Six Sigma Supply Environment Analysis Kimball E. Bullington, Ph.D.

, Associate Professor Middle Tennessee State University 615/904-8420; kimballb@mtsu.edu 89th Annual International Supply Management Conference, April 2004 Abstract. The environment of a change process affects the nature and success of a change program. This extended workshop focuses on the use of environmental assessment tools in the context of attempting major supply improvement initiatives. It is relevant to supply managers regardless of whether they are currently using Six Sigma methodologies, but it will have particular relevance to organizations implementing or considering implementing Six Sigma. Introduction. A simple definition for strategy is a plan for achieving organizational goals (Stevenson, 2002). Strategy development includes consideration of organizational purpose, selects businesses in which to participate, attempts to achieve a long-term, sustainable competitive advantage, considers internal strengths and weaknesses, scans the environment for opportunities and threats, guides decisions, and assists in the investment of resources (Hax and Jajluf, 1996). More companies are recognizing the value of including supply in strategic planning due to the effect of supply on cost, quality, customer service, and time. Six Sigma is a popular method for implementing total quality management and is becoming an accepted structure for corporate strategy. The Six Sigma program was developed by Motorola. Although the program received attention after Motorola received the Malcolm Baldrige National Quality Award, its most recent revival by former Motorola employees Dr. Mikel Harry and Richard Schroeder has been widely noticed. Jack Welchs public endorsement of Six Sigma advanced the wide-spread adoption of the process. The American Society for Qualitys unprecedented sponsorship of this program has also aided in its spread. Six Sigma is a proven program for translating the continuous improvement into business results. The cost savings focus of Six Sigma makes the extension of the program to the supply base attractive. A supply strategy development process consistent with a Six Sigma environment will include an analysis of the supply base environment. The supply environment may be analyzed on a number of levels: supply chain, commodity, supplier, and project. Each level has its own mini-environment. The analysis of the supply environment may include the use of a variety of analytical tools including SWOT analyses, trend analyses, force field analyses, cause-and-effect analyses, and stakeholder commitment analyses. These tools may be applied at all levels of the environment. SWOT Analysis . Correctly analyzing and responding to the supply environment is important to the achievement of supply chain management success. A SWOT analysis (Strengths Weaknesses Opportunities Threats) is a form of environmental analysis, allowing for the segregation of the environment into internal (strengths and weaknesses) a nd external (opportunities and threats) as well as positive and negative environments (Figure 1). SWOT

analyses are often used in the development of strategy and are used in the Define phase of the Six Sigma breakthrough strategy (DMAIC). SWOT analysis is an effective early form of environmental analysis because it provides a categorical structure. The internal environmental assessment may include corporate culture, competitive priorities, functional relationships, and reward / measurement systems. Externa l environmental assessments address competitive, cultural, economic, legal, and political considerations.

Internal Positive Negative

Strengths

External
Opportunities

Weaknesses

Threats

Figure 1: SWOT Analysis Trend Analysis. Trends in supply chain management are shifts in the supply environment. Carter et al (1998) identified ten trends that will affect the environment in the five-year and tenyear periods. These trends include: intense competition, globalization, customer sophistication, mass customization, virtual integration, network rationalization, outsourcing, electronic channels, dominant organizations, and constant change. These trends affect all environmental levels, but should be considered primarily at the higher levels of the supply chain environment. Force Field Analysis. Force field analysis is an environmental tool which may be used to assess forces that either promote or restrain improvement. Fawcett (1998) identified six forces driving the supply environment: economic globalization, time compression, rising customer expectations (quality), process management, supply chain integration, and technological innovation. Factors which restrain could include management commitment, distrust, lack of communication, inadequate resources, etc. Cause-and-Effect Analysis. A typical cause and effect analysis, a common tool within the Six Sigma toolbox, will address six major cause categories, including the analysis of the environment (see Figure 2). Often the environment will be ignored in a cause-and-effect analysis even though it is known to be a major contributor to defective results or a major barrier to the desired effect. The omission is not due to oversight, but rather to the fact that environments can be expensive, impractical, or in some cases, impossible to change. While it is possible to change internal environments, it is always desirable to understand the environment in order to change the parts of the environment we can influence and make our system robust to the aspects of the environment we cannot change. The cause-and-effect diagram provides an opportunity to verify that all major contributing causes are addressed, either directly or by modifying other major cause categories.

Environment

Processes

People

SCM Success

Measurement

Equipment
Processes

Materials

Figure 2: Cause-and-Effect Diagram

Stakeholder Commitment Analysis. Six Sigmas recent popularity as an organizational change methodology may be attributed to its focus on cost improvement and its unabashed borrowing from previous TQM methodologies. The creators of the Six Sigma methodology learned from the failures of TQM implementations and built into the process answers to known pitfalls. Lack of top management commitment is addressed by defining the improvement process better than any precious implementation program, identifying costs up front, and focusing on quick paybacks. Lack of training is addressed by the various levels of certification required. Breakdowns in commitment throughout the organization are addressed by stakeholder commitment analyses, a form of environmental gap analysis. Stakeholder commitment analysis may be applied at all levels, but is especially useful at the project level when individual candidate projects have been defined and the environment of the project must be understood in order to maximize the probability of success. The aim of this minienvironment analysis may be to change the environment or to address human relations issues such that the environment will not prevent success. Conclusion. No improvement process or supply strategy is complete without an analysis of the environment a nd some plans for addressing the environmental issues. Whether the aim is to change the environment or to make the improvement process robust with respect to the environment, inclusion of environmental analysis and accommodation is essential to large scale improvements in the supply chain. Six Sigma addresses environmental considerations to a greater degree than most improvement methodologies. This paper has provided a review of tools for supply environment assessment with recommendations on their use in supply strategy.

REFERENCES and BIBLIOGRAPHY Breyfogle, Forrest W. III, Implementing Six Sigma, Wiley, New York, 1999. Carter, P.L.; J.R. Carter, R.M. Monczka, T.H. Slaight, and A.J. Swan, The Future of Purchasing and Supply: A Five- and Ten-Year Forecast, National Association of Purchasing Management and the Center for Advanced Purchasing Studies, Tempe, AZ, 1998. Fawcett, Stanley F., The Supply Management Environment, National Association of Purchasing Management, Tempe, AZ, 2000. Goldfield, Charles, Supplier Strategies, PT Publications, Inc., West Palm Beach, Fl, 1999. Hax, Arnoldo C. and Nicolas S. Majluf, The Strategy Concept and Process, 2 nd ed., Prentice Hall, Upper Saddle River, NJ, 1996. Porter, Michael E., Competitive Advantage, Free Press, New York, 1985. Sink, D. Scott and William T. Morris, By What Method? Institute of Industrial Engineers, Norcross, GA, 1995. Williams, A. Mary; Thomas Bertels, and Harvey Dershin, eds., Rath & Strongs Six Sigma Pocket Guide, Rath & Strong, Lexington, MA, 2001.