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Library of Congress Cataloging-in-Publication Data:

George, Mark O., 1960–

The lean six sigma guide to doing more w ith less : cut costs, reduce w aste, and low er
your overhead / Mark O. George.
p. cm.
Includes bibliographical references and Index .
ISBN: 978-0-470-53957-6 (cloth)
1. Cost control. 2. Six sigma (Quality control standards). 3. Production control.
4. Industrial management. I. Title.
HD47.3.G47 2010
658.4 013—dc22
2009052170

Printed in the United States of America.

10 9 8 7 6 5 4 3 2 1
 C o ntents

Foreword xi
Preface xv
Acknowledgments xxi

Chapter 1
Why Use Lean Six Sigma to Reduce Cost? 1
Transactional Ex ample: Lean Six Sigma Transforming Our
Government 6
The Alloy of High Performance: Why Choose Lean
Six Sigma to Reduce Cost? 6
Lean Six Sigma versus Traditional Cost-Cutting Tactics 9
Emerging Stronger Than Ever 14

Spotlight #1
How to Use This Book 17
Overview of Part I: Process Cost Reduction—a Focus on the
Tools of Waste Elimination 18
Overview of Part II: Enterprise Cost Reduction—a Focus on Value,
Speed, Agility and Competitive Advantage 19
Overview of Part III: Accelerating Deployment
Returns—Getting More, Faster, from a Lean
Six Sigma Deployment 20

Part I
P ro c es s C o s t Red uc tio n: A Fo c us
o n W as te E lim inatio n
Introduction to Part 1 23

v
vi C o n ten ts

Chapter 2
Find Cost Reduction Opportunities in Waste 25
The Seven Common Faces of Waste: TIMWOOD 27
Using the Full LSS Toolkit to Drive Cost Reduction 37

Spotlight #2
Special Tips for Nonmanufacturing Processes 39
Key Success Fa ctors in Reducing Costs in Services and Retail 40

Spotlight #3
Design a Successful Lean Six Sigma Project or Pilot 45
Which Methodology Is Right for Y our Project? 45
Identifying the Players and Their Roles 47

Chapter 3
Use the Voice of the Customer to Identify Cost-Cutting
Opportunities 51
Customer Types and Their Needs 52
Collecting Data on Customer Needs 53
Getting Specific about Customer Needs 57
Avoiding Misinterpretations 60
Conclusion 64

Chapter 4
Make Processes Transparent to Ex pose Waste 65
How to Define the Bounda ries through SIPOC Diagrams 67
Using Value Stream Maps to Achieve Transparency 69
Conclusion 82

Chapter 5
Measure Process Efficiency: Finding the Levers of
Waste Reduction 83
Process Cycle Efficiency (PCE): The Key Metric of Process
Time and Process Cost 84
Little’s Law : Understa nding the Levers for Improving
Process Speed 88
The WIP Cap Method: How Limiting WIP Can Increa se
Process Speed and Reduce Costs 90
Using PCE and Little’s Law to Drive Cost Reduction 95
 C o n ten ts vii

Chapter 6
Improve Y our Analysis Skills: How Understa nding Variation,
Root Causes, and Factor Relationships Can Help Y ou Cut Costs
While Improving Quality 97
Analysis Skill #1: Learning to ‘‘Read’’ Variation 98
Analysis Skill #2: Digging Out Root Causes 107
Analysis Skill #3: Establishing relationships betw een factors 109
Conclusion 114

Chapter 7
Make Rapid Improvements through Kaizens 117
Quick Overview : The Kaizen Approa ch 119
When Should Y ou Use Kaizens in Cost Reduction Projects 120
Seven Keys to Kaizen Success 124
Conclusion 129

Part II
R ais ing the S takes : Red uc ing C o s ts
at an E nterpris e L evel
Chapter 8
Think Transformation, Not Just Improvement 133
Attain a Proper Understa nding of the Ex tent of the
Opportunity 135
Consciously Choose a Path to Capture the Opportunity 138
Plan for a Transformation Journey 144
Leadership Challenges in Leading a Transformation 151
Conclusion 152

Spotlight #4
Tra nsformation at Ow ens-Illinois 155

Chapter 9
Unlock the Secrets to Speed and Flex ibility 159
Alignment and Analytics 160
A Model of Speed and Agility 162
Economic Order Quantity (EOQ)—The First 100 Y ears 165
Augmenting EOQ w ith Lean Analytics 167
The Equations in Action 173
Conclusion 176
viii C o n ten ts

Chapter 10
Reduce the Cost of Complex ity 177
The Hidden Cost of Added Offerings on Processes 179
Assessing Complex ity in Y our Business: A Holistic View 182
Highlights of the Complex ity Analysis Process 183
Complex ity Reduction as the Gatew ay to Transformation 195
Conclusion 196

Chapter 11
Look Outside Y our Four Walls to Low er Costs Inside 197
What Is an Ex tended Enterprise? 199
Working on the Supplier End of the Ex tended Enterprise 204
What to Do When Y ou’re the Supplier: Ex tending
Y our Enterprise Dow nstream 208
Conclusion 211

Part III
S peed ing Up D eplo ym ent Returns :
S tr ateg ies fo r G etting M o re, Fas ter,
fro m a L ean S ix S ig m a D eploym ent
Chapter 12
Create a Pipeline of Cost Improvement Projects: The Secret
to Protecting the Heart of Y our Business 215
Developing Rigor in Project Identifica tion and Selection 217
From First-Time to All the Time: Shifting from a One-Time
Event to an Ongoing System of Pipeline Management 226
Conclusion: Maintaining a Dynamic Pipeline 230

Spotlight #5
Link Projects to Value Drivers 233
Option 1: Value Driver Trees 233
Option 2: Financial Analysis Decision Tree 237
Option 3: Economic Profit 237
Option 4: EP Sensitivity Analyses 239
Value Driver Ex a mple 243

Chapter 13
Smooth the Pa th through Change 247
Change Readiness Assessments 248
Leading versus Managing the Change 250
 C o n ten ts ix

Upgrading Y our Communication Plan 253

Process Ow nership and Cost Accountability 259
Conclusion: Restoring Faith, Hope, and Belief 260
Chapter 14
Establishing a Center of Ex cellence 261
What Is a CoE and What Does It Do? 263
Focus #1: Performance Management 265
Focus #2: Replication: Copy and Pa ste Y our Cost Savings 270
How Can a CoE Fit into a n Orga nization? 273
Weaving the CoE into Strategic Planning 277
Conclusion 279

Chapter 15
Gaining New Perspectives on Deployment Cost and
Speed Opportunities 281
Looking for Focus and Flex ibility in Deployment 282
Focusing Deployments on Business Issues 283
Flex ibility in Building Skills 286
Conclusion 297

Chapter 16
Reenergizing a Legacy Program 299
Why Deployments Lose Steam 300
Building a Steam Engine: Performance Management 306
Process Ow nership: The Pa rtner of Performance Management 307
How to Reenergize a Deployment 311
Conclusion 318

Index 319
 Fo rewo rd

Though I ha ve now retired from the

consulting industry, I spent over 20 yea rs helping compa nies grow corpo-
ra te va lue through process improvement initia tives a nd business tra nsfor-
ma tion. My w ork w ith improvement ha d begun in the la te 1980s, w hen,
upon my return from ex tended studies in Ja pa n, my collea gues a nd I pio-
neered the introduction of w ha t a re now know n a s Lea n methods in the
United Sta tes. Y ea rs later, in 2002, my compa ny, George Group Consult-
ing, led another w ave of innovation: fully integrating Lean w ith Six Sigma
so tha t compa nies could simulta neously improve cost, speed, a nd qua lity
w hile tying all process improvement projects to shareholder value.
Lean Six Sigma has subsequently become one of the most popular busi-
ness improvement methodologies of a ll time. Our clients reported to the
markets that their Lean Six Sigma initiatives have been cost-neutral in less
than one yea r, tha t they’ve reduced costs upw ards of 20 percent a nd ha ve
improved ROIC and Economic Profit by as much as 10 percent or more by
year tw o of the deployment. The media abounds w ith ex amples of compa-
nies large and small that have made similar gains.
In the past decade, continuous improvement, including Lean, Six Sigma,
a nd Lea n Six Sigma , ha s rea ched unprecedented levels of a ccepta nce. In
fa ct, a bout 50 percent of Fortune 500 compa nies a nd over 80 percent of
Fortune 100 companies (according to AVR Associates, Ltd, 2009), as w ell
as government entities such as the U.S. Navy, U.S. Army, and multiple fed-
eral and state agencies have active Lean Six Sigma or similar programs.
The releva nce of Operational Ex cellence and Lean Six Sigma continues
to this day, nea rly three years after having sold the George Group to Accen-
ture a nd seeing it become their Process a nd Innova tion Performa nce
service line.
Y et despite its proliferation, research indicates that many continuous im-
provement progra ms a re, unfortuna tely, not delivering the ex pected busi-
ness benefits. In late 2008, the Conference Board released the results of its

xi
x ii Fo rewo rd

survey of 190 CEOs, cha irmen, a nd compa ny presidents from a round the
globe. These leaders w ere asked to list their top 10 challenges, pa rticularly
in the time of fina ncia l crisis. The top-of-mind concerns a mong business
leaders today may surprise you:

Executive’s Leading Co ncerns During Time Percent o f

o f Financial Crisis Respo ndents

Ex cellence in ex ecution 55.4%

Speed, flex ibility, adaptability to change 46.6%
Economic performance 44.6%
Customer loyalty/retention 40.1%
Improving productivity 36.9%

So urce: The Conference Board’s 2008 CEO Challenges Survey.

Even though continuous improvement programs a re resident in organiza-

tions of all types and in all geographies, many companies don’t seem to be
addressing the fundamental issues these methodologies are intended to im-
prove. All of the concerns listed here speak directly to the objectives of Lean
Six Sigma , yet ma ny ex ecutives don’t perceive the business impa ct. While
ma ny compa nies ha ve cla imed hundreds of millions in economic benefit
from Lea n Six Sigma , just a s ma ny others ha ve fa iled to see the results.
Is the methodology not universa lly a pplica ble, or is it being poorly
administered?
Toda y, my son, Ma rk George, a long w ith hundreds of my former col-
lea gues, continue to bring the pow er of George Group’s methodologies to
Accenture’s clients around the globe. They’ve captured their best practices
in this book, The Lean Six Sigma Guide to Do ing Mo re with Less. Previous
books on Lea n Six Sigma (including my ow n), served to intro duce the con-
cepts to readers w ho did not understand them or had not seen the benefits of
their integra tion into a single tra nsforma tion a pproa ch. By contra st, this
new book helps the reader understand ho w the co ncepts are best applied in
reducing cost a nd ena bling competitive a dva nta ge in toda y’s economic
clima te.
The Lean Six Sigma Guide to Do ing Mo re with Less provides an under-
sta nding of the difference betw een Lea n Six Sigma deployments tha t pro-
vide incrementa l reductions in cost a nd those tha t ena ble step-cha nge
improvement. In pa rticula r, Ma rk a nd his contributors present the rea der
w ith a pra ctica l understa nding of how process transforma tion ca n deliver
not only a n opera ting a dva nta ge but a lso a structura l a dva nta ge.
 Fo rewo rd x iii

Throughout this book, Ma rk presents ca se studies from a w ide a rra y of

enga gements tha t help the rea der comprehend the a pproa ch for Lea n Six
Sigma to manage costs, along w ith the pitfalls, lessons learned, and w ays to
mitigate risk—it is truly a ho w-to guide.
For those w ho ha ve toiled aw ay mapping processes, gathering data, and
a pplying tools only to see business outcomes left rela tively uncha nged,
Mark helps readers understand how a holistic Lea n Six Sigma approach can
ena ble a nnua l cost reductions of 20 percent or more and improved ROIC
and Economic Profit by as much as 10 percent or more. The Lean Six Sigma
Guide to Do ing Mo re with Less is a valuable reference tool for anyone seek-
ing to reduce cost and improve business performance—no matter w hat de-
gree of impa ct you seek, w ha t a mount of commitment you’re w illing to
make, or how mature your Lean Six Sigma program is.

Michael L. George
Former CEO and Founder of George Group Consulting
(now part of Accenture)
 P refac e

The global economic collapse of 2008–

2009 is w idely recognized as the most severe crisis of its type since the Great
Depression of the 1930s. As of this w riting economists and analysts cannot
be certain that the crisis has yet reached its profoundest depth; a ll agree that
it w ill take years, if not decades, to restore the economy to anything near its
prior strength and ex panse.
No geography, industry, government or socioeconomic group ha s been
spa red. As the commercia l economies a nd public sector budgets contra ct,
there is increased pressure for organizations to survive the crisis by reduc-
tions in the cost of operation. The rescinded demand for goods and services
ha s revea led tha t globa l overca pa city ha s been evident through ra mpa nt
increa ses in unemployment, the tota l elimina tion of enterprises, the con-
solida tion of ma ny w ho rema in, w idesprea d shuttering of pla nts, a nd the
closure of tens of thousands of retail outlets. Follow ing demand and capac-
ity balancing, many organizations have looked to restructuring, outsourcing
a nd the tried-a nd-true a na lysis of profit-a nd-loss (P& L) sta tements to
identify myriad cost reduction opportunities.
In a difficult economic period, people are tempted more than ever to apply
quick fix es and ad hoc solutions. Cost reduction activities may be knee-jerk
reactions—typically, poorly planned and ex ecuted—rather than w ell-devised
strategies. Grasping for solutions is a natural, yet ineffective, reflex . Without
careful analysis and understanding of the drivers of cost, reductions may not
last, w ith costs reemerging in the same form or in other manifestations of
inefficiency. The outcomes can be hit and miss; some may have benefits that
are short-lived, w hile others may do more harm than good by eroding mar-
ket share through lack of customer focus and decreased service levels.
We ha ve discovered that the most egregious mistakes organizations make
in cost-cutting a ctua lly don’t show up a s tota l disa sters but, instea d, a s
missed opportunities. Orga nizations w ill often miss 10 to 50 times the po-
tential savings by succumbing to traditional cost-cutting tactics, scrambling

xv
x vi P r e fa c e

to find cost management solutions at the P& L account level and not at the
enterprise level. The solutions often fail to understa nd the need to rethink
operating models and the offering portfolio, and to build in organizational
resilience, flex ibility, and speed to react to market conditions.
In times of crisis, ma rkets, institutions, and policies quickly evolve; the
competitive la ndsca pe cha nges a nd new consumer trends emerge. In such
times, ma na gement’s decisions ca n sea l their compa ny’s fa te: do little a nd
join the ranks of others in the struggle to hold market share and diminishing
margins, or do something transformational and emerge even stronger than
before—best poised to surpa ss the competition once ma rkets recover a nd
demand resurges.
Organizations must develop near-term strategies to survive the dow nturn,
and longer-term strategies to thrive in the new economy. This book provides
a practica l understa nding of how Lean Six Sigma (LSS) supports both the
near-term need to survive by safely and rapidly reducing cost, and the lon-
ger-term roa d to high performa nce by tra nsforming into a fa st a nd agile
enterprise. And w hile continuous process improvement is typically associ-
ated w ith gradual, incremental performance gains, this book illustrates how
a concerted focus on process and ex ecution can enable a structural, opera-
tional, and cultural transformation that confers true competitive advantage.

High Performance Business Defined

Thus far, Accenture has studied more than 6,000 companies, including more
than 500 that meet our criteria as high performers. As described in Go ing the
Distance: Ho w the Wo rld’s Best Co mpanies Achieve Hig h Perfo rmance,
Accenture defines high-performance businesses as those that:

Effectively balance current needs and future opportunities.

Consistently outperform peers in revenue grow th, profitability, and total
return to shareholders.
Sustain their superiority a cross time, business cycles, industry disrup-
tions, and changes in leadership.

And how do high performers achieve these feats? Our research has identi-
fied the “ how ” as the building blocks of high performance:

Market Focus and Position results in better decisions.

Distinctive Capabilities results in better practices.
Performance Anatomy results in better mindsets.
 P r e fa c e x vii

High-performa nce businesses continually ba la nce, a lign, and renew the

three building blocks of high performance, creating their competitive essence
through a careful combination of insight and action.

C r e a t in g a H o l is t ic A p p r o a c h
t o L e a n S ix S ig m a
How do you avoid knee-jerk reactions a nd, instead, act like a high-perform-
ing organization? What’s needed is a holistic approach that focuses on ap-
plying Lea n Six Sigma a t multiple levels and in multiple w ays a cross your
organization. Describing that holistic approach to using Lean Six Sigma to
reduce costs is the purpose of this book.
‘‘Holistic’’ Lea n Six Sigma a ddresses a ll seven of the funda menta l re-
quirements for effective operational cost reduction:

1. Alignment of the reduction effort to company stra tegy and its sense of
urgency—be it immediate survival, business as usual, or esta blishing
competitive advantage.
2. Identifica tion of the grea test levers of opera tiona l cost reduction
opportunity.
3. Understa nding of the multiple drivers and root causes of cost (includ-
ing processes, offerings, customers, suppliers, a nd distribution
channels), a s w ell a s their interrelationships and the ultimate cost of
complex ity they create.
4. Speed-to-results, and the related effort and investment required to re-
alize the cost reduction.
5. Practica l and pragmatic implementation: the cost reduction approach
must be robust and universal, able to address a w ide array of opportu-
nities, environments, and levels of operational maturity.
6. Ba lance betw een interna l a nd ex terna l forces; ensuring tha t the cost
reduction a ctivity w ill not a dversely a ffect net overa ll business per-
forma nce—especia lly through a ny degra da tion of qua lity, customer
service, and market share.
7. Sustainability of the cost reductions realized.

Ea ch of the preceding seven requirements presents its ow n set of cha l-

lenges; yet a concerted operational cost reduction stra tegy must address all
x viii P r e fa c e

of them. This book w ill illustra te tha t w hen implemented holistica lly the
Lean Six Sigma approach encompasses a ll of these critical requirements and
delivers cost reduction w ith remarkable speed.
Without consideration of all these elements, the cost reduction effort w ill
fail to rapidly yield its full, sustained potentia l. Ta ken together, these ele-
ments address the relationship betw een speed, cost, and the step-change im-
provement that speed and a gility can ena ble w hen they become a primary
leadership strategy. Process performance and ex ecution ex cellence can give
an enterprise the speed and agility necessary to directly support radical im-
provements in cost, through changes in orga nizationa l structure and operat-
ing model.
If your compa ny, division, or depa rtment is fa ced w ith rising operating
costs, reduced budgets, or declining share in a shrinking market, and needs
to ra pidly reverse these trends, this book is for you. Throughout this tex t
you w ill learn how dozens of companies have deployed Lean Six Sigma to
successfully improve costs a nd ga in a susta ina ble competitive a dva nta ge.
Even if you alrea dy ha ve a Lean Six Sigma program or other form of contin-
uous process improvement initiative, you w ill learn how to ex tra ct greater
returns—migrating from traditional gradual and incremental gains tow ard
truly transformational high performance.

L e a n S ix S ig m a : F a d o r P h e n o m e n o n ?
Y ou may relate to one of our clients w ho recently invited us to view a cabi-
net he sarca stically termed his ‘‘initiative vault.’’ It contained coffee mugs,
T-shirts, ba nners, and training guides branded w ith sloga ns of, not one, not
tw o, not three, but four previous improvement initiatives his company ha d
undertaken. All had failed to live up to their promised savings, leaving him
understandably cynical of any new potential additions to his ‘‘vault.’’ This
man’s cabinet w as littered w ith previous initiatives that failed to eliminate
the underlying process performance maladies, employing only partial solu-
tions that could not simultaneously improve cost, speed, and quality.
This book serves as a practical guide for those w ho are simply looking to
reduce operating costs in an isolated area, as w ell as those w ho w ish to ena-
ble true competitive advantage through enterprise transforma tion. For both
situations, this book illustrates how to identify the root causes of cost and
how to rapidly mitigate them w ith susta ined net benefit.
We offer insights into how companies have deployed Lean Six Sigma to
reduce costs at the local process level by as much as $2 million or more in 6
to 12 w eeks and others w ho have reduced enterprise costs by $50 to $100
 P r e fa c e x ix

million or more in less tha n one yea r. These la tter firms regula rly look to
Lean Six Sigma to provide annual savings equal to 2 to 3 percent of cost of
goods sold. The savings are real. The approach applies to most any environ-
ment. And this book can help you apply the methods to start reducing costs
now .
While individua l projects w ill no doubt improve fina ncial performa nce,
they may fall short of enabling true competitive advantage for the organiza-
tion. Only through a n orga nized effort tha t identifies, coordina tes, a nd
aligns multiple disparate projects tow ard common enterprise objectives can
true competitive advantage be realized.
We recognize that Lean Six Sigma is not a new phenomenon; thousands
of deployments having been launched in the pa st decade alone. But the ap-
proa ch to successfully deploy this methodology a nd ena ble ra pid yet sub-
stantive net returns is not w idely understood and pra cticed. Countless firms
claim to have already deployed Lean Six Sigma, but closer ex amination re-
veals that their program returns have ba rely ex ceeded total costs of deploy-
ment in many ca ses, if they can even be found on the P& L at all. And the
time to results has been so slow that many a leadership team has lost faith
and no longer sees the initiative as a true enabler of their strategic agenda.
For ma ny firms their Lea n Six Sigma journey fa iled to deliver the full
business impact potential ow ing to missteps in deployment design, manage-
ment, and, moreover, failure to secure and maintain leadership engagement.
This book presents insights and practical approaches to ex tract the highest
returns from your Lean Six Sigma investment—be it a single project or an
enterprisew ide transforma tion program.
For those seeking substa ntive impa ct, w e provide a n understa nding of
the array of elements required for enterprise transformation: from the initial
identification of opportunities and the value a t stake to the analytical rela-
tionships betw een offerings, process, speed, and agility, to leadership’s role
in driving and supporting change, all the w ay to results realization and per-
forma nce ma na gement. Further, w e sha re deployment best pra ctices a nd
lessons learned in having architected and supported hundreds of change ini-
tiatives around the globe. We also present new , innovative, and flex ible de-
ployment a pproa ches tha t minimize the time required to deploy Lea n Six
Sigma, a nd cost-effective models that allow smaller numbers of resources to
be trained w ith faster speed-to-results.
 Ac kno w led g m ents

This book w ould not have been possi-

ble w ithout the significa nt contributions ma de by my ma ny colla bora tors
w ho a re cited throughout this book. Their ex periences ha ve combined to
present A ccenture’s holistic point of view on enterprise Lea n Six Sigma
transformation and customer value creation. To assemble and manage such
a n a rra y of topics a nd thought ca pita l into a single, sea mless trea tise w a s
only possible through the industry a nd ex pertise of our ta lented a ssocia te
w riter, Sue Reynard.
I w ould like to recognize Accenture’s leaders, Walt Shill and Matt Reilly,
w ho sponsored and truly enabled this project; w hose support I a m greatly
appreciative.
Over this last year, my w ife Irma and my children, Mark Jr. and Paloma
have sacrificed countless days to allow me to dedicate myself to this project,
over cherished family time. For their pa tience and understanding, I’m eter-
nally grateful.
Fina lly, the most importa nt a cknow ledgment is to my fa ther, M icha el
George, w ho set me out on this course of authorship and w ho has been and
shall remain my source of personal, professional, and spiritual inspiration.

xxi