LEAN: Start the LEAN Journey from SIPOC

The purpose of LEAN is to delivery increased value to our customer while eliminating as much waste from the processes as possible. To get started with this, we first need to identify who our customers are. If looking from the bird-view, it’s usually easy. Customer is the one buying our products. But when you drill down to internal customers, it’s not necessarily so self explanatory anymore. To tackle this challenge, LEAN gurus developed “SIPOC” -tool:

  • Supplier – Input – Process – Ouput – Customer
  • SIPOC Identifies at a high level the important aspects of a process.
  • It clearly defines who the customers are and what they care about (outputs/metrics).
    • SIPOC always starts from the Customer!
  • Identifies the important process inputs and how “good” they need to be.

This is the area were Internal Audit really can start bringing value to the company by facilitating these exercises. SIPOC is one of the most basic tools to get started with LEAN. By going through the steps below with entity/company/department, you for sure will show quick results and start getting the buy-in from the people!

This is how SIPOC looks the processes:

  • SIPOC treats a process like a black box.
  • It only describes the inputs that go into the box, and the output(s)  that come out of it.

SIPOC HIGH LEVEL

  • It DOES NOT describe what happens in that box.

SIPOC NOT LEVEL

There is also quite simple template widely in use to fill out SIPOC. I’ll use an example of Financial reporting owned by the Finance department. Here are the seven steps to create a SIPOC for your processes:

You can download the SIPOC template (filled with below information) from here:

STEP 1: Select a process

  • As I mentioned above, the process selected will be: Preparing Financial Reporting for HQ Finance
    • Selected process should be important, owned by the team/department (i.e. you), concrete and measurable.
  • To ensure clarity, identify the boundaries of the process
    • Define the beginning and end of the process:
      • What triggers the process to begin: Day -3 in the month
      • What is the last step of the process: Hyperion approved by the HQ Finance

SIPOC PROCESS

STEP 2: Identify outputs

  • Be as specific as possible
  • Ask
    • What do we give to the customer?
      • In our example there are two: Finalized Hyperion financial report & Presentation of results
    • What do we make?/ What service do we provide?
  • Output examples:
    • Documents, Reports, Orders, Forms
    • Completed projects or activities

SIPOC OUTPUTS 1

STEP 3: Identify customers

  • What person or group depends on the output for their process?
  • Who would complain about a bad output?
  • Customers may be internal (management, other departments) or external.
    • In our example the customers identified are: Local Management Team, Regional CFO & MD, Regional FP&A Director

SIPOC CUSTOMERS

STEP 4: Identify output metrics

  • Ask the question: “Based on what the customer requires, how should we measure the outputs?”
  • Classify the quantified measure as either Delivery or Quality:
  • It’s not required to have metrics in all areas.
    • If customers have little concerns around “Delivery” or “Quality” for a particular output, you may “N/A”/leave empty that cell. In our case “Quality” will be left empty.
  • Metrics must come from the customer, so validate it with them.
  • Be as specific as possible:
    • In our example:
      • Delivery measurement: % of Hyperion finalized by deadline given from the Regional Finance & % of presentations sent on time

SIPOC OUTPUT MEASUREMENTS

STEP5: Identify important inputs

  • Identify the process inputs (items or information) which are critical to successful process execution.
    • Don’t document all inputs. Identify those whose variation or non-performance will significantly impact your process.
      • In our case the overall input is completion of closing activities & closing the month in the ERP -system

SIPOC INPUTS 1

STEP 6: Identify suppliers for the inputs

  • Identify the process owners who provide you important input(s)
  • Suppliers may be internal/external/groups of people/individuals
    • In our example the suppliers are: Different teams in Finance departments; AP, AR, FP&A, GL, Inventory etc. & subsidiary Finance Managers

SIPOC SUPPLIERS

STEP 7: Identify input metrics

  • Based on the defined output metrics, determine what you should measure about the inputs.
  • Consider Quality, Delivery and Cost
  • Coordinate these metrics with your supplier.  They may already be measuring them!
  • Examples:
    • Defect rate, Cycle time, % on-time, % over-budget
      • In our example Input metrics are: % of times closing checklist completed on time & % of times ERP closed for the period by the deadline set.

SIPOC INPUT METRICS

STEP 8: Rank processes and/or Process outputs

  • In case you have identified many processes per customer, it may be important to rank them based on the priority. This will facilitate future process improvements as you should always start from the most critical process.
  • It’s very important to have customer validate the importance of the processes/outputs to ensure you are aligned with customer expectations.
    • In our case the most important one is to have Hyperion finalized and only after that comes Presentation of results

SIPOC IMPACT

And that’s it. Not that hard, right? SIPOC provides very foundation for the rest of the LEAN actitivies. With SIPOC you identify all the processes that are critical to deliver for customer. After SIPOC is done, you are prepared to start improving the processes as you know what is important for the customer.

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