Continuous Improvement and Risk Management Systems have long been essential to realizing supply chain and organizational success. This is especially true at a time when organizations are preoccupied with ensuring reliable supply lines, cost reduction, risk mitigation, business continuity, and so on.
Procurement professionals are evaluated on their ability to control costs, manage supplier risk, enforce environmental policies, and spend ethically. However, these aren’t the only criteria that make up an effective risk management strategy. Likewise, there has been reflection and examination of such systems since the advent of COVID-19 and its impacts on supply lines. In fact, many supply leaders still struggle with integrating, combining, and leveraging systems to manage risk, reduce supply disruption and their Total Cost to Serve.
This post examines methods to improve supply reliability, resilience, reduce cost, and mitigate disruption.
Let’s look at the PDCA, FMEA, and DARE models to improve risk management systems. We will then explore combining them with Best Practices to realize the mentioned objectives.
PDCA stands for:
PDCA is a proven model for continuously improving processes, supply chains and organizations. It is one of the favorite improvement frameworks of Toyota and is credited with much of the company’s success.
According to ASQ, the American Society of Quality, PDCA entails the following steps:
- Plan – Recognizing an opportunity and planning a supply chain improvement or cost reduction without compromising your organization’s quality or service level agreements.
- Do – Test the change. Carry out a small-scale study.
- Check – Review the test, analyze the results, and identify what you have learned.
- Act – Take action based on what you learned in the study step. If the change does not work, go through the cycle again with a different plan. If successful, incorporate what you learned from the test into broader changes. Use what you learned to plan new improvements, beginning the cycle again.
FMEA stands for Failure Modes and Effects Analysis. A powerful methodology for business leaders, FMEA is an effective tool in to ensure we think through, understand, and prioritize sustainable strategic responses to issues that negatively impact our organizations.
It is prudent to conclude that not all business problems are equal. FMEA is underpinned by a problem’s Risk Priority Number (RPN) on a scale of 1 to 10.
The formula for RPN is S x O x D, where S = Severity O = Occurrence D = Detection.
We will designate RPN’s as S-RPN’s or Supply Risk Priority Numbers for our purposes. The higher the S-RPN the higher supply line risk, while the lower the S-RPN the lower the supply line risk.
DARE stands for Design for Agile Resilient Efficiency. The DARE Model enables the removal or reduction of system waste, non-value-add elements, and complexity. Designed to reduce the total cost to serve radically and the total cost of ownership, it is a driver of simplicity and operational cohesiveness.
Once challenges have been identified and run through either the PDCA or DMAIC Problem Solving Model, you will realize significant cost reduction and innovation. We did a prior article on the DARE Model but will provide additional perspective on combining the model with FMEA processes.
The DARE incorporates the PDCA Model once opportunities for supply chain improvement and cost reduction are identified.
Implementing the DARE Model
Here’s how you may implement the mode:
- Step 1: Examine your performance from its Profit and Loss Statement, Cash Flow Statement, and Cash-to-Cash Cycle Time Report.
- Step 2: Select opportunities from the DOWNTIME categories, Six Big Loss categories, and VUCA Categories.
Note: Add the FMEA process here to determine S-RPN’s Risk Priority Numbers for these categories.
- Step 3: Develop projects using either the PDCA or DMAIC Model to improve the situation.
- Step 4: Compare the Profit and Loss Statement, Cash Flow Statement, and Cash to Cash Cycle Time Report after improvement to the original reports.
Note: Determine S-RPN’s after improvements(they should be significantly lower)
- Step 5: Determine the degree of gap closure.
- Step 6: Repeat this process.
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