International Journal of Productivity and Performance Management

Framework to improve performance through implementing lean six sigma strategies to oil exporting
countries during recession or depression
Basant Chaurasia Dixit Garg Ashish Agarwal
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Basant Chaurasia Dixit Garg Ashish Agarwal , (2016),"Framework to improve performance through implementing lean
six sigma strategies to oil exporting countries during recession or depression", International Journal of Productivity and
Performance Management , Vol. 65 Iss 3 pp. -
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 Framework to improve performance through implementing lean six sigma strategies
to oil exporting countries during recession or depression

INTRODUCTION

The change of traditional manufacturing business processes to lean six sigma practices results in improvements
for companies in revenue generation, supplier satisfaction, customer satisfaction, employee satisfaction,
productivity, waste reduction and quality product at low cost. When a recession comes in the local or global
market, the lean six sigma framework can act as a survival tool. World-leading companies, such as General
Electric and Motorola, after implementing Lean Six Sigma obtain dramatic results in productivity and quality
improvement (Kumar et.al. 2006). Such as Lean Six Sigma could help international oil companies (IOCs) and
their quest to control and integrate upstream and downstream assets to prevent overproduction and thereby
stabilize the price (Yergin 1992). Gammie (1997) examined current operational practice in the UK oil industry in
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relation to employee assistance programmes. Gangnes et.al., (2011) examined the impact of oil prices on trade's
sensitivity to distance. Furthermore, investigate if the nature of trade and the type of goods have a mediating role
on the oil prices' impact on trade. Al‐Roubaie (2010) witnessed imbalances between demand and supply of
energy has an adverse effect of oil and gas fuel prices and on global liquidity management. Forecasting of the
U.S. Energy Information Administration indicated that the real gross domestic product (GDP) of India will grow by
6.1% on average per year from 2010 to 2040. That will be the highest worldwide and it may be that lean six
sigma can work as a catalyst for the manufacturing /process/service sectors.

BACKGROUND OF RECESSION

Recession is when in two consecutive quarters the national gross domestic product (GDP) of a country declines.
Sometime a recession starts in one country and spreads worldwide to other countries’ markets in term of GDP,
employment, development, government policies, etc. Young (2009) discussed that marketing strategies had not
slowed down during a recession, while customer numbers had shrunk in the market. The top oil-producing
countries, such as the United States of America, Russia, Saudi Arabia and Iran, were affected adversely due to
the continuous decline of crude oil prices worldwide and this had a further adverse effect on stock-exchange,
productivity and national growth. Kocak and Edwards (2005) observed the pivotal need for entrepreneurial
behavior and inter‐firm co‐operation for small firms seeking growth in a volatile, recession‐hit environment.
Leonard (2014) studied failing to recognize the inevitability of the next recession and to prepare for its uncertain
arrival is a neglect of fiduciary responsibility. Alcidi and Gros (2011) drew a systematic comparison between the
great depression and the great recession, where fiscal policy went to the limit of what was possible under the
conditions as they existed then in US banking. Reeves and Deimler (2009) examined recession‐specific
strategies designed to drive growth and ensure that a company survives. The review of Latham and Braun (2011)
distils disparate scholarly works on firm behavior and recessions to provide a systematic appraisal and review of
what people know and do not know about managing firms through economic downturn. Table 1 lists the top ten
oil-producing countries worldwide that were highly impacted due to the oil price declination.
 Table.1 Top ten Oil producing countries, 2013
Production (million
Country Percentage of Total
barrels/day)
United States 12.31 13.67
Saudi Arabia 11.59 12.87
Russia 10.53 11.70
China 4.46 4.95
Canada 4.07 4.52
United Arab Emirates 3.23 3.59
Iran 3.19 3.54
Iraq 3.06 3.40%
Mexico 2.91 3.23%
Kuwait 2.81 3.12%
[ Source:EIA]

IMPLICATION OF OIL PRICES WORLDWIDE

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Significantly reducing oil prices may be directly beneficial to customers while causing recession for countries
producing oil and natural gases. Decreases in oil prices drastically reduces the potential export revenues of oil-
exporting countries, adversely reducing their income and leading to slower growth in national gross domestic
product (GDP). The Indian Ministry of Petroleum & Natural Gas fact sheet for 2013-14,showed crude oil imports
were $ 143.8 Billion, leading to a decrease in government revenue generation from excise duty while customs
duty, central tax, state tax and dealer commission also reduced.

Today supply from oil producing countries is outstripping demand and causing commodity prices to fall. Oil
companies are most likely to stop digging, stop recruitment or even start firing employees. According to the
forecast of the U.S. energy information administration, crude oil prices will be $60 per barrel until 2016 and world
GDP growth will between 0.3 and 0.7 percent in 2015. The reduction in oil prices will affect everyone including oil
producers, oil importer, governments and consumers. World oil demand is still continuously rising (fig.1); while oil
supply by the Organization of the Petroleum Exporting Countries (OPEC) is less than the demand (fig.2).
Demand for oil from OPEC will average 28.8 million barrels a day in 2015, about 100,000 barrels less than
forecast recently, the Vienna-based organization said in a monthly report (source: Energy Information
Administration). Cristini (1998) investigated the strong corelation between macroeconomic factors and oil prices.
In June 2014 crude oil was around $115 per barrel and in January 2015, it was around $45 per barrel.
 Fig.1. World oil demand in millons of barrels per day from 2012 to 2015 (Source: U.S. energy information
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administration)

Fig.2. OPEC oil supply in millons of barrels per day from 2012 to 2014 (Source: U.S. energy information
administration)

OVERVIEW OF LEAN SIX SIGMA

Lean

Lean is a systematic approach to identify and eliminate waste through continuous improvement, with the product
flowing to the pull of the customer in pursuit of perfection (Womack at.al.1990). Lean is an unending journey to
achieve in the most innovative, effective and efficient manner in an organization. The power of lean lies in the
continual discovery of the hidden opportunities that lie in existing workstations. Effort will be always applied to
eliminating the wastage in all forms (Bodek, 2004). Lean is a multi-dimensional approach that consists of
production with minimum amount of waste (JIT), continuous and uninterrupted flow (Cellular Layout), well-
maintained equipment (Total Preventative Maintenance - TPM), well-established quality system (Total Quality
Management - TQM), and well-trained and empowered work force (Human Resource Management - HRM) that
has a positive impact on operations and competitive performance (quality, cost, fast response, and flexibility) (Taj
and Morosan, 2011) .The principles of lean production are evident as a model where the persons assume the
role of thinkers and their involvement promotes the continuous improvement and gives companies the agility they
 need to face the market demands and environment changes of today and tomorrow (Alves et al. 2012). The
factors that typify lean environment are:

• Reduce lead times

• Speed up time-to-market
• Reduction in operations costs
• Exceed customer expectations
• Manage the global enterprise
• Streamline outsourcing processes
• Improve business performance visibility
• Utilize energy, equipment and people in the most productive ways.

Six Sigma
The six sigma approach uses strategic process selection to reduce variation. This technique uses statistical
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method to reduce waste, improve financial performance, decrease fluctuations and increase customer
satisfaction (Revere et al., 2004). Six sigma practitioners seek to understand the variation and solve the task
problem by using the DMAIC (define, measure, analyse, improve, and control) approach, that is key to the
philosophy of continuous improvement (Shewhart 1931, Shewhart and Deming, 1939, Harry and Schroeder
2000).

Lean Six Sigma

Although lean and six sigma approaches work differently, there is commonality between the two, It has been
seen in the last decade that integration of lean and six sigma leads towards business excellence in a most
effective, productive and economical manner. The comprehensive mapping of tools and methodologies that apply
to lean, six sigma and lean six sigma is shown in fig.3.

Fig. 3.Specific common tools to implement lean, six sigma and lean six sigma

Although the literature on lean six sigma (LSS) is small, it is growing. Where lean manufacturing focuses on
process improvement through removal of waste, six sigma emphasizes reduction of variation in the system. The
LSS approach not only reduces cost and improves system performance but optimizes the organization capability
and furthermore, improves effectiveness (George et al., 2004). Authors (e.g. Drohomeretski et.al., 2014) have
discussed the distinctions between the models of lean, six sigma and LSS in relation to the importance of the
 decision area to achieve best performance in a competitive environment. Lean six sigma implementation strategy
in airlines (Psychogios and Tsironis, 2012) and telecom manufacturing (Andersson et.al., 2014) has been
discussed and it has been found that LSS offers a general direction for organizational leaders, managers and
employees to achieve effective improvement in all manner of ways. A comprehensive framework for lean six
sigma is shown in figure 4.
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Fig.4. Framework of Lean six sigma approach

Lean Six Sigma has the business process capability to resolve the ongoing economic uncertaintyand challenging
market conditions; and may help combat the upcoming recession or depression problem of oil producing
countries .They can achieve first time right (FTR) quality performace, better business relationships in a controlled
way and reach excellence in business. Saudi Aramco's Khurais central oil-processing plant, Xerox Corp.,
Johnson & Johnson, Chevron, Aramco, Texaco, Aera Energy, Baker Petrolite and Halliburton, Reliance
Petroleum, Oil and natural gas corporation, and Indian oil corporation all have accelerated their business
performance through Lean Six Sigma tools and improved manufacturing quality to no more than 3.4 defects per
million opportunities. Table 2 shows the basic differences between Lean and Six sigma approaches on key
factors.
 Table 2. Comparative key factors of lean and six sigma
Factor Lean
Theory Elimination of wastes and
process improvement
Focused area Process flow methodology
Key factor Non value added wastes
reduction improves process
flow
Primary Key benefit Reduce process flow time
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Secondary Key benefits Reduce wastes
Uniform output
Inventory control
Flow matrix
Improve quality
Empowered reactive Issues
Bottleneck Less concentrate on statistical
process control tools
Six Sigma
Reduction of problem variation
Problem solving methodology
Reduction of variation reduces
problem
Uniform and control process
output
Reduce variations
Improve first throughput time
Inventory control
Variation matrix
Quality rate is high
Empowered proactive Issues
Process system is not
considered. It improves
independently and doesn’t
have standard solution for
common problem and its
failure will affect entire chain.
 Table 3. Lean six sigma terminology

Poka-Yoke Mistake proof tool to prevent error

Kaizen Focuses on continuous improvement area (Womack et al.,1990)

Kanban system Pull system of product rather than push system

DMAIC process Literally define, measure, analyze, improve and control the problem
proactively rather than reactively

Critical to quantity (CTQ) Measurement of performance to meet customer expectation

Quick changeover Process of changing production line in flexible manner quickly

(Worley, 2004)
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Just in time Process strategy supply material when it needed to reduce

inventory cost

Cellular manufacturing Sequencing family product to optimize production

Total productive maintenance A system that proactively maintain and optimize entire production
and quality process

Multi-functional team Group of expertise from cross functional department

Bottleneck A step that limit the entire process line

Process capability analysis Assessment to meet performance of a process against its

specifications

Digital waste Unnecessary data clouding and clustering in IT network system

Benchmarking To measure processes, product and services for best practices

Risk management Uncertainty involve in process identify and manage

Histogram Graphical representation of data distribution

Pareto analysis According to this principle high priority are only few

Process mapping Work flow process provide clear understanding of process

Standardization Process for development and implementation as per technical

standard

Cause and effect analysis Fishbone diagram emphasizes on possible cause of problem

Single minute exchange of die Quick machine setup time

 METHODOLOGY

The author is in regular touch with recent trends of market and technology via newspaper, media, research
journals, magzines, internet and industrial personals regarding reseach work on “selected issues in lean
manufacturing”. When he noticed that crude oil prices were globally declining, a strong view point was generated
in the author’s mind that lean six sigma can be an important technique for the organizations of petroleum
exporting contries (OPEC) and non-OPEC. It can be a survival strategy during depression or recession in the
economy. The author carried out a brainstormig session with managers, dealers, vendors and executives of
Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd, Hindustan Petroleum Corporation Ltd. in
Delhi, NCR and Oil and Natural Gas Corporation (ONGC) Dehradun. The summarized and collective, abstracted
view is given in this paper via the guidelines that follow.

LEAN SIX SIGMA GUIDELINES FOR OIL PRODUCING COUNTRIES

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• A control chart can be helpful in business strategies to assess control stages and monitoring
improvement areas to affirm sustainable success.

• Poka-Yoke is an error proofing technique that works on the principle that “prevention” is better than
detection. It intervenes to block undesired outcomes rather than controlling casual factors.

• Design for six sigma (DFSS) can fulfill customer expectation and optimize design processes.

• According to the quantity theory of money, an increase in the money supply tends to cause inflation,
while a shrinking money supply tends to cause deflation. It can be obseved that when any country’s
economy, employment and development strengthen, other countries threaten to drag it down. Because
the USA has a powerful economy Investors have pushed USA stocks to record highs and invested
money in USA companies due to expected pace of profits. The USA is importing products from China
and other emerging countries due to the glut of underused companies and due to not consuming their
own product. The US Census Bureau report declared that retail sales in the United States decreased
0.90 percent in December of 2014. The DMAIC methodology has the capability to solve the problem
that may cause the upcoming recession of a strong economic power.
• Lean supply chain can significantly balance cooperative relationships and competition betweeen
countries through synchronized production and delivery by suppliers.
• The Pareto approach can be helpful to prioritize the possible change due to recession, helping to
identify the root cause of each problem through brain storming sessions, 5ways, cause and effect
analysis and root cause analysis that can flow from taking the necessary lean six sigma approach.
• Fault tree analysis examines proactively process failure. The approach starts with recession background
through time, breaks the situation down into a networked series of responsible causes of failure,
weaknesses of system, human error, and is structured by certain logic and rules. Through a logic
diagram we can find out the combination of causes of failure; and quickly identify the critical path and
preventive action can be taken immediately through risk analysis approach.
• Value stream mapping (VSM) approach can optimize the entire process flow. This can be done in two
steps. First a current state map can identify lead time, through put time and wastes in process. The
second step is to draw a future state map by applying Kaizen, Poka-Yoke, total productive maintenance
and other lean manufacturing tools. Optimization of the production process can revive the economy and
generate other benefits.
 • Baldrige criteria help to improve bussiness excellence of entire organizations by identifying non-value
added wastes, performance results through regular monitoring of process, and improve results and
effectiveness of companies so that companies can focus on improvement areas.

Conclusion

We propose a framework of lean six sigma that may be helpful to accelerate poor economic growth and improve
stagflation occuring in the ongoing situation. Typically, oil exporting countries place their trust on specialist team
opinion and deterministic approaches that have their own limitations. A limitation is that the framework does not
incorporate the uncertainties of business strategies which surround the oil extracting process. The end results
assimilate framework, methodology and guidelines having optimal capability to strengthen the business
processes.
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Biographical Information

Mr.Basant Chaurasia is working as Assistant Professor in the Department of Mechanical Engineering at IIMT
engineering college,Meerut.He did his B.E.(Mechanical) from Rohilkhand University,M.Tech.from UPTU,Lucknow
and Pursuing Ph.D. From NIT,Kurukshetra. He has 11 year experience in Teaching & research work He has
published papers in international journal and in several National and International Conferences. He has guided
many projects to undergraduate students. His areas of interest are: Lean six sigma, Lean-fuzzy, Lean supply
chain, and lean manufacturing.

Prof(Dr.)Dixit Garg is working as Professor in the Department of Mechanical Engineering at NIT

Kurukshetra.Published more than 150 research papers in various reputed Journals and conferences at National
and International Level. Acted as editor/reviewer in International Journals/Conferences and Short Term Training
Programmed. Delivered many expert lecturers and participated in panel discussions. Performed a number of
academic duties such as Member Senate, BOS,DRC. Presently acting as Member, Board of Governors of many
institutes. Expert Member for various committees of AICTE New Delhi, UPSC New Delhi, Technical Education
Department of Haryana Government, Kurukshetra University, Awarded ‘Eminent Engineering Personality Award’,
selected for ‘Shiksha Ratan Puruskar’ and ‘Best Citizens of India award’. Life member of ISTE New Delhi and
ISME New Delhi.

Dr. Ashish Agarwal has been working as Associate Professor Mechanical Engineering at Indira Gandhi National
Open University New Delhi India. He earned his PhD from IIT Delhi in the area of Supply Chain Management. He
has published several papers in International Journals like European Journal of Operations Research, Supply
Chain Management: An International Journal, Industrial Marketing Management, Work Study etc.,. His areas of
interest are Supply Chain Management, Total Quality Management, Operations Management, Knowledge
Management, System Dynamics, Multi Criteria Decision Making etc. He has supervised two PhD students.
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Fig.1. World oil demand in millons of barrels per day from 2012 to 2015 (Source: U.S. energy information
administration)

Fig.2. OPEC oil supply in millons of barrels per day from 2012 to 2014 (Source: U.S. energy information
administration)
Downloaded by La Trobe University At 14:59 08 February 2016 (PT)

Fig. 3. Specific common tools to implement lean, six sigma and lean six sigma

Fig.4. Framework of Lean six sigma approach

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Table.1 Top ten Oil producing countries, 2013

Production (million
Country Percentage of Total
barrels/day)
United States 12.31 13.67
Saudi Arabia 11.59 12.87
Russia 10.53 11.70
China 4.46 4.95
Canada 4.07 4.52
United Arab Emirates 3.23 3.59
Iran 3.19 3.54
Iraq 3.06 3.40
Mexico 2.91 3.23
Kuwait 2.81 3.12

[ Source:EIA]
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Table .2. Comparative key factors of lean and six sigma

Lean Six Sigma

Theory Elimination of wastes and process improvement Reduction of problem variation

Focused area Process flow methodology Problem solving methodology

Key factor Non value added wastes reduction improves process flow Reduction of variation reduces problem

Primary Key benefit Reduce process flow time Uniform and control process output

Secondary Key benefits Reduce wastes Reduce variations

Uniform output Improve first throughput time

Inventory control Inventory control

Flow matrix Variation matrix

Improve quality Quality rate is high

Empowered reactive Issues Empowered proactive Issues

Bottleneck Less concentrate on statistical process control tools Process system is not considered. It improves
independently and doesn’t have standard solution
for common problem and its failure will affect
entire chain.
 Downloaded by La Trobe University At 14:59 08 February 2016 (PT)

Table 3. Lean six sigma Terminology

Poka-Yoke Mistake proof tool to prevent error

Kaizen Focuses on continuous improvement area (Womack et al.,1990)

Kanban system Pull system of product rather than push system

DMAIC process Literally define, measure, analyze, improve and control the problem proactively rather than reactively

Critical to quantity (CTQ) Measurement of performance to meet customer expectation

Quick changeover Process of changing production line in flexible manner quickly (Worley, 2004)

Just in time Process strategy supply material when it needed to reduce inventory cost

Cellular manufacturing Sequencing family product to optimize production

Total productive maintenance A system that proactively maintain and optimize entire production and quality process

Multi-functional team Group of expertise from cross functional department

Bottleneck A step that limit the entire process line

Process capability analysis Assessment to meet performance of a process against its specifications

Digital waste Unnecessary data clouding and clustering in IT network system

Benchmarking To measure processes, product and services for best practices

Risk management Uncertainty involve in process identify and manage

Histogram Graphical representation of data distribution

 Downloaded by La Trobe University At 14:59 08 February 2016 (PT)

Pareto analysis According to this principle high priority are only few

Process mapping Work flow process provide clear understanding of process

Standardization Process for development and implementation as per technical standard

Cause and effect analysis Fishbone diagram emphasizes on possible cause of problem

Single minute exchange of die Quick machine setup time