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Lean Six Sigma Overview
Lean Six Sigma Overview
George
Mark O. George
Executive Summary
Mark O. George
This excerpt from the full book, The Lean Six Sigma Guide to Doing More with Less, is printed with permission from John Wiley and Sons.
A note to readers
These days, virtually every business executive I talk with is concerned about reducing operating costs without compromising quality and customer service. Newly frugal consumers and budget-conscious business customers are certainly paying more attention to price but they still have high standards for certain product features or levels of service. As someone who has spent the past decade architecting and supporting dozens of Lean Six Sigma engagements for companies in a broad range of industries, Ive seen firsthand how these methodologies can reduce waste and costs while simultaneously improving speed, quality, and flexibility all of which can enable competitive advantage. The insights derived from these collaborations with clients are what inspired me and my Accenture colleagues to write The Lean Six Sigma Guide to Doing More With Less. The book aims to help anyone, no matter what level of experience with Lean Six Sigma, take advantage of these powerful approaches. Dont just take my word for it. Heres what a few of our clients say: Al Stroucken, the CEO of Owens-Illinois, notes that Lean Six Sigma gives his staff tools and a framework in which to solve problems and address complicated issues. In the end, individuals feel they can make a difference and are empowered to take on new challenges. Teamwork and problem solving become part of our culture and the company benefits financially and organizationally.
Executive Summary
Frito Lay deployed Lean Six Sigma starting in early 2007. Tony Mattei, who oversees the program, says the company is realizing a seven-fold return on annual investment in the program, using many of the concepts and tools covered in the book. At Socit Gnrale, the venerable bank based in France, Satheesh Mahadevan, director of processes, says Lean Six Sigma has set up a process improvement culture and is helping the firm move into a global business transformation program. Ted Doheny, president and COO of Joy Mining Machinery, says transformational changes are occurring by doing more with less by investing and working smarter. Doheny points out that the benefits extend not only to shareholders but also to customers (through higher value products) and employees (through an improved work environment).
I want to thank these and other clients for their enthusiasm, their observations, and their willingness to experiment and push Lean Six Sigma to new levels. Our new book, which is summarized in this paper, would not have been possible without their support. Sincerely,
Table of contents for full book, The Lean Six Sigma Guide to Doing More with Less
Foreword Preface Acknowledgements Chapter 1: Why Use Lean Six Sigma to Reduce Cost? page 1 Transactional Example: Lean Six Sigma Transforming Our Government The Alloy of High Performance: Why Choose Lean Six Sigma to Reduce Cost? Lean Six Sigma versus Traditional Cost-Cutting Tactics Emerging Stronger than Ever Spotlight #1: How to Use This Book Overview of Part I: Process Cost Reduction--a Focus on the Tools of Waste Elimination Overview of Part II: Enterprise Cost Reduction -a Focus on Value, Speed, Agility, and Competitive Advantage Overview of Part III: Accelerating Deployment Returns -- Getting More, Faster, from a Lean Six Sigma Deployment PART IProcess Cost Reduction A Focus on Waste Elimination Introduction to Part I Chapter 2: Find Cost Reduction Opportunities in Waste page 25 The Seven Common Faces of Waste: TIMWOOD Using the Full LSS Toolkit to Drive Cost Reduction Spotlight #2: Special Tips for Nonmanufacturing Processes Key Success Factors in Reducing Costs in Services and Retail Spotlight #3: Design a Successful Lean Six Sigma Project or Pilot Which Methodology Is Right for Your Project? Identifying the Players and Their Roles
Executive Summary
Chapter 3: Use the Voice of the Customer to Identify Cost-Cutting Opportunities Customer Types and Their Needs Collecting Data on Customer Needs Getting Specific about Customer Needs Avoiding Misinterpretations Conclusion Chapter 4: Make Processes Transparent to Expose Waste How to Define the Boundaries through SIPOC Diagrams Using Value Stream Maps to Achieve Transparency Conclusion
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Chapter 5: Measure Process Efficiency: Finding the page 85 Levers of Waste Reduction Process Cycle Efficiency (PCE): The Key Metric of Process Time and Process Cost Little's Law: Understanding the Levers for Improving Process Speed The WIP Cap Method: How Limiting WIP Can Increase Process Speed and Reduce Costs Using PCE and Little's Law to Drive Cost Reduction Chapter 6: Improve Your Analysis Skills: How page 99 Understanding Variation, Root Causes, and Factor Relationships Can Help You Cut Costs While Improving Quality Analysis Skill #1: Learning to "Read" Variation Analysis Skill #2: Digging Out Root Causes Analysis Skill #3: Establishing Relationships Between Factors Conclusion Chapter 7: Make Rapid Improvements Through Kaizens Quick Overview: The Kaizen Approach page 119
When Should You Use Kaizens in Cost Reduction Projects Seven Keys to Kaizen Success Conclusion PART IIRaising the Stakes Reducing Costs at an Enterprise Level Chapter 8: Think Transformation, Not Just page 135 Improvement Attain a Proper Understanding of the Extent of the Opportunity Consciously Choose a Path to Capture the Opportunity Plan for a Transformation Journey Leadership Challenges in Leading a Transformation Conclusion Spotlight #4: Transformation at Owens-Illinois Chapter 9: Unlock the Secrets to Speed and Flexibility page 161 Alignment and Analytics A Model of Speed and Agility The Death Trap of Economic Order Quantity (EOQ) Alternatives to EOQ The Equations in Action Conclusion Chapter 10: Reduce the Cost of Complexity page 179 The Hidden Cost of Added Offerings on Processes Assessing Complexity in Your Business: A Holistic View Highlights of the Complexity Analysis Process Complexity Reduction as the Gateway to Transformation Conclusion Chapter 11: Look Outside Your Four Walls to Lower page 199 Costs Inside What Is an Extended Enterprise? Working on the Supplier End of the Extended Enterprise
Executive Summary
What to Do When You're the Supplier: Extending Your Enterprise Downstream Conclusion PART IIISpeeding up Deployment Returns: Strategies for Getting More, Faster from a Lean Six Sigma Deployment Chapter 12: Create a Pipeline of Cost Improvement page 217 Projects the Secret to Protecting the Heart of Your Business Developing Rigor in Project Identification and Selection From First-Time to All the Time: Shifting from a One-Time Even to an Ongoing System of Pipeline Management Conclusion: Maintaining a Dynamic Pipeline Spotlight #5: Link Projects to Value Drivers Option 1: Value Driver Trees Option 2: Financial Analysis Decision Tree Option 3: Economic Profit Option 4: EP Sensitivity Analyses Value Driver Example Chapter 13: Smooth the Path Through Change Change the Path through Change Leading versus Managing the Change Upgrading Your Communication Plan Process Ownership and Cost Accountability Conclusion: Restoring Faith, Hope, and Belief page 249
Chapter 14: Establishing a Center of Excellence page 263 What Is a CoE and What Does It Do? Focus #1: Performance Management Focus #2: Replication: Copy and Paste Your Cost Savings How Can a CoE Fit into an Organization Weaving the CoE into Strategic Planning Conclusion
Chapter 15: Gaining New Perspectives on page 283 Deployment Cost and Speed Opportunities Looking for Focus and Flexibility in Deployment Focusing Deployments on Business Issues Flexibility in Building Skills Conclusion Chapter 16: Reenergizing a Legacy Program page 301 Why Deployments Lose Steam Building a Steam Engine: Performance Management Process Ownership: The Partner of Performance Management How to Reenergize a Deployment Conclusion page 320
Executive Summary
focusing on the levers that improve flexibility and speed to market, quality and reliability, and customer value. In addition, Accentures ongoing business research has found that the pursuit of high performance is not only a worthy enterprise, but practical and necessary. Our research on past economic downturns has found that highperforming businesses put a premium on operational excellence and pull ahead of their competition at the end of a recession. High-performing companies excel in part because they execute day-to-day business processes better than their competitors. Creating and defending operational advantage is both more important and more difficult to achieve than ever. It requires mastering repetitive processes that deliver value to customers, the organization itself and shareholders. Lean Six Sigma, a discipline proven over several decades, offers the most effective way to build these capabilities. Lean Six Sigma combines two of the most powerful improvement engines available: Lean provides mechanisms for quickly and dramatically reducing lead times and waste in any process, anywhere in an organization. Six Sigma provides the tools and organizational guidelines that establish a data-based foundation for sustained improvement in customer-critical targets. Together, Lean Six Sigma drives value through a classic equation: operating income growth (by addressing efficiency) + revenue growth (by addressing what matters to customers, in a repeatable manner) = shareholder value. This paper summarizes our upcoming book, The Lean Six Sigma Guide to Doing More with Less. The book
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describes a holistic approach to applying Lean Six Sigma at multiple levels and in multiple ways across an organization. A holistic approach addresses each aspect of effective operational cost reduction: Alignment of the effort to company strategy and its level of urgency Identification of the greatest levers of operational improvement and the key drivers of economic profit Speed to results Practical and pragmatic implementation, using techniques that can address a wide array of opportunities and environments Balance with internal and external forces, to ensure they dont adversely affect net overall business performance Sustainability of the cost reductions realized
We recognize that Lean Six Sigma is not a new phenomenon. But despite thousands of deployments launched in the past decade, many companies make missteps in deployment design and launch. As a result, they fail to achieve rapid, substantive, and sustainable returns. The Lean Six Sigma Guide to Doing More with Less presents tools, insights, and case studies from a variety of manufacturing and service industries as well as the public sector, and guidelines with which to extract the highest returns from a Lean Six Sigma investment. The book is useful for a single project or an enterprise-wide transformation program. Among the key insights covered in the book are these:
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Waste is inherent in all processes. Many organizations continue to waste time, effort, and budgets overengineering their processes, without realizing the cost consequences. They focus on tasks that do not add value for the customer or the business. Selection of projects matters more than the choice of tools. Roughly 80% of the problems with failed improvement initiatives stem from poor selection of projects and ineffective management of the organizations project portfolio. Start with the customer in mind. Customer dissatisfaction and high-cost processes go hand in hand. Without a true understanding of customers priorities, a new product or entry into a new market is bound to fail. Lean Six Sigma takes a voice of the customer mindset in order to minimize any cost that does not add value from the customers perspective. Deployments can be effective at the business unit level without senior management engagement, as long as there is full engagement from process owners and managers. However, for transformation, senior leaders must be engaged throughout. The book has been organized to address readers with varying levels of familiarity with Lean Six Sigma. Part One introduces the methodology to novices or those who need to immediately improve local or departmental operating cost structures. Other readers may already be familiar with Lean Six Sigma but need to extract greater impact from the methodology across the entire business. These readers may be senior executives or Lean Six Sigma experts who want to take their initiative to the next level. Parts Two and Three
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discuss Lean Six Sigmas deployment strategies for cost reduction at the enterprise level. This paper, then, summarizes highlights from each section of the book.
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waste across functional units. For example, one customer, a truck-maker, required a proliferation of items in low quantities. When the hose company completed some complexity analytics, it discovered that process improvement was not the highest opportunity area. Instead, it focused on long manufacturing lead times. Management decided to drop the truck-maker as a client, eliminate the related complexity, and concentrate on the remaining clients with higher volumes and fewer part numbers. This allowed the company to reduce the number of defective brake and steering components shipped to other customers, through an all-out assault on quality and defect prevention. With product quality under control, the company then could focus on speed and flexibility. A series of operations assessments identified the cause of long process lead times and developed a mitigation plan that included the synchronized deployment of Lean tools. This holistic approachcombining complexity reduction, quality improvement and the elimination of process wastedelivered remarkable improvements. The chart below shows the drop in cost of goods sold as lead times dropped. Initially, process improvement projects resulted in reduced cost of poor quality and direct labor cost, yielding a relatively small incremental impact to overall business performance. But when the company continued to strive for greater speed and reached a 3-day cycle time, operating performance enabled a structural advantage.
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Expected
Observed
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Every activity in a process that adds cycle time and does not add value, adds cost. By eliminating the cause of long cycle time, we also eliminate the associated cost. Cycle time, thus, can be viewed as a global metric of corporate efficiency and a guide to quickly reducing cost. Lean Six Sigma helps cut fat, not musclethat is, reduce costs without destroying the ability to address customer priorities.
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Transportation the movement of process inputs, workin-process, or outputs. Transportation waste typically stems from the layout of facilities, but it can also result from poor flow between process steps. An internal request that has to find its way from department to department and from individual to individual may get lost for days in the maze of cubicles and buildings, all which require outlays of cash and working capital. Lean Six Sigma eliminates transportation wastes through the redesign of processes into cellular layouts and streamlined flows that reduce batch sizes. Inventory mismatches throughout the supply chain, often resulting from imbalanced demand and supply. The mismatch stems from poor understanding of customer needs, irrational forecasting, attempts to manage production control from enterprise resource planning software, and other root causes. Partial products show up even in transactional processes, such as slow collections of outstanding sales. Only a thorough understanding of the sources of variability in the supply chain will lead to the right mix of reduced inventory levels. Motion inefficient movement of people. Follow a worker day to day and you will likely trace a different path each time, filled with wild goose chases, strange body positions, and poor posture. Carpal tunnel syndrome alone caused a generation of typists and assemblers to undergo expensive surgery, pain, lost time and reduced productivity. Lean Six Sigma counters with cellular flow that includes standard walking paths, optimized operating procedures and ergonomic body positioning. Waiting with costs accumulating at every interruption in process flow. A mortgage application typically spends 99% of its time waiting to be processed at various desks. Lean
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Executive Summary
Six Sigma can identify the constraining steps through value stream mapping and by comparing process capabilities to customer demand rates. Overproduction creating and ordering more than is necessary. In transactional processes, overproduction may go undetected and significantly raise indirect spend, through such items as expediting fees, special orders that fail to leverage economies of scale, and early payments. Managers at one company were often paying legal fees to consult external lawyers at $350 per request; a Lean Six Sigma analysis showed that in-house attorneys possessed standard solutions for most requests that were essentially free. Over-processing delivering more of something than the customer wants or will pay for. To avoid over-processing, develop an understanding of customer needs along the entire value stream, from concept to production to delivery. If possible, focus on the original design and R&D functions, in order to build in quality and ease of manufacturability and spend fewer resources on the development effort. Defects errors in the products intended for customers. Because you pay to make defects, not just fix them, focus on high-cost areas of scrap, rework and repair instead of trying to raise quality in value-add process steps. The telephone sales function at one company ran a Lean Six Sigma project to increase sales and lower costs. Managers believed that sales performance hinged on years of experience of the sales person and amount of time on the phone with a customer. A statistical test revealed otherwise: The main factors driving higher sales were following standard scripts, asking for a close from the customer and use of flexible pricing.
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The best strategy to address the seven forms of waste: Focus on a process rather than on machines, headcounts, or balance sheet accounts. Employees get so acclimated to the massive efforts it takes to accomplish their tasks that they can't actually see the waste. In most cases, only a Lean Six Sigma project allows people to see the process from end to end, and then to take accountability for the entire value stream.