high-impact projects. Accelerating the improvement of business results. Governing efforts (of teams and people) to achieve and sustain improvements.

Central also to Six Sigma purpose and method is increasing the clarity of business strategy and the metrics that most reflect success within it. Other more recognizable terms for these might be KRA's (Key Results Areas) and KPI's (Key Performance Indicators). While Six Sigma's attention to process quality variation is arguably greater than most other performance improvement methodologies, the basic principles of establishing and measuring critical processes are not earth-shatteringly new. What is new is arguably Six Sigma's focus (some would say obsessive focus) on detailed analysis. In this respect Six Sigma's emphasis on detail will logically appeal to organizations with a 'detail culture' and, organizations that have a high proportion of managers who enjoy focusing on accuracy, for example corporations in industries such as engineering, technology, manufacturing, finance, etc. (I'd be interested to know of any great successes of applying Six Sigma in fields where the organizational culture, service and managerial profiles lean more towards people, communications, relationships, creativity, etc., for example advertising and design, news and media, leisure and entertainment, sport and the arts, research and development, and teaching, training and coaching. Theoretically, Six Sigma is unlikely to prove hugely successful in environments where people are not good at or inclined to a lot of detailed measurement, processing and checking, but I'm open to evidence to the contrary...) Incidentally, the above paragraph has featured on this webpage since 2005. The page is visited several thousand times each month. As at 2011, after more than 300,000 page views, I have yet to receive any

evidence of Six Sigma being used successfully in work environments that are not strongly process/systems-driven. I draw your attention to some of the significant aspects of Six Sigma, which have some implications for organizational culture, and for the decision whether to adopt Six Sigma in the first place: Six Sigma, while involving and relying on teams is a top-down methodology. This implies quite strongly centralized operating structures and behaviors. Many organizations thrive and depend on such dynamics, but some don't. Words like 'mobilize' and 'accelerate' and 'high-impact projects' imply that people need mobilizing, that improvement needs accelerating, and that people are not already engaged on high-impact projects. If your organization already has lots of highly mobilised people, is successfully achieving fast-moving improvements, and people engaged on high-impact projects, then probably Six Sigma is not for you. Six Sigma is likely to produce far greater returns in organizations that need to achieve these things compared to organizations that are already doing them.

six sigma and quality management glossary Many of these terms are very specifically related to Six Sigma. Others are used in a general 'quality management' context and also in Six Sigma. As already explained, Six Sigma tends to embrace many other methodologies. A few of these terms are quite technical since they occur in the statistical, engineering and mathematical aspects of Six Sigma. The more complex mathematical terms and acronyms are included in this glossary not to provide detailed explanations, but instead to enable initial recognition and a basis for further investigation, if you are so inclined. This small glossary is not exhaustive because it would take about ten years to compile an exhaustive Six Sigma and Quality Management glossary. This is just a few highlights, some points of clarification, words of warning, items of mild amusement, and terms of special note.. acceptance, and acceptable quality level (ACL) - Acceptance has at least two different meanings in Six Sigma terminology, so be careful to understand which one is being referred to. Firstly, acceptance relating to quality is the quality expectation of the customer, internal or external. Acceptable Quality Level (ACL) means the same basically, in more formal Six Sigma-speak, and which will frequently be expressed in terms of percentage defects. Secondly acceptance refers to the buy-in or agreement of people affected by proposed actions and changes, notably stakeholders. While not strictly part of the Six Sigma battery of supporting tools, I can strongly recommend Sharon Drew Morgen's facilitative communications concepts for anyone struggling with stakeholder acceptance (and wholesale organisational change as well for that matter.) activity report - A simple tool which enables teams and team leaders to manage project management tasks, responsibilities and timescales. affinity diagram - A diagrammatic method of capturing, analysing and organising lots of ideas, elements, activities, etc., that together represent or influence an overall category, such as a process or issue. The brainstorming method is central to structuring an affinity diagram, and 'post-it' or sticky notes are commonly used as a way of generating and organising data. Commonly used in brainstorming solutions during the Improve stage of DMAIC. analysis - Analysis of all sorts of data is a critical component within the Six Sigma model, which involves using various analytical methods to identify and quantify the causes of quality variation and failure in specific processes. Various analysis perspectives are adopted, for example:

discrete - looking at a particular failure or problem - eg., using Pareto ('80:20') or pie-charts to show causes by percentage continuous - mapping performance variation and types, etc., over time, using distribution graphs process - creating detailed flow-diagrams to understand what's really going on in the process or sub-process

ANOVA, ANCOVA, MANOVA, MANCOVA - Despite first impressions these are nothing to do with Russion gymnastics or ice-skating moves. ANOVA is an acronym for analysis of variance, a specialised variation calculation method concerned with comparing means and testing hypotheses, best left to engineers and mathematicians. So are the related methods, ANCOVA (analysis of covariance), MANOVA (multiple analysis of variance), and MANCOVA (multiple analysis of covariance). Unless you are an engineer or a mathematician you will almost certainly have better things to do than get to grips with this level of statistical capability. Terms such as these illustrate why we need to work in multidisciplined teams. balanced scorecard - A sophisticated strategic analysis and improvement methodology developed by Kaplan and Norton which in its own right can sit outside Six Sigma, but which can be included within Six Sigma methods, and in any event might be used or referenced in the context of quality and performance improvement. The 'balanced scorecard' identifies, correlates, 'balances', measures and drives improvement across a wide variety of factors that are deemed responsible for overall organisational effectiveness, and for meeting customer expectations. The tool essentially translates strategy into operational metrics, and according to Motorola (ie., in a Six Sigma context) typically features the perspectives of, vision, current initiatives, business processes, and business results. 'Balanced Scorecard' became a generic 'brand' for business improvement in the 1990's, rather like Six Sigma, although arguably not on such a grand scale. black belt - A specific Six Sigma term to describe a team leader and one who has achieved accredited 'Black Belt' qualification via an appropriate training course. black noise/white noise - Technical terms relating to respectively non-random and random causes of variation. business improvement campaign - A Motorola Six Sigma buzz-phrase, which represents a leadership initiative to improve the business's 'big Y's'. business process management - A common generic expression in its own right, but also a Six Sigma term for the initial strategic element of Six Sigma. Six Sigma's strategic first phase is designed to develop management's commitment to Six Sigma, and also management's active participation in the Six Sigma process (which suggests why a powerful brand name for the initiative, ie., Six Sigma, is helpful..). This amounts to identifying the key processes within the organisation that determine effectively meeting customer expectations; then measuring the effectiveness and efficiency of the processes (notably measuring variation in quality and analysing the causes), and then initiating improvements in the weakest processes, which should logically yield the greatest results and return on effort. cause-effect diagram - Also known as the fishbone diagram, this is a generally used tool for mapping and analysing causal factors towards an end output, so that contributing factors (and weaknesses can be more easily identified). Used especially in Six Sigma as a team brainstorming analysis tool. Called a fishbone diagram because the diagram plots contributing factors along parallel diagonal lines which each join a central horizontal time-line (like the back-bone) which culminates at one end with the main issue or question. CTQ - Critical To Quality - An element within a process that has a major influence on the process quality, and typically the quality of a critical process, or it would be unlikely to be receiving Six Sigma attention.

defect - A vital and generic Six Sigma term for any failure in meeting customer expectation (internal and external customers) - any failure within the delivery process. DFSS - Commonly used abbreviation in Six Sigma activities and communications, it means Design For Six Sigma, and describes the method of using tools, training, measurements, and verification so that products and processes are designed at the outset to meet Six Sigma requirements. A more specific version is DMADV: Define, Measure, Analyze, Design, and Verify. Both DFSS and DMAVD are concerned with, and emphasise the importance of, using Six Sigma principles in product/process design, not just for remedial improvements - rather advocating that prevention is better than cure. Thus, if Six Sigma capability is built into new organizational systems and products when they are designed, so performance will be better, and the need for Six Sigma remedial effort will be reduced. DMAIC/DMAICT - Central Six Sigma process and acronym to ensure you remember it: Define, Measure, Analyse Improve, Control, more recently extended to DMAICT by others in the Six Sigma consulting and training communities, to Transfer (transfer best practice and thereby share learning). DMADV - An alternative/substitute abbreviation to DFSS (Design For Six Sigma), and like DFSS DMADV is central to Six Sigma initiatives. DMADV more specifically describes a method comprising linked steps; Define, Measure, Analyze, Design, Verify, for ensuring that products and processes are designed at the outset to meet Six Sigma requirements. frequency distribution/frequency distribution analysis or checksheet - Frequency distribution and the checksheets and other frequency distribution measurement tools form an essential aspect of Six Sigma data analysis. Identifying frequency of variation in processes is central to Six Sigma, since customers are particularly sensitive to variation, arguably even more than isolated failures. Therefore the sampling and collection of data over many operations and extended time periods, and the use of this data to indicate the frequency (number of times) that a variation occurs rather than the size of isolated failures, is an essential perspective for truly understanding what's happening, and the causes, within any critical delivery process. Frequency distribution analysis is an excellent antidote for any temptation to respond to an isolated failure with a knee-jerk quick fix, such as shooting the messenger or bollocking the workers when something deeper in the process is awry. green belt - A Six Sigma team member who has received Green Belt training and who works part-time on Six Sigma projects under the guidance of a Black belt team leader. just in time (JIT) - Just In Time, commonly abbreviated to JIT, describes operational or production methods based on minimising stock levels, the aim of which is to reduce capital employed in stock, which also has knock-on benefits to reducing storage space, decreasing dependence on logistics, easier supply chain management, and better overall quality. Just In Time is actually a capability arising from improvements within a business operation, rather than a cause of improvement itself. Introducing Just In Time methods without improving efficiency and reliability necessary to support it is not viable. Since Just In Time methods entail reducing stock levels to absolute minimum or even zero, JIT allows no room for error. Timing and predictibility are cruicial. JIT requires total commitment to quality and efficiency or the supply chain and related operations break down, the costs and implications of which can easily exceed any savings from JIT stock reductions. The term and methodology were developed by the Japanese during their post-war industrial revival (second half of the 1900s) as a logical progression from 'materials requirements planning' (MRP). The Japanese original terminology is 'kanban', and is important within 'lean production' methodology. The aim of kanban is actually zero inventory. JIT features in highly efficient manufacturing corporations, and has more recently been significantly enabled by computerization, especially to analyse and manage timings rather than stock levels. Noted authors to have covered the subject include Edwards Deming, Taiichi Ohno, and Yasuhiro Monden. The acronyms page contains a more amusing definition of JIT. master black belt - A highly qualified Six Sigma practitioner, typically concerned with overseeing Six Sigma activities from an organizational perspective.

materials requirements planning (MRP) - production quality management methodology focusing on planning stock (materials and components of all sorts) levels and availability according to production schedules. pareto principle, pareto diagram, pareto analysis - The Pareto Principle is otherwise and more commonly known as the 80:20 rule. The Pareto Principle was named after its originator Vilfredo Pareto, (1848-1923) an Italian economist and professor of political economics at Lausanne University, who first discovered the 80:20 'rule' of 'predictable imbalance', that (as far as Six Sigma is concerned) provides a basis for focusing on the 20% of activities that generate 80% of results, or the 20% of failures that are responsible for 80% of the waste, etc. Pareto first made his discovery while analysing wealth distribution among the British, in 1897. The Pareto Principle is also known as The Parato Law, The Principle Of Least Effort, and The Principle Of Imbalance, which in themselves provide an example of the Pareto Principle in action because despite all the options, hardly anyone ever uses any other name than 'The 80:20 Rule'. More Pareto explanation and examples in use. process - The word process is worth mentioning because it is a fundamental cause of confusion (and not just in Six Sigma, but that's another story). The word process is used heavily in describing how Six Sigma works, and it's also used heavily in referring to the service or production activities (processes) on which the Six Sigma methods (or processes) are directed. You see what I mean... It is both the subject and the object. People easily get confused by terminology at the best of times, so it's worth taking extra care when using words like process which have at least two distinctly different meanings. For example avoid phrases such as "Six Sigma is a process that uses processes to improve processes." It's true, but its a load of bollocks. So, when using the word process, check that people know what process you are actually referring to, and then you will have a fighting chance of not disappearing up your own backside. process mapping - diagrammatical representation of how processes work, as could be used and developed in team meetings on a flip-chart, or other media, to enable teams to understand processes, participants, and where and how improvements might be made. production planning - generic term describing the over-arching methodology used in managing the supply process from receipt (or forecast) of customer requirements through to delivery notes and invoicing. Production planning therefore includes:

interpretation of customer orders/requirements works orders schedules and computer programs/ implications parts, stocks and materials machinery, plant, equipment availability and allocation people and teams quality and other targets - setting and monitoring stock and purchasing monitoring and records order processing, administration and accounting necessary inter-departmental liaison (e.g., sales, export, etc)

Production planning is typically highly modularized and computerized since process reliability is crucial and is systematically repeated, although production planning must also allow for variation in response to sales or other changing demands and product specifications. Production planning is generally a weekly and monthly requirement, as well as incorporating longer-term commitments and considerations. The particular sales environment and predictability of the market and business have major impacts on

production planning. Volatile markets and unpredictable sales obviously make production planning more difficult. Costs and budgets, health and safety, environmental, and other indirect considerations or compliances are of course relevant to production, but not directly, and so are not included as integral parts of the process. Q x A = E - a natty little formula advanced by Six Sigma writer George Eckes for emphasising and assessing the need for Six Sigma projects to feature both strong technical quality (Q), and strong acceptance by the stakeholders of the project team's proposed solutions (A). E represents the excellence of the results, although why it should be E and not R rather defeats me. Whatever, the idea is a sound one, in that A is a multiplier and should along with Q should be assessed in simple terms at the early phase of a Six Sigma project. Eckes suggests scoring each of Q and A out of 10, and that if E equals anything less than 60 then the project is unlikely to succeed, with the implication to return to improving technical quality and stakeholder buy-in. six sigma - how long have you got?.... at its most basic Six Sigma equates to 3.4 defects per million opportunities; at its most sophisticated (dare one suggest most hyped?..) Six Sigma is an organizational philosophy. soft skills - skills required for managing people, relationships, acceptance and effective communications. A potential area of vulnerability in many Six Sigma implementations, because of the predominance of Six Sigma team leaders with strong process skills and attention to detail, which can sometimes be at odds with the abilities of intuition, empathy, rapport-building, relationship-building, and other 'soft' people-skills. stakeholder - vitally important aspect, this one: stakeholders are not just customers, stakeholders are all the people who are affected by the solutions identified within a Six Sigma project, and all the people with some involvement in implementing the solutions. tollgates - breaks for review between Six Sigma processes within any of the DMAIC stages. tree diagram - pictorial representation of how a broad aim is broken down into detailed actions, and which belong to named individuals or departments. A mapping technique that promotes creative thinking towards detailed causes and effects and accountabilities. Helps to avoid tendencies for activities and accountabilities to be left too vague. X's/big X's - Motorola Six Sigma-speak for factors or variables that have the greatest impact on the 'big Y's'. Y's/big Y's - Motorola Six Sigma-speak for the most important business results and measures that are linked to critical customer requirements and expectations.

Lean, and Lean Six Sigma are NOT just for Manufacturing. What does it take to be successful in your Lean Journey. Lean and Lean Six Sigma are methodologies that companies apply to ALL aspects of business (NOT just manufacturing and supply chain processes). Tangible improvements and benefits are being realized in transactional, service, and other totally divergent business environments. The fundamental basis for the success of Lean and Lean Six Sigma methods in all facets of an organization is the ability to identify waste, reduce it, and aggressively go for the elimination of non-value added activities and improve response to that business customer base, whether internal or external. See public schedule - See more detail program information Lean methods have been proven since the beginning of the industrial revolution. Business leaders have been focused on driving performance and response to meet customer expectations while reducing costs.

Examples include Henry Fords genesis of the automobile industry, and the militarys need to take advantage of Detroits abilities in World War II where a B24 Liberator was rolling of the assembly line every 56 minutes. Lean methods were quantified and fined tuned during the 1950s and 60s by Toyota, and other forward thinking out of the box companies to the current available Lean methods available to businesses. These include:

5S Programs Theory of Constraints The 7 Wastes Toyota Production Systems, (TPS) Demand Flow Just in Time Value Stream Mapping Transactional Mapping TQC Re-engineering

In all cases the results expected remain the same:

Focus on Customer, their expectations and what they perceive as value A passion for Continuous Improvement in the elimination of waste Identification of where an organization adds value and the identification of non-value activities to enable the successful implementation of the future state vision Creating the ability for products or activities, (transactions) to flow through a process map in shortest amount of time possible Establishing disciplines to link Customer Demand directly to processes, transactions, resource, or material.

What has changed recently, is understanding which of these methods or combination of methods will have the greatest impact in your business. Six Sigma Lean education and service programs have been developed on a solid Six Sigma DMAIC foundation. Companies working to implement Lean, will normally grab onto one or two of the available Lean methodologies and will see some short term benefits, as in an example of, implementing a 5S program or getting a team together to put together a Value Stream Map of the particular process relationships or transaction flow. By just raising the visibility and focusing on an area companies will immediately realize the low hanging and on the ground fruit waiting to be harvested. Six Sigma Lean methods are designed to yield benefits quickly by supporting the optimum methodology matched to a companys business objectives and needs while establishing a sustainable process for ongoing improvement. Our methods are quantitative and bring to light further areas of opportunity where Six Sigma projects can be taken advantage of. How do we define the best Lean methods to apply? What are steps in driving a Lean transformation? How long will it take? What is the level of involvement of team members? Are we getting the results defined in our objectives? How do we continue our progress and integrate Six Sigma into our efforts? Six Sigma has a proven education and services methodology that brings the tools and processes of Six Sigma to Lean education and Lean implementation programs to drive results and sustainability more quickly and with long term sustainability using quantifiable methods.

Six Sigma has developed a seamless process for supporting both Lean and Lean Sigma implementations across divergent business and governmental processes. We invite you attend one of our informative Lean or Lean Sigma workshops, participate in our Lean Masters program, or gain an in depth understanding of the potential for improvement from our Lean assessment program or participating in our Lean Six Sigma continuing education series. Understanding and comprehension are important first steps towards guaranteeing success in implementing Lean and Lean Six Sigma programs. Six Sigma Lean curriculum and continuing Lean Six Sigma Education programs offer instruction geared to meeting the specific needs of the participants to build the foundation for driving successful process improvement initiatives. Education programs are available both on site and public. For more in depth information on Lean Six Sigma Training please Click here See the Lean Flow Fundamentals Course Objectives and Course Agenda for details.

Green Supply Chain Management

What is green supply chain management? This is a question that a lot of business and managers are asking now, given the increased public awareness of the environmental issues faced globally. You should definitely learn more about this concept and how it can be applied so that supply chains become more environmentally friendly and benefit from this. Green supply chain management involves the implementation of environmentally friendly practices in SCM operations. It is about making each aspect of SCM safe and possibly beneficial for the environment. How can this be achieved? It is the responsibility of each company to introduce environmentally friendly practices that are compatible with its operations and long term goals. In general, there are a number of major areas that businesses need to focus on. Environmentally sustainable purchasing is the primary area that businesses adopting green supply chain management need to focus on. This involves identifying and working with suppliers that produce green products that can in turn be used in the businesss production process. This is the best option for a company of any size to introduce environmentally friendly practices into its operations. Green transportation is another essential aspect of green supply chain management. Companies should look for ways, in which they can use environmentally friendly fuels, such as biodiesel. They should also focus on investing in hybrid vehicle and even in electric ones, if possible. In general, there are a lot of strategies that can be adopted for the purpose of making transportation green. Environmentally friendly warehousing and carbon efficient supply chains are also essential for the green SCM. Energy can be used more efficiently in distribution centers in many different ways. Carbon emissions can be reduced by devising more productive logistics strategies. Corporate social responsibility is a major factor for implementing green supply chain management. Managers need to be familiar with the different government initiatives and the work of non-governmental organizations educating companies and providing them with support and resources for adopting corporate social responsibility. They should be aware of the steps companies need to take to adopt it. Currently, green supply chain management is not widely introduced with both multinational companies and small business still learning how to implement environmentally friendly

strategies. However, with the growing environmental concern in consumers, the need for this type of SCM is becoming more pressing. At present, there are plenty of courses designed to introduce managers to new green concepts, technologies and strategies applicable to SCM. What are the benefits of green supply chain management? If you take a closer look, you will see that the long-term benefits outweigh considerably the investment companies will need to make in implementing environmentally friendly strategies in SCM. Offering green products and services gives great competitive advantage to any company today. Most green strategies are cost-efficient as well. They provide for energy saving and for saving on costs for materials. These benefits in particular can be achieved by using renewable energy sources and recycling respectively.

How RFID can help optimize supply chain management ?

Squeezing cost and inefficiency out of the supply chain has been one of the recurring mantras of the industrialised world for the past 50 years.
The concept, as we would recognise it, has its roots in the Toyota Production System (TPS) of the 1950s and has been refined and improved significantly over the years to the point where one might expect that the most sophisticated devotees today have optimised their supply chains. The journey towards perfection, however, never ends. In the very near future, the adoption of sensor-based Radio Frequency Identification (RFID) technology will allow the creation of the real-time, sensor-connected manufacturing plant. By adding RFID tags to every product, tool, resource and item of materials handling equipment, manufacturers will be able to get better demand signals from customers and the market. At its core, RFID is simply an enabling technology that has the potential of helping retailers provide the right product at the right place at the right time, thus maximising sales and profits. RFID provides the technology to identify uniquely each container, pallet, case and item being manufactured, shipped and sold, thus providing the building blocks for increased visibility throughout the supply chain. The technology will bring benefits to a wide range of industries, as we shall see, but one of the main drivers of RFID adoption has been the retail sector, led by Wal-Mart in the US. Phillip J. Windley, an Associate Professor of Computer Science at Brigham Young University, estimates that US retail giant Wal-Mart alone could save $8.35 billion annually with RFID - that's more than the total revenue of half the companies in the Fortune 500. His massive total is made up as follows: $600 million through avoiding stock-outs; $575 million by avoiding theft, error and vendor fraud; $300 million through better tracking of a billion pallets and cases; $180 million through reduced inventory; and a huge $6.7 billion by eliminating the need to have people scan barcodes in the supply chain and in-store. Small wonder, then, that Wal-Mart is investing $3 billion in RFID over several years and is one of the leading proponents of RFID implementation. RFID is a system of small electronic tags (comprising a tiny chip plus an antenna) that transmit data via a radio signal to RFID readers and related hardware and software infrastructure. The transmitters can be placed anywhere that tracking the movement of goods adds value to the commercial process: on containers, pallets, materials handling equipment, cases or even on individual products. The information on tags is read when they pass by an RFID reader, and that movement is captured and managed by the infrastructure. In this way, organisations are able to link the physical world to the digital world without any human interaction. Whatever actions are then triggered depends on the individual application, from basic stock replenishment at one end of the spectrum to facilitating the ultimate lean supply chain at the other. RFID promises to revolutionise supply chains and usher in a new era of cost savings, efficiency and business intelligence. The potential applications are vast as it is relevant to any organisation engaged in the production, movement or sale of physical goods. This includes retailers, distributors, logistics service providers, manufacturers and their entire supplier base, hospitals and pharmaceuticals companies, and the entire food chain. It has the potential to improve efficiency and visibility, cut costs, deliver better asset utilisation, produce higher quality goods, reduce shrinkage and counterfeiting, and increase sales by reducing out-of-stocks. It can even help improve the safety of the food and pharmaceuticals we buy.

The key to delivering all these benefits is cost. The falling price of RFID tags is a driver for the technology. One Canadian consumer products manufacturer has established that RFID becomes revenue-neutral at 15 cents per tag, at which point the prospect of RFID as a replacement for barcode labels becomes very real indeed. Tag pricing is critical. Industry is hoping that tag manufacturers can hit 5 cents per unit, and that is being regarded as a breakthrough level. Yet even that is still too expensive for, say, an individual can of Coke, which is why packaging companies and other researchers are looking at innovative ways to apply this technology. In the coming years, at least, we are likely to see RFID tags and barcodes existing side by side. The path to RFID nirvana is not without its obstacles: tag costs are still high; readers can't always read all the cases on a pallet; one frequency and one tag design does not fit all; standards are in a state of flux; end-users lack real RFID knowledge; and radio interference can upset the best-laid plans. Wal-Mart laid down its marker as an RFID pioneer by issuing mandates to its suppliers throughout the entire supply chain. Wal-Mart, Metro Group, Tesco, Target and the US Department of Defense all told their top suppliers to incorporate RFID tags in all pallet shipments by 2005. Wal-Mart then relented a little, having found that not only would its suppliers find the deadline hard to meet, but so would Wal-Mart itself. Wal-Mart is now on track to have RFID in 600 stores and 12 distribution centres by the end of this year. But early adopters of the technology are by no means confined to the retail sector. Among the Oracle customers undertaking trials or actively implementing RFID today are DHL in the Americas and Europe, NASA in the USA, YCH in Singapore, Dolomiti Superski in Italy, McCarran Airport in Las Vegas and NHK in Japan. Whether it enters the mainstream this year or next or even in 2010, the business value of RFID is undeniable. It will create winners all round. Manufacturers will benefit from increased inventory visibility, more efficient use of labour, better line operations and improved fulfilment. Retailers can benefit from reduced inventory, because the improved supply chain visibility allows better demand forecasting, lower safety stocks and lower order cycle times. Automated data capture will also cut costs by reducing labour in the store and warehouse, and fewer sales will be lost through out-of-stocks. And it's not just the retail sector that will benefit. Manufacturing industry as a whole will be able to fine-tune the supply chain to optimise efficiency and minimise inventory and waste. RFID tags in car sub-assemblies will make safety checks and recalls faster and easier. Tags in sub-sea structures like oil and gas pipelines will make maintenance and repair simpler. Hospitals will be able to maximise their return on assets by tracking the whereabouts of expensive and life-saving equipment at all times. The pharmaceutical industry will be able to reduce or even eliminate counterfeiting by giving each unit of dosage a unique Electronic Product Code (EPC) number. This will allow data to be recorded and be accessible to all supply chain partners on a drug's current location, all historical locations, the time spent at each location and environmental storage conditions throughout its life. The technology will benefit lots of other industries, too. Customer returns will be facilitated for the consumer electronics sector; aerospace will have safer handling of hazardous materials; port security will be improved; the logistics and transportation industry will have better management of truck yards, container yards, shipping yards and cross-docking activity; consumer packaged goods will have easier receiving reconciliation, better lot tracking, faster and less expensive product recall and all the benefits associated with improved visibility throughout the supply chain. RFID is best viewed as part of a broader spectrum of sensor-based technologies. This includes the now-familiar technologies of barcode and magnetic stripe, as well as integration with equipment such as scales and dimensioning devices and sensors for such things as temperature, position and moisture. Hybrid sensors that combine RFID tags with temperature sensors, all embedded in a barcode label, are already available. Multiple point solutions aimed at each sensor-based niche simply will not scale and will not provide the best return on investment. As a result, any RFID capability must be part of a comprehensive technology and applications infrastructure that can collect events from these disparate sources, combine the data into composite transactions and then automatically trigger the appropriate business process. There is no doubt that RFID and other sensor-based technologies present massive potential for creating competitive advantage. Companies in these and other industries will find that incorporating these technologies into their information infrastructure and integrating them into their business processes will provide substantial business benefit. But, to realise maximum return on investment, they need to leverage their information architecture strategically. If RFID is to create value for business, first it will create data - masses of data. Users will need to ensure they have an IT architecture that can appropriately manage, analyse and respond to this new wealth of data being captured to

truly gain visibility into their supply chain. But visibility without the action does not create value. Translating visibility to action requires tight integration between transaction, execution, planning and event management - with the ability to identify actionable events quickly and to translate these into adjustments to the operational plan. Weekly planning runs must be replaced by net-change iterative planning, Data Warehouse-based reporting replaced by real-time operational analytics and exception event management, and fixed business processes by adaptive business flows. Oracle's mature, proven technology including Oracle Database 10g, Oracle Application Server 10g, Oracle Enterprise Manager 10g, Oracle Sensor-Based Services and Oracle E-Business Suite 11i is ideally configured to help companies interact with these sensors and turn the data collected into real information and intelligence that can be used to optimise business processes and gain a sustained competitive advantage. And one of the most important developments in recent years - the advent of Grid Computing, which shares computing power throughout an organisation according to need - will play an important part in handling and analysing the vast amount of data generated. Two things are crystal clear: RFID is here to stay, and enterprises can achieve significant business value from embracing it. Due to the high cost of investing in RFID, each company needs to evaluate its own business processes to determine where and if RFID can be applied to improve operational and process efficiencies to positively affect the bottom line. If that evaluation suggests that the technology can benefit the business, the next step is to develop a roadmap for RFID implementation. For suppliers that need to meet customer-mandated deadlines, a good place to start is EPC Compliance Enabler. This is easy to install quickly, will work with your legacy system, print RFID labels and verify outbound shipments. The next stage would be to move to an RFID Pilot Kit, which allows you to capture and analyse data out of the box, test new devices and filters and perform custom, advanced data analysis. It will also leave you ready for integration with existing enterprise systems and deployment. From there you can move to developing RFIDenabled applications and integrating RFID data into existing applications. The early adopters are already well down the road towards RFID. At the very least, now is a great time for all businesses to start developing their own RFID strategy.