2-G-2 Implement a continuous improvement process within the supply chain in accordance with organizational objectives

Continuous improvement is critical to the success of the organization's supply management program. As an organization's supply management activities increase in importance in this new business environment, these organizations will continue to look at continuous improvement programs as a means of achieving and maintaining their supply management competitive advantage. Continuous improvement initiatives can be applied to many of the various supply management components such as disposition/investment recovery, distribution, inventory control, logistics, manufacturing supervision, materials management, packaging, product/ service development, purchasing/ procurement, quality, receiving, strategic sourcing, transportation/traffic/shipping and warehousing. (ISM, 2001.) The various methods and approaches to continuous improvement are:

1) Benchmarking systems

Benchmarking can be defined as the search for industry best practices that lead to superior performance. This method for continuous improvement focuses on a continuous process of measuring business processes against the processes and practices of the best organizations in the industry. The results of benchmarking allow the organization to establish goals and then periodically measure its progress in its effort to achieve those goals. (Camp, 1989;) Robert Camp describes benchmarking as having five phases which consist of10 steps. (Camp, 1989.) These phases and steps are:

The planning phase involves planning and deciding the what, who and how of the benchmarking project. This phase will identify the product or process to be benchmarked, the businesses or product competitors that will be compared, and the selection of method(s) used to acquire and collect data. The steps in the planning phase are:

Step 1: Identify what is to be benchmarked.

Step 2: Identify comparative organizations. Step 3: Determine data collection methods and collect data.

The analysis phase focuses on data gathering and analysis. The objective is to understand the performance in order to assess the strengths and weaknesses. Questions in this phase include "Is the benchmarked partner better, and if so, how and why?" Questions about what best practices are being used and how they can be adopted are also asked. The steps in the analysis phase include:

Step 4: Determine current performance gap.

Step 5: Project future performance levels.

The integration phase involves incorporating the benchmark findings and establishing operational targets for change. The steps in the integration phase include:

Step 6: Communicate benchmark findings and gain acceptance.

Step 7: Establish functional goals.

The action phase involves the conversion of the benchmark findings and operational targets from the previous step into specific implementation actions and periodic measurements and assessments of target achievement. This phase also includes milestones for updating any changes to the benchmark findings. The steps in the action phase include:

Step 8: Develop action plans.

Step 9: Implen1ent.specific actions and monitor progress. Step 10: Recalibrate benchmarks.

The last phase is the maturity phase. This phase involves achieving leadership and superiority as a result of incorporating best industry practices in all business processes. Maturity is also achieved when the benchmarking program is institutionalized throughout the entire organization.

2) Process mapping

Process mapping is used to develop a graphical representation of the various relationships and activities that make up a business process. The benefits of process mapping include ensuring a common understanding of the activities, results and the users involved in the specific business process. In addition, the use of process maps help defines the boundaries of the business process and also develops a baseline of the business process which can then be used to measure the results of any business process improvement initiatives. (Bozarth and Handfield, 2006.) A process map identifies the specific activities that make up the flow of the business process. Also known as process flow charts, this technique uses simple symbols, lines, and words to graphically display the activities and sequence in the process. (Harrington, 1991.) Some of the more common process mapping or flow-charting symbols are illustrated below:

3) Process costing

Process costing is an accounting method used for determining unit product costs in industries that produce homogenous products on a continuous basis or using assembly operations. In process costing, material, labor and overhead costs are assigned to products for computing unit costs. Additionally, process costing accumulates costs by department, as opposed to job orders, and assigns these costs uniformly to all units passing through that department. (Garrison, Noreen and Brewer, 2006.)

Process costing, as used in process management and process improvement, is focused on determining the total cost of an organizational process in order to analyze the cost of the process and find ways to reduce them. (Harrington, 1991.) Additionally, with process. costing we can determine the total cost and then compute the cost of activities that are purely value added, resulting in a value-add ratio which is the total value add activity cost divided by the total process cost. A high value add ratio reflects an efficient process, whereas, a low value add ratio reflects an inefficient process. Using the value add ratio, processes can be analyzed to analyze the value add activities and the non value add activities. (Melan, 1993.)

4) Maturity models

The use of formal methods for measuring and assessing organizational effectiveness originated from the quality initiatives such as The Deming Prize, ISO •standards, and the Malcohn Baldrige National Quality Award. Capability maturity models can be• defined as an evolutionary roadmap for implementing the vital practices for various organizational processes. This evolutionary roadmap reflects the organization's process improvement from immature process capability to a disciplined mature process with improved quality and effectiveness. (Curtis, Hefley and Miller, 2001.) Maturity, in this sense, is defined as a measure of effectiveness in .any specific process. (Dinsmore, 1998.)

Some of the more recent developments in terms of capability maturity models developed for measuring and assessing specific process capability and maturity have been developed in the areas of software development, project management and contract management.

5) Capability maturity model-integration (CMMI)

The capability maturity model-integration developed by the Software Engineering Institute (SEI) is a process improvement approach that provides organizations with the essential elements of effective processes. It can be used to guide process improvement across a project, a division or an entire organization. CMMI helps integrate traditionally separate organizational functions, set process improvement goals and priorities, provide guidance for quality processes and provide a point of reference for appraising current processes. (SEI, 2006.)

The CMMI covers the following organizational disciplines: systems engineering (SE) software engineering (SW), integrated product and process development (IPPD) and supplier sourcing (SS). Based on practices that describe the characteristic of effective processes, the CMMI is used as a guide for improvement of project and organizational processes, and includes an appraisal method to diagnose the state of an organization's current practices. The CMMI contains five maturity levels: initial, managed, defined, quantitatively managed and optimizing (SEI, 2006.)

6) Contract management maturity model (CMMM)

The contract management maturity model describes an evolutionary road map that an organization would pursue in improving its contract management process capability from an ad hoc (immature) process to a continuously improved, or, optimized (mature) process. Mature contract management processes describe organizational capabilities that can consistency produce successful business results for buyers and sellers of products, services and integrated solutions. Contract management maturity can be defined as the measure of effectiveness of an organization's contract management processes. These measures of contract management process effectiveness can be described in terms of maturity levels reflecting the organization’s contract management process capability.

The CMMM creates a vision of excellence to help buying and selling organizations focus on the key areas of process improvement. It provides its users with a framework or a guide for improving their respective level of performance. It is envisioned that the model and survey assessment tool will serve as the foundation for ongoing discussion and further development within the contract management profession.

The CMMM provides a visual tool to help an organization assess the major steps which they must accomplish when either buying or selling products, services and integrated solutions, in either the public or private business sectors. The maturity levels reflected in the model allow an organization to assess their level of capability for each of the six major steps, in their respective buying or selling process. The contract management process for the supply management professional includes procurement planning, solicitation planning, solicitation, source selection, contract administration and contract closeout. (Garrett and Rendon, 2005.)

The CMMM consists of five levels of maturity ranging from an ad hoc level (Level 1), a basic, disciplined process capability (Level 2), a fully established and institutionalized processes capability (Level3), a level characterized by processes integrated with other corporate processes resulting in synergistic corporate benefits (Level4), and finally, to a level in which processes focused on continuous improvement and adoption of lessons learned and best practices (Level 5). (Garrett and Rendon, 2005.)

7) Process improvement metrics

Process management is the function of planning, organizing, controlling and improving a process and measuring its utility in providing the desired end result. (ISM Glossary, 2006.) It also includes measuring performance. The most common process-. improvement metrics include productivity, efficiency and cycle time.

Productivity is a measure of the ratio of outputs to inputs. Using monetary units or some other unit of measure, higher productivity reflects increased outputs and decreased inputs. (Bozarth and Handfield, 2006.)

Efficiency is a measure of actual outputs compared to a standard output measure. This standard output measure is an estimate of what should be produced, given a certain level of resources. A 100 percent efficiency reflects a process that is producing at the most efficient level. Efficiency levels below 100 percent reflect less efficient processes. (Bozarth and Handfield, 2006.)

Cycle time is a measure of the total elapsed time needed to complete the process. The use of cycle time as a process improvement • metric has some advantages, including when cycle time is reduced, there is typically an increase in performance in other areas such as quality, delivery, productivity and efficiency. (Bozarth and Handfield, 2006.)

8) Process improvement methods (for example, lean methods, JIT, six sigma, value stream mapping)

Process improvement methods include the various tools and techniques used to improve the various business processes of an organization. Some of the more common process improvement methods include just-in-time OIT), lean, and six sigma.

JIT is an operations management philosophy, the objectives of which are to reduce waste and cycle time. Operationally, JIT minimizes inventory at all levels. It requires consistent quality at the appropriate level and frequent on-time delivery of small lot sizes. (ISM Glossary, 2006.) The objective of JIT is to have only the required inventory when needed, to have zero defects, to reduce lead times through reductions in setup times, queue lengths, and lot sizes and to accomplish all of this at minimum cost. (Bozarth and Handfield, 2006.)

Lean production is a philosophy of operation that focuses on minimization of all resources (including time) used in the enterprise. It employs a set of principles and practices to reduce cost through the relentless removal of waste and through the simplification of all processes. (ISM Glossary, 2006.)

Six sigma is a process improvement method that uses statistical tools within a structured method for gaining the knowledge needed to create products and services better, faster and less expensively than the competition. (Kerzner, 2006.) Six sigma is based on reducing the variability of a process so that 12 standard deviations can be squeezed between the upper and lower tolerance limits, resulting in roughly 3.4 defects per million quality levels. Thus, six sigma quality levels serve as a quantifiable objective for continuous improvement initiatives. (Bozarth and Handfield, 2006.)

Value stream mapping (VSM) is a lean manufacturing technique in which the transformation of materials is traced from beginning to end.to determine if there is waste in the process in the form of a step where no value is added or a point of" wait time" when material is being stored. to await further value adding transformation. This concept may also be applied to services. (ISM Glossary, 2006.) VSM is similar to process mapping in that they both graphically describe the activities that constitute a process. VSM is focused on a broader view of the process than traditional process mapping. VSM reflects the process from external supplier to external customer, and may even extend to Tier 2 and Tier 3 suppliers and distributors in the organization's supply chain. VSM is appropriate for high production, low variety product mixes with few components and subassemblies and dedicated equipment. (Lee, 2006.)

9) Supplier workshops

Supplier workshops can be another source of process improvement, specifically as it relates to the buying organization's supply chain. In supplier workshops, the buying organization and its critical suppliers collaborate on process improvement opportunities that will result in a more streamlined supply chain and thus benefit all supply chain partners. (Burt, Dobler and Starling, 2003.)