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Six Sigma: A Case of Samsung Supply Chain Management Case Study


Introduction

Businesses are working toward limiting their operation costs to achieve competitive edge against competitors in their respective industries. One area where quality management has been focused on by organisations is supply chain management, which is considered as a perfect way of managing inventory.

Supply chain management has increasingly received recognition as a strategic means of re-inventing an organisation’s entire business operation and planning (Evans & Lindsay, 2008).

Samsung Group, which manufactures electronic components as well as financial and services corporation, has a complex global supply chain that has in turn integrated advanced planning mechanisms and scheduling. This report highlights on Samsung’s adoption of the six sigma model and how the company has used the model in enhancing its operations and general business performance.

Supply Chain Management Six Sigma Black Belt

The initial course in adoption of six sigma at the Samsung Group is the establishment of the methodology through a training program that lasts for four months. The training program mainly focuses on training and mentoring, and it is referred to as the Supply Chain Management Six Sigma Black Belt (Choi et al., 2012).

As part of the training programme, full-time training is offered for a period of one week each month for four months. This is supplemented by guiding of supply chain management Black Belts as appertains to their selected projects. Prospective employees at the Group have to finish three similar projects before receiving a supply chain management Black Belt full certification.

Leveraging of six sigma within the established human resource belt system enables Samsung to alleviate supply chain management talent shortage. This has been the most significant obstacle in improving the performance of supply chain management.

The anticipation of the Samsung Group is that the supply chain management six sigma will lead to enhancement of performance within the supply chain management function owing to greater understanding of the supply chain in general (Choi et al., 2012).

Samsung equally expects that its move to adopt the supply chain management six sigma will in turn lead to an improved Return On Investment (ROI). The existing training program is structured within Samsung’s Six Sigma Academy with the objective of developing talent, as well as future leaders at the company.

As Bae and Kim (2004) assert, the Group’s establishment of a Six Sigma Academy was done with an aim of educating employees and building up a team of specialists empowered with the ability to solve problems.

Basis of Samsung’s Supply Chain Management six sigma

Samsung’s Supply Chain Management Business Team drew up the main methodology that was used to develop the supply chain management six sigma at the company.

The eventual six sigma model that was adopted at Samsung was an integration of the various approaches that had been made at different companies. The companies that had successfully adopted and integrated six sigma included General Electric (GE), Honeywell, and DuPont.

Tailoring of methodologies

GE’s most critical approach in adopting and implementing six sigma was based on tailoring the motivating methodologies in as far as specific needs together with characteristics of the business units were concerned.

Samsung’s Business Team focused its research on GE’s business, which in turn has taken six sigma’s process innovation generic methodology. GE has tailored the methodologies in such a way that they reflect specific needs in as far as product development activities and system plan and implementation are concerned.

GE medical system’s definition, measurement, analysis, design, and verification (DMADV), in particular, attempted to take into consideration the process redesign and process management within its six sigma model.

According to Hammer (2002), GE’s method and procedure attempted to move beyond the DMAIC that was originally designed for the development of high-quality products. The GE’s definition, architect, build, testing, and launching (DABTL) is an approach of the six sigma model that was designed for the development of systems.

Supply Chain Operations Reference (SCOR)

Samsung’s main reason for analysing DuPont’s six sigma approach and design was based on the company’s combination of its six sigma principles through the SCOR model. The SCOR model acts as a good model for enhancing communication amongst players in the supply chain management. The most integral management processes of SCOR include plan, source, make, as well as deliver, and return.

Burgess and Singh (2006) highlight how important it has been to use the SCOR framework in undertaking supply chain analysis. According to Burgess and Singh (2006), DuPoint’s six sigma utilizes the “function deployment tool (QFD)” as a quality tool for customizing services and processes to meet customer specifications.

Lean Methodologies

Samsung Business Team’s interest and focus on Honeywell mainly bordered around the latter’s extensive and successful application of lean operation methods. Honeywell’s successful development and eventual ownership of the Six Sigma Plus, also known as DMAIC, was the main influence behind Samsung’s decision to borrow a leaf from the firm’s approach.

DMAIC model utilizes functions of lead manufacturing together with six sigma concepts. Some of the commonly used lean manufacturing tools are the value stream and thought process maps (Flight Global, 2003).

The Samsung Business Team arrived at a decisive conclusion after analyses of the different six sigma approaches and models. This conclusion consequently led to the development of the supply chain management six sigma methodology at the Group.

The Samsung Supply Chain Management (SCM) Six Sigma

SCM projects to involve both design and improvement

Often, six sigma projects target to improve the performance standards of an existing system or redesigning the processes and systems. When talking about six sigma considerations and terminologies, redesigning of systems and processes are addressed through defining, measuring, analysing, improving, and controlling; DMADOV in short (Yang & El-Haik, 2009).

On the other hand, improving the performance levels of the existing systems is often addressed through defining, measuring, analysing, improving, and controlling, referred to in short as DMAIC.

According to the estimates by the Samsung Business Team, it anticipated that close to 75 percent of the supply chain management projects would involve redesigning, with the remainder of the projects focusing on process improvement.

After the above findings by the Business Team, Samsung resolved to adapt the extant approaches of its six sigma model, where both improving and redesigning processes were settled upon.

With the anticipated mix of projects as highlighted, this new approach pursued by the company closely supported process redesign compared to improving the processes, although it continued to incorporate other relevant elements that targeted process improvement.

DMADOV

This methodology proved to be inadequate in offering the necessary support that was required at Samsung in order to execute the whole range of the supply chain management projects (Yang et al., 2007). DMADOV’s origins are from the design of a product, with the basis of supporting projects within the supply chain.

However, its major variation is in the fact that the project team’s tasks would be to give specifications on how a suggestion on improvement would eventually be realised after conducting analyses. This is opposed to expecting the project team to optimise or focus on design as the case is with DMADOV (Yang et al., 2007).

System Development Option

It is common to realize successful system management following pursuant of six sigma projects under supply chain management. This calls for a new approach to be taken to facilitate processes that would realize successful system building.

Nevertheless, most projects undertaken to revolutionize supply chain management call for changes to be done in the current system. Consequently, it is important to have an approach in hand such that it is possible to come up with an alternative enablement activity that can see system implementation take effect.

DMAEV

Samsung pursued the DMAEV approach, where five design parameters including process, organisation role and responsibility, operation rule and policy, as well as system, and performance measure were incorporated within the six sigma model.

Other critical aspects that were also incorporated included the supply chain management-related methods of investment value analysis and process modelling, as well as the map techniques of the value chain.

Define phase

The phase seeks to name the entire project, with an inclusion of the problems that require being tackled, the goal and scope of the project, together with the expected outcomes and the project schedule (Kumar, Wolfe & Wolfe, 2008).

The initial step is identification of critical issues via the customer’s voice (VOC), together with the business’ voice (VOB). An analysis of the supply chain management’s related processes is also undertaken. As a result, the customer’s critical to quality characteristic (CTQ) is identified, while also determining the CTQ-dependent variable.

Measure phase

This phase determines the CTQ-dependent variable, establishes a different target level, while also finding the important explanatory variables. Other specific indicators are also identified after verifying the CTQ-dependent variable.

The indicators can substitute the dependent variable. The current CTQ-dependent variable is then measured before an enhanced target level of the same index is established. The potential problem causes of each of the five parameters are also deduced (Kumar & Sosnoski, 2009).

Analyse phase

At this stage, the hypotheses of the potential problem causes are generated and effectively evaluated in order to reject or prove them. Evaluation of the hypotheses considers both quantitative, as well as qualitative methods. Various statistical tools are used in the quantitative analysis, and they include ANOVA correlation, and Pareto analysis (Kumar, Strandlund & Thomas, 2008).

Qualitative analysis, on the other hand, makes use of process mapping, value stream maps, as well diagrams that reflect cause and effect. The objective of this phase is to decide on the vital few variation causes.

Enable phase

The various ways of improving the ‘as-is’ are identified in this phase, with a ‘to-be’ plan also drawn out. The use of qualitative function deployment (QFD) is undertaken at this juncture in order to pick on the subjects for improvement as appertains to the vital few variation sources. Detailed action items are also elicited for purposes of achieving improvement.

Verify phase

The final phase in this process seeks to establish a test plan, with the main objective of validating and verifying the solutions selected in the previous ‘enable’ phase (Kumar & Sosnoski, 2009). The change management plans, as well as control mechanisms are developed here before operationalisation of the optimal solution.

Supply Chain Six Sigma Application

Define

Investigations of the internal, as well as external business environments formed the basis of the VOC/VOB analysis at Samsung. A major aspect of the initial stages of the application involved identifying the project’s clients.

The external business environment turned out to be challenging as the devaluation of the local currency, the won, as well as a rise in the prices of crude oil offered challenges to the business operations for the company (Miltenburg, 2005). Additionally, Samsung endured a challenging moment as operation costs, particularly those related to holding surplus inventory, affected the firm’s profitability.

The company identified its business units, including planning and administration, top management, sales, purchasing, production, transportation, and global operation centre as the primary clients of the project.

The definition stage also involved identifying inefficiencies and problems that affected the supply chain management business processes. This involved production-related activities such as manufacturing and material purchasing, global operation activities such as weekly production plan, order fulfilment, and inventory management.

The sales activities included order management, forecasting, transportation, sales, and transportation. Up to eight inefficiencies were realised. They included lack of visibility in all the critical areas of process replenishment, forecasting of inventory and demand, packing and shipping, as well as weekly production planning.

From the above analysis of the VOC/VOB process, two probable CTQs were drawn out. They centred on demand stabilisation on the one hand, and inventory stability on the other hand (Miltenburg, 2005). Samsung evaluated the priority of the two aspects elicited in line with the VOC/VOB findings of the process analysis. This saw the development of a management process pegged on the inventory being settled upon as the CTQ aspect.

Measure

The surplus inventory rate’s baseline level was established at over 10 percent after making the appropriate definitions. This led to the establishment of a new target, which was put at 6 percent. The new changes required that Samsung reduces its surplus inventory by 42 percent.

Five design parameters that included operation rule and policy, process, performance measure, system, as well as organisational responsibilities and roles were established as the probable root causes of variation (Miltenburg, 2005).

A consideration of the project owners that also involved client groups’ representatives eventually settled on seven causes of variation. These seven causes encompassed the three critical parameters of role and policy, process, and system. Thus, the three parameters formed part of the variation sources.

Analyse

The selected variation sources had the respective data collected in order to enable the firm undertake an extensive data analysis. The results included both qualitative and quantitative analyses, including the inclusion of statistics, graphs, Delphi method, benchmarking, document review, and on site visit.

According to the data results that were obtained from the analyses, three variances exceeded the surplus inventory level, which was also established as the standard excess inventory management (Miltenburg, 2005). The factors were considered to have had a significant effect on the CTQ.

Enable

Out of the three vital few variance factors, Samsung came up with three probable solutions as a way of improving the supply chain management. Each solution had extensive improvement subjects that were elicited with regard to the established five parameters. The entire information was formulated via a quality function deployment, abbreviated as QFD.

Samsung thereafter used benchmarking to develop the three probable solutions of what it anticipated in solving the challenges it faced. The company determined how highly relevant a web-based user interface that had been designed for purposes of managing inventory turned out to be. This was with regard to the improvement subjects that had been identified in the quality function deployment.

Necessary changes were eventually designed and implemented using optimal solution. The basis for this included the five parameters that had previously been identified. An illustration on the ‘process’ parameter involved identification of all the processes that were listed for purposes of requiring improvement.

DABTL was employed in the case of the ‘system’ parameter in order to identify the system requirements, as well as architect, build, conduct tests, and operationalise the web-based system (Choi et al., 2012).

Verify

Pilot tests were carried out in two stages within the company in a selected business unit. The initial stage focused on providing proof concerning the applicability of processes that had newly been proposed, roles and responsibilities, rules and policies, as well as performance measure. The system’s pilot test did not feature in this initial stage.

In the second stage, all the improvement subjects that were linked to the previously established five parameters were piloted (Choi et al., 2012). The results of the pilot test saw a reduction in the range of 37 percent in as far as the level of the surplus inventory was concerned.

The actual changes in figures reduced to 6.5 percent from a high of 10.4 percent. The drop in inventory levels fell short of the anticipated target, but it saw associated costs drop to $1.9 million from a previous high of $2.7 million.

Samsung later developed a control and change management plan. The control plan comprised of performance indicators, such as inventory consumption rate, the methods that needed to be followed to control, the respective business unit that was responsible for every of the individual factor, and the necessary actions required for unexpected events.

In particular, the change management took into consideration important aspects, such as the critical success factors needed for systems to register success, training, communication among different groups, incentive systems, and ways through which potential conflicts could be resolved.

Conclusion

Samsung Group’s adoption and eventual implementation of the supply chain management six sigma was purposely meant to improve process and quality performance at the company. The company equally sought to synchronise its value chain with regard to inbound logistics and customer services, as well as sales in general. Samsung has attained growth and high levels of innovation by implementing the six sigma model.

The implementation of the six sigma model within the company’s supply chain management has seen Samsung reduce and eliminate costs that were previously associated with holding surplus inventory in some cases.

Another critical focus of the company even as it implemented the six sigma model was to produce workers with the highest skills and knowledge that could enable the company compete effectively in the market with its rivals. This has in turn created a deep knowledge reservoir in the company, which is used to equip employees for purposes of enhancing their performance going forward.

References

Burgess, K., & Singh, P. (2006). A proposed integrated framework for analyzing supply chains. Supply Chain Management: An International Journal, 11(4), 337-44.

Choi, B., Kim, J., Leem, B., Lee, C., & Hong, H. (2012). Empirical analysis of the relationship between Six Sigma management activities and corporate competitiveness: focusing on Samsung group in Korea. International Journal of Operations & Production Management, 32(5), 528-550

Evans, J. R., & Lindsay, W. M. (2008). Managing for quality and performance excellence, 9th edition. Mason, OH: Thomson

Flight Global (2003). . Web.

Hammer, M. (2002). Process management and the future of six sigma. MIT Sloan Management Review, 43(2), 26-32.

Kumar, S., & Sosnoski, M. (2009). Using DMAIC Six Sigma to systematically improve shopfloor production quality and costs. International Journal of Productivity & Performance Management, 58(3), 254-273.

Kumar, S., Strandlund, E., & Thomas, D. (2008). Improved service system design using Six Sigma DMAIC for a major US consumer electronics and appliance retailer. International Journal of Retail & Distribution Management, 36(12), 970-994.

Kumar, S., Wolfe, A. D., & Wolfe, K. A. (2008). Using six sigma DMAIC to improve credit initiation process in a financial services operation. International Journal of Productivity and Performance Management, 57(8), 659-676.

Miltenburg, J. (2005). Manufacturing strategy: how to formulate and implement a winning plan, second edition. New York, NY: Productivity Press.

Yang, H. M., Choi, B. S., Park, H. J., Suh, M. S., & Chael, B. K. (2007). Supply chain management six sigma: a management innovation methodology at the Samsung Group. Supply Chain Management: An International Journal, 12(2), 88 – 95.

Yang, K., & El-Haik, B. (2009). Design for six sigma: a roadmap for product development. New York, NY: McGraw-Hill.

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