Johannesburg — MOST businesses are immature in their approach to supply chain management, hampered by fragmented systems and processes ranging from customer planning to supplier management.

Compounding this situation, supply chain issues have a low profile in the boardroom.

In most cases this stems from a lack of a co-ordinated vision across the supply chain, says Warwick Higgins, associate partner at IBM Business Consulting Services.

Without the integration cornerstone, companies will struggle to reach performance targets because they do not have the building blocks in place to achieve bottom-line numbers to create shareholder value, he says.

A major factor is that often the methods used to measure performance and delivery are wrong.

Because of bad forecasting and planning many companies are producing inadequate volumes of output that do not meet customer demand, says Higgins. But customers will become increasingly demanding and will start creating the kind of pressure that will force change.

A statistical process control methodology, known as Six Sigma, is being applied by many overseas organisations to cut the fat out of their systems, creating significant shareholder value in the process.

The methodology was originally developed by Motorola in the 1990s and has been developed further by other companies, including IBM, says Higgins.

He says Six Sigma was originally used to correct defects in manufacturing processes.

"But it is now being used to control business processes as well, such as getting products to customers on time and getting proof of delivery documents back to a central location and into the billing process."

The methodology is being used by large organisations to narrow the spread between the best and worst customer delivery times achieved.

In this case, the methodology looks at processes and determines how they can be used to always deliver within a specific and better average timeframe, says Higgins.

It will also look at what to do to deliver the full order when the customer requires it, instead of "making a plan".

The key difference with this methodology is that it understands which part of a process has to be defect-free, he says.

"If you get the right part of a process defect-free it will pull the rest of the parts together."

Six Sigma is not being used much in SA, except in some cases where the overseas parent of a local subsidiary has standardised on the methodology.

A long list of overseas organisations across different sectors have applied the methodology, including LG Chemicals, Dupont, Air Products, Dow Chemicals, Bombardier (aircraft), JP Morgan Chase, American General, Johnson & Johnson, Philips, Dow Corning and Shell.

Caterpillar is applying Six Sigma all over the world as part of its strategy, and attributes a phenomenal increase in share price largely to this, says Higgins.

GE also started applying this methodology in 1995, having identified that it had between 8bn and $9bn worth of opportunity to remove fat from the system and become a lean organisation, says Higgins.

"In GE's 1998 annual report it attributed its $2bn profit to achievements through using Six Sigma to cut out the fat."

Higgins says IBM Consulting Service's supply chain operation service provides across-theboard solutions in this area, from procurement to operations, enterprise asset management, manufacturing, warehouse and distribution and integrated supply chain planning.

"We also have a unit that supports SAP software supply chainrelated modules," he says.