definemeasureanalyzeimprovecontrol six sigma project “transforming saudi aramco supply chain”...

Define Measure Analyze Improve Control

Six Sigma Project“Transforming Saudi Aramco Supply Chain”

CEM 515Project Quality Management

January 15, 2007

Mohammed Al-Zain


WHY six sigma? Satisfaction of customers

WHO does it? Structured top-down hierarchy of trained personnel

WHAT is it? Statistical thinking using data to combat process variation

WHERE is it? Standardized framework of “DMAIC”.

WHEN is it done? Sustained effort via projects

HOW is it done? Software packages for information analysis

Six Sigma Defined


Six Sigma Defined

Alters the paradigm from fixing defective products to correcting the process so that perfect products are made

Formal methodology for measuring, analyzing, improving and then controlling processes

Reduces the occurrence of defects from a three sigma level or 66,800 defects per million (average for most companies) to a six-sigma level – no more than 3.4 defects per million


It has technical power to find root causes of serious problems faced by organizations

It provides designs that respond proactively to customers’ requirements

It provides clear cost-savings and revenue-generating benefits that flow to the bottom line

It offers a process and customer focused framework

It improves product and service performance

It can change organizational culture for the better

Why Six Sigma?


Requires discipline to execute

Leadership team selects six sigma projects with the maximum pay-off

Emphasis is on breakthrough rates of improvement

Goals flow down from customers and senior leadership’s strategic objectives

No six sigma project is approved unless the bottom-line impact has been clearly identified and defined

Creates an infrastructure of champions, master black belts (MBBs), black belts (BBs) and green belts (GBs) that lead, deploy and implement the approach.

How Six-Sigma is Different from other Quality Programs?


Some Real Benefits Realized from Six-Sigma

Organization Benefits

GE Saved more than $2 billion

Motorola

Saved $2.2 billion in reducing COPQ Honored with the Malcom Baldrige award (1988) Increased stockholders share value four-fold

AlliedSignal Reduced new product introduction time by 16% Reduced manufacturing costs by more than $1 billion (1992-

1996)

HoneywellSaved $500 million in 1998, $500 million in 1999 and $700 million

in 2000

Johnson & Johnson

Saved $200 million in 1999, $350 million in 2000 and $500 million in 2001


Strong Leadership and Management commitment and Involvement

Six Sigma Training

The Customer Connection

Organizational Cultural Change

Organization infrastructure

Aligning Six Sigma Projects to Corporate Business Strategy and objectives

Linking six sigma to human resources

Linking six sigma to suppliers

Understanding Six Sigma Tools, Techniques and Key Metrics

Project management skills

Project Prioritization and Selection

CSFs for Six-Sigma Implementation


Assemble Team & Assign Roles

ID Project Scope Develop Team Charter Create Project Timeline ID Customer CTQ’s ID Compliance CTQ’s High Level Process

Map Estimate Benefits Formal Champion

Approval


Select Key Product/Process

Create Product Tree/Process Map

Define Performance Variables

Baseline Performance Measures

Develop & Execute Data Collection Plan

Formal Champion Approval

Map CTQ’s to Function/Process

Select Key Performance Variable/Sub process

Benchmark Performance

ID Variation Sources & Improvement Opportunities

Root Cause Analysis Define Performance

Objective Formal Champion

Approval

Diagnose Variable Performance

Establish Operating Tolerances

Develop Solution Cost Benefit Analysis Develop & Implement

Execution Plan Formal Champion

Approval

Validate Control System

Develop & Implement Monitoring Plan

Implement Sustainable Process Controls

Develop & Deploy Response Plan

Standardize & Translate

Net Income Benefit Tracking System In Place

Formal Champion Approval

Tools/Attachments: Tools/Attachments: Tools/Attachments: Tools/Attachments: Tools/Attachments:

• Charter• High Level Process Map• CTQ Matrix

• One Page Plan• Sigma / DPMO

Calculations

• One Page Plan• Sigma / DPMO

Calculations

• WorkforceOptimization

• Monthly RetentionTracking Tool & Review


Business Drivers Outsource the logistic services

Lean Supply Chain:• Streamlined delivery process• Paperless environment• End-to-End tracking and monitoring of orders

Customers


Project ScopeMaterials collected from local market and delivered

•Activities and resources related to delivery process:• End Customer (Requester for materials) • Purchasing• Vendors• Saudi Aramco Carrier, or Logistics Service Provider• Materials Distribution Center (MDC) • Materials Service Center (MSC)• Systems that link the supply chain

Define


Project Team

Project Sponsor: Materials Logistics Department

Project Team Leader: Mohammed Al-Zain

Project Core Team Members: • Selected MS employees

Ad Hoc Members and SMEs:• Customers• Suppliers• Saudi Aramco Carrier

Define


Project Justification & Expected Results

Relevant Metrics:

• Cycle Time (hours, days)• Cost of Poor Quality ($)

Improvement Targets:• Reduction in delivery delay by 80%• Reduction in delivery cost: 50%

Operational/Strategic Impact:

• Smooth uninterrupted operations• Customer satisfaction• Minimize the abuse of delivery priority system

Define


High Level Process Map (SIPOC)

End User

Purchasing

Vendors

Logistic Provider

SUPPLIERSUPPLIER INPUTINPUT PROCESSPROCESS OUTPUTOUTPUT CUSTOMERCUSTOMERCTQ

CRITICAL TO QUALITYCTQ

CRITICAL TO QUALITY

•Identified need

•PO•Materials

•Trucks

•Correct PR

•Correct POs•Correct MDDs•Timely printed MDDs

•Availably of Mat’s

•On time delivery •Right Mat’s

•Drivers•MDDs

•Create PR

•Place PO

•Print MDD

•Process PO

•Collect Mat’s•Deliver Mat’s

•PR

•Approved PO

•Printed MDD

•Ready Materials

•MaterialsDelivered

•Purchasing

•Vendors•LSP

•LSP

•End User

•Approved PR

•Prepare Mat’s

Define


Materials Order as-is Date: 3ed April, 2006 Mapped By:

Cross-Functional Flow Chart (underdevelopment) Drawn By: Jasem, Hilal J Checked By :

PURCHASINGDepartment

MDC - MSC - Al-Midra LOGISTICS CONTRACTOR MDC VENDORCUSTOMER

Start

CreateRequisition

Stock Available ?

Create P.O.

CreateOutbound

Receive PO

No

Receive MDDs

Hold P.O.PendingMDDs

Receipt

MaterialAvailable ?

Order Materialfrom Supplier(Local, Out of

Kingdom)

ReceiveMaterials from

Supplier

Match MDD'swith PO

Prepare Material

Put Label onPackages

Sort MDDs By Vendor

SAC Log MDDs inSystem

Prepare Truck Manifest

Sort MDDs By Truck

Pick up MDDs@ 8:00 & 16:00

Driver Pickup MDDs &Manifest Next Day

Deliver MDDs toVendor

Sort MDDs by INCOterms

SAC,SAT,VTC,VTD

Yes

TransportMaterial to

MDC/Nearest

MSC/Customer

Collect materialfrom Vendor

Deliver Material toLogistics Contractor

MDC

FullTruck

ReceiveMaterials

Provide PDwith New

ETA

End

UpdateSystem with

New ETA

Update Systemwith New ETA

Go to

A

A

Print MDDs@ 10:30 &

13:30 before 2days of

delivary date

Fax Po / MDDsto Vendor

Print Outboundin required area

PrintedOutbound

Issue Material

Affix Label

Print Label

Pack Material

Load / SendForklift or Mule(by MSC R&S

Function)

Issue Material

Al-Midra

Load / SendTruck

(by MSC R&SFunction)

System

No

TransportMaterial toCustomer/

Nearest MSC

Yes

ToCustomer

Yes

Store Material

Print Inbound

End

Unload Truck

NoMSC

To DHMDC

NoMSC

YesReceive Material

by MDC(receiving area)

Unload Material

SegregateMaterial by location

Stock Local

Segregate byRout

Load Truck

Deliver Material

Receive material(By MSC R&S

function)

Yes

Print Label

Yes

No

Delivermaterial to

remoteshipping

Scan Label

Segregate byDestination

Local

Segregate byRout

Load Truck

Yes

MSC

Yes

No

Load Truck

DeliverMaterial to

MSC

Scan Label

Send material toStore

No

Deliver tocustomer

Deliver tocustomer

Scan Label

LogisticsContractor

Legend

EmergencyNo

YesE.P.

YesOthers

Province

Shipping Material(shipping area)

Shipping Material(shipping area)

SmallMaterial

Yes

NoPipes, Bulk

Affix Label

To MSC

To MDC

To Customer

Inspectable9COM

Send to VendorInspection

Department (VID)

Send back to PD

Review

Yes

No

No

Material Readyfor Collection

(SACMaterials)

NoCustomer

Go to

B

B

Sign MDD

Count Package

Unload Material

Segregate Material

Enter Data intoSystem

Segregate Materialby Truck Type

Load Material

Return MDDto PD

MDC

Sign MDD Archive MDD

Issue Material

Print Manifest andgate passes



SACMDDs

Yes

NoVTD/VTC/SAT

Current ProcessCurrent Process

Measure


Measure Process Capability

Process mean = 3.37 days (falls short of the target)

Hence: we must reduce variability and center the process on the target

Measure

15129630

TargetUSLProcess Data

Sample N 265425StDev(Within) 0.00005StDev(Overall) 2.50268

LSL *Target 0.00000USL 0.00000Sample Mean 3.37886

Potential (Within) Capability

CCpk 0.00

Overall Capability

Z.Bench -1.35Z.LSL *Z.USL -1.35Ppk

Z.Bench

-0.45Cpm 0.00

*Z.LSL *Z.USL -67441.59Cpk -22480.53

Observed PerformancePPM < LSL *PPM > USL 989221.06PPM Total 989221.06

Exp. Within PerformancePPM < LSL *PPM > USL 1000000.00PPM Total 1000000.00

Exp. Overall PerformancePPM < LSL *PPM > USL 911507.72PPM Total 911507.72

WithinOverall

Variance from Planned Delivery Date


Validate Measurement System• Compare SAP data with the data content in actual MDDs• Survey end users• Survey Logistics Service Provider• Survey Receiving & Shipping Personnel

86420

LSL USLProcess Data

Sample N 20StDev(Within) 1.94532StDev(Overall) 1.98880

LSL 0.00000Target *USL 1.00000Sample Mean 3.80000

Potential (Within) Capability

CCpk 0.09

Overall Capability

Pp 0.08PPL 0.64PPU -0.47Ppk

Cp

-0.47Cpm *

0.09CPL 0.65CPU -0.48Cpk -0.48

Observed PerformancePPM < LSL 0.00PPM > USL 1000000.00PPM Total 1000000.00

Exp. Within PerformancePPM < LSL 25385.66PPM > USL 924974.73PPM Total 950360.39

Exp. Overall PerformancePPM < LSL 28021.41PPM > USL 920417.60PPM Total 948439.01

WithinOverall

Process Capability of C1

• Process Mean = 3.8• Sample Size = 20 MDDs

Measure


Pareto ChartCount

Perc

ent

VarianceCount

Percent 24.0 19.7 19.6 13.7 7.7 4.1 2.7 8.4Cum %

63812

24.0 43.8 63.4 77.1 84.8 88.9 91.6 100.0

52391 52004 36487 20491 10807 7098 22335Other7654132

300000

250000

200000

150000

100000

50000

0

100

80

60

40

20

0

Variance from Planned Delivery Date

Measure


Cause-Effect Diagram

DeliveryDelays

Methods

Receiving &shipping Sites

Logistics Provider

Vendors

Purchasing

No corrective actions withvendors

No follow-up with vendors

MDDs are not printed ontime

Asking LSP to come backfor collection

Shipping wrong materials

Materials are not ready forshipping

Materials are not available

Collection trucks differfrom delivery trucks

Routes are assigned byvendors

No use of directdelivery

Keeping materials inhis facility

Work overload

Keeping materials in thefacility

Insufficient manpower

Insufficient deliverytrucks

Late confirmation ongoods receipt

Planned delivery datesare not realistic

Cause-and-Effect Diagram

Measure


X1: The current business model with our suppliers and logistics service provider

X2: The derived planned delivery date is not realistic

X3: Vendors are not meeting the planned delivery date

X4: Materials are kept more than 12 hours in LSP facility

X5: Materials are kept more than 12 hours in R&S facility

Potential X’s --Hypothesis to be Tested

Measure


Stock

9 MDDs Workstations

PO

Manifest

MDDsUpdate Segregation

Customer

Ven

do

rC

arri

erM

ater

ials

Su

pp

ly

2500 MDDs/Day

PO (Hardcopy/Auto Fax)

Match

Data Entry

Match MDD w/Pkg

Returned MDDs (30%)

MDDs

TemporaryArchive

Scan/Archive

ETAUpdate

NewETA

3.9 MM Sheet/Y

Data Entry

Manual Sorting By vendor

Mat

eria

ls S

up

ply

20 printers

Analyze


Where is the Pain?

COST/Year

Barcode Labels

Toners

Papers

MATERIAL

Yellow Labels

$642,720

$58,855

$13,855

$62,400

MDD Process

Receiving (MSC)

Expediting (PD)

COST/YearMAN-HOURS

Customer Expedite / Track

$2.3MM

$1.2MM

$9.2MM

$ $450,250

$611,907

$13.8 Millions / Year

$777,830 / Year

MACHINES

LABOR

MATERIAL

Total CostProcess Components

Printers (Barcode)

ImagingMachine

MDD Printers

Service Maintenance

COSTMACHINES

$75,000

$409,375

$87,500

$40,032Analyze


Where is the Pain?

Material delivery delay 900 expediting requests daily Lack of process-wide tracking No single point of contact

Analyze


X2: The derived planned delivery date is not realistic

• Required Delivery Date and Delivery Lead Time

• Example1: Purchase Agreement with 10 days delivery lead time

Analyze

• Request for materials

• MDD printing & collection

• Material ready at Vendor site

• Material Collection

• Segregation and consolidation

• Delivery to 1st Receiver

• Delivery to 2nd Receiver

• Delivery to Final Receiver

July 1

July 8

July 3

July 9

July 9

July 10

July 11

July 12

• Is the Delivery Lead time realistic for:

• Vendors, LSP, R&S?


X3: Vendors are not meeting the planned delivery date

• Vendors normally return MDDs with new ETA

• About 500-800 MDDs out of 2000-2500 MDDs – every day

Analyze

• Order-to-order System


X4: Materials are kept more than 12 hours in LSP facility

Deliveries should be within 1-2 Days of MDD Print

# of Days from printing Total %

15 2710 0.9%

14 3195 1.0%

13 3693 1.2%

12 3851 1.2%

11 4471 1.4%

10 3921 1.3%

9 6759 2.2%

8 10136 3.3%

7 16662 5.4%

6 36760 11.9%

5 54310 17.6%

4 35051 11.4%

3 57940 18.8%

2 5571 1.8%

1 609 0.2%

Analyze


X5: Materials are kept more than 12 hours in R&S facility

• Dhahran Receiving & Shipping

• Consolidation center – another point of delay!

Analyze

• Kingdom-wide Receiving & Shipping

• Effective cross-docking for local deliveries

• Reasons for Keeping Materials more than 12 hours

• Unavailability of TD trucks

• Consolidation

• Late arrival of the materials – customer is not available

• Returned materials due to reasons such as wrong delivery address


Enable electronic information sharing and collaboration

Provide paperless delivery environment Allow process-wide tracking

Improvement Plan

Develop a new business model:

Improve


Stock

9Workstations

3.9 MM Sheet/Y

PO

MDDsUpdate Segregation

Customer

2500 MDDs/Day

PO (Hardcopy/Auto Fax)

Match

Data Entry

Match MDD w/Bkg

Returned MDDs (30%)

MDDs

Temporary Archive

Scan/Archive

Manual Sorting By vendor

Data Entry

Ven

do

rC

arri

erM

ater

ials

Su

pp

lyM

ater

ials

Su

pp

ly

20 Printers

Improve


Transformation Plan

ACTION ITEMSDURATION(Months) RESOURCES

SAP Develop System Interface with Carrier Enhance SAP Tracking System 5

1 SCM consultant

1 ABAP Programmer

$480,000 – $640,000

Portal

Introduce Advance Shipping Notice (ASN) Allow vendors to print Barcode label Electronic Update of ETA/Qty Enroll top 700 vendors (99% of L/Is)

62 Portal Consultants 1 ABAP Programmer ($330,000)

Bar-CodeScanners

160 Scanners to Capture Receiver Details3

H/W + S/W $500,000

SCM Coordinators

Develop “Dashboard” Group Formation & Training 3 In-house

Carrier Develop System Interface with SAP/R3

4 Provided by Carrier

6 Months 1.3 – 1.5MM

Improve


Return on Investment

-2

2

6

10

14

Millions

2006 2007 2008 2009 2010 2011

Projected Cost Savings

MS Savings

$29 Millions

Implementation $1.5 Millions

Cost Savings/YearPartners

$450,250Customer

$216,000Vendors

$218,000Carrier

$14,750,000MS

Improve


Improvement Plan

• Availability of Materials at Vendors

• Instead of revising the ETA, check with vendor first. If he does not have the material available, place the PO with other vendor who has the material

• Don’t restrict PA with only one vendor especially those who have bad history in revising ETAs

Improve

• Dhahran MDC should be receiving material for Dhahran area only

• MDDs should be printed 6 or 7 days before the required date


Improvement Plan

• Emergency shipments should be directly delivered to customer bypassing R&S or warehouse

Improve

• Receiving & Shipping scheduling arrangement

• Shipping people should pay attention to the required delivery date and priority

• Materials should not stay in the shipping area for the second day

• If customer is not available to receive his/her order, deliver to office services people or any designated coordinator in the customer premises


Improvement Plan

Improve

• The current practice of collecting materials from local market need to be changed.

• Collection trucks should be scheduled to be dispatched based on material destination instead of vendor


Count of L/I MSCMDD Printed On M001 M002 M003 M004 M005 M006 M007 M00811/01/2005 70 116 8 2 175 15 41 5611/02/2005 53 156 6 7 66 14 56 4711/03/2005 8 2 6 3 5 111/04/2005 15 98 7 3 26 3 21 811/05/2005 390 338 22 67 251 10 147 8311/06/2005 114 87 7 30 177 13 26 5211/07/2005 120 239 7 52 258 14 51 3211/08/2005 62 141 7 14 61 4 52 2611/09/2005 347 321 67 29 252 145 152 3411/10/2005 15 22 4 49 9 4 3 1611/11/2005 67 84 8 25 75 9 28 811/12/2005 70 135 9 26 79 6 50 4811/13/2005 119 145 22 62 81 4 156 7611/14/2005 142 183 19 25 128 18 44 5211/15/2005 79 109 17 30 78 12 48 811/16/2005 393 332 41 36 383 18 179 5811/17/2005 44 31 31 78 97 3 12 711/18/2005 103 83 9 33 183 6 70 1811/19/2005 84 105 13 62 52 19 43 3811/20/2005 133 248 15 67 278 38 92 3511/21/2005 136 295 22 61 151 36 66 7311/22/2005 145 150 11 29 356 14 41 6811/23/2005 297 437 67 53 457 47 177 6211/24/2005 13 38 15 41 53 5 6 411/25/2005 98 94 6 94 70 2 34 911/26/2005 133 123 16 29 308 16 56 3111/27/2005 230 247 63 56 279 24 123 4511/28/2005 287 428 33 93 220 21 91 3911/29/2005 163 371 126 32 186 14 81 2811/30/2005 354 597 58 44 441 65 199 92Grand Total 4276 5761 738 1235 5233 604 2145 1154


Count of L/IMDD Printed On M001 M002 M003 M004 M005 M006 M007 M00812/01/2005 48 191 39 14 70 16 22 4412/02/2005 74 141 21 21 252 8 43 2112/03/2005 130 311 22 32 125 21 73 3612/04/2005 155 255 26 57 193 8 87 3412/05/2005 213 360 31 104 109 46 92 2612/06/2005 259 218 41 21 180 30 89 3712/07/2005 478 471 99 50 428 58 216 5712/08/2005 48 57 17 33 69 9 24 1012/09/2005 95 137 12 13 135 16 65 3512/10/2005 150 201 17 45 194 11 47 4112/11/2005 345 335 32 115 229 63 88 4012/12/2005 262 335 45 107 193 35 164 3612/13/2005 180 249 35 27 141 24 92 2112/14/2005 555 508 38 35 311 41 251 7212/15/2005 51 130 14 17 66 7 22 412/16/2005 104 156 16 21 98 12 43 2012/17/2005 126 197 45 28 107 40 85 5312/18/2005 275 243 38 53 153 20 115 4412/19/2005 255 266 19 23 158 38 113 3412/20/2005 74 243 14 17 84 27 55 2712/21/2005 471 497 45 110 351 34 186 8812/22/2005 43 59 9 42 36 5 9 612/23/2005 142 130 3 13 178 8 51 1412/24/2005 99 272 19 16 142 38 74 2412/25/2005 281 269 42 33 262 47 162 3612/26/2005 276 240 12 117 162 12 84 4412/27/2005 120 269 69 12 174 19 79 2112/28/2005 432 401 46 86 616 81 199 14612/29/2005 14 7 12 16 16 9 5 512/30/2005 102 128 31 15 297 7 43 1312/31/2005 109 127 17 26 82 15 79 16(blank)Grand Total 5966 7403 926 1319 5611 805 2757 1105


Maintain Improvement

• Periodic Measurement of Performance

• Customer Satisfaction Surveys

• System Generated Data on Delivery Performance

• Site Visits and Observations etc.

Control


Conclusion Reduce process cost Improve data accuracy and provide real-time information Allow monitoring of process performance Reduce missing Goods Receipt Enable the corporate strategy for outsourcing initiatives Improve the On Time Delivery performance, customer

satisfaction Reduce process overheads and time by enabling electronic

flow of information Allow end to end visibility of shipments throughout the

delivery process Help in measuring and evaluating suppliers and logistics

provider delivery performance


Thank You


Items Formula Saving/Yr

Material

Paper (Sheets)2500MDDsX6sheetX260day =3.9MMAnswer X $824/5000sheets=$642,720 $642,720

Labels (Barcode) + Toners 85 Box X $163 X 2 (to count toners cost) $27,710

Labels (Yellow label) 2500MDDX312DaysX$0.08 ($8/100 labels) $62,400

Toners Box(8 bottle)=90 box X $500/box =45,000 $45,000

MDD Processing 10 employees (7 Dh+ 3 CRWR) X 2080 $1.07 Million

Expediting14 employees (10 Dh + 4 CRWR) X.40 =

4.9 employees X 2080$554,216

Carrier man hours

Dh Receiving: 15 BTT employees X $8/H X8HX.45 Hour Saving X290 day =$125,280MDD Process: 5 BTT employees X $8/H X8HX290day =$92,800

$218,000

Customer man hours 1000 Expedite Rqst dailyX5 Minutes X60X260 days =$667,250

Vendor man hours2500 MDD daily X 5 Minutes / 60 H X $8/H

X .5 Hour Saving x 260 days$216,000

Labors Rec/Ship man-hours9 MSCs X 11 Employees X .45 Hour Saving

= 39.6 Employees X 2080$4.3 Million

Machines

MDD Printers (Advance) 4 X $105,000 $315,000

MDD Printers 5 X $2500 $12,500

Printers (Barcode Label) 20 X $3000 $60000

MDD Scanners 2 X $35,000 $70,000

Services Services charges 7% X 457,500 $32,025

definemeasureanalyzeimprovecontrol six sigma project “transforming saudi aramco supply chain”...

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