Special thanks to Source One Management Services for this guest post
From a high level, Six Sigma methodologies and the strategic sourcing process follow a comparable path and strive for similar results: efficient, leaner, and more cost-effective business environments. Both processes progress by adhering to decisions that are driven by qualitative and quantitative data. While Six Sigma has found most success in supply chain and manufacturing environments, the methodology that it follows can add value to a multitude of categories. For those who are unfamiliar with Six Sigma, one of its primary methodologies is DMAIC.
DMAIC (Define, Measure, Analyze, Improve, and Control), is a data-driven (qualitative and quantitative) strategy used to improve processes. DMAIC is an integral part of Six Sigma but can also be implemented as a standalone project management tool. By adopting it into your strategic sourcing process, you can leverage the components to drive your strategy and analysis. Below is a breakdown of the five phases that make up the acronym and how they each relate to sourcing:
- Define – Clearly define the goals of the project. Everything from business groups involved, data required, project team, and timeline must be laid out before moving forward. The Define phase sets the precedence of the rest of the process as it will identify the initial requirements and scope. The goals/scope also may vary depending on the category that you are working within. For example, an IT sourcing initiative might be focused on enabling a user to be better equipped for their job. This may not provide savings so it shifts the scope to enhancing the user experience with a software/system.
- Measure – Collect the previously defined data, any relevant data that is found during the collection process, and define the ‘as-is’ Process Capability(s). In IT the data could be utilization metrics, hardware/software costs (including maintenance), contracts, and more. This step is critical for defining the current state of the project and measuring the success of the project once improvements have been implemented.
- Analyze – Perform extensive analysis on the data collected to better understand the current state, establish the go-forward strategy, potential savings of the initiative, and more. Through your analysis, you should be able to identify and/or build Key Performance Indicators (KPIs) to measure success against. You will also want to compare the current state and costs against the market to determine additional opportunities (gaps) available that are currently not being offered to you by the supplier. It is important to ensure that no data is lost and/or left unanalyzed during a project. The more thorough your analysis, the stronger the strategy will be. Most strategies will be subject to criticism, so being prepared with a comprehensive analysis will support you to move it forward.
- Improve – Here is where you take action on improving any of the needs and gaps that were identified. To push for these improvements you have the option of moving into direct negotiations with the incumbent supplier or running an RFx to get an understanding of offerings from other suppliers. Additionally, through market research or an RFx, you may identify additional gaps in your current state. Armed with this information, you can achieve the ideal future state by updating the process flow, business needs, and procedures with the incumbent supplier or contracting a new supplier that meets the new needs of the process.
- Control – Once the process improvements are implemented, best practices and control limits should be developed to ensure that if the process deviates, it can be remedied in a timely manner without a heavy investment of resources. Specific to sourcing, the control phase should last for the duration of the relationship with the supplier and should monitored consistently to ensure the supplier is compliant with the contractual terms. This can be monitored by reviewing invoices, SLAs, and other elements that are detailed within a contract.
By following the five phases of DMAIC, you will not only be able to execute your sourcing strategy but you will also be able to provide your client/business unit with process transformation and strengthen compliance measures. Compliance will be a byproduct of the Control phase and is a key deliverable here. Without it, your organization could be at risk of negating the accomplishments of the project. The next step is to implement DMAIC into your next applicable sourcing initiative. With it in effect, you should realize hard dollar savings and a leaner, more efficient business process.