Ø Process Improvement in Material Supply 3

Process Improvement at Material Supply Organization

CEM –515: Term Project Report

The report is prepared for Dr. Abdulaziz Bubshait; Dean EDC, KFUPM. The Process Improvement introduced along with a case study of implemented at Material Supply Organization; Saudi Aramco Dhahran,

Prepared By: Abdulrahman Al Shahrani, PMP ID. # 199057020

1 6/13/2009 TABLE OF CONTENTS: page

 Term Paper Objective 3

 Introduction 3

 Process Improvement in Material Supply 3

 Process Improvement Methodologies 4

 Process Improvement Projects Selection 6

 Guidelines for Process Improvement 6 Methodology Selection

 Effectiveness of Process Improvement and 11 Change Management Team

 Recognition of Process Improvement Projects 13

 Case Study 14

 Conclusion 23

 References 24

2 I. Term Paper Objective:

The main goal of this paper is to highlight on one of the process improvement methodologies that is taking place at Material Supply Organization, Saudi Aramco. In depth, this paper is to explain how using Lean Six Sigma and other best practices, process improvement methodologies and frameworks to Facilitate Business Process improvements.

II. Introduction

The term paper includes two parts. The first part will cover the process improvement methodologies being applied by Material Supply Organization, Saudi Aramco for the subjected process. The second part will introduce a case study “ Purchase Agreement / Order Summary Process Improvement”. The case study was conducted at the same above organization MS during 2008.

PART I : Process Improvement Methodologies

Process Improvement in Material Supply

1 What is Quality?

Quality is satisfying the end customer and add value to his business. Adding the same value every day does not work anymore and every organization needs to continually seek ways to improve value to customers. They want more for less. Quality of the product or service are expected as a matter of routine and all at an affordable price that continuously keeps reducing. Thus, to move towards competitive world, the organization target is to insist on Process Improvements.

2 What is Process Improvement?

"Process improvement" is a way of looking at how we can do our work better. When we take a problem-solving approach or simply try to fix what’s broken, we may never discover or understand the root cause of the difficulty. However, when we engage and apply process 3 improvement methodology, we seek to learn what causes things to happen in a process and to use this knowledge to reduce variation, remove activities that add no value to the product or service produced, and improve customer satisfaction. It means making things better.

3 Material Supply – Process Improvement and Change Management Unit “PI&CM”

Process improvement unit was formed in the material supply division in 2003. The objective was to drive process improvement initiatives within various units of the division more effectively so that the impact on the customer can be felt. Moreover, material supply is the crucial link between the supplier and the customer. If this link is strong, secure and effective then only the material can be provided at the right time, place, quantity, quality and cost.

The process improvement unit has grown from three member team to eight members currently. Unit members are from various background and experience which give to the unit a good culture to exchange ideas. Each unit member is at least Lean Six Sigma Green Belt Certified which enough tools & techniques as skills to drive process improvement initiatives within the division. The vision is: “Providing World class process Improvement services to all Material Supply Departments and enable them to deliver Six Sigma Quality service to all Customers with minimum waste in the processes”. Moreover, the main objectives are:  Focus on Material Supply business processes improvement initiatives  Facilitate Business Process improvements using Lean Six Sigma and other best practices, process improvement methodologies and frameworks  Provide Training and Consultancy to all Material Supply departments for improving Business Processes with structured methodologies/Frameworks  Create learning organization with process improvement and customer centric culture  Develop Roadmap for World Class services in Material Supply

Process Improvement Methodologies

4 In Material Supply “MS” uses different process improvement methodologies for improving the processes depending on the complexity and nature of the problem. At present three different methodologies (Lean Six Sigma, Lean and Just-Do-It) have been used in Material Supply. But all these process improvement methodologies should be lying on strong foundation of Validated Business Process Maps, Metrics, and Monitoring mechanism as illustrated in Fig.1. Also, Overall Process Improvement process is indicated in Fig. 2

Radical• Changes and Transformation BPM@ Process• Improvements Best• Practices & Frameworks Lean Six Sigma, Implementation Lean Just-Do-It •Trainings

Metrics Monitoring

Business Process Mapping

Process• Awareness Metrics• Culture Employee• engagement @ BPM: Business Process Management

Fig. 1 Process Improvement & Change Management Unit.igx

Capture Customer Requirements/ Follow Concerns Escalation Discuss with Just-Do-It process Write a letter to Capture Identify Process Prioritize the Prepare Select the Managers for Mangement process Owners and project themes Select the Start Project Project Project Goals/ improvement Division heads using Project Projects for Lean Description Execution Leaders/ Objectives project themes - Confirm Prioritization Improvement and Scope Methodology Champions/ project themes Matrix No Team Capture Lean Six Have you Process Sigma Received s Performance the s Response e within 10 c days o r P l l a Just-Do-It Process r e v Meeting with Yes O Lean Execution Project Leader and Process explain the Project Charter

LSS Execution Process 5 Fig. 2

Process Improvement Projects Selection

The important point in the selection of the PI project is “Listening to Customers” “understanding the Business needs” and looking at performance of the process. To choice right project we need to identify process improvement project themes, and to identify those themes we need to capture  Customer requirements/concerns  Management Goals/ Objectives  Process Performance  Auditing items

Guidelines for Process Improvement Methodology Selection

PI&CM standardized all process improvements into three methodologies: 1. Just-Do-It 2. Lean 3. Lean Six Sigma Depending on the nature and complexity of the problem, PI&CM team along with key stake holders selects the Process improvement methodology for improving the processes. Guidelines for selecting different methodologies and process flow chart is indicated in Fig. 3

6 Fig 3

4 Lean Six Sigma Methodology

The objective of applying Lean Six Sigma methodology is delivering defect free product/service on time every time. Lean Six Sigma Methodology is applicable where the solution is not known and root cause for the problems in the process is not known. This methodology is useful for driving Process Improvements which will bring significant improvements in the Operational Parameters and Customer Satisfaction.

A process improvement theme is selected as a Lean Six Sigma project if:

 Root causes are not known for the problem and solution is also not known  Problem is complex and cross functional or departmental  Problem is related to defects reduction  Data is available and data based root cause analysis is required  Business benefit is significant  Improvement takes more than 2 months

Lean Six Sigma has various methodologies and in Material Supply department we use DMAIC (Define, Measure, Analyze Improve, and Control) for improving the existing processes. LSS Projects focus should be on the end to end process improvement where Customers experience the benefit of Improvements that LSS Project teams have achieved.

The time frame for the lean six sigma projects is as follow: 1. Project Start : 30th January 2. Project Charter Approval : 15th Feb 3. Define and Measure Phase Completion : 30th Mar 4. Improvement Action Plan Approval : 30th April 5. Implementation of Action Items : 1st September 6. Project Closure/certification : 30th November Lean Six Sigma project execution process is illustrated in next page Fig.4

7 Process Improvement & Change Management Unit.igx Fig 4 Get the Develop approval for Review Initial Conduct Walk Finalize the Develop High Financial Kick-Off Project Update the is it BB No Start Project Capture Data Through of Project Form team Level Project benefits meeting of the Project? Charter from Project details Charter the process Charter Plan Calculation Project Champion, in eWay The methodology MBB and Yes Manager Rework based on the review Identify GB Toll Gate I comments / projects with recommendations in the BB Schedule project No Tollgate Update Finalyze List Review II with Project of Potential Capture data Conduct Attend Define Attend AIC Yes Champion, Yes MBB Review with Template upto Xs and Conduct Lean Develop for Potential Approved Iniutial Data and Measure Training Manager and Approves MBB define and Sources of Event I SIPOC Xs Analysis Phases Key Stake Measure Waste or Training Holders Phases NVAs Toll Gate II No Revist Root cause Analysis and docket Get Approval Conduct Data Conduct Lean Process Update To-Be Yes from Analysis - Event II - Detailed performance Develop Update Prioritize Develop To-Be Conduct FMEA on process map if Pilot the To-Be Management Statistical Root Cause is as per detailed Project Significant Xs Process Map the To-Be Process there are any Process Map for Action Validation of Analysis (5-why, expected Action Items Template recommendations Items Root causes Force Field etc) levels Toll Gate III Take Rework on No Follow up the necessary No corrective Suggestions actions No

s No s

e Publish the Improved Data Review the Progress on

c Conduct Meeting with

o and Start publishing Financial Weekly basis and Publish the Develop detailed r Improvements Pblish Y, Xs Yes all stake holders Yes P Savings including the savings Develop Target dashboard for your project Implementation Management

n are data for two involved in the during the implementation o Control Plan Reached with % Plan for Action Approved? i

t sustainable? months implementation of period u Completion, Improvement in Items

c Action Items

e Toll Gate IV Y and Xs x E

m Hand over the g i process to S

i Process Owners if S

applicable n a e L

Project Measure Financial Update Project Celebrate Closure project Yes Savings for 12 Template/dashboards, GB/BB Review Approved months from the financial savings Certification Toll Gate V Improved date

Publish Project Rework on the No Story borad and recommendations share with or suggestions relevant stake holders/teams following Fig 5 is Lean Six Sigma methodology steps DMAIC: 8 Define Measure Analyze Improve Control

Identify Sponsor and Create Fishbone Analyze Process Flow Develop solution options Perform Capability other key stakeholders • Tie to defined Value-added steps  Re-design process to Analysis of improved Form project team defect Non value-added obtain required process • Team leader Collect Data steps capability Develop and • Team members • Ys (results) with Opportunities  Perform DOE as Implement a Control Tour process Xs (data tags) Analyze Data required Plan Clarify project Evaluate Graphical tools Evaluate options and Complete Project • Problem statement Measurement Systems Hypothesis Tests select final solution Closure Package • Goal statement Start FMEA Regression  Prioritization matrix Update financial • Process output = Y Understand detailed analysis Determine measurement benefits statement as Define process process Identify and collect system for improved required boundaries • Detailed process additional required data process  Get OCD final • SIPOC map w/ rework Identify significant Xs Create implementation evaluation Define project boundaries loops Tie to root cause plan List best practices • Resources Describe Process analysis Complete FMEA  Identify lessons • Authority • Numerical Draw conclusions Obtain buy-in / support for learned Determine project statistics Perform FMEA improvement actions Use SPC Charts timeline • Graphs: Time, Update charter as Conduct pilot / testing to Hand off project to Identify CTQ Customer Hist., Pareto, etc. required verify results process owner Requirements Establish Process Develop Analyze Implement improvements  Create follow up • Define the Defect Capability report out Communicate results action plan • Define defect measure • DPMO or % Standard template Update Charter Develop Final report Develop estimate of Defects  as required out potential financial benefit if • Calculate Z Develop Improve report  Standard project goal is achieved Update Charter out template Gain Sponsor Approval of • as required  For Sponsor Project Approval Form Develop .Change Management Plan Define/Measure report out • Standard template

1 Lean Methodology The identification and elimination of waste from the value stream is the central theme of the Lean Business Philosophy. Lean business is a dynamic and constantly improving process dependent on the understanding and involvement of all of the company’s employees. Lean focuses on maximizing process velocity and provides tools for analyzing process flow and delay times at each activity in a process.

A process improvement themes is selected as a Lean project if:  Problem is not complex and related to more number of steps in the process  Problem is related to seven types of Waste in the process  Data analysis is not required for the root cause analysis  Solution can be finalized in the Lean Event  Improvement can be achieved within 2 months

9 Lean project execution process is illustrated in Fig.6

Fig Process Improvement & Change Management Unit.igx 6 Modify Action Inform process Modify/Cancel Items with owner The project Alternate No solutions No

Project Implementati Approval for Project Charter Yes Conduct Lean on Plan Yes Implement the Action items Weekly update s Start Form team implementation s

e Charter Approved Event Approved by action items follow up to the team

c plan o

r by Mgmt Management P

n o i t

u No c e x E Yes Monthly review n Team Reportout Target a by champion & e

L recognition Benefits Achieved manager

The time frame for the lean projects is as follow: 1. Project Start : 30th January Issue Conduct Implementation

Identify action Reportout Appreciation - n s Start Brainstorming the action o s o 2. Project Charter Approval : 10th Feb

i items Benefits letter from D e t -

t c session items u s o c manager r u e P J x

E 3. Lean Event : 20th Feb

t I 4. Improvement Action Plan Approval : 30th Feb

5. Implementation of Action Items : 30th Mar

2 Just-Do-It Methodology: Solution is clearly known for few problems and based on business knowledge one can solve the problem without applying any structured methodology like Lean or Lean Six Sigma. Such problems can be solved by applying Just-Do-It methodology

A process improvement themes is selected as a Just-Do-It project if:  Solution is clearly known  Doesn’t need any further root cause analysis  Solution can be finalized with 1 or 2 Brain storming sessions  Improvement can be achieved within a month  No need of forming bigger team ( 2 or 3 members can solve this problem) 10 Process Improvement & Change Management Unit.igx

Modify Action Inform process Modify/Cancel Items with owner The project Alternate No solutions No

s Project Implementati

s Yes Approval for Yes

e Project Charter Conduct Lean on Plan Implement the Action items Weekly update

c Start Form team implementation

o Charter Approved Event Approved by action items follow up to the team r plan P by Mgmt Management n o i t u

c No e x E Monthly review n Team Reportout Yes Target a

e by champion &

L recognition Benefits Achieved Lean project execution just do it process is illustrated in Fig.7 manager

Conduct Implementation - n

s Identify action Reportout Appreciation o o s

i Start Brainstorming the action t D e items Benefits letter from - u t c session items c s o manager r e u x P J E

Effectiveness of Process Improvement and Change Management Team

Progress of Process Improvements is measured for all Material supply departments through engagement and effectiveness parameters. Effectiveness parameters consist of business benefits which PI projects have resulted in improving Quality, Cost and Time parameters. Engagement parameters include like Number of people Trained in the Process Improvement Methodologies, Number of PI Projects, etc. Frequency of this dashboard: Monthly; on 5th of every month, PI Team SPOC has to publish this report to Senior Management, PI team, Master Black Belts, Black Belts. Engagement and Effectiveness Index is illustrated in following Fig.8

11 Fig 8

Recognition of Process Improvement Projects

3 Lean Six Sigma projects After closure of the project, project teams will receive the Project completion certificate and Green Belt/Black Belt will receive GB/BB certificate

4 Lean Projects After closure of the project, project team and leader will receive the Project completion certificate

5 Just-Do-It Projects After closure of the project, project teams will receive the appreciation letter from Management about the Quick win

Process Improvement Projects Audits

Periodic audits will be conducted by PICM BBs, MBBs and PI&CM team. This is to heck the sustenance of the improvements in the completed projects and ongoing projects implementation status. Monthly Audit: Audit team will be formed in the beginning of the year and they will audit the project that was assigned to them.

12 PART I: Case Study

At this part, a study case will be introduced under title ; “ Purchase Agreement/ Purchase order Bid Summary process Improvement project “ . this project was executed by Process Improvement and Change Management Unit “PI&CM” at material Supply Organizations, Saudi Aramco. That was during 2008 and completed in November 30, 2008.

Note: Before moving onward the following definitions are needed to be understood: Operational Definition:  PO/PA Bid Summary Cycle Time = (First PO creation Date – Bid Closing Date) in Days  Development: the process of soliciting and evaluating quotations for material requirements by Saudi Aramco.  Purchase Agreement (P.A.): A purchase agreement, when accepted by the vendor, creates a binding contract between the buyer and vendor. Generally, a P.A. contains the conditions which apply to purchases made over a stated period of time when supply source and price can be pre-established.

1. What is important in this project?

1.1 Problem Statement:

Based on data for the year 2007 (Jan to Dec), the median cycle time for Purchase Order “PO” Bid summary preparation is 8 days for all orders less than 250,000 USD which contributes to 94% of total PO counts. This leads to delay in material & services provided to customers resulting loss in productivity. See Fig 9 next page for the current flow chart.

1.2 Goals and Objectives:  Streamline the current bid summary and bid equalization processes.  In addition to reviewing the current bid summary and bid equalization process, the following need to be considered: o Currency forecast. o Price lists

13 o Vendor performance o Grouping products (keeping a set of items together) o Simulation/ scenarios (Optimization) o Logistics options (Freight and Warehousing )

1.3 Project Scope:

Longitudinal Scope: (Length of the process):  Start Point: Bid Closing  End Point: PO Creation Lateral Scope: (Width of the process) Orders < 250,000 USD, All PAs & POs Out of Scope: (Special Cases) Technical Evaluation related activities

Current State Map – Purchase Agreement/ PO Bid Summary Process 6/17/2008 No Bid received/ Re-develop/ Release

Waiting to open Buyer Initial Bid Waiting Start Bid Closing Bids available Buyer opens bids ( 1 Day) Review ( 3 days)

Bid Opening Waiting Buyer Receives committee open (1 Day) Bid bids

Buyer Rejects bids Tech Evaluation - Buyer processes 9 COM ( 35 days) PA bids outside SAP - OOK buyer enters prices to SAP - Buyer uploads 9CAT PA No Yes excel (ZM0171)

Buyer Prepares Buyer makes bid Buyer enters bids Buyer Full Bid Award analysis including Waiting Requires Tech Buyer Accepts No into SAP Yes OK Review Recomm.incl.bid equalization (1 Day) evaluation bids ( 1 day) ( 2 days) summary ( 1 Day) No

Buyer Seeks vendor clarification Yes ( 1day) Waiting Buyer creates PO/ ( 2 days) End PO Release PA ( 1 Day)

Waiting Accepts ( 7 Days) Supervisor Waiting requests price 1( Day) discussion No 14 Buyer/Vendor Buyer enters alt. Buyer submits Waiting Buyer Rejects the price discussions bid for revised revised award Approved No Rework ( 5 days) ( 1 Day) prices recommendations bids 1.4 High Level Process Map (SIPOC):

15 2. What is wrong?

PROBLEM: Shortly the problem was : “Delaying in Preparation of PA/PO Bid Summary”

CAUSES: In reviewing of the current process and through out brainstorming sessions, the following causes from deferent departments were found the most leadings factor delaying the PO.

 Vendor  Poor quotations from vendors  Vendors not submitting hard copy bid

 Management  Unnecessary Price Discussions  Supervisor requests unnecessary cosmetic revisions to Bid Summary.  Lack of buyer coverage.  Purchasing roles not enforced causing buyer’s distractions

16  System  OOK office delay in updating SAP & delivery of bids/information  Bid Summary has no identification of approval level required.  No system grouping award items (Cherry picking not working)  PA bid summary outside SAP  SAP bid summary is exported to XL which is editable  No indication of no bid or decided  No system recommendation of award  Mailing delays.  RFQ transmission errors.  Printing delays.  No bids received  CD issues

 Procedure  No rule for selective sampling in bid summary  Impractical to print large bid summary  PA Executive Summary excludes OOK  Additional Process to add alternative bids  Repetitive manual purchasing  Inadequate bid results (More approvals)  Approvers reviews hard copies   USER  Delay in processing by customer.  Poor requisition quality.  Multiple revisions to requirement.  Different units of measure in quotations.

The cause/effect Fishbone is as following page:

17 18 Reflection those cause to the Pareto Chart :

Above chart ensure that the procedure is the most cause affecting the delaying of PO. It covers 29.9. thus, the team to concentrating and make further investigate on that procedure.

3. What needs to be done?

The actions were be taken against the most effective above causes. The following represents the action plan tables recommended:

19 # Root Cause Recommendation Action By Complt.% Note -Education & instructions to 1 Unnecessary Price Discussions Approvers GS 100 % --- -Remove cost saving target from PMP -Create rules - GS No rule for selective sampling in bid (Management 2 100 % --- summary approval needed) - Bob -Procedure Updating /Nigel OOK office delay in updating SAP & -Notifications to OOK 3 GS 100 % --- delivery of bids/information management - Maz -Deactivate cherry iad / No system grouping award items 4 picking James 100 % --- (Cherry picking not working) -Procedure Update - Bob /Nigel -Enhance PA Impractical to print large bid Executive Summary – 5 executive summary James 100 % summary 2009 (DPSR) -Update Procedures PA Executive Summary excludes -Included in # 5 Executive Summary – 6 James 100 % OOK recommendation 2009 (DPSR) Additional Process to add -Include in SRM 7 Nigel 100% --- alternative bids requirement Purchasing has submitted a Content Management Strategy -Increase agreement letter to senior Purchasing Management 8 Repetitive manual purchasing coverage James 100 % to clarify MS Cataloging -Stop De-cataloging Strategy and to propose to reframe from de- cataloging materials in SAP. -Enforce purchasing Purchasing roles not enforced roles (e.g. 9 GS causing buyer’s distractions Expediting, reporting)

20 - Poor quotations from vendors - Inadequate bid results (More approvals) - No bids received - CD issues (cannot open, cannot save, too many options, buyer has to reformat vendor CDs, - Nig matrl master issues, CD hard -Prepare SRM el copy issues) Requirement - Jam 10 - Vendors not submitting hard 100% --- -Prepare MDM copy bid es requirement - PA bid summary outside SAP - Maz - SAP bid summary is exported to iad XL which is editable - Approvers reviews hard copies - No indication of no bid or decided - No system recommendation of award

4. How do we guarantee performance?

The following table displays the Lean Six Sigma Green Belt Plan Implementation Tracker. This

21 is a sort of guarantee the project team and organization the action s and under which name.

5. Future state Process Map? The following is the improved Process Map :

Future State Map – Purchase Agreement / PO Bid Summary Process 6/17/2008

Technical evaluation ( 35 days)

Buyer makes Requires Waiting Buyer views bid award Award Approved Start Online Bid closing Tech No OK Yes Auto PO/PA issue (1 day) summary recommendation ( 1 Day) evaluation ( 1 day)

Rejected for Rework End

No. of Steps Time (Days)

Value 4 1 Added (57.5%) (33.3%) Non 3 2 Value (42.5%) (66.5%) Added Total 7 3

22 List of tools used:  ANOVA  FMEA  I-MR control chart  Xbar – S control chart  Fishbone diagram  Pareto Chart  Histogram  t-test  High Level Process Map SIPOC  Interval Plot  Boxplot

III. Conclusion:

These process improvement that were planned by the PI&CM Unit will have a significant impact on the quality of ideas and methodologies submissions as well as providing a big boost towards meeting the goals of the strategic objective of "Continues improvement”.

Through this paper the PI&CM standardized all process improvements into three methodologies: Just-Do-It, Lean and Lean Six Sigma. However, the six sigma method was used the study case.

This process improvement study managed to address the draw backs that are associated with the current delaying process orders and will ensure that all of the submitted causes properly evaluated.

Lean Six Sigma Methodology is applicable where the solution is not known and root cause for the problems in the process is not known. This methodology is useful for driving Process Improvements which will bring significant improvements in the Operational Parameters and Customer Satisfaction. The objective of applying Lean Six Sigma methodology is delivering defect free product/service on time every time.

23 References

. My work with the with Purchase Order processing

. Process Improvement & Change Management Project Execution, Material Supply - Process Improvement & Change Management Unit March, 2009

. Purchase Agreement / Order Summary Process Improvement”. Prject report, material Supply, Saudi Aramco, 2008.