Global Sourcing

In this day and age there is an assumed maturity in the way initiatives within a business are sourced and out-sourced. When it comes to IT applications and their development and maintenance, there are 4 possible scenarios that companies deal with:

  • Insource  - Maintain control internally (usually for reasons of intellectual property, privacy, or strategic responsiveness)
  • Staff Augmentation - Save money while maintaining responsibility for application support and maintenance activities
  • Co-source- Leverage external cost structure benefits and expertise while maintaining an appropriate level of control
  • Outsource – Delegate IT (or selected functions therein) to an external organization for which it is a core competency

With this industry evolved over the years, the rationale for IT outsourcing decisions has shifted from cost being the sole consideration to include a number of strategic factors. No doubt cost is still top of the mind, especially with this economy. But a lot of other considerations are in play:

  • Strategic Importance
    • Relative impact of a service area on the company’s revenues and overall profitability
    • How strategic is the function to my organization today? How does it fit
      into our future plans?
  • Current Capability
    • Relative strength of a service area’s technical & business know-how, processes, and tools
    • What are the capabilities of the function?  How do those capabilities compare to our requirements, and to our peers?
  • Perceived Value / Cost
    • Perceived value of a service area relative to the costs incurred
    • What is the function’s capacity to adapt and change?
  • Ownership Preference
    • Relative preference of management to own, share, or transfer out IT assets based on company beliefs, values, and sourcing experience
    • How easily can the function be transitioned to another sourcing strategy?

 

 

Business Quarterly indicates 75% of US executives considered financial motivations as secondary to other strategic objectives when outsourcing. Business Week reports, “The really smart business owners have figured out how to use outsourcing as a strategic tool instead of simply looking for savings.” CIO magazine reveals strategic value rivals cost reductions for outsourcing motivations.

 

Based on some reports by The Outsourcing Institute the top reasons for outsourcing look as below:

Sourcing

 

No matter what the goals, the key success factors of outsourcing are always:

  • Be clear about objectives– cost, process improvement, and the ability to focus on the core business are the most common
  • Incorporate business outcomes as a performance measure from the outset of the arrangement
  • Look beyond price and promises of cost reductions for an outsourcing provider that brings a wide set of skills and strengths, and a long-term track record of delivering results
  • Give as much attention to performance measurement and the quality of your relationship with your provider as you do to the contract
  • Use active governance to manage the outsourcing relationship for maximum performance
  • Task talented executives with optimizing outsourcing arrangements

 

Business Cases – Show me the Money !

Ever since Jerry Maguire blurted this out, people have been using this as a corporate euphemism for ROI/ Business case.

 


sales

 


One of the critical roles for any organization is to manage the value achievement of the initiatives they pursue. They need to ensure sponsor and executive ownership of the business case. The business case allows the stakeholders in IT projects to jointly address their key concerns with project investments:

 


stakeholders

 


 

Business cases highlight the initiatives that create the greatest value, support decision- making, and help track program performance. It is good to define the business case early and plan on many iterations since it:

  • Demonstrates how a major investment creates value
  • Includes both quantitative and qualitative rationale
  • Supports business decisions by weighing choices or options
  • Creates a way to track performance and measure success after a decision has been made
  • Gains alignment and management consensus for a project

 

In some organizations, the term ‘Business case’ may also be referred to as

  • Cost/benefit analysis
  • ROI analysis
  • Feasibility study
  • Capital funding request
  • Case for action

bizcase2

 

  • Once the team has understood the importance of having a business case to guide the investment decisions of the initiatives, there is debate on what level of detail should it have. There are many approaches to building out a business case and the main elements are
    • Benefit models
    • Cost models
    • Cash flow models
    • Assumptions (timing, dependencies)
    • Sensitivity Analysis
    • Qualitative Factors Analysis (non-financial benefits, risks)

 

The financial models can be Top-Down (more high level and helps form an initial hypothesis wider ranges to reflect uncertainty) or Bottoms-Up (more quantitative and time spent on thorough data collection and analyses). But the key point is that you need to build the business case with ranges and confidence levels. Once the numbers were compelling, the ranges could change but they would not change the decision.

 

 

IT Service Management

At a BPM event recently in Orlando, I was chatting with a colleague about IT and the BPM responsibility. This guy is the SVP of IT operations and handles Infrastructure for his company. When someone asked him who from the business was responsible for the BPM aspects in his firm from the business side, his response was “We in IT are actually responsible for the BPM aspects and optimization therein.” Another guys goes, “The only real applications the business is concerned about is e-mail”

 

That set me thinking about IT Service Management, etc. Having spent some time doing ITIL work, I am familiar with the concept of IT service management, which involves moving:

 


 
From…

  • Multiple points of contact with the business
  • Service defined and measured in technical terms (if at all)
  • Work driven by technology
  • Organized to support systems

 

To…

  • Managed relationships established with customers
  • Service defined, measured and reported on in business terms
  • Work driven by service requirement
  • Organized to deliver service

So ITSM is all about better service at lower cost. But the challenges with a full blown ITIL deployment is that ITIL is far too generic for an organization to implement at a fast pace, in totality. Process reengineering and change management are always required and are rarely considered. Some practitioners have said that it complements other IT management methodologies like CMMI, etc. But the way I look at this is that CMM focuses on improving and appraises the maturity of application development.  ITIL is focused on best practices around IT Operations and Services. This kind of demarcation:

 

ITSM 1

 

The ITIL v2 broke these Operations into Service Support (ensuring that the customer has access to appropriate services to support business functions) and Service Delivery (IT services are provided as agreed between the Service Provider and the Customer).

 

But the key to achieving good IT service management even at a small scale is by using the following guiding principles:

  • Business Relationship Management: Ongoing liaison and relationship building with Client community.  Maintain an understanding of the business and IT requirements.
  • Service Delivery Management: Understand the IT Services provided and the businesses reliance on these Services.  Carry out the appropriate business liaison and escalation for Service issues.
  • Service Performance Review: Formally review service performance against agreed upon SLAs. And good luck with that J
  • Service Level Agreement Management: Maintain service definitions and assess implications of any changes
  • Service Enhancement Request: Receive and shape requests for new/enhanced services

 

Supply Chain Excellence

Achieving supply chain excellence is complex and challenging, but success in achieving supply-chain driven competitive advantage enables superior customer service, profitable revenue for growth and significant increase in shareholder value. Inventory Management is the conductor of the symphony for Retail Supply Chain execution. It is critical for customer service since Inventory management is what initiates all merchandise movement and controls the timing within the supply chain

  • Supply chain assets and inventory usually comprise at least half of all non-store based assets
  • Supply chain activities typically account for as much as 40 – 70% of operating costs (including procurement  and markdowns)

 

Some of the statements from retailers across all kinds of products:

  • “Assisted Inventory Management (AIM) helped us exceed our inventory-turn goal, making us the leader among national drugstore chains in this important productivity measure. We achieved inventory turns of 5.0 times for the year, up from 4.6 times in earlier years.” – CVS
  • “Positioned among the best in retail, our supply chain helps drive sales, reduce costs and ensure the availability of products our guests most want and need.” – Target
  • “We completed the conversion of each of our operating divisions to a common technology platform with greatly enhanced inventory management tools, permitting more sophisticated inventory planning and more precise by-store inventory allocation.” – Saks

 

The three main components of the Inventory Optimization program address both the process and physical infrastructure of the supply chain.

 

  1. Inventory Management Process  – this addresses end-to-end inventory management built on two core processes:
  • Foundational for continually replenished basic merchandise. Periodic automatic replenishment, long life, stable supply, short lead time to continually meet normal demand
  • Highly Variable which is typical of merchandise with high demand spikes due to promotions, fashion, short life and seasonal demand

 

  1. Network and Flow Strategy – Network Optimization starts with establishing a vision of alternative flow paths and ends with a full evaluation of end-to-end physical supply chain and a recommended distribution network strategy. One  has to assess merchandise flow paths to provide revenue growth, minimize supply chain costs and support overall inventory strategies.  Then one has to determine alternative distribution      strategies including buildings size and location, transportation strategies, inventory deployment strategies, and benefit based business cases.

 

  1. Store Operations – Design and implement a well-defined process for store operations related to receiving, shelf stocking, perpetual inventory accuracy and plan-o-gram maintenance.
  • Organization & Labor Planning
  • Life Cycle Management
  • Shelf Replenishment
  • Data Integrity Maintenance

 

The idea is to push operations from

  • Stores Ordering for basic merchandise to Automatic Replenishment Approach which is centrally  maintained and helps with enhanced High Performance forecasting and allocation abilities
  • Store Reviews ( All replenishment orders to supplement simple forecasting & ordering logic) to Exception Only Reviews. No store review for standard items and examples of exception reviews: items with high inventories, poor service levels etc.
  • Limited Standards & Policies (In-stock policies and Service levels) to Standard Policies Across the Supply Chain. This is through reliable & repeatable inventory management processes and uniform service standards based on merchandise goals and category/SKU profitability

Forecasting

SCM 2

 

RFID in the age of Mobility

Having done a lot of work in the supply chain industry, I am so intrigued by RFID and its potential once the costs go further down. Radio frequency identification (RFID) is a generic term for technologies that use radio waves to automatically identify individual items. RFID technology is not new or complex; it has been around since the early radar systems in the 1940’s. What is new is how manufacturing advancements have reduced costs of implementing RFID systems (particularly tags). These silicon-based electronic identification tags, consisting of a tiny processor, memory, antenna and can be read and written wirelessly and can be made cheap, without a battery. The main components of this technology are:

 

Tags

  • Device made up of an electronic circuit and an integrated antenna
  • Radio frequency used to transfer data between the tag and the antenna
  • Read-only or read / write

 

Antenna

  • Receives and transmits the  electromagnetic waves
  • Wireless data transfer

 

Reader

  • Receives commands from application software
  • Interprets radio waves into digital information
  • Provides power supply to passive tags

 

IT Infrastructure

  • Reads / writes data from / to the tags through the reader
  • Stores and evaluates obtained data
  • Links the transceiver to an applications, e.g. ERP

 

 

Of course there has been a major drag in the adoption of this technology. The key challenges have been:

 

 

Costs

  • Not only costs of tags and readers, but the costs of integration of the RFID technology into the IT technology stack – e.g. ERP, etc.

 

Standards

  • Lack of worldwide data standards
  • Country-specific frequencies allocation

 

Market

  • Vendors are very fragmented

 

Technology

  • Tag and data overload – How do we handle the data?
  • Read-rate accuracy
  • Tag and reader collision – Signals can interfere with each other

 

People

  • Privacy fears from the tracking provided by this technology

 

 


But more and more this technology is coming into mainstream. Especially after Walmart mandating the use of RFIDs in their supply chain management. Walmart believes that they can cut out costs and make their supply chain even more lean with this deployment.

 

 


The uses of this technology are of course endless. I was recently reading about the CyberTM Tire from Pirelli Tire Systems that transmits information on road conditions and friction coefficients to the car’s computer. Already some hospitals are using RFIDs to tag patients with wristbands to scan by hospital staff using PDAs or tablet PCs connecting to patients’ data using a WLAN.

 

 


And as this become more prevalent there are other uses that are surely ridden with privacy issues. There is much research where people are looking at ways to monitor real time health in individuals. There is a RFID implanted in the human wrist that send signals to the health insurance company at all times. When you wake up in the morning and go for a jog; you arrive at work and an email from the company (always monitoring your vital stats) sits in you inbox, proclaiming a reduced premium for the day. You have breakfast at McDonalds over the weekend. Lo and behold, your premium just went up.

 

 

 

RFID

 


RFID 2

IT Spend Analyses

A few days ago I was in a CIO roundtable in Atlanta and one of the CIOs mentioned that despite the state of the economy their IT Organization was thinking of spending some if their budget on some innovative initiatives so that when we get to the bottom of the J-curve in the economy, they’d be ready to win over strategic goals. Really set me thinking – how are companies dividing their IT spend on keep-the-lights-on operations and strategic or innovative investment. Top executive management these days has two main questions:

  1. How can the IT organization be transformed to be an enabler of creating  business value rather than just being a cost of doing business?
  2. How can we achieve better results at a lower cost?

 

I guess it’s always important for the IT organization to evaluate internally how IT’s value contribution to the business should be planned, managed, and assessed. Unfortunately, the link between business value and IT is often not understood by executives and especially in times like these IT spending levels are overly-squeezed. The common issues that we have seen:

  • Typically, IT spending level is based on historical or competitive benchmark levels
  • Lack of recognition for IT contribution on business side
  • Short term, simple IT cost cutting drives down value adding and innovative IT initiatives first
  • As a result, IT capabilities deteriorate and mid-term IT operating costs rise
  • Eventually, higher IT operating costs eat away funds for innovations and this furthers the overall IT budget explosion. A big vicious circle!

 

Of course a company’s position on its spending is dependent upon many macro factors:

  • Number and size of competitors
  • Industry growth rate and rate of change
  • Industry margins/pricing
  • Product differentiation factors – physical products or knowledge assets

 

Mandatory or non-discretionary IT investments are for keep-the-lights-on functions – IT Operations, regulatory, etc. Things like technical support, IT infrastructure management, technical upgrades to infrastructure components, required maintenance, enterprise-wide project support fall in this category.

 

 

Discretionary spending, which is about IT investments that are Strategic, Enabling, and Sustaining, are on things like R&D (focus on future technologies), etc. These investments should create a strategic or economic advantage in the market, create barriers to entry, etc.

 

As written by Michael Treacy and Fred Wiersema in their classic book, Discipline of Market Leaders, there are three basic “value disciplines” for a company to pursue – operational excellence, customer intimacy, and /or product leadership. If the direction of the company is clear, well-communicated, and well-understood, then some strategic IT investments are driven from the same:

 

  • If there is a product/service innovation  focus, then the company needs to focus on increasing value to existing customers, developing new markets and channels, etc. Examples of initiatives are eInnovation, eDesign Collaboration, PLM, etc.
  • If the company is focusing on Customer Intimacy, then the company needs to improve understanding of its customer needs, increase customer insight, etc. The initiatives fall in realms like Customer Insight (Inbound Marketing), Integrated View of Customer (DW, Analytics), etc.
  • If the company is trying to create new scales and reduce interaction costs between partners and customers, it needs to invest in increasing service levels at lower costs, concepts like “Super” Distributor, Supplier Collaboration, etc.

IT Spend

 

Fleet Management

Fleet Management, of which Strategic Sourcing is a core part, is an integrated set of actions, which occur in a rational and logical manner, with the overall objective of attaining lowest Total Cost of Ownership (TCO). Key issues in fleet management involve capital commitments and management, as well as operating effectiveness and cost.  Fleet asset utilization is not typically tracked or measured, which leads to unwanted outcomes, such as having more vehicles than necessary, additional operating and maintenance costs and not always having the right vehicles for the jobs they are needed to do.  Additionally, fleet costs are usually   fragmented and a rarely captured in total, which leads to problems in trying to adequately and accurately assess operating efficiency and evaluate out-sourcing opportunities.

 

The first step for true optimization is getting a good handle on the existing fleet in terms of its make-up, utilization and operating cost, reviewing the administrative and operating practices related to procurement, operations, maintenance and disposition, as well as determining replacement scheduling. The foundation is based upon the following three areas:

  • Strategy (replacement scheduling, outsourcing/insourcing and fleet organization)
  • Operations (vehicle pooling, maintenance & repair, inventory management, fuel management)
  • Administration (Standards & specifications, fleet utilization, budget & cost reporting)

 

The areas to explore the fleet management practices:

 

Data

  • Fleet inventory (including but not limited to manufacturer and model year, type, location, VIN #, GVWR, acquisition price, options purchased, lease payment, annual operating and maintenance costs, sale price if retired, auction fees and class – how it’s used)
  • Equipment Utilization – Miles, hours or both on equipment where there may be two measures of utilization
  • Fleet “spend” at invoice level and at options level if available.
  • Current agreements and in progress negotiations
  • Current leases, short term rentals, and ownership models

 

Fleet Rationalization, Utilization and Fleet MixOnce the standards and specifications process has taken place, putting rigor and focus in the area of rationalization and utilization brings value and savings to the company and fleet. The goal of this component of the process is multi-dimensional:

  • Ensuring that the proper utilization targets by class and location (e.g.,: metro v. rural) are set and used to reduce the number of low-use vehicles in the field
  • Rationalizing the fleet based on job function and job assignment.
  • Developing a fleet policy that optimizes the use of pooling vehicles, how and when to use short-term rentals and take home vehicles.
  • Identify fleet operating needs that may include needs for surplus vehicles including seasonal work requirements, construction projects, regulatory mandates, etc.

Focus on the 80/20 rule when it comes to prioritizing fleet opportunities.  Develop standards and specifications for the portion of the fleet that can be standardized and will provide the highest value/impact, such as passenger vehicles, SUVs, LD and MD trucks aerial and digger derricks.  Utility and construction equipment is often overlooked

 

  • FuelIn most cases, not incorporating the sourcing of bulk fuel (v. fuel management services) as a part of any fleet sourcing engagement. Past   experience has shown that this exercise returns almost no incremental  value and usually devolves into an exercise around sourcing transportation from supplier fuel racks to client bulk tank facilities.
  • Maintenance & RepairAchieving the lowest TCO for fleet, maintenance and repair is an integral component of the equation. Inherently  maintenance and repair costs will decrease as an output of developing the standards and specifications and replacement schedule process. Other areas should also be evaluated, such as opportunities for network consolidations of maintenance and repair shops, etc.
  • Determining a “Levelized” Replacement Schedule - Developing a “Levelized” Replacement Schedule is a key concept in improving fleet management and obtaining benefits from strategic sourcing. Sharing the information with both internal finance and external vendors and suppliers is instrumental in planning for future fleet acquisitions and capital needs as well as structuring multi-year deals.

 

 Fleet TCO

 

 

In summary, maximizing fleet effectiveness depends on managing it like a business, in an integrated and holistic fashion, across two major dimensions.

  • FLEET OPERATIONS – Operating revenue, Operating costs, Contribution margin, Productivity metrics and measures, Performance metrics and measures
  • FLEET ASSET MANAGEMENT – Fleet sizing, Standards and specs, Strategic sourcing, Life-cycle management, Maintenance and repair, Disposition management

Fleet Mngt 2

 

 

 

Supply Chain Excellence

Achieving supply chain excellence is complex and challenging, but success in achieving supply-chain driven competitive advantage enables superior customer service, profitable revenue for growth and significant increase in shareholder value:

  • Supply chain assets and inventory usually comprise at least half of all non-store based assets
  • Supply chain activities typically account for as much as 40 – 70% of operating costs (including procurement and markdowns)

Retail 3

 

 

 

  1. Scientific Retailing: Overview of the High Performance Retailing framework, demand and supply value drivers

 

  1. Inventory Management: Inventory Management is the conductor of the symphony for Retail Supply Chain  execution. It is critical for customer service since Inventory management is what initiates all merchandise movement and controls the timing within the supply chain

 

 

Some of the statements from retailers across all kinds of products:

  • “Assisted Inventory Management (AIM) helped us exceed our inventory-turn goal, making us the leader among national drugstore chains in this important productivity measure. We achieved inventory turns of 5.0 times for the year, up from 4.6 times in earlier years.” – CVS

 

  • “Positioned among the best in retail, our supply chain helps drive sales, reduce costs and ensure the availability of products our guests most want and need.” – Target

 

  • “We completed the conversion of each of our operating divisions to a common technology platform with greatly enhanced inventory management tools, permitting more sophisticated inventory planning and more precise by-store inventory allocation.” – Saks

 

 

The three main components of the Inventory Optimization program address both the process and physical infrastructure of the supply chain.

 

  1. IM Process:
  • Addresses end-to-end inventory management built on two core processes:
  • Foundational for continually replenished basic merchandise: Periodic automatic replenishment, long life, stable supply, short lead time to continually meet normal demand
  • Highly Variable typical of merchandise with high demand spikes or problematic supply: Demand characteristics are promotions, fashion, short life and seasonal while supply is typically private imports and private label

 

  1. Network and Flow Strategy

Network Optimization starts with establishing a vision of alternative flow paths and ends with a full evaluation of end-to-end physical supply chain and a recommended distribution network strategy.

  • Assesses merchandise flow paths to provide revenue growth, minimize supply chain costs and support overall inventory strategies.
  • Determines alternative distribution strategies including buildings size and location, transportation strategies, inventory deployment strategies, and benefit based business cases.

 

  1. Store Operations
  • Determines store level inventory processes that maximize the customer perceived in-stock (several studies show 40-70% of outs occur due to store defects).
  • Design and implement a well-defined process for store operations related to receiving, shelf stocking, perpetual inventory accuracy and plan-o-gram maintenance.
    • Organization & Labor Planning
    • Life Cycle Management
    • Shelf Replenishment
    • Data Integrity Maintenance

 

 

The idea is to push operations from

  • Stores Ordering for basic merchandise to Automatic Replenishment Approach which is centrally maintained and helps with enhanced High Performance forecasting and allocation abilities
  • Store Reviews ( All replenishment orders to supplement  simple forecasting & ordering logic) to Exception Only Reviews. No store review for standard items and examples of exception reviews: items with high inventories, poor service levels etc.
  • Limited Standards & Policies (In-stock policies and Service levels) to Standard Policies Across the Supply Chain. This is through reliable & repeatable inventory management processes and uniform service standards based on merchandise goals and category/SKU profitability

Forecasting

SCM 2

 

 

 

 

Lean and Six Sigma

Recently I was on the panel of a CXO discussion around how to optimize costs and increases business productivity, when someone from the audience asked about Lean Six Sigma and its relevance, especially in today’s economy.

They asked is it Six Sigma that has been more effective or have Lean principles helped more? And how exactly do they differ? That set of dialog encouraged me to write this post. There is always debate about Lean and Six Sigma being so close that practitioners love to dichotomize in their thinking.
 

So what is Six Sigma?

  • A Metric? - Less than 3.4 defects per million opportunities of product produced/ service rendered
  • A Vision? – Six Sigma is an overall strategy to accelerate improvements in processes, products, and services
  • A Value? – Strive for continuous improvement in all activities
  • A philosophy? – A proven “pursuit of perfection” business initiative that creates breakthroughs in profitability, quality, and productivity

Six Sigma practitioners follow these tenets as a business philosophy:

  • If something cannot be measured, we really do not know much about it.
  • If we don’t know much about it, we cannot control it.
  • If we cannot control it, we are at the mercy of chance.

Six Sigma started in the manufacturing industry with emphasis on management of efficient processes, efficient management of people, dedication to measurement systems, etc – mostly Operational Excellence. But it became apparent that business success was more than the absence of negatives (defects, delays, cost overruns). Six Sigma then began to encompass positives like customer loyalty and delighters in new products. From operational excellence, Six Sigma has moved towards Customer Intimacy and Product Leadership value disciplines through its DFSS / DMADV tools. There is always debate that Six Sigma does not go that well with a Innovation focus. But all said and done the tools offered are used everywhere in different flavors and different terms:

  • SIPOC – A top level process mapping tool to document a process in the context of suppliers who provide inputs which are transformed into outputs for the customer.
  • Cause & Effect Matrix – A process of identifying problems, finding their causes, and creating the best solutions to keep them from happening again (fishbone diagram).
  • Failure Mode & Effects Analysis (FMEA) – A tool used to identify ways the process can fail, estimate the risk of the failure, identify causes of failure, prioritize actions to reduce failure risks, develop control plans to prevent failures
  • VOC – The “Voice of the Customer”; the customer specifications/ requirements that dictate acceptable and unacceptable outcomes and drive actions.
  • VOP  - The “Voice of the Process ”; the companies processes doing what they need to produce products/ services.
  • CTQ – “Critical to Quality”; characteristics that significantly influence one or more of the customer requirements.

Of course, recently Six Sigma has begun to be used in the IT industry as Six Sigma for Software.
 

And what is Lean?

 A philosophy that shortens the time line between the customer order and the shipment by eliminating waste (non-value-adding activities). This philosophy is based on the following principles:

  • Value – what the customer buys
  • Value stream – how value is delivered
  • Flow – putting value added steps in sequence. The “flow” or “value-stream” perspective represents a shift from vertical to horizontal thinking. Flow is enabled when materials and processes are standardized across the supply chain to reduce complexity.
  • Pull – triggering flow from the customer needs. E.g. have only projects in IT that the pipeline can take i.e. Demand Management.
  • Perfection – continuous improvement

 

Value Added

  • Any activity that increases the market form or function of the product or service.  (These are things the customer is willing to pay for.) For .e.g in the Airline industry – actual flying time or in the Healthcare industry – diagnosis/treatment.

Non-Value Added = Waste

  • Any activity that does not add market form or function or is not necessary.  (These activities should be eliminated, simplified, reduced or integrated.). For e.g. in the airline industry – lining up to check –in or in the Healthcare industry – sitting in the waiting room waiting for an appointment. There are specific categories of waste that Lean targets:  
  1. Excess (or early) production – Overproduction
  2. Inventory – documents, forms, supplies
  3. Waiting  - e.g. delay in obtaining an appointment or test results
  4. Transportation (to/from processes)/ Motion – for e.g. leaving exam rooms for equipment, chart forms
  5. Extra Processing like inspection
  6. Defects
  7. Underutilized people / resources

The way I look at it is the Lean is the management philosophy and Six Sigma is a great set of tools that help you chart your path. You have got to use the Six Sigma to first reduce variation and then deploy Lean management to take your processes to a newer level altogether. Some thoughts to leave you with what I always do :-)
 

SIX SIGMA is about supporting different situations with different and specific tools:
ss 1
 

And LEAN is about looking for efficient solutions and reducing waste:
ss2

Payment and Transaction Processing economics

Ever since I worked at American Express and I still hear from folks that “oh these credit card companies make 4% of the transaction dollars”, I feel like documenting the whole flow of this industry and see the economics behind this. The way the transactions work are very well explained on this virtual school link: http://virtualschool.edu/mon/ElectronicProperty/klamond/credit_card.htm
The mix of payment instruments evolves from the dynamics between customers, retailers and issuers – cash, checks, credit cards, debit cards, fleet cards, mobile payments, biometric payments, etc. From the retailers’ perspective, the range of instruments that retailers choose to endorse depend on the costs and benefits of each – with remaining transaction values as below:

 CC processing 4

 



For credit card transaction processing industry in particular, the value chain of this industry is as below:



CC processing Value Chain



But the current trends in this industry are as below:



  • Merchants, like Starbucks, have expanded pre-paid and store-card operations with payment processors, bypassing high cost clearing/ settlement networks
  • A consortium of major banks, such as BofA, Chase and Citigroup, have started or purchased a rival clearing / settlement network
  • Game-changing mobile and  internet initiatives, like GSM and Paypal, have expanded into the traditional payments marketplace and captured a small but growing market share
  • New lower cost alternatives, such as RevolutionMoney,  have successfully attracted merchants in direct competition with traditional providers and established a low cost credit card alternative
  • Core banking providers have developed integrated payment solutions embedded in their core banking applications
  • Interchange is the fee Processors pay to the issuing banks via VISA/MasterCard and these rates are set by VISA/MasterCard through their associations. Typically interchange rates are based on a % of volume for credit cards & a rate per item for debit cards. This is evolving as new players are jumping in.



Plus add to this the mobile payments with companies like Google Wallet jumping into the fray. The mobile ecosystems consists of the usual players- retailers/merchants and financial institutions but also adds handset manufacturers and network operators.



CC processing 1



Due to these platforms that needed built, the adoption varies in geographic areas. Currently the percentage of people that currently use a mobile phone for Banking Transactions at least once a month (according to EDC-GSMA Mobile Financial Services Survey):



CC processing 2