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SCOR, Lean and Six Sigma – Supply Chain Synergy
SCOR, Supply-Chain Operations Reference, is a model developed and endorsed by The Supply-Chain Council (SCC) as the cross-industry standard for supply chain management. SCOR defines the supply chain as the integrated processes of Plan, Source, Make, Deliver, and Return, spanning from your suppliers’ supplier to your customers’ customer, aligned with Operational Strategy, Material, Work, and Information Flows.  Figure 1 - SCOR Model (Supply-Chain Council, 2007) The model builds its strength by linking process elements, metrics and best practices associated with supply chain execution. Some of the advantages of using the SCOR model for a supply chain improvement initiative are:
Critique of the SCOR model include:
If you look closely, the criticisms of the SCOR model are beyond its defined scope, as its objective is to provide a common language for supply chain definition. This allows the user to apply the problem solving technique most appropriate for the problems identified with SCOR. As we will see further, this is where Lean and Six Sigma play a complementary role. What is Lean? In the simplest of terms, Lean aims to increase value while eliminating waste. Further the APICS dictionary, Lean manufacturing is a philosophy that emphasizes minimizing the amount of resources (including time) used in the various activities of an enterprise. It involves identifying and eliminating non-value-adding activities in design, production, supply chain and dealing with customers. The goal of Lean is to maximize process flow and flexibility. Lean deployment methodology has evolved over the last few decades into a highly capable, well-defined multi-step approach that can be applied to administrative processes as effectively as production processes.  Figure 2 - Lean Principles The advantages of using Lean as a process improvement methodology are:
Critique of Lean methodology include:
The main drawback of using Lean alone as a process improvement methodology is lack of strategic supply chain direction. Lean efforts will certainly yield results but can lead to islands of excellence within an organization if used alone and the time from effort to any significant results can be long.
Six Sigma is a statistical quality goal that equals no more than 3.4 defects per million opportunities. Six Sigma is also a business improvement program that targets process variation. It has a very structured and disciplined methodology designed to translate strategic and operational opportunities into resourced, well-scoped executable projects. The Six Sigma "tool set" focuses on reducing defects and variability with a formalized project management structure. Six Sigma is not only for manufacturing, but any process where an opportunity exists for error. Six Sigma projects are based on a problem solving methodology called DMAIC.  Figure 3 - DMAIC Some of the advantages of Six Sigma as an improvement methodology are:
Critique of Six Sigma Methodology include:
Compared to Lean, Six Sigma has a narrow focus . It is also dependent on availability of valid data for analysis and improvement. Similar to Lean, the road to ROI can be a long one.
If we look at the strengths and weaknesses of each of these methodologies it is evident that they need each other. SCOR essentially brings a supply chain strategic focus and alignment of business and supply chain strategy. The strong fact-based, data-driven problem solving approaches that Lean and Six Sigma have help to discover ‘root causes’. Additionally, Lean brings focus to the customer value. SCOR - assists companies in making many of the 'major' decisions that will affect the general construct of their supply chain and such decisions will have a major impact on the resulting Supply Chain(s) and its performance and offers a relatively quick ROI. Lean and Six Sigma complements and strengthens the SCOR-based strategic decisions by providing a continuous improvement philosophy Value Stream Mapping (VSM), part of the Lean methodology, can be effectively used to map the workflow and transactions which are specific to each company, adding considerable detail to support a deeper understanding of current and future state processes. For an organization, using all the three approaches leads to a holistic process improvement methodology. The preferred implementation strategy for SCOR, Supply Chain Excellence (SCE) also maps well with the DMAIC approach of Six Sigma.  Figure 4 - DMAIC and SCE SCOR Level 1 metrics are used to understand the performance of a supply chain and also to benchmark competitors. When a company defines its supply chain strategy, it provides an indication of what its supply chain’s performance should be. This drives the targets that a supply chain aspires to achieve for the different metrics. Figure 5 outlines how Lean and Six Sigma can play a role during project execution to realize improvements in the specific metrics.  Figure 5 - Metrics and Approach Perfect Order Fulfillment is defined as percentage of orders delivered on time, in full with correct documentation and without damage. The Six Sigma approach can be applied to understand variation and the root causes of various defects that lead to imperfect orders. Once identified, teams can be organized to tackle the root causes of the problem and devise process changes for improvement. Order Fulfillment Cycle Time is defined as the average actual cycle time consistently achieved to fulfill customer orders from initial demand to delivery and installation (where applicable). Using the value stream map at Level 4 for mapping the end-to-end order fulfillment processes, disconnects can be identified that result in order delays etc. If there is a large variation (high standard deviation) in the cycle time over a period of time, the Six Sigma approach can also be used to analyze the root cause. Supply Chain Flexibility metric measures the number of days required to achieve an unplanned sustainable 20% increase in production. Using the value stream map at Level 4, the key processes that might constrain the supply chain to meet the increase in production can be identified and targeted for improvements. Supply Chain Management Cost is defined as sum of costs associated with processes that are used for managing and executing (Plan, Source, Deliver and Return) a supply chain. This does not include the costs associated with the Make processes which included as part of Cost of Goods Sold (to avoid duplication of these costs). Using the Lean approach to minimize the use of resources and time, cost centers can be targeted to be more efficient with less number of resources to bring down the supply chain cost. Cost of Goods Sold (COGS) includes direct costs (labor and material) and indirect costs (overhead). Since both Lean and Six Sigma were initially used to drive down production costs, they are the ideal tools to target improvements in COGS. Both Return on Supply Chain Fixed Assets and Return on Working Capital measure the rate of return of investments. Since the investments span a wide variety of supply chain areas, a combined approach of Lean and Six Sigma is advised. Some specific situations might warrant use of one tool over the other. Summary Figure 6 (adapted from the SCC Model) provides the unique and common strengths of the three methodologies discussed. It is quite evident that these methodologies are complimentary and their individual weaknesses are resolved by their convergent strengths. For organizations starting on a journey of Supply Chain Excellence, it is not the question of which approach to pick but how to start. We recommend starting with SCOR and using the Supply Chain Excellence (SCE) approach to understand your various supply chains, their construct and priorities. Bring a Lean flavor to the strategic discussions and incorporate what is valued and voiced by the customer, identifying disconnects and waste. During the course of identifying improvement projects use a Six Sigma approach for data collection to better present the current state performance and highlight the defects and disconnects within the supply chain(s). Once the appropriate improvement projects have been identified, continue to use Lean, Six Sigma or both to analyze the root causes and devise solutions that continue to improve over time. For an organization, using all the three methodologies leads to a holistic process improvement approach that is customer focused, ensures execution is aligned with business strategy, fact based and results oriented. Starting with a clear Supply Chain strategy aligned with the Business Strategy and considering the necessary training and communication required for effective change management remain of paramount importance.
 Figure 6 - SCOR, Lean & Six Sigma Convergence For more information on how we can help you in your supply chain innovation journey email us at convergence@eKNOWtion.com |
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