Analysing the benefits

Posted on 4 Jun 2009 by The Manufacturer

Lean and six sigma are not mutually exclusive business improvement strategies, rather the efficacy of one is reliant on implementing the other, says Joe Goasdoué, CEO of the British Quality Foundation. A recent survey by YouGov provides evidence that a combined Lean Six Sigma strategy is highly effective.

As manufacturing firms continue to battle the recession, particularly the difficulties in obtaining finance, there is a danger that continuous improvement activities take a back seat. However, recent research from internet market research firm YouGov commissioned by the British Quality Foundation (BQF) and the Chartered Quality Institute showed that 10% of employee time in the average UK organisation is spent on rework — equivalent to 10% of the workforce adding no value whatsoever. There appears to be ample room for improvement.

The real significance of this is that by using tools such as Lean six sigma, companies can address the short-term challenge of cutting costs by improving their processes and this in turn will lead to better products and services and higher levels of customer satisfaction. Furthermore, they will be in a much stronger competitive position when the economic upturn comes.

According to a YouGov survey published in December 2008, 31% of UK manufacturers said their work was slowed down by internal bottlenecks and mistakes, with only half (52%) able to say that their companies had joined up and constantly improved business processes. Inevitably, this results in problems for customers and only 14% of respondents said their customers received products or services on time.

Lean and six sigma – the differences
It is not all bad news, however. When it comes to measuring the number and cost of mistakes, the manufacturing industry is one of the best performers, with 65% saying errors are measured, compared to a general average of 45% across the whole of UK industry. Furthermore, 58% of manufacturing firms go further and measure the cost of these mistakes, compared to an average of 38%.

Nowadays Lean, the origins of which lie in the famed Toyota Production System, and six sigma are thought of by some as one set of improvement tools and techniques. The essential differences are these:

Focuses on eliminating non-value added steps in a process
Ensures the right activities are being worked on

Six Sigma
Focuses on reducing variation from the value added steps
Ensures the right things are done right the first time

The important point is that unless you have eliminated the non-value added steps and made sure that you are doing the right things (i.e. Lean), it is difficult to start reducing variation and ensure that things are done right first time. It is also important to note that if the methodologies are regarded as mutually exclusive, the opportunity to use some useful six sigma tools in a Lean programme would be missed.

The key principles of Lean six sigma are:

1. Focus on the customer
The customer’s perception of value and their critical requirements have to be understood. Focusing on the customer and the concept of value added is crucial as typically only 10%-15% of process steps add value and often represent only one per cent of the total process.

2. Identify and understand how the work gets done – the value stream
Toyota’s Taiichi Ono describes this very effectively: “All we are doing is looking at a timeline from the moment the customer gives us an order to the point where we collect the cash. We are reducing that timeline by removing the non-value added wastes.”

3. Manage, improve and smooth the process flow
For example, think in terms of single piece flow rather than batches or at least reduced batch sizes.

4. Remove non-value add steps and waste
Removing these is a vital element in improving performance. There are generally regarded to be seven categories of waste, sometimes shorthanded as ‘Tim Wood’:

Transport: Movement of materials and output unnecessarily is a waste. Solution: to minimise the amount of movement by arranging processes in close proximity to each other.

Inventory: The problem often lies in supply chain inefficiencies. Too
little inventory can lose sales while too much can hide problems.

Solution: lies in Just in Time (JIT) manufacturing to expose problems to be eliminated and reduce cost.

Motion: This often involves people moving around unnecessarily because of bad workplace design.

Solution: remove unnecessary motion of the operations and improve the ergonomics of the workplace.

Waiting: This is usually caused by bottlenecks that are caused by uneven process flow.

Solution: redesigning the processes so that the flow is smooth.

Overproduction: This is obviously linked to inventory. The ideal is to aim to make exactly what the customer orders, just in time.

Overprocessing: This involves unnecessary process steps and is one of the biggest areas for improvement. Solution: eliminate the unnecessary steps.

Defects: This involves scrap and rework as a result of errors. Clearly, reducing the number of defects directly reduces the amount of waste and the aim should be zero defects.

5. Manage by fact and reduce variation
Managing by fact using accurate data avoids the danger of jumping to conclusions and solutions.

6. Involve and equip the people in the process
People involvement is essential in any improvement activity; the people doing the job have to be equipped so that they feel able to challenge and improve their processes and the way they work.

7 Undertake improvement in a systematic way
This uses the framework of DMAIC: define – measure – analyse – improve – control.

The origins of Lean Six Sigma lie in manufacturing but it has now spread to many other sectors, demonstrated by some of the British Quality Federation’s 2008 Lean Six Sigma Awards winners. For manufacturing or other sectors, the issues and techniques are the same and big savings and improvements can be made very quickly by improving processes.

Colliers Motor Group, a big car dealership, wanted to increase after sales department profitability, make better use of space and increase workshop efficiency. One area of focus was car servicing and, using Lean Six Sigma techniques, they redesigned the work bay to reduce the time wasted in unnecessary movement. The result was a leap in the productivity of mechanics, and utiliisation and financial benefits.

• In Royal Mail HR Services, the process of recruiting mail delivery staff was inefficient. More than 50 people were doing the work of 23, but all were busy and if staff numbers were reduced, the process would collapse. The end-to-end process was examined and all the bottlenecks removed. A new standardised process was introduced leading to a more effective service to the business and dramatic cost savings.

• The Ringway Group and Worcestershire County Council work in partnership to identify and repair road damage. There was a long repair backlog, low public perception and customer satisfaction and the cost of the defect identification to repair process was high. They used Lean Six Sigma tools to analyse and improve the service. Productivity rose by 300%, the cost per defect was reduced by 75%, the repair backlog was eliminated and customer and employee satisfaction rose.

For reasons of commercial confidence, it is not possible to provide figures on the costs savings achieved by these organisations, but BQF maintain they were all substantial.

Poor processes = waste = cost
The common characteristic in these cases is that the cost of the activity was unacceptably high because of waste that was largely caused by defective processes. Relatively simple Lean Six Sigma tools were used to analyse the process, identify the weaknesses (which were mainly unnecessary process steps) and design a new process that was cheaper and more effective. It is important to appreciate that while some complex projects require the application of complex Six Sigma tools, in many cases very big improvements and savings can be made using some of the simpler Lean principles. For example, in each of the three cases here, success was achieved with a very low investment in tools and training in techniques.

In the YouGov survey, 59% of all companies had a system in place to assist with business improvement, with 63% of manufacturing firms saying they had such an investment. The firms that do have a system in place were much more confident about their performance and delivery levels, with 54% saying that their business processes were joined up, compared to just 26% companies with a system in place said they suffered from internal bottlenecks, compared to 41% of those without a system. On the evidence presented by the YouGov survey, business improvement strategies are working and Lean Six Sigma is one of those.