Slides -- 2 of 4 (Supply Chain, Smarter Planet)

© 2009 IBM Corporation

Smarter Supply Chain: Intelligence Through Advanced Analytics

Tory Johnson – Director, Power Systems, System x and RSS

Integrated Supply Chain Fulfillment Engineering

17 September 2009


MN Quality Seminar

Agenda

A Smarter World – Driving the Need for a Smarter Supply Chain

Enabling a Smarter Supply Chain through the Process Excellence Initiative

– Integrated Supply Chain Engineering Transformation

– Examples of Innovation Opportunities

Closing Remarks


MN Quality Seminar

40 - 70 percent of electrical energy is lost due to inefficiencies in the grid.

In one small business district in Los Angeles alone, cars burned 47,000 gallons of gasoline just looking for parking.

Consumer products and retail industries lose about $40 billion annually due to inefficient supply chains.

In a world where 820 million people are undernourished, $48 billion worth of food is thrown away each year in the US.

Our healthcare “system” can’t link from diagnosis to drug discovery, providers, insurers, employers and patients.

Financial markets spread risk but can’t track it; this has led to undermined confidence and uncertainty.

3

The World is Getting Smarter: Because it Must


MN Quality Seminar

Supply chains continue to become more global and complex...

Going GlobalProduct Portfolio

Turmoil

Between 1995 and 2007, foreign subsidiaries nearly tripled, from 265,000 to 790,000

Increased Network Complexities

3X

Transnational companiesmore than doubled, from 38,000 to 79,0001

2X

Nearly 80% of executives expect number of collaborative relationshipswith third parties to increase2

80%

Between 2007 and 2010, R&D outsourcing is forecast to increase by 65%

65%

Engineering services and product-design projects are forecast to increase by 80%3

80%

• In consumer products industry, production introductions increased by 17% in 2006, more than double the 2005 rate4

• Portfolio rationalization is eliminating SKUs almost as fast

17%

Businesses and supply chains are becoming more global over the last decade

Supply chains are involving more companies

Supply chains must contend with rapidly expanding and

contracting portfolios

IBM wanted to gain insight into the challenges facing supply chain executives around the world… to learn what strategies and initiatives they are undertaking.

400 Supply Chain Executives World-wide

25 Countries0 5 10 15 20 25 30 35 40 45

Utilities (e.g., gas & electric)

Government and public services

Aerospace and defense

Telecommunications

Transportation and logistics

Life sciences / pharmaceuticals

Chemicals and petroleum

Food, beverages and tobacco

Automotive

Consumer products / wholesale

Industrial products

Electronics

Retail

Number of Respondents

400 Supply Chain Executives World-wide

29 Industries


MN Quality Seminar

Global Chief Supply Chain Officer Study 2009

Cost ContainmentRapid, constant change is significantly affecting this traditional area of strength and the ability of supply chain executives to adapt.

VisibilityFaced with more information than ever, supply chain executives still struggle to “see” and act on the right information.

RiskCFOs are not the only senior executives urgently concerned about risk; risk management also ranks high on the supply chain agenda.

Customer IntimacyDespite demand-driven mantras, companies are better connected to their suppliers than their customers.

GlobalizationContrary to initial rationale, globalization has proven to be more about revenue growth than cost savings.


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Three Characteristics of a Smarter Supply Chain

Interconnected

Intelligent

Automated Transactions & Smart Devices

• Use of sensors, actuators, RFID, & smart devices to automate transactions: inventory location, replenishment detection, transportation locations & bottlenecks

• Supports real-time data collection & transparency from POS to manufacturing to raw material

• Predict and Act through alert warning systems

Optimized Flows

• ERP to ERP to ERP system integration across the network. Standardized data and processes.

• Collaborative decision making through decision support and business intelligence – starting with the customer

• Risk management programs for integrated financial controls with operational performance – monitored and measured

Networked Planning, Execution & Decision Analysis

• Simulation models to evaluate trade-offs of cost, time, quality, service and carbon and other criteria

• Probability-based risk assessment & predictive analysis

• Networked planning/execution with optimized forecasts & decision support

Instrumented


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Automobile mileage range Google PowerMeter

“If you bought this, then…”Alert: airline arrival, library, weather, etc.

Dynamic pricing: based on inventory levels, predicted demand, pattern recognition, weather forecast

Improving crisis response time via global connections

A Smarter Supply Chain: Synergies & Cognitive ModelsGlobalization and growing supply chain interdependence have introduced a heightened level of information, volatility, complexity and uncertainty that is unlikely to subside. This new environment demands a different kind of supply chain – a much smarter one.

Intersection of smarter dimensions opens opportunities for innovation

Cost Containment

Visibility

Risk

Customer Intimacy

Globalization

Interconnected IntelligentInstrumented


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ISC Engineering: Enabling a Smarter Supply Chain

Customer and Business requirements mandate the need for a Smarter Supply Chain

The Integrated Supply Chain (ISC) Engineering team has made a strategic investment in providing the tools and training needed to enable the Smarter Supply Chain Strategy

– Defining projects to target customer defined gaps and inhibitors, while balancing with strategic goals and financial value to the business

– Developing the capability for process-led execution to deliver business results through a standardized approach which supports a data driven culture of decision making

– Enabling employees and process owners to develop skills and competencies needed in order to positively impact their customers and the business



MN Quality Seminar

Integrated Supply Chain (ISC) Engineering - Process Excellence

ISC Engineering owns a Lean Six Sigma Green Belt curriculum designed specifically for the engineering community. This curriculum is delivered via in-class training by our own internal Black Belts and Master Black Belts.

IBM ISC Engineering drives a globally integrated Design for Six Sigma (DFSS) and Lean Six Sigma (LSS) program in conjunction with IBM Process Excellence.

Both DFSS and LSS are leveraged for innovation and transformation to achieve Product and Process Excellence benefits and improvements.

This globally integrated effort minimizes cost to correct quality and reliability problems, and achieves a trained, skilled, and active work force with involvement at all levels of process execution.


MN Quality Seminar

Lean Six Sigma vs. Design for Six Sigma

Management philosophy implementedover past years

Common Roadmap (DMAIC)

Cost Reduction / Waste Elimination

Focus on variability reduction and defect elimination

Improving original design of product

Streamline production/business Transactional environment

DOE for reducing variations in process

Focusing on root cause analysis/corrective actions

Lean Six Sigma Design for Six Sigma

Next level of efficiency

No Common Roadmap(IDOV, DMEDI, DMADV, …)

Cost Avoidance

Elimination of Errors during designof new Product/Process

Robust Design optimizing performance

Designing Quality into product

Starts early in design cycle

Focusing on preventing errors

Both LSS and DFSS are needed to solve business problems


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Six Sigma and Lean Sigma – Complimentary Methodologies for Combined Lean Six Sigma

Lean Methodology“As-Is Flow” “To-Be Flow”

Increase efficiency Simplify work flows

Focus on high-value steps Eliminate waste

A Lean enterprise is one that delivers value to its

stakeholders with little or no wasteful consumption of

resources.

Product or Service Output

Critical Customer Requirement

Defects: Service unacceptable to

customer

B A

Product or Service Output

Critical Customer Requirement

Defects: Service unacceptable to

customer

B A

Product or Service Outputs

Six SigmaTM Methodologies

Increase consistency Reduce variation Eliminate defects

In a Six Sigma enterprise, everyone is focused on identifying

and eliminating defects.

Customer Driven Customer Driven

LeanSix

Sigma


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ISC Engineering: Lean Six Sigma Training and Tools

0

2

4

6

8

10

12

14

0 5 10 15

Data set

Fitted Equation

DOE,DOE, RegressionRegression

Control Charts /

SPC

Pareto Analysis

Cause & Effect Diagram

FMEAFMEA

SIPOC Diagram

Kano Analysis

Project Charters

Value Stream Map

Process Capability Study

Hypothesis Analysis

DMAIC

Define Project Opportunity

Introduction to program & methodology Introduction to Lean Six Sigma & DMAIC VOC (Voice of Customer) Lean Sigma

Measure Process Performance

Statistical Basics – Probability, Hypothesis Testing and ANOVA

Analyze Improvement Opportunity

Measurement Systems Analysis – Gage R&R, Attribute Agreement Analysis, Baselines, Failure Modes & Effect Analysis

Improve Process Performance

Design of Experiments Solution Selection & Piloting

Implement Control Strategies

Implementing Statistical Process Control & Acceptance Sampling


MN Quality Seminar

Green Belt Lean Six Sigma Certification Process

Candidate nominated for IBM LSS Training

Class Project selected prior to the start of training

Successful completion of IBM approved

project

Attend the full 5 day training

session

Training onproper tool

use

Candidatedemonstrates

competency via Toll Gates

Follow-on Projects• Yield Improvement• Scrap reduction• Process optimization• Waste Reduction• Defect prevention

Review Board reviews results and certifies

Green Belt

Successful completion of

Green Belt exam

Track project and record

benefits

• Standard WW training curriculum• “Common language” for improving processes

• Training delivered by IBM Master Black Belts / Black Belts• >700 of the ISC Engineering Team is Green Belt certified

• Representing 3 Geographies and 12 Countries• 15 WW Suppliers participating in collaborative projects


MN Quality Seminar

Going Forward: Voice of Business / Voice of Customer Critical Requirements

Critical Customer Requirement (CCRs)

Metrics Customer Validated?

Requirement: Must Be,

Primary Satisfier, or Delighter

Cost of Quality Benefits $Ms by Year Yes – ISC Vice President

Primary Satisfier -> Must Be

(More is Better)

Improved Quality Targets per project Aligned with strategic

improvement goals

Each Project Define/VOC

Stage

Must Be

Smarter Planet Strategy % of trained Green / Black Belts

Strategically aligned with Corporate Process Excellence program

Yes – ISC Vice President

Yes - IBM Corporate

Must Be

Must Be

Higher Value Projects Project Value >100K Yes – ISC Vice President

Primary Satisfier

(More is Better)

Supplier Integration # of Supplier collaborations

Yes Delighter -> Satisfier

Recognition Recognize employees for reaching certification levels and delivery of project results

Yes Delighter

Delighters tend to become Satisfiers/Basic Needs Over Time


MN Quality Seminar

From Pilot to Ongoing Transformation

Steady growth in project benefits from concept through 2009– Stage 1: Establish Methodology Foundation – Stage 2: Build Capability through Project Experience– Stage 3: Responsive and Adaptive Organization focused on customer feedback

100X Training Return on Investment

Integrated Leadership and Management System – WW Black Belts meet on monthly basis and share results– WW Black Belts’ annual commitment includes training/coaching Green Belts and

leadership of a committed number of projects

Multi-year business transformation that requires persistence

Examples of innovation opportunities linked to the program– “Green” Packaging Optimization– Digitized Fulfillment– Intelligent Early Warning System (EWS) across the Supply Chain


MN Quality Seminar

Packaging OptimizationBusiness Problem:

Currently, 3 to 4 different sets of packaging material are used across the supply chain – from chassis supplier through product shipment to the End Customers or Business Partners

Chassis supplier ships 5 units to Fabrication supplier

IBM ships final assembly in single packs to End Customer or Business Partner

Current Process

Fabrication supplier discards packaging

Completes assembly operation and ships units to IBM, 4 per package

Standardized DOX Project Methodology Applied through Analyze Phase: Project Charter outlined the business problem, project objectives, costs & benefits SIPOC analysis performed As-is process mapping Key Stakeholder Analysis & Management Plan defined Voice of Customer – Voice of Business – Critical to Quality analysis Established baseline and target metrics

Define Measure ControlImplementAnalyze


MN Quality Seminar

Packaging Optimization

Opportunity: Implementation of a process to reuse bulk packaging, multiple times, throughout the supply chain

Upon completion of assembly, Fabrication supplier re-uses packaging & ships units to IBM, 6 per package

Future Process IBM bulk ships

to Business Partners

OR

IBM ships final assembly in single packs to End Customer

Chassis supplier ships 6 units to Fabrication supplier

Projected Results: 77% Reduction in Packaging Costs 13% reduction in Shipping Costs Elimination of approximately 100 tons of packaging entering the waste stream


MN Quality Seminar

Digitized Fulfillment

Mixing Digitized Fulfillment withMixing Digitized Fulfillment withPhysical ManufacturingPhysical Manufacturing

New possibilities for digitized fulfillment with multiple delivery mechanisms

Reduce existing customer pain

Reduce IBM’s Carbon Footprint

The Business ChallengeThe Business Challenge

Heritage of “required” hardcopy information Legal, Safety, User Experience

Mixed Fulfillment controlling physical and digital content

Configured Orders – each order is customized, unique

Digitization that makes sense to the customer

We design and ship “Green” products but….We design and ship “Green” products but…. we can further improve the “Green” we can further improve the “Green”

customer experiencecustomer experience

Your Web

IBM Web

CD/DVD

USB

Build or SelectDigitized

Output forDigital PNs

Organizefor consistent

CustomerExperience

ConversionServices / Libraries(e.g. setup guides)

UIPatterns

Customer Order

Systems

Manufacturing Execution Systems

AssemblyProcess

Merge/ValidateDigital ActionsAnd Physical

Assembly

Part No. Description QTY97P2372 Bracket 221P4437 Screws 821P4491 300 GB DRIVE. 121621381 Safety Insert 11621842 OS SW key 100G126807H665517P771622R1128

Classify Parts

Digital or Physical

Assembly?

PhysicalAssembly

Digitized Fulfillment

CustomerShipment

Potential Benefits from “Green” InvestmentPotential Benefits from “Green” Investment



MN Quality Seminar

Intelligent Early Warning System

What Needs to ChangeWhat Needs to Change

IBM Supply ChainIBM Supply Chain

The nature of SPC / Rate Based management is reactiveUnable to predict what “MAY” occur in the future Does not rank warnings to focus on potential emerging issuesNeed a “smarter” infrastructure to predict defect trends before evidence is available

Business ChallengeBusiness Challenge

Rapid detection of emerging defectsTrue problems vs. false alarmsManage complexity of the data through intelligent infrastructure

Mitigate volume variation through measures that account for variation

Supply Chain

Sav

ing

s

Supplier Mfg Field

Traditional Quality ManagementTraditional Quality ManagementStatistical Process Control (SPC) or Rate BasedStatistical Process Control (SPC) or Rate Based

SPC Control Charting

Cumulative Evidence

Cu

mu

lati

ve

Def

ec

ts

Typical :• Set control limits • Apply statistical monitoring

“Out of Control” when Cumulative Defects reach statistical significance

Business Implication :• Late and Reactive• % of Defects have escaped

SPC Control Charting

Cumulative Evidence

Cu

mu

lati

ve

Def

ec

ts

Alternative : • Reduce Control Limits

Business Implication :• Earlier identification• Overflow of false alarms• Inability to find the real control

issues

Time

Time

“Shewhart control charts”

“Out of Control” when Cumulative Defects reach “LESS” statistical significance

IBM Hardware EnvironmentIBM Hardware Environment7 hardware brands245 world wide suppliersConfigurable products Volumes highly skewed to end of quarter / year

20 manufacturing facilities> 70,000 unique part numbersDistributed Global Supply Chain



MN Quality Seminar

Intelligent Early Warning SystemNew ApproachNew Approach

Intelligent EWS InfrastructureIntelligent EWS InfrastructureApply multiple SPC / Control Methods at the same time

Classic Shewhart/SPC charting, Actual vs. Target Rates, Predictive “Cumulative Sum”

Intelligence to weight & apply methods most appropriate for the point in time in the defect lifecycle

Why Cumulative Sum (CUSUM)?Why Cumulative Sum (CUSUM)?Non-traditional method : “Cumulative plot” summarized against a hypothesis that the process level is acceptable

Efficient in detecting small shiftsDetects shifts that Shewhart cannotWorks well with varied sample sizes Predicts Future defects !

Why Not Only CUSUM?Why Not Only CUSUM?Ineffective during catastrophic events Can miss wide variations that repeat over multiple periodsIneffective at managing recovery

BenefitsBenefits

Early Supply Chain Detection

Tangible project savings and improved customer sat

Reduction in Carbon Footprint

Auto-determines lifecycle “phase” Determines weighting / priority of

each measure Prioritizes most likely alarms

Customized per Part Number Over 70,000 Active Measures

Intelligent EW SystemIntelligent EW System

Defect LifecycleDefect Lifecycle

Emerging RecoveringContain

CUSUM

Actual vs Target

CUSUM

Actual vs Target

Shewhart SPC

# D

efec

ts

Define and Weight MethodsDefine and Weight Methods

“Intelligence in the Engine”

““New Phase” New Phase” Predicts defect trends before Predicts defect trends before cumulative evidence is availablecumulative evidence is available

Shewhart SPCActual vs.

TargetCUSUM

Subtle ShiftWeek 30

StatisticallyOut of Control

Week 37Poor

Performance

Prediction of Future Problem

at Week 30Dashboard

Predictive Example

Saved 7 Weeksof defect containment !!!

Cumulative Evidence

Time

Cu

mu

lati

veD

efec

ts

Rate basedSPC



MN Quality Seminar

Closing Remarks

Supply chains continue to become more global and complex

Strategic investment and senior leader commitment are key to enabling a process-lead, data-driven culture

Predictive analysis and evaluation of business trade-offs is fundamental to an “Intelligent” Supply Chain

– Leveraging disciplined methodologies such as LSS / DFSS drive innovative solutions which provide customer value, aligned with strategic business goals

– Enabling employees with a standard methodology and tool set, across the global supply chain – not only builds employee morale through skill growth - but further leverages the capability of a globally integrated effort that rapidly responds to the need to transform and to be “smarter”



Minnesota Council for Quality: Lean Six Sigma Forum

17 September 2009

Slides -- 2 of 4 (Supply Chain, Smarter Planet)

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