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toshiba

10/28/2010
Lean Six Sigma

LEANSIX
PUTRI NADEEYA BINTI WAN MOHAMED ZAHARI
SIGMA
2009228552

ZAINAP ASMA ABDULLAH 2009618232


Figure 1: History of Lean Six Sigma. (Source: IBM Global Business Services, 2007)

Lean Six Sigma is a relatively well-known approach for achieving operational excellence, can do
more than simply improve processes. It also helps leaders discover innovation opportunities far
beyond operations, enhance financial performance and create organizations that have an
inherent inclination toward innovation.

Lean Six Sigma is a combination of the Lean methods and the six sigma approach. The lean
method focuses on reducing costs through process optimization while Six Sigma is more
towards meeting customer requirements and stakeholders’ expectations by improving quality
through measuring and eliminating defects. The Lean Six Sigma Approach draws on the
philosophies, principles and tools of both methods.

Previously companies used Lean Six Sigma primarily for operational improvement such as
refining processes to reduce cost, improve performance and provide better customer value.
However during the recent years, as markets become highly competitive, companies are
prompted to change their strategies at a more massive scale. They would need to innovate
rather than follow and improve. Lean Six Sigma is equipped to facilitate a much broader
transformation, helping companies to rethink its entire business and create a more innovative
climate.
In 2000, Caterpillar found itself with 4 years of flat revenues and intense competition that
showed no signs of going up. Determined to regain its market leader position within the industry,
the company applied the six sigma approach in January 2001. The company wanted to
transform not only the way it’s employees worked, but also the mindset of the company as a
whole.

Beginning with a nine-month training for 4,200 of their employees worldwide, the trained
professionals with various background from engineering to finance each led their own projects
and served as mentors to the rest of the organization. The company then applied the 6 sigma
approaches to their strategy development, using these disciplines to collect and analyze hard
data on the customers, the markets and the internal capabilities of the company -which then led
them to create a detailed vision for the company for 2020.

The visions were divided into three five-year plans. The immediate plan set out specific,
measurable targets for market positioning, quality, order-to-delivery performance, safety and
other critical success factors. The plan was companywide, spanning through all lines of the
organization from management down to the bottom. Through the strictness and discipline
enforced by the initiative, the entire company aligned behind the same specific objectives.

The launch of 6 sigma covered of about 1,100 projects, some generated faint operational
improvements, though benefited a lot in terms of financial, while other resulted in innovative new
products and outcomes as well as a shift in the ways people within the company were working.
One of the first attempt involved restructuring R&D to include more direct interaction with the
company’s customers. Employees and clients began working collaboratively to pinpoint
problems and to develop solutions, plus building closer relationships.

The 6 sigma approach also led to major operational changes, predominantly in Caterpillar’s
supply chain. Caterpillar has also managed to reduce constraints in its order to-delivery
process. For example, teams redesigned the production scheduling process at Caterpillar
manufacturing facilities, which cut lead times by more than 50 %. Apart from that, they have
also managed to reduce delays caused by supplier-sourced pumps. Previously, if a pump failed
during pre-testing, Caterpillar had to take time to fix the pump or wait for the supplier to send
someone to repair it. Now, based on the 6 sigma approach, the supplier has its own pump test
cell and breaks in new pumps before sending them to Caterpillar plants. And the supplier faces
a financial penalty if it fails to meet specific quality goals.

Caterpillar launched 6 Sigma globally and delivered benefits that go beyond implementation
costs in the first year. Since then, it has become a critical component of Caterpillar’s success.
The rigor and discipline have enabled the record profits of the past few years and are helping
the company achieve its future strategic goals. According to Caterpillar Vice President,
“Caterpillar’s competitive advantage has improved - 6 Sigma has been applied to increase the
company’s percent of industry in all of its major lines of business.
References

About Lean Six Sigma. (2009) Retrieved on 15th October 2010 from
http://leansigma.com/about.php

Byrne, Lubow & Blitz (2007) Driving Operational Innovation Using Lean Six Sigma. IBM Global
Business Services. Retrieved on 15th October 2010 from http://www-935.ibm.com