Six Sigma III: Value Based Strategic Sourcing

One of the application areas of Six Sigma, the relentless quest for perfection through the disciplined use of fact-based, data-driven, decision-making methodology, is supply chain, which includes supply management, spend management, and strategic sourcing. A number of firms are peddling six sigma initiatives designed to improve your supply chain operations, including KPMG with their Six Sigma Strategic Sourcing (SSSS), but the best processes are those focused on value, such as Value Based Six Sigma (VBSS). These process stem from TQM (Total Quality Management) initiatives, but since they focus on TVM (Total Value Management), the focus is on the solution of those problems that directly support business goals and have the highest potential impact.

With VBSS, you apply a small-number-of-projects-at-a-time mentality to finish the projects as efficiently as possible to enjoy the benefits as soon as possible. You follow generally accepted Six Sigma Strategic Sourcing best practices, but you select the projects based on a value (cost/benefits) analysis aligned with your business objectives (which should in turn be aligned with your customer requirements).

So what are six-sigma strategic sourcing best practices? Simply put, they are every day sourcing best practices applied regularly and consistently across your sourcing and procurement organizations! There’s nothing special or fancy – the key is to adopt the best process you can get your hands on, automate it, follow it consistently, and improve it on a regular basis. Where do these best processes come from? The e-Sourcing providers that built your current systems and the supply chain and supply risk consultants who helped you design your supply chain. (Including Iasta, your e-Sourcing Forum sponsor.)

Six Sigma merely provides the DMIAC methodology that tells you, in sourcing terms, to define, measure, analyze, design, verify, control, and improve.

Specifically, as per KPMG’s Six Sigma Strategic Sourcing:

  • Define
    • business case
    • business goals and objectives
    • procurement strategy
    • resource allocation
  • Measure
    • identify key metrics
    • validate/cleanse data
    • benchmark against best in class
  • Analyze
    • review data
    • identify gaps
    • obtain customer / end user feedback
    • identify opportunities for cost & price reduction
    • assess technology and organization effectiveness
  • Design
    • design process improvements
    • develop implementation plans
    • develop new contracts
    • identify technology upgrades
  • Verify
    • pilot recommendations
    • pilot performance metrics
    • rework/redesign as required
    • implement

So is six sigma worth it? Yes. Do you need it? That depends. If you can consistently identify and successfully implement best practices and draw from a large quality and innovation toolbox on a regular basis, then, no, since six sigma is just the consistent application and improvement of these tools and processes until you have, in laymen’s terms, essentially six nines reliability. However, if you don’t know where to start, then a Value Based Six Sigma Strategic Sourcing Program can get you on track and usher in considerable savings at a phenomenal rate compared to other initiatives. It’s certainly worth a look, but I personally do not think that your business depends on it.

For more information on six-sigma, see the Six Sigma: Improve Supply Chains through Methodology wiki-paper over on the e-Sourcing Wiki.

2 Responses to Six Sigma III: Value Based Strategic Sourcing

  1. Six Sigma is a rigorous and disciplined methodology that uses data and statistical analysis to measure and improve a company’s operational performance by identifying and eliminating “defects” in manufacturing and service-related processes. Commonly defined as 3.4 defects per million opportunities, Six Sigma can be defined and understood at three distinct levels: metric, methodology and philosophy…
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  2. I had a great time reading around your post as I read it extensively. Excellent writing! I am looking forward to hearing more from you.

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