risk and lean initiatives in extended supply chains and lean initiatives... · lean and six sigma...

Risk and Lean Initiatives in

Extended Supply Chains Chad Kymal, CTO, Omnex Inc.

Copyright 2016 Omnex, Inc. All Rights Reserved.

www.omnex.com

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• Headquartered in Ann Arbor, Michigan with offices in major global markets.

• In 1995-97 provided global roll out supplier training and development for Ford Motor Company to support their emerging market strategy.

• Trained more than 100,000 individuals in over 30 countries.

• Workforce of over 500 professionals, speaking over 18 languages.

• Former Delegation Leader of the International Automotive Task Force (IATF) responsible for ISO/TS16949.

• Served on committees that wrote QOS, ISO 9001:2000, QS-9000 and its Semiconductor Supplement, and ISO IWA 1 (ISO 9000 for healthcare).

• Member of AIAG manual writing committees for FMEA, SPC, MSA, Sub-tier Supplier Development, Error Proofing, and Effective Problem Solving (EPS).

• Provider of Lean and Six Sigma to the Automotive Industry as a partner of AIAG

About Omnex

Copyright 2016 Omnex, Inc. All Rights Reserved.2

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Presenter — Chad Kymal

3 Copyright 2016 Omnex, Inc. All Rights Reserved.

• Chad is the CTO and founder of Omnex Inc., an international consulting and training organization headquartered in the United States. He spent a number of years working at General Motors and KPMG prior to founding Omnex Inc. in 1986.

• Chad and Omnex have helped improve the supply chains in the Automotive, Semiconductor, and Aerospace industries. In the late 1990s Omnex worked with Ford Motor Company in support of their Emerging Market Strategy. Omnex is also a provider of Lean and Six Sigma services for AIAG members globally and has implemented and continues to implement Lean and Six Sigma programs worldwide.

• In addition to a bachelor’s degree from General Motors Institute, Chad holds both a master’s degree in industrial and operations engineering from the University of Michigan and an MBA from the University of Michigan. He has published numerous papers and seven books on the subjects of Management Standards, Quality and performance improvement. Chad also is a founder of American Quality Standards Registrars (AQSR) and Software provider Omnex Systems.

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• Introduction to Risk and Lean & Six Sigma Concepts

• Defining Risk, Lean and Six Sigma

• Risk in an Extended Supply Chain

• Case Studies on Risk

• Changes in the Supply Base and Balance of Power

Table of Contents


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Extended Supply Chains

The Automotive supply chains extend globally to every hemisphere. The semiconductor and electronics supply chain extend to the US, Europe, SE Asia, Taiwan, and China.

The Aerospace supply chain is based more in the US and Europe, but is quickly moving into China and India.


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Extended Supply Chain – Loaf of Bread


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• 157 ISO standards use the word “risk” and together have 45 unique definitions (21 specialized to hazards)

• Of these, most only consider events with negative outcomes:

– “A function of the probability of occurrence of a given threat and the potential adverse consequences of that threat's occurrence”

• There is a subset that takes a broader view of risk, for example:

– “The effect of uncertainty” (ISO 9000:2015)

– “The combination of the probability of occurrence or harm and the severity of harm” (ISO 13485:2016)

– These are consistent with PMBOK definition “uncertain event or condition that, if it occurs, has a positive or negative effect on a project's objectives”*

What is Risk?


*Source: A Guide to the Project Management Body of Knowledge (PMBOK® Guide) — Fourth Edition

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Risk – Effect of Uncertainty

• Note 1 – An Effect is a deviation from the expected, positive or negative

• Note 2 – Uncertainty is the state, even partial, of deficiency or information related to understanding or knowledge of an event, its consequence and likelihood

• Note3 – Risk is often characterized by reference to potential events and consequence or a combination of these

• Note 4 – Risk is often expressed in terms of a combination of the consequences of an event and the associated likelihood of occurrence

• Note 5 – Risk is often used when there is the possibility of only negative consequences

Definition of Risk in Automotive, Aerospace, and Semiconductors


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• Risk is defined as Severity x Occurrence

• Risk with Controls used Severity x Occurrence x Detection – this is known as residual risk

• Risk mitigation is often focused on items with High Severity, High Risk, or High Residual Risk

Typical Risk Table – Used in the Automotive Industry


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• What do we see as the typical risks in the supply chain? Let us know from your company’s perspective…

Typical Risks in an Extended Supply Chain (Discussion)


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• Maximizes “value-added” content

– Define value in the eyes of the Customer

– Eliminate waste

• Optimizes “flow”

– Cost of Poor Flow

– Pull systems

– One piece flow

What is Lean?


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Extra Handling & StorageCosts

Expediting Costs

PremiumFreight Charges

Late Deliveries

Long Lead-times

Cost to Customer

Excess Inventory

Excess Scrap & Rework

Excess Capacity

Lost Customer loyalty

Excess Labor Costs

Opportunity cost if salesPotential is greater than

Current capacity

Cost of Poor Flow (COPF) We Only See the Tip of the Iceberg


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Lean – Value Added vs. Non Value Added


Value Added – 5%

Non Value Added –

Waiting time, inspection, setup time…others

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• Inventory – Sleeping money

• Defects – Cost to find, fix or replace

• Transportation of Parts & Materials

• Unnecessary Motions

• Unnecessary Operations

• Waste of Waiting

• Waste of Overproduction

• Waste of Human Potential

Waste or “Muda”


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• Implement Continuous Flow Processing

• Work Cells

• Use Pull not Push Scheduling

• Supermarket Pull With Kanban

• Level Demand

• Heijunka

• Control Quality at the Source

• Source Control & Error proofing

• Develop Flexible Production Equipment

• Quick changeovers – SMED

• Manage Overall Equipment Effectiveness

• Total Productive Maintenance

Lean Strategies


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Six Sigma is a systematic, scientific, fact-based, data-driven breakthrough process

Systematic:– Projects follow the Six Sigma process

What is Six Sigma?


ControlImproveAnalyzeMeasureDefine

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Six Sigma is a systematic, scientific, fact based, data-driven breakthrough processWhat Kind of Problems?

– Large, usually more than $150,000 annual savings

– Cross-functional

– Problems affecting major company Y’s

• Market Share

• Growth

• Profitability

– Problems that have been worked on before

What is Six Sigma?


Y= f(x)

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DMAIC Tollgate Process


ControlImproveAnalyzeMeasureDefine

• Project proposal and

selection

• Building your team

• Building a sense of

urgency

• Define customer

requirements

• Tollgate presentation

• Select project Y

• Data collection

• Display data

• Compute Process

Sigma


• Identify possible

causes

• Narrow to root cause

• Quantify opportunities


• Identify and test

solutions

• Refine solutions

• Pilot solutions

• Cost benefit analysis


• Process control plan

• Plan and implement

• Align systems and

structures

• Close and hand-off

project

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Quality engineeringand administration

Inspection/test (materials,equipment, labor)

Expediting

Scrap

Rework

Rejects Warranty

claims

Maintenance and service

Cost to customer

Excess inventory

Additional

labor hours

Longer cycle times

Quality auditsVendor control

Lost customer loyalty

Improvement program costs

Process control

Opportunity cost if salesgreater than plant

capacity

Cost of Poor Quality (COPQ)


We Only See the Tip of the Iceberg

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Cost of Poor Quality and Flow


“The cost of a LOST CUSTOMER is THE GREATEST COST OF ALL!”

– Dr. W.E. Deming

COPQ/F Inventory

(% of Sales) Sigma PPM Turns Competitive Position

40-50% 2.0 308,537 8 to 10 Non Competitive

30-40% 3.0 66,807 10 to 20 Average Company

20-30% 4.0 6,210 20 to 50

10-20% 5.0 233 50 to 100

< 10% 6.0 3.4 100 Plus World Class

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Business demands reduced cost, improved quality, reduced lead times and new innovative products and packages.

• Lean means speed and improved flow

• Six Sigma means less variability and fewer defects

• Lean Six Sigma combination of projects requiring improved flow and reduced defects

– Lean Six Sigma is the use of Lean and/or Six Sigma techniques within a DMAIC-driven process

Lean Six Sigma


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Discussion on Savings with Lean and Six Sigma


Measure Baseline Current Future

R.T.Yield 50% improv.

Process Leadtime 50% improv

Head Count 50% improv

Inventory in Days 50% improv

Floor Space 50% improv

Difference Green Belt Black Belt

Savings of Project $50,000 to $90,000 Greater than $150,000

Implementation Effort Lesser Effort Greater Effort

Duration 2 to 3 months 4 to 6 months

Workshop Days 7 days 20 days

Cost to Company ½ of Black Belt

Savings $1 to 2 Million (up to 15 projects)

$1.5 Million to $4 Million (up to 15 projects)

Project Local Cross-functional

Discussion on most successful initiatives

Extended Supply Chain Lean

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Risk in an Extended Supply Chain


New Product Development – Risk of Poor Quality, Late Prototypes and PPAP/FAI

Risk of unsafe products – Toyota braking system and Samsung battery

Risk of Poor Quality and Delivery

Reputational Risk – Volkswagen

What is Risk?

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New Product Development Risk Mitigation – Supply Chain One supplier in the

supply chain can hold up a product launch- Product or Process

problems can equally cause problems

Most organizations do not have visibility beyond one tier

What tools do we use? How can we get more visibility and mitigate risk further


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• Project and Supplier Risk: Conducted during initial RFP/RFQ. (Supplier Risk, Project Risk, Feasibility Risk (S), Capacity Risk (S))Only for the Tier One? Story of the Automotive Battery Supplier in China.

– There is no Lean or Six Sigma Evaluation required by the supplier or customer

• New Product Launch Tracking: Timing and completion of deliverables and use of Quality of the Event Checklists

– The supplier is required to implement DFSS (Design for Six Sigma) and or DFM/DFA

• PPAP or FAI: Risk tools in use – DFMEA, PFMEA, Control Plan, SPC (PP, PPk), MSA (Gage Capability)

Risk Tools Used for Product Launch Risk


How about Lean and Six Sigma during New Product Development Launch?

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Risk in Product Safety & Managing Requirements


Hazard and Risk Analysis ASILsSafety

Requirements

BOM Elements

Safety

Req.

Functional Safety ConceptFunctional

Safety ConceptTechnical Safety

Concept

Design

These standards (ISO 26262) Focus on Electronics and Electrical and extend to software and hardware

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Ongoing Quality and Delivery RisksPPAPs –

Detection – Dimensional Results, Performance Tests, Material Certs

Prevention – FMEA/Control Plan, MSA, Capability Studies

Manage the Change –Product and Process Change – Supply Chain Based

Capacity Analysis and Run at Rate& MMOG for Shipping/Logistics + Contingency Planning + Ongoing Monitoring (ERP)

and Scorecards


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• Customers worked together to focus on SE Asia Semiconductor Supply Base.

• Conducted industry-based second party certification based on customer audits, conducted training, and used a common dash board. Companies had a customer sponsor that coached them in becoming certified to the most stringent Best-In-Class supplier standards.

• Focused on Quality System, Lead Times, FMEA, APQP/PPAP, SPC, and disciplined Problem Solving.

• Focused efforts made US and European Semiconductor industry competitive again –see improvements on next slide.

Case Study of The Semiconductor Industry


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RESULTS

• Productivity improvements 10% – 30%– Equipment and People

• Yield improvement– Subcontractor yields improved to 99.6%

• Performance to schedule improvement– Consistently sustaining 100%

• Number of customer complaints decreased– Up to 15x reduction

– Ron Ramos, Philips Semiconductor, SAC Board

Case Study – Semiconductor Industry


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VOLVO Trucks – Asia

• Supported Product Launch of Quester Truck assisting suppliers in 5 countries: India, Thailand, China, Malaysia and Singapore

• Assignment involved a host of supply chain programs starting with Supplier integration audits of over 150 VOLVO suppliers from all over Asia

– Omnex audited the suppliers on critical metrics that included Volvo-specific requirements

– Helped suppliers arrive at a prioritized action plan that were mission critical to SOP

– The assessments and improvements covered Quality, Lean, Safety, Environmental

• Included APQP, PPAP, Process qualification, design , plant layouts and ergonomics

– Trained and implemented these actions for suppliers

– Ensured the program was in sync with the overall product launch date and Start of Production

– Hand over sites to Volvo SQE/ SQA teams

Duration: 1.5 years

Case Study


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• Vertically integrated with customers responsible for Design to Tiered Structure with Tier Ones responsible for Design

• Tier Two - generally smaller family owned businesses typically supplying multiple markets changing to larger multi plant suppliers

• Tier Three – small suppliers supplying a component to Tier Ones or Tier Twos generally supplying multiple markets

• Tier Four – larger raw material suppliers

Supply Chain Changes 1980s to 2015


Changes in the region of the suppliers from mostly US to now Global, this globalization will continue Large European and Japanese Tier Ones are evident today, soon this will turn to large Indian and

Chinese Tier Ones as well Tier Twos will become larger entities supplying large Tier Ones. Forces driving this change are the

same forces that drove Tier Ones into becoming larger, ie. industry expectations, technology, and capital needs

Tier Threes will be affected as well. The same forces of changes will be felt by Tier Threes.

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• Electronics and software content in vehicles along with Autonomous cars, braking and Electric cars will bring many new suppliers into the Automotive Industry– The risk for quality and delivery will suddenly jump

– This is evident from looking at the JD Power scores for Tesla

• Suppliers from Silicon Valley that do not believe in ISO standards and any of the Automotive Industry standards for eg problem solving can be a problem– Eg. of large software supplier

• Hardware suppliers from China and software suppliers from India will increase risk in many ways including Security and Code of Conduct

• The weakened balance of power of large OEMs will be still weakened when partnering with large software or electronics companies eg. Microsoft or Nvidia

Supply Chain Changes 2015 to 2050


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Discussion on Balance of Power and Implications on Supply Chain Initiatives


OEM

Tier One

Tier Three

Tier Two

OEM

Tier One

Tier Three

Tier Two

OEM

Tier One

Tier Three

Tier Two

Automotive Aerospace Semiconductor

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Discussion: Top 12 Disruptive Technologies and their Impact on Supply Chain Risk


Speed, scope, and economic value at stake of 12 potentially economically disruptive technologies

Source : McKinsey Global Institute Report

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Track APQP & UPPAP Projects

APQP Projects

PPAP Projects

Software the has the capability to track APQP and PPAP

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APQP Task DocumentsRouted and accepted deliverables are saved in a folder structure in a document manager (link with suite)

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Linked DFMEAs, PFMEAs, Control Plans and Standardized Work using Enterprise Software

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Dynamic Linkage of Documents Connects DESIGN to Shop floor DocumentsLinkages of Print

requirementsTo Shop Floor

Link between ProcessEngineering to Shop Floor


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DVP&R(Test Plan)

DVP&R(Test Plan)

DVP&R(Test Plan)

System/DesignFMEA

RequirementManager

Sub-systemDFMEA

DFMEA

Control PlanPFMEAProcess FlowPPAP/FAI

As per Bill ofMaterials

(BOM)

Cause and EffectRelationship

Links SFMEA/DFMEALinkages to


System

Component


All requirements in FMEA?All requirements tested?All requirements in PPAP/FAI?

Indicated via color coding

DASHBOARD

(Requirements decompose to characteristics)

Linked DFMEAs, PFMEAs, Control Plans and Standardized Work

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Link VOC to System Requirements to Components and Supply Chain


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Component

Sub-System

Functions/Requirements Characteristics

Critical

Important

Critical

Important

ASILs ASILs

KPC/KCC

Traceability between Functions, Testing, and Characteristics

System

Critical Functions

Requirements Management – Internally and Flow Down to Suppliers


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Historical

Design

Critical

Important

ASILs

Process

Critical

Important

ASILs

KPC/KCC

Planning

DesignFailures

ProcessFailures

Product FamilyWarranty,

Field Failure, Plant Failure.

Lessons Learned


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[email protected]

734.761.4940

[email protected]

Questions?

Thank You!


Appendix

42


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LEAN SIX SIGMA – LOGISTICSCase Study

43

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Project Definition


Project Name: Logistics

Problem Definition: The transit time for units to analysis /

repair can average more than 3 days.

(from the dock to the availability of the

part to the Workshop; including ERP

registration)

The transit time for units from analysis

/ repair to the dock has a median of 6

working days

Units are being refurbished as they

arrive; not based on expected need

Project Scope: Improve and ensure efficient and

effective processing of OEM /

Aftermarket units

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Project Definition


Project Name: Logistics

Problem Objectives: 1) To eliminate or minimize any non-

value added shipment of products,

before or after refurbishment.

2) To eliminate or minimize any non-

valued added handling of products,

before or after refurbishment.

3) Refurbish only those returned parts

which will be used; i.e. eliminate

refurbishment of parts which will

languish in storage.

Don’t repair what isn’t neededSend parts to where they are needed

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Project Metrics


Lead Time between delivery and workshop

Receiving: Current = 46% same day; 27% next day; 27% 2 or more days through first segment

Current = 43% same day; 26% next day; 31% 2 or more days through second segment

Goal = 80% same day; 20% next day;

Lead Time between end repair and stock

Receiving : Current = 17% same day; 7% next day; 76% 2 or more daysCurrent = 4% same day; 4% next day; 92%

2 or more days through second segmentGoal = 80% same day; 20% next day;

Average overall handling time per unitCurrent: 20 min/unitGoal: 10 min/unit

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Phase I

• Outsourcing of Re-Labeled devices

• Provide a disciplined approach for all aftermarket returns

• Eliminate redundancy within OEM return process

Phase II

• Utilize a pull system for refurbishment to storage

• Utilize a pull system/supermarket for replacement / spare parts (raw goods) with inventory to be managed by an external agency

Approach


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Current State Map


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DC AudiPorsche

HB

Test Warranty

rmcTech

Rest Warranty

Avg 18% of DC total

Stores units to be repair;

14 days lead time

Nuss

Stores units to be repair (1100)

and repaired (1800);

1-3 days lead time

zcs1 entered when received

EESAvg 43% Vol

HB

Nuss

Customer

Receipt of

Goods

Sorting and

Scanning

Delivery Note

CT Avg 3 min 1 day 5 min

zcs2Move to

storage

racks

1 day

Workshop

? min

6.4 days

Packaging

? min ? days

Shipping

? min

Test Warranty

Receipt of

Goods

Sorting of

Goods

CT Avg 3 min 1 day 2 min

zcs1

5 min

zcs2

1 day

Move to

storage

racks

1 min 1 day

Workshop

? min

Test Warranty

Future State -- OEM

1 day 2.5 min 1 day 3 min

Nuss

Shipping requests per

EOQ (Kan Ban)

scheduling

0.5 min electronic

Customer

April 25, 2007

Future State Map


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Implementation of these recommendations will:

• Reduce the logistical content at the client’s facility from an average of 14.6 to 5.2 man months per month

– Reduce time handling the units by an average of 6.5 min

– Reduce the non-Test Goods Receipt volume to an average of 2885 per month (reduction of 65%)

• This assume the current levels of OEM and Aftermarket returns

• Note: Test receipts averaged 366 per month for cy 2006

– Eliminate the handling of OEM parts which will be refurbished outside the client’s facility.

• Currently an average of 43% of OEM receipts

Results


This provides an estimate yearly savings (gross) of $1,020,000 or 9.4 FTEs

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LEAN SIX SIGMA IN SUPPLY CHAIN

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Lean and Six Sigma in the Enterprise


Our Site

Sub System

Part A

Raw MatCustomer

Raw Mat

Enterprise

Supply Chain management

encompasses planning and

management of all activities

involved in sourcing, procurement,

conversion, and logistics. CSMP

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Lean in the Enterprise


Sub System

Part A

Raw MatCustomer

Raw Mat

Enterprise

Lean within the Four Walls of a Organization

Versus

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Lean in the Enterprise

This is the opportunity for Supply Chain Professionals. While many companies have practiced lean within the four walls. Lean in the Supply Chain or Enterprise is an opportunity waiting to happen.


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Supply Chain Six Sigma Projects

• Nonconforming product from suppliers

• Wrong Shipment from suppliers

• Recall of products from supplier (300 recalls from suppliers a month in a major hospital)

• Billing errors from suppliers

• Financial Transaction Errors

• Data Entry Errors

• Packaging problems from suppliers

• Reduce Inspection

• Reduce Rework

• Defect reduction during product ramp up


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LEAN AND SIX SIGMA AND HOW IT WORKS

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• Option I: Six Sigma – Green Belt Projects

• Option II: Six Sigma – Black Belt Projects

• Option III: Lean – Lean Transformation of a Site

• Option IV: Lean and Six Sigma – Green Belt Projects that have COPF and COPQ mixed together for improvement

• Option V: Lean and Six Sigma – Black Belt Projects that have COPF and COPQ mixed together for improvement

Options for Implementation


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Difference Between Green Belt and Black Belt Projects

Difference Green Belt Black Belt

Savings of Project $50,000 to $90,000 Greater than $150,000

Implementation Effort Lesser Effort Greater Effort

Duration 2 to 3 months 4 to 6 months

Workshop Days 7 days 20 days

Cost to Company ½ of Black Belt

Savings $1 to 2 Million (up to 15 projects)

$1.5 Million to $4 Million (up to 15 projects)

Project Local Cross-functional


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Examples of Lean Projects

• Lean Logistics – reduce time to repair and reduce time to analyze the problem, and inventory of repair and finished goods

• Reduce on-hold lots

• Increase capacity

• Cycle time reduction

• Diagnostic Test Cycle Time Reduction

• Lead time to reply/respond to customer problems

• Uptime Improvement of key technologies

• Flow of material/service in a Process –high receiving and high in-process before final operation or step; ability to transform to a continuous flow

• Excessive labor costs

• Reduce tool repair time

• Lead time to reply to customer sales opportunity


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Six Sigma Projects

• Scrap due to contamination on machine

• Scrap rate from XYZ machine during setup

• Any 100% inspected Dimension

• Yield Improvement

• Diagnostic Test Errors

• Reduce Customer Reject

• Reduce Test Failures

• Financial Transaction Errors

• Data Entry Errors

• Wrong Medication

• Wrong Treatment

• Reduce Scrap Rate

• Reduce Inspection

• Reduce Rework

• Defect reduction during product ramp up

• Reduce Sentinel Events


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• Six Sigma focuses on variation reduction and Lean on time (reducing lead times). Put them together and you have a powerful improvement process that can work on improving quality and also on reducing waste

• Lean uses Value Stream Mapping and an assortment of tools ranging from set up reduction to work cell layouts for improvement

– Opportunity for Supply Chain professionals is Extended Value Streams or Value Streaming the enterprise

• Six Sigma uses DMAIC or the methodology of Define, Measure, Analyze, Improve and Control

– Black Belts and Green Belts work on projects

• There is much opportunity for savings in the Supply Chain by using extended value streams to reduce lead time and inventory or six sigma for variation reduction

Summary
