Business Process Transformation at SAA

Presented by : Monwabisi Kalawe September 2014

SAA is the airline of South Africa and it is recognised to be Africa's best airline connecting the continent with the rest of the world*

Africa's World Class Airline

*Skytrax Best Airline in Africa (2014),

Global Traveler – Best Airline in Africa (2014), Business Traveller Award Sunday Times (2014), Domestic Airline of choice Sunday Times (2014)

SAA transformation…our perspective

• SAA is pursuing a Gaining Altitude Strategy (GAS), which is a Long

Term Turnaround Strategy;

• The objectives of this strategy are to:

- Support South Africa’s National Development Agenda; - Achieve and maintain commercial sustainability; - Provide Excellent customer service; - Achieve consistent, effective and efficient operations; and - Foster performance excellence.

The above objectives suggest a business process driven transformation as part of returning the business to profitability and improved customer service

Gaining Altitude

– LTTS is built on 3 key pillars that support strategic objectives and facilitates the ‘triple bottom line’ approach for driving business sustainability and achieving economic, social and environmental objectives.

– This reaffirms the airline’s position as a responsible corporate citizen and its

commitment to deliver sustainable value to the Shareholder

GROUP STRUCTURE NETWORK, ALLIANCE & FLEET BUSINESS UNITS & SUBSIDIARIES

• Establish SAA Group Holdings

• Improved governance

• Alignment of airline brand & aircraft gauge to meet market demand

• Cease loss making ‘own-metal’ services • Limited domestic premium service on domestic

routes & greater role for Mango & SAX • Increase networks through code-share

relationships & leverage Star Alliance membership

• Wide-body fleet replacement plan

• Full corporatisation of SAA Tech, Air Chefs, Voyager & Cargo

• Optimise operational performance of all subsidiaries

The heart of our strategy Strategy informs Structure

Sustained losses on international routes a key driver to replacement of wide-body fleet

What does returning SAA to profitability and improved customer service mean?

• This means SAA must:

- Improve business process execution in order to increase productivity;

- Re-align all processes in order to reduce cost; and

- Establish a business process Center of Excellence in order to improve

customer satisfaction and service delivery

To achieve the above, SAA needs to adopt business process

management as a management philosophy.

We identified Lean Six Sigma as one of the tools to transform business processes and return SAA to profitability

Improve

• Identify Potential Root Causes • Reduce List of Potential Root

Causes • Confirm Root Cause to Output

Relationship • Estimate Impact of Root Causes

on Key Outputs • Prioritize Root Causes • Complete Analyze Gate

Tools

Activities

Analyze Control Measure Define

5S, NVA Analysis, Generic Pull Systems,

Four Step Rapid Setup Method

Identify and Implement Quick Improvements

• Identify Problem • Validate Problem Statement • Gather Voice of the

Customer & Business • Validate Goal Statement • Validate Business Case • Validate Project Scope • Select and Launch Team • Develop Project Schedule • Complete Define Gate

• Appropriately Map Process • Identify Key Input, Process and

Output Metrics • Develop Operational Definitions • Develop Data Collection Plan • Validate Measurement System • Collect Baseline Data • Determine Process

Performance/Capability • Complete Measure Gate

• Process Mapping • Process Cycle Efficiency • Little’s Law • Operational Definitions • Data Collection Plan • Statistical Sampling • Measurement System Analysis • TPM • Generic Pull • Setup Reduction • Control Charts • Histograms • Constraint Identification • Process Capability

•Value Analysis •Process Constraint ID •Takt Time Analysis •Cause and Effect Analysis •FMEA •Hypothesis Tests •Correlation Analysis •Simple and Multiple Regression •ANOVA •Components of Variation •Conquering Product and

Process Complexity •Queuing Theory

• Project Charter • Project Selection Tools • PIP Management Process • Value Stream Map • Various Financial Analysis • Stakeholder Analysis • Communication Plan • SIPOC Map • High-Level Process Map • Project Management Tools • VOC and Kano Analysis • RACI and Quad Charts

• Develop Potential Solutions • Develop Evaluation Criteria • Select Best Solutions • Develop ‘To-Be’ Process Map(s) • Develop Pilot Plan • Pilot Solution • Develop Full Scale

Implementation Plan • Complete Improve Gate

• Brainstorming • Replenishment Pull/Kanban • Stocking Strategy • Process Flow Improvement • Process Balancing • Analytical Batch Sizing • Total Productive Maintenance • Design of Experiments (DOE) • Solution Selection Matrix • ‘To-Be’ Process Mapping • Poka-Yoke

• Control Charts & SPC • Standard Operating

Procedures (SOPs) • Training Plan • Communication Plan • Implementation Plan • Process Control Plans • Visual Process Control Tools • Project Replication • Project Commissioning • Team Feedback Session

• Implement Mistake Proofing • Develop SOPs, Training Plan

and Process Controls • Implement Solution and

Ongoing Process Measurements

• Identify Project Replication Opportunities

• Complete Control Gate • Transition Project to Process

Owner

How will Lean Six Sigma help SAA Cargo? Lean Six Sigma is a business improvement methodology that maximizes shareholder value by achieving the fastest rate of improvement in customer satisfaction, cost, quality, process speed, and invested capital.

Application to SAA Cargo: Lean Six Sigma entails the evaluation of processes which will enable SAA Cargo to develop a single view of its core value chain and benchmark its current processes against leading practices within the air cargo industry in order to measure performance against peers. This means SAA Cargo needs to understand the existing gaps in the current processes and the impact thereof and define a future state that will enable the business to meet customer expectations while driving revenue growth and profitability.

When Applied Correctly at SAA Cargo:

Lean Six Sigma provides business effectiveness and efficiency which results in agility, integration of interdependencies and sustainable levels of performance . These are critical to improving efficiencies within SAA Cargo and delivering value for both customers and to SAA Group as a business;

It also provides guidance and support to the business functions ensuring a seamless coordination of process efforts throughout the SAA Cargo value chain; and

Ultimately, Lean Six Sigma aims to provide a “process based competitive advantage” which delivers differentiated customer and shareholder value – routinely and consistently, as thus ensuring revenue growth and increased profitability for SAA Cargo

What value can Business Process Management (BPM) deliver through Lean Six Sigma for SAA Cargo?

8

Value of BPM

Value of BPM Re-alignment of

end-to-end processes

Value of BPM CoE Establishment of an

effective process management office

Value to Business

• Reduces tied-up capital

with a more agile supply

chain

• Improves operating

margin by reduced cost

of operations

• Enables increase of

sales with more

consistent service levels

Value to Customer

• Increases predictability of

products and services

• Facilitates collaboration

with business interfaces

Note: The above figures have been derived from previous experience, case

studies, and various Analyst Reports

Value of Process Excellence

Improved process

execution

Productivity Increase

• Increased process efficiency by 15-20%

• Reduced process cycle time by a factor of 5 and productivity

increased 40%

Cost Reduction

• 10% reduction in sales and admin expenses

• Anticipated overall cost savings of 15% in business operations and IT

Customer Satisfaction and Quality Improvements

• Reduced the number of customer contacts within a process

from 3-4 to 2-3

• Reduced rework rates from 40-50% to less than 15%

Lean Six Sigma aims to improve customer satisfaction while reducing lead times, costs and tied up capital.

A number of key value drivers can be leveraged through Lean Six Sigma to achieve improved customer service and profitability while releasing tied up capital

Value Creation Roadmap:

Value of the discounted cash flows to shareholders or Economic Value Added (EVA)

Spread

Growth

Cost of Capital

ROIC

Total Return to Shareholders (TRS)

Increasing spread, the difference between ROIC and WACC creates value

M&A

Organic

- Value Creation

Magnifying positive spread by growing revenue also creates value

Deployment of the Lean Six Sigma methodology at SAA Cargo to drive business process improvement

Pu

rpo

se

To document the As-Is processes, identify the key burning platforms and benchmark the performance of the As-Is processes with leading practice

To identify the root causes of burning platforms, map the To-Be processes and define the business case for implementation

To implement the full scale solution based on prioritization plan, monitor benefits and take corrective actions

To pilot the new To-Be processes, validate the results and realize improvement value

• Process assessment interviews conducted

• As-Is process maps

• key burning platforms documented

• Benchmarking results

• To-Be process maps

• Business case and implementation roadmap

• Release schedule

• Process performance reports

• Value realization reports

• Full scale implementation plan

• Full scale solution implementation

• Benefits realized

• Corrective actions implemented

De

live

rab

les

V. Control

IV. Improve III. Analyse II. Measure

Measure the performance of the processes

Implement the recommendations

Ensure the processes stay fixed

To set the expectations of the project, identify the processes to be improved and ensure that resources are in place for the project

• Project vision, opportunities and deliverables

• Team mobilization

• The 24 selected processes in scope including descriptors

• Data request

I. Define

Identify and define scope

Analyse and benchmark the

performance of the processes

Envisaged Phases

Current Phases

By mapping the processes, we were able to visualise the business and reach a common understanding

Subject

Matter

Advisor

Process

Executor

Process

Owner

SAA Cargo is a process based organisation, as depicted by the end-to-end Supply Chain

Capacity

Airspace

Airport

Terminal

Fuel

Ground services

Information Services

On-board Services

Facilities

Ancillaries

Knowledge

SAA Cargo

Management

Labour

Agent

Shipper Carriage

Experience

Brand

A/C Leasing or Purchase

Alliance & Partners

Capacity Purchase

Component Manufacture

Engine Design

Lay-out design

Consignee

Analysis of the entire SAA Cargo value chain enabled us to identify potential value that we are aiming to unlock as we progress on the transformation journey

Sell & Market

Plan &

Schedule

Reservations & Bookings

Flight

Customer Delivery

Acceptance, Warehousing

& Loading

Offloading & Warehousing

- Space limitations affecting processes

- Low asset utilisation and tracking

- Inconsistencies in cargo check-in/out leads to inaccurate track and trace of shipment

- High volumes of cargo offload

- Reactive planning - Manual

preparation and handling of documents

- Offloaded cargo caused by weight restrictions

- Inconsistent rates provided to customers

- Space limitations affecting processes

- Low asset utilisation and tracking

- Warehouse layout reduces process efficiency

- Limited/no integration between sales & operations planning

- Limited use of customer data

- No lead management

- Inaccurate forecasting

- No view of available capacity

- Lack of analytical tool or system support

- No integrated planning and proactive communication

VC

C

om

po

ne

nts

B

urn

ing

Pla

tfo

rms

- Low customer satisfaction

- High customer complaints

- No system to manage complaints

- Imbalance of trade affecting capacity utilisation

- Uncompetitive pricing

- Unit Load Device repair Centre only in JNB therefore revenue loss due to capacity used to transport unserviceable Unit Load Devices to JNB

- Revenue loss due to no charges for Unit Load Devices utilisation for passenger luggage

'By reducing complexities in our processes, removing wasteful activities and simplify the entire process value chain, we will become a leaner, faster, more productive airliner that brings the world to Africa and takes Africa to the world.’

THANK YOU