3 Steps for Reducing Complexity -Creating Safer Operations

1. Six Sigma Integration, Inc.
1 March 2010
3 Steps for Reducing
Supply Chain Complexity:
Creating Safer Operations
James William Martin (2011), Unexpected Consequences,- Why
The Things We Trust Fail, Copyright 2011 by Praeger Publications
. Publishing date July 2011. Not to be reproduced or modified
without written permission from Praeger Publications.
1
Copyright 2010 Six Sigma Integration, Inc.

2. Introductions
James William Martin is a consultant and president of a
management consulting firm, located south of Boston. He
is also the author of several books focused on product
and process design. He has coached thousands of
people across Japan, China, Korea, Singapore, Malaysia,
Thailand, Australia, and North America to use fact based
methods to improve their products and services. As a
management consultant and teacher for more than twenty
years, he also served as an instructor at the Providence’s
College Graduate School of Business where he
instructed courses in decision analysis and related
courses, and counseled graduate students from
government organizations and leading corporations in the
greater Boston/Providence area. His interests include
environmental friendly design as well as personal and
organizational ethics, productivity and change
management. He holds a Master of Science in
Mechanical Engineering, Northeastern University; Master
of Business Administration Providence College; and
Bachelor of Science degrees in Industrial Engineering,
and Biology from the University of Rhode Island.
2
Copyright 2010 Six Sigma Integration, Inc.

3. Our Competitive Advantage
We can sustain
results
Our mission: Reducing supply
chain complexity, improving
productivity and safety We know how
to reduce risk
We know complexity
and risk
We know supply chain
3
Copyright 2010 Six Sigma Integration, Inc.

4. Complexity is:
 “the condition of being difficult to analyze,
understand, or solve …. the condition of being
made up of many interrelated parts” (Encarta
Dictionary)
4
Copyright 2010 Six Sigma Integration, Inc.

5. You can see it in these ways:
Higher level symptom: Measured by:
 Organizational cultural • Item proliferation
issues resulted in significant • High percentage non-value
previous failures adding operations (time)
 A lack of risk analysis and • Long lead-times
contingency planning • High demand variation
 Dependent on complicated
•
•
Low productivity
Low asset utilization
logistical systems and
resources for failure • High unit costs
mitigation • Near misses
•
 Poor root cause analysis and
•
Known issues
Accidents
mitigation
• Etc.
5
Copyright 2010 Six Sigma Integration, Inc.

6. How is it measured?
• Item proliferation
• High percentage non-value
adding steps (time)
• Long lead-times
• High demand variation
• Low productivity
• Low asset utilization
• High unit costs
• Near misses NVA BVA VA
• Known issues
• Accidents
• Etc.
You must identify and measure complexity drivers to
improve performance
6
Copyright 2010 Six Sigma Integration, Inc.

7. It is most dangerous if:
 Dangerous equipment
 Dangerous application environment
 People dependent or cognition issues
 Significant potential financial loss or loss of life if failure
occurs
 Would impact many people across large geography
 Politically sensitive
7
Copyright 2010 Six Sigma Integration, Inc.

8. We analyzed the effects of complexity:
 Complexity increases demand
variation and lead-time, requires
higher inventory levels and lowers
asset utilization.
 Increases operating cost, reduces
cash flow and lowers revenues.
 Increases risk and the likelihood of
unsafe operations.
We wrote the books for supply chain
complexity reduction….
8
Copyright 2010 Six Sigma Integration, Inc.

9. What are recurrence risks?
Risk Example Risk Example
1. Organizational cultural 8. Significant potential
Interference by key stakeholders, misalignment of Operations which pose risks of injuries and death,
issues resulted in financial loss or loss of life
resources, ethical lapses. widespread damage or environmental contamination.
significant previous failure if failure occurs
9. Would impact many Typically natural events or man-made events such as
2. A lack of risk analysis Project the future using historical information rather
than considering worst case scenarios.
people across large environmental contamination over wide areas. Also,
and contingency planning poor relief responses to such events.
geography
Inefficient or ineffective laws and regulations which
10. Politically sensitive If these occur, the public and media complain to the
3. Regulatory laxness permit an industry to short-cut and take inordinate
extent politicians become engaged.
risks.
11. Application technology Creating systems for production without systems to
Rotating equipment which can injure or kill people.
4. Dangerous equipment ahead of control monitor, and control them to prevent injury, deaths or
Equipment which can crush people.
technology property and environmental damage.
12. Dependent on
5. Dangerous application Non-existent, resource starved or poorly managed
Environmental extremes of temperature, noise, light, complicated logistical
environment vibration or other dangerous conditions.
logistical systems to coordinate and provide relief
systems and resources for after a catastrophic event.
failure mitigation
6. Complex systems Systems relying on combinations of people, A chronic failure to investigate the causal factors for
13. Poor root cause
technology and information for their operation. These failure or to implement effective solutions to prevent
may be best solutions and cannot be simplified. analysis and mitigation their recurrence.
7. People dependent or Systems requiring people gather , interpret and act on
cognition issues information.
9
James William Martin (2011), Unexpected Consequences,- Why The Things We Trust Fail, Copyright 2011 by Praeger Publications . Publishing date July 2011. Not to be reproduced or modified without written permission from Praeger Publications.
Copyright 2010 Six Sigma Integration, Inc.

10. Supply chain complexity causes
process breakdowns
Operations Billing Administration Finance
•Lead-times too long •Billing errors •High utilities expense •Accounts payable cycle time
•Late orders •Excess mailing expense •High insurance costs per employee •Variance to budget
•Average cycle time per order too •High facility costs per employee •Margin improvement
long Purchasing •High material and supplies expense •Overtime expense
•Emergency maintenance •Suboptimum year over year cost •Account receivable cycle time
reduction
•Too many suppliers HR
Distribution
•Too many contractors •HR staff per total employees Quality Assurance
•Shipments exceeding standard
•High cost per invoice •Absenteeism rate •Defects
•Excess freight charges (inbound
•Purchasing errors •Training hours per employee •Customer complaints
and outbound)
•Employee cost to hire and retain •Claims
•High inventory investment and low
turns •Health costs per employee •Rework
Call Center
•Excess and obsolete inventory •Lost time accidents •Scrap
•Long average handling time
•Order shortages •Disability costs •Warranty
•Unnecessary call transfers
•Premium freight costs •HS&E issues
•Cost per call
•Retuned product
•Abandoned calls
•Unnecessary product transfer
between facilities
•Poor on-time delivery
James W. Martin, Lean Six Sigma for Supply
10
Chain Management- The 10 Step Improvement
Process, McGraw-Hill Professional; 1 edition
(October 12, 2006).
Copyright 2010 Six Sigma Integration, Inc.

11. Behavior influences supply chain complexity
• Cognition and group behavior
influence how products and
services are designed and
used…
• This picture is not
moving!
Akiyoshi KITAOKA, Professor, Department of Psychology,
Ritsumeikan University, Kyoto, Japan
studying visual perception, visual illusion, optical illusion,
trompe l'oeil AIC2009 ICP 2016
http://www.ritsumei.ac.jp/~akitaoka/index-e.html
(Not incorporated into the book)
Attitudes and behaviors increase supply chain complexity 11
Copyright 2010 Six Sigma Integration, Inc.

12. There are universal principles for good
design of supply chain operations
Alignment Issue
• Influence
• Learning
• Usability
• Appeal
• Decision making
Alignment Issues
http://australianpolitics.com/news/2000/00-11-12.shtml
(Not incorporated into the book)
Effective designs accentuate the positive and neutralize the negative influences of cognition and
group behavior…there are perhaps more than 100 non-technical factors to consider…
12
Copyright 2010 Six Sigma Integration, Inc.

13. Cognition influences process complexity, how people
work and misuse products and services
Interpret ambiguous images Same color! Perception Issues
as simple and complete
Law of Pragnanz (Interpret ambiguous images as simple and complete)
http://www.marsartgallery.com/pragnanzlaw.html
(Not incorporated into the book)
http://www.lottolab.org/articles/illusionsoflight.asp
http://picocool.com/culture/color--the-brain-beau-lottos-optical-
illusions/
(Not incorporated into the book)
13
Copyright 2010 Six Sigma Integration, Inc.

14. Cognitive errors cause mistakes
• Forgetfulness ( not concentrating)
• Misunderstanding ( jumping to conclusions)
• Identification ( sensory error)
• Inadvertent errors ( distraction & fatigue)
• Delay in task execution ( information processing)
• Inability to compensate for new situations
• Intentional errors ( sabotage)
14
Copyright 2010 Six Sigma Integration, Inc.

15. Things fail because error conditions align
Failure Model
Failure condition A
Failure condition B
Failure condition C
Failure condition D
James William Martin (2011), Unexpected Consequences,- Why
The Things We Trust Fail, Copyright 2011 by Praeger
Failure
Publications . Publishing date July 2011. Not to be reproduced
or modified without written permission from Praeger
Publications.
Catastrophic failures occur when contributing factors align … We must detect weak signals
15
and “near misses” … and apply failure analysis to products, services and logistical systems
Copyright 2010 Six Sigma Integration, Inc.

16. Organizational structure and culture can
help or hinder complexity reduction
Transportation … Inventory … Motion … Waiting … Overproduction … Over processing … Defects … Safety
Formal and Efficiency of
Structure Culture informal groups Individuals
design
• Bureaucratic, • Organizational • Team organization • Personal attitudes, •Performance, schedule,
functional, divisional, culture, norms, and dynamics concept of self, cost, customer, suppliers
matrix, collaborative, values values, norms and other project risks and
virtual issues
Arbitrary goals … Conflicts of interest… Tolerating a violation of organizational policies, procedures or laws and
regulations... Tolerating incompetence … Violations of law or regulations … Lying and falsifying information …
Making threats to others … Engaging in disruptive or demoralizing conduct with peers, employees, customers or
suppliers … Leaking or misusing confidential information … Stealing property … Misrepresenting intellectual
capital and other rights … Making untrue claims regarding product or service features
James William Martin (2011), Unexpected Consequences,- Why
16
The Things We Trust Fail, Copyright 2011 by Praeger
Publications . Publishing date July 2011. Not to be reproduced
or modified without written permission from Praeger
Publications.
Copyright 2010 Six Sigma Integration, Inc.

17. 4 hour executive workshop agenda: 3 steps for
reducing supply chain complexity:
The workshop goal: become familiar with the concepts, identify areas of
applications and integrate with current programs e.g. OMS and CI Essentials.
Step 1:Complexity
• Become aware of risk (recurrence risks)
• Design low risk processes (supply chain focus)
Step 2 Human factors
• Social psychological effects on supply chain safety (error conditions, culture and
ethics)
• Estimating and reducing risk (reduce variation and errors)
Step 3 Next steps
• Where to focus? / Prioritization?
Next step: 2 day supply chain workshop to identify and reduce supply chain complexity
and improve safety
17
Copyright 2010 Six Sigma Integration, Inc.

18. Questions?
18
Copyright 2010 Six Sigma Integration, Inc.