SIP - Solution
Always look at the Solution. Not the Problem. Focus on what improves results. Carl
Recap, SIP – Problem & Opportunity
In the second post SIP-Problem, we started to grasp the problem. We quantified the disruptions and discovered most are purchased supplied materials. Then in the third post in this series, SIP-Opportunity, the financial impact of material disruptions was assessed. So far, we have looked at data to help us size and understand the issues of supplied materials not meeting Mfg. Company and Customer expectations. We have reviewed three indicators to help us understand material flow performance from Suppliers through to Customers.
Material Quality – received material meets the expected standards of performance.
On-Time Delivery – material received when expected.
Cost of Poor Quality – the financial impact of receiving non-quality material.
We also know and understand the risk of a negative event occurring further through the supply chain increases the disruption and expense to make right. Therefore, it stands to reason, the earlier we can identify, correct, and prevent poor material quality clearly is a win for all. A failure at the supplier (early in the supply chain) is the least expensive and most advantaged place for correction and prevention. A good rule of thumb is a failure will increase 10-fold at each SiPoC gate. Therefore, a failure that cost one dollar to correct at the supplier will cost ten thousand to correct at the customer, relatively speaking.
Often said, the definition of insanity is you keep doing the same thing and expect a different result. We had to move in a new direction. As shown in SIP-Problem and SIP-Opportunity, what was being done clearly was not working.
Prior Supplier Management
In short, suppliers were managed for orders and cost, not quality. The Sourcing department owned the relationship between Mfg. Company and the supplier. Each Commodity Manager had some responsibility for their Suppliers: Pricing Contracts, New Product management, etc. Lead Buyers, reporting to the commodity Manager, are the first line of communication when working with suppliers. Some Commodity Mangers hold business reviews with their suppliers although often a cross-functional team was not included in the review.
Additionally, the objective of business reviews was left to the individual manager with no system and varying degrees of success. Historically, managing product performance after receipt was not part of the relationship equation. As expected, the primary driver of the buyer/supplier relationship was material price and delivery.
I think it also important to point out that Mfg. Company purchased ‘White Box’ to ‘Black Box’ material.
White Box – Material that is ≥ 80% designed by and for Mfg. Company.
Grey Box – all material not ‘off-the-shelf’ and ≤ 80% designed by and for Mfg. Company.
Black Box – Material is no design specification by Mfg. Company.
Mfg. Company Product Engineering (PE) is responsible for White/Grey box product design and system integration. However, supplier management had limited alignment with PE and Quality departments. Additionally, there was limited alignment between internal department audits and the external audits performed at a supplier.
A commodity manager came to me (as Sr. Quality Program Manager) and said, “We need to perform an audit of our supplier.” “Alright,” I said, “what is the purpose of the audit?” His reply, “I’ve been tasked to get price reductions and I need ammunition for my negotiations.” This was an all-too-common answer.
Unfortunately, it is not a good reason and while may be successful in the short-term will fail strategically. Using audit results to get a supplier to lower their price was a common tool at many of the companies I have worked with. This method of price control is a narrow view of the relationship between price and cost.
When a supplier is not delivering to agreement and expectations, you are better served to understand why. While an audit may help you understand gaps in the supplier’s process it may not uncover other issues. The auditor will audit the supplier’s processes. The auditor will not usually look at how well Mfg. Company processes aligned to the supplier processes.
Solution
We know that there are growing negative issues to Mfg. Company related to supplier materials. We have been able to quantify the issues in terms of disruptions and finance. To set our Course of Action, let us frame the issue and then define objectives.
Now, let us define a course of action by using a blended model problem-resolution process, as shown below. In this case, the SIP process was designed to fit Mfg. Company cultures and blended four well-known problem-solving methodologies:
PDCA (Plan, Do, Check, and Act) cycle, by Walter Shewhart, and,
PDSA (Plan, Do, Study, and Act) cycle, by W. Edwards Deming, and,
DMAIC (Define, Measure, Analyze, Improve, and Control) adopted from Motorola’s 1980’s Six-Sigma methodologies, and,
The Toyota A3 report, Liker, J. (2004) The Toyota Way. New York: McGraw-Hill. Page 247.
Next, what we need to know to implement this plan? In SIP-Goal, the next blog, we will identify answers to these questions.
Which suppliers and their delivered materials caused the highest number of disruptions?
Which suppliers’ disruptions are the costliest to correct?
Can we automate data analysis to speed up the identification of issues?
How should Mfg. Company communicate with and engage suppliers?
What is the best way to keep stakeholders aware of actions and results?
What are the constraints in the program?
What is the goal?
Summary
So far with this fourth blog post, we have defined the problem of disruptions. Provided the current state which identify the reported issues are related to supplier/purchased materials. Described the history of supplier management and a bit about how we got to this point. In SIP-Solution we began to formulate a course of action by using a blended model problem-resolution process using well-known action plan cycles. We now have a method to determine how we get where we want to go.
Our next steps are to determine exactly where we want to be and the route to get there. Let me use a simile to help understand this idea.
As a child, I would sit, with my sister and brothers, in the back seat of our car going to grandma’s house. Constantly asking, “Are we there yet?” On one trip my father gave us a map. On the map, he marked our house and grandma’s house. The route was highlighted, and pictures noted specific points along the way. This way we kept busy looking for the milestones of our journey, fighting over who held the map, who saw the marker first but, not asking, “Are we there yet?” Brilliant!
In the blogs to come, I will continue to share the SIP methods used to dramatically reduce the supply issues and improve the relationships with your suppliers and customers. And, provide you a map of how we will get to ‘grandma’s house’: the goal.
Each week I will release/publish another blog based on the topics of SIP (Supply Improvement Program) as shown below. In the next post, I will share what was the Goal of the SIP. I am willing to bet, you will see some of the same behaviors in your business.
Abstract (posted)
Problem (posted)
Opportunity (posted)
Solution (this post)
Goal
Measures
Analysis
Controls
Improvement
Results