Six Sigma and Lean: Foundations and Principles
This course covers the foundations and principles of Six Sigma and Lean. You'll learn how, when used together, they can enable a system of process control and process design that will transform your business.
This course includes the key Lean tools that are used in the typical Six Sigma project, and how they can be integrated into one business process improvement methodology called Lean Six Sigma.
Purpose and Goals of Six Sigma
What is Six Sigma? It all begins with an important metric. And that metric is Defects Per Million Opportunities or DPMO. DPMO is a scientific measure and a way to calculate the number of potential mistakes or defects we get when we provide a product or service. This DPMO metric sits inside the organizational system within which Six Sigma operates. The next part of this system is called the improvement methodology. And the phrase for that is called DMAIC, which translates as define, measure, analyze, improve and control. This improvement methodology in addition to the metrics is part of an overall organizational system, within which we use Six Sigma to improve business processes of all types. So why Six Sigma? Well, for one reason, there's a definite proven track record. The Six Sigma term was popularized by General Electric and Motorola back in the 1980s and 1990s. But the reality is Six Sigma has been widely adopted by industry leaders of all kinds in all industries. The Six Sigma basic techniques have been in practice for nearly 100 years.
Six Sigma provides a very good toolkit and methodology to accomplish a number of things. Six Sigma is not limited just to manufacturing, which is the industry where it was born. This methodology has been successfully deployed in every kind of business. Profit, non-profit, government, financial services and manufacturing are examples of industries that benefit from the application of Six Sigma. There are a number of benefits to any organization from using Six Sigma and we're going to talk about that next. All industries, whether they are for profit or not, are concerned with operating costs. All organizations must consider revenue now and in the future. So bringing down cost and bringing cost under control is always critical. Six Sigma has been a very effective method to accomplish this by using proven methods to reduce the cost of quality over time. Another key component is driving customer satisfaction. Six Sigma initiatives that are being implemented the right way are focused on the voice of the customer and also focused on making changes that reduce variation, reduce inefficiencies and improve quality in our processes. Another benefit to this is that we can improve the net profits and the company's value over time, and that's a good thing. Organizations that are focused on making money now and in the future need to leverage techniques like Six Sigma to ensure a long-term success and viability while never losing their focus on the customer.
Key Characteristics of Six Sigma
This topic addresses the concept of Defects Per Million Opportunities, or DPMO. As we're able to measure and capture data about something, we can begin to chart it and evaluate its relative performance against a goal, or mean measurement. And using the methods for Six Sigma, we would begin to understand with the use of standard deviations, how our performance compares to that goal with respect to an upper or lower specification limit. [The standard deviation graph is displayed with the upper limit as 6σ and lower limit as -6σ.] Anything outside these limits will not meet the expectation for what it is we're trying to produce and deliver to our customer. The chart includes the mean, or goal, while the increments further and further from the mean represent increasing standard deviations. While many operations may set a level of tolerance at 3 standard deviations, plus or minus from the mean. If our process is operating at a level of Six Sigma quality, we're setting a much higher expectation of quality. An operation performing at a level of Six Sigma quality is 99.9997% defect free, meaning only about three defects per million opportunities are expected. What is the difference between an operation where the deliverables are expected to fall within Three Sigma versus an operational that operates at Six Sigma? The difference may surprise you.
Here is the difference that Six Sigma makes when an operation is able to limit defects to only 3.4 per million opportunities in its processes. At Three Sigma this could mean losing 20,000 pieces of mail per hour. But with Six Sigma quality, only 7 pieces of mail are lost which is a monstrous improvement. What about 5,000 incorrect surgeries per week versus just 1.7? Or outages of electricity of almost 7 hours per month versus a very, very rare 1 hour every 34 years? How about drug prescriptions? 54,000 prescriptions that are wrong is way too many, considering it could be a matter of life and death. Six Sigma quality suggests that this should only happen only once every 25 years. [With three sigma, there are five short or long landings at one major airport in the US, but with six sigma, there is one short or long landing at all US airports in ten years.] How about landing airplanes? Thankfully airlines mostly operate at Six Sigma quality today. And as a result, we don't see a lot of airplanes crashing. However, it would happen a lot if they only operated a three deviations or three sigma in their performance. Six Sigma is very adaptable and with a little bit of effort, any organization can work toward this level of performance. Six Sigma quality can affect every single industry that we work in, from manufacturing to consulting, profit to nonprofit, government to the private sector. A great application of Six Sigma quality can be evidenced in customer facing organizations like call centers and contact centers that serve customers. But there is no upper or lower limit in terms of the size or type of organization that can adapt and use Six Sigma successfully.
Evolution of Six Sigma
In this topic, we will review the Six Sigma timeline to get an understanding of the evolution of Six Sigma over time. The important Six Sigma term standard deviation was defined in the 19th century, but if we go backward in time to the late 1800s we have Frederick Taylor and Tayloristic thinking. Taylor's economic theory, the division of labor, gave rise to a lot of the things that we would call Six Sigma today. In the 1920s we had folks like Henry Ford and Walter Shewhart, George Box and others that were doing development around Six Sigma as we would recognize it today. As you move into the 1940s, there was a big push by the US government to support military manufacturing. This is where the notion of statistical process control really came to the forefront. These included the early teachings of statistician Walter Shewhart. And then after World War II, we had Dr. D Edwards Deming and Dr. Joseph Juran. Their work in Japan led to the development of quality as a competitive differentiator for the Japanese. It was during this time that the Japan Union of Scientist and Engineers was born and began to create some of the foundations for what we later adopted as total quality management, or TQM. As we moved into the 1970s and early 80s, it was Michael Harry and others working with Motorola, and General Electric that crafted and branded the concept of Six Sigma as a term to bundle these methods together. This has all led to the modern day, and Six Sigma being applied in many different industries.
Now we will cover some key improvement concepts that have been developed over the years. Back in the early 1920s there was the Plan, Do, Check, Act cycle. Then as we moved into the 1960s and 70s this led to statistical process control and the formation of the Japan Union of Scientists and Engineers. Then the United States began adopting and embracing total quality management, or TQM in the 1980s. In that same time frame is when quality circles developed by the Japanese began to be well understood. Moving into the late 80s and early 90s, we had the integration of ISO9000 with total quality management and the development of the Baldrige criteria for performance excellence. Now we will explore the Plan, Do, Check, Act, or PDCA cycle in more depth. It generally starts with a plan of understanding. What is it that we want to change and why are we changing it? Then we take action to actually do it followed by the all important check step. Sometimes this is actually referred to a study. But it's validating to determine if what we did actually accomplished what we planned. If we don't pass the test in the Check step we would initiate another cycle of PDCA. So PDCA is a cycle of continuous improvement to improve processes.
We may implement the PDCA cycle along with statistical process control, where we track data and determine if the number of defects is acceptable or not. Continuing with the theme of total quality management, this involved in the direct response to the increasing competitiveness of Japan in the 70s and 80s, and taking business away from the United States. This was a United States based initiative around branding total quality, which is a precursor to what we would call Six Sigma today. During the 1990's we saw the ISO9000 standards being developed. Quality focused organizations incorporated ISO9000 standards in order to win recognition and credibility within their industries and with customers. The Baldridge criteria is another set of standards for performance excellence. The criteria includes seven important elements. The elements are Leadership, Strategic Planning, Customer and Market Focus, Measurement, Analysis and Knowledge management. Human Resource Focus, Process Management, and finally, controlling results to create repeatability and capability within the organization. The evolution of Six Sigma as we know it today is largely credited to the work done at Motorola and at General Electric. Michael Harry and many other very prominent quality leaders were involved with that. Their early work led to the worldwide acceptance of Six Sigma as a practical set of methodologies, to improve results for any kind of business.
Six Sigma Methodology
In this topic, we'll discuss the DMAIC methodology and how that relates to the PDCA cycle. DMAIC is a five step process, we start with Define. This involves really understanding issue we're trying to address determining the outcome we want to accomplish. From there, we need to measure and determine the inputs and the things we can measure and potentially improve. Then we analyze and determine the best actions to implement the next step, which is to improve the process. Then we move on to Control. During this step, we make sure we achieve the results. We use that information as an input to the next iteration of the DMAIC process, and we start all over again. In contrast to DMAIC, the Plan, Do, Check, Act, or PDCA cycle is very similar, but a bit simpler. The Plan and Do steps correlate very much with Define, Measure, and Analyze. And then the Check and the Act correspond with Improve and Control. And making sure that we actually get the result that we're seeking. The similarity is that both of these are intended to be cycles of continuous improvement. And neither is wrong or right, they're just different and helpful to us in the practice of Six Sigma. Now we will discuss the Transfer function and how it plays into Six Sigma. And it starts with understanding the meaning of the letter Y in the equation. The Y represents the output, the result, the actual process that we want to improve, or the outcome.
The Six Sigma process takes inputs, applies a transformation, and produces outputs. In the function used here, X is the input, f is the transformation applied and Y is the output. These are the variables that actually contribute to the success of the process. The f or the function of X gives you the Y result. Another way of thinking about this is that the X inputs go through the f function of transformation, generating the outputs or the Y value. Now we will talk about the transfer function and how that relates to DMAIC. For example, let's just say we're going to call technical support to address a problem with our computer. This is the Define step of DMAIC. When we call, a series of things are going to happen. Let's say that the Y in the transfer function represents how long it takes for you, a customer, to get the answer to your question. Now let's identify the X factors. These are the various steps that will take place through the entire call to resolve the technical question. These also represent the Measure step of DMAIC. Once we have all those measures, we move on to Analyze and determine which are the critical few factors that make up most of the time. And what is the normal variation of that range of time? Then we determine what we can do to add efficiency and to shorten the amount of time to resolve the customer's issue.
Once we've done that, we can move to the Improve phase and actually implement the counter measures and changes. From there, we move to the Control step of DMAIC and verify that the Y in the transfer function was improved. If you remember, the Y is how long it takes for the customer to get their answer to their question. Then we measured it with the X's. Then we moved through the analysis and the function. We actually improved the value of Y by applying the steps of DMAIC. Since this is continuous improvement, we can go through the process repeatedly. This simple five-step process is very powerful if we're willing to follow the rigor of Six Sigma. There are other improvement methodologies that we can leverage in the practice of Six Sigma. Statistical process control is one of these in which we have upper and lower control limits. We monitor processes to determine if and when they go out of control. And we use that to trigger root cause analysis and improvement. Statistical process control tools can actually trigger cycles of DMAIC to improve a process. We also have variance and defect reduction tools, correlated with total quality management, or TQM. These can be very helpful in analysis and improving processes. This is part of the Analyze-and-Improve steps of the DMAIC cycle. Another improvement methodology is teamwork, and the notion of quality circles. This concept was developed by Toyota. And it aimed at a team based approach to leveraging the DMAIC methodology, along with statistical tools and variance reduction tools like those that we've just discussed.
Six Sigma Projects
In this topic, we will discuss Six Sigma projects and some of the important things a yellow belt needs to understand. First of all, the typical duration of a Six Sigma project can vary dramatically. They can be very short, just hours, or a few days in the case of a small quality team effort to make an incremental improvement. Or it could take a year or longer to get to the end result. That said, it's pretty typical for Six Sigma projects to run four to eight weeks to gather the data and move through all of the stages of the DMAIC cycle. The contributions of yellow belts are very important as a critical team member working to achieve the results. We have master black belts, or black belts, who actually sit on top of the process and manage the projects. We have green belt level skills with heavy involvement in the analytics and information gathering, analysis, and implementation. Yellow belts are really critical as well as team members, and those who are providing inputs and support for ongoing implementation. The purpose of various projects varies dramatically, but generally they're going to focus on the following things. Reducing the variation of a customer's experience. Getting things to market quicker. Eliminating errors and mistakes and finding ways to reduce cost in operating processes.
There are some important considerations as you move into implementing Six Sigma. The first and foremost is management buy-in. If you don't have support, sponsorship, and adequate funding, it's kind of a no go for any significant project. Another thing to recognize is that Six Sigma is not always suitable for every single problem we face. We don't want to have that one tool mentality where we treat every problem the same way. Also, don't overshoot. Start small and then go bigger as we develop confidence and abilities in the organization. And don't miss the opportunities to innovate and reinvent ways to improve our performance. There are times we don't use Six Sigma, other methodologies might be in play. They could be business process management projects, business process re-engineering, or maybe Lean types of projects. We want to make sure we understand what's already going on before we try to introduce Six Sigma. We don't want to bite off more than we can chew. If the scope is too big and we can't break it down into specific outcomes, that could be a roadblock. Another thing to watch out for is when the cost to implement actually outweighs the benefits. For example, if we spent 100 hours working on our project, but we're only going to save ten hours a year of effort, then maybe that's not something we should be pursuing right now. Another important concept when introducing Six Sigma is the notion of conducting a readiness assessment. You start with defining the outcome that we're seeking. We also need to define clear success factors for the organization and the people involved. How will success be defined for them? Also, do we have reliable data? Do we have the right participants who support success for this project? Then we have to build a solid business case for using Six Sigma. What is the value of the improvement? What is that worth to us as an organization? Who would see that as valuable? Who might resist it that we need to address as part of the process? And do we know what the return on investment would be for implementing these changes?
Let's take a deeper dive and assessing organizational readiness. How does the future path compare to the present situation? Are we addressing something the business actually needs now? Are we evaluating current performance? Do we have a strong rationale for applying Six Sigma to our business and to the particular problems that we're trying to solve? And then finally, is something else going on that we need to recognize that could perhaps solve this problem? Is there an alternative solution? Is Six Sigma actually the right thing to use? Only when you've asked all of these questions can you be certain that your organization is ready to implement Six Sigma for a given problem. There are three steps that need to be followed to assess organizational readiness. Step 1 is assessing the outlook and the future path. Ask the question, is change a critical business need now? Step 2 is evaluating current performance. Ask the question, is there a strong strategic rationale for applying Six Sigma to our business? Step 3 is reviewing systems and capacity for the change. Ask the question, can existing improvement systems achieve the degree of change needed to keep us successful and competitive without using Six Sigma?
The Value of Six Sigma to the Organization
In this topic, we will determine what brings value to an organization applying Six Sigma. To get started, let's first consider customer satisfaction. Focusing on the voice of the customer to drive change and improvement in the organization is absolutely critical. And this is where Six Sigma tools to analyze data can be very helpful to understand what customers care about. Six Sigma gives us tools to address the inputs through future strategic planning, by addressing marketing effectiveness. How to get things right the first time, and what is it the customers are really interested in with respect to our products and services. A fantastic tool kit in the Six Sigma bag is called Kano. Kano is a way of gathering data from customers and beginning to understand what's important to them that really differentiates us. What are the things that we can do more of that add more satisfaction? And what are the things that they are neutral about, or could be dissatisfiers in that product or service that we provide? If we move on now and think about strategic planning, Six Sigma analytics can help us determine the customer satisfaction factors and use these as key inputs to the strategic planning process. We can use Six Sigma to understand key financial drivers within the operations of the organization, and where we need to focus our improvements.
There are very powerful tools around product and service development that can help us get to market much faster. We want to rigorously examine features and functions that we plan for future products. And then we determine which of those are particularly important to the customer. Then we determine how we're going to incorporate those at the correct level of quality and speed to earn the market share that we really deserve. From an organizational culture perspective, using the rigor of Six Sigma for chartering, developing metrics controls, and engaging quality circle teams can really drive an organization forward. Profitability is always important, and we need to continue to reduce costs. Six Sigma is very helpful in accomplishing that. Reducing costs of quality is an important aspect in bringing down costs as well. Because organizations could be spending as much as 20% to 75% of the cost of sales in just assuring quality in products and services. With increased market share, we continue to work towards shorter product development cycles, being tightly aligned to the customer's needs, and doing everything better and faster than our competitors.
Purpose and Value of Lean
Getting introduced to the notion of Lean or Lean manufacturing in the service sector, it's all about recognizing that it's a continuous improvement initiative. It has important elements, such as streamlining and improving processes. Taichi Ohno is considered by many to be the father of what we call Lean today. According to Mr. Ohno, the essence of Lean is that we first calculate from the time that we receive an order for a product or service to the time we get paid for that fulfillment. The objective is to make that timeframe progressively shorter and shorter. Lean is about reducing waste across the entire value stream in terms of time and effort on the part of human beings. This results in maximized value, better efficiency, quality, and customer satisfaction. In the manufacturing sector there are many examples of Lean. One small company producing sheet metal and wire products moved away from a batch and queue approach to a Lean manufacturing approach. In doing so, they were able to drive down costs by 30% the first year, and reduce lead time per customer orders by 50%. Conversely, in the service sector, a large nonprofit financial services organization used the practice of Lean to focus on their process flows. They were able to reduce the time to respond to customer inquiries by 50%. They reduced their backlogs for claims by 80%. And measured a 50% improvement in customer satisfaction at the same time. There are many advantages to being lean, and it starts with improved process efficiency and flexibility by taking out the waste and removing the impediments to a smooth flow of products and goods. After that, it's about reducing lead time and cycle times. How long does it take for us to fulfill that customer order? Can we speed that process while simultaneously improving the quality that we deliver to our customers? At the same time we can provide very meaningful communications with our stakeholders.
Stakeholders include our employees, our management, our vendors and even our customers through the application of techniques like Kaizen, or change for the better. Integrating people on teams and making improvements. We also explore opportunities to better leverage the resources that we have and reducing the resources that we need. These are very powerful techniques. The value of Lean to an organization has many facets, including that it creates a real purpose. And that purpose starts with the customer, as it does with Six Sigma. There's a Japanese term called Gemba, which means going to the point of attack. In Lean, it is at the point of attack where value is created, where we actually do the work. We allow our employees to reach their full potential by being extremely inclusive. Lean, by the way, is a very team-based approach to continuous improvement. It leverages the technique of kaizen very much. Kaizen involves all employees in the process of continuous improvement. Lean identifies the value added activities and separates out non-value added activities in order to eliminate them as we go. This brings increased value to all of our stakeholders. We can drive this improvement to our bottom line by reducing wasted effort and time that doesn't add value that our customers are willing to pay for. Let's talk a little bit more about eliminating waste and what the value of this concept is. It involves identifying at the task level where we spend time and money. What adds value? What doesn't add value?
And, of course, there are things that are necessary but don't add value. We progressively determine how we're going to separate the activities and eliminate the non-value added activities immediately. In the longer term, we work on the root causes for those necessary but non-value added activities to determine if we can do anything about those as well. We prioritize based on the voice of our customer. It's important to recognize that this goes beyond what the customer gets in the product or service. It also includes our internal process customers. Who's downstream in the process that depends on me to do my job right the first time? We need to understand their voice, and meet their needs as well. By doing that we become more flexible, and we can increase the speed of what we're doing across the entire value stream. We also can begin to use a simple technique called Pareto, or Pareto diagramming, where we identify which 20% of the activities are associated with 80% of our opportunities or problems so that we can work to improve those. As we address those vital few major causes, this results in speeding up the processes inversely and proportionately and thus reducing work in process, or WIP. This in turn gives us great opportunities to minimize processes and product complexity by rationalizing and reducing redundancy wherever we find it in our processes. In summary, the cornerstones of Lean are eliminating waste, prioritizing the customer. Knowing that process flexibility increases speed. Understanding that 80% of problems are caused by 20% of the activities. Realizing that the speed of a process is inversely proportional to work in process, in minimizing process or product complexity.
Lean Concepts and Process Steps
In this topic, we will discuss some key Lean concepts and process steps. To support that, we have a four-step pyramid to represent the concepts of Lean. These concepts revolve around Identifying Value, the Value Stream, Pull, and Perfection in the execution of Lean. Let's start with Identifying Value. Identifying Value should always start with the customer. These can include the customer we ship the product or service to or the downstream process customers. A great exercise in identifying value is to break down a detailed invoice for your customer that shows every activity and what it costs. The customer could review the invoice and cross off certain activities saying, you know what? I don't see this activity as adding value. This would be a great indicator that we need to improve the process. This could include things like wasted movement, rework, or maybe extra inspection time because we have trouble getting the process right the first time. So what is it that creates value in the process of our product? There are many pieces to this. But if we start what is seen as valuable by our customers, and then try to determine what brings the most value for the organization, we're off to a really good start. The next important concept in Lean is what's called the Value Stream. A Value Stream is any x series of activities and processes that create value in an organization. We can break down the steps and use a technique we call Value stream mapping.
We typically capture cost and quality data and the amount of time that elapses as we move along the value stream. We should be including suppliers, the organization, both upstream and downstream, and even customers in that process. We also need to consider identifying and eliminating waste steps in the Value Stream. With all that information, we can consider restructuring activities and processes to improve overall performance, not only for the organization, but most importantly in the opinion of our customers. The next important concept is the notion of Pull. Pull is the idea that instead of pushing inventory through the system by planning and anticipating how much might be needed, we actually allow the customer to trigger a pull of inventory based on consumption. By doing that, we can greatly reduce and eliminate wait time that's associated with traditional planning processes. Inventory is always fair. We can use one, and then we can get one. Through the use of pull, we can drive total inventories way down. In fact, we can almost go to zero inventory. We can minimize inventory by only having the minimal inventory necessary to create a time buffer between steps in the process, but no more than that, to support seamless execution based on demand from the customer. Perfection, dedication to continuous improvement is absolutely critical in the practice of Lean. All organizations would quickly agree that from a safety perspective, the only acceptable goal for safety would be zero, zero injuries, deaths, lost time, accidents, or even near misses.
We have to have the same attitude toward waste and defects in our processes. Zero is the only acceptable goal. While we may never actually get there, we have to be committed to continuous improvement to drive perfection. We should create feedback loops with our customers to get the customer voice in the elimination of waste as well. The customer will continually define for us what value added means, and that can change over time. Now I'll take a moment to discuss the process steps for Lean. It starts with identifying value in the organization. This is very important because it helps define the direction for the organization. We use the customer's inputs to define what value actually means. From there, we Map the Value Stream. It makes sense to start at the end with the customer and work backward through the process. You can create current state maps that represent the current situation and then think about future state maps. When you compare the two, you can identify what needs to be done to create better flow. You can remove obstacles and bottlenecks, organize people and resources better, and take steps to ensure quality of the source. Then we can address the concept of pull. We want to establish a smooth pull through of our inventory to support the entire process. We minimize inventories, and we manage demand so that we can have ideal logistics and execution. Then we Seek Perfection. This includes incrementally modifying and improving our practices over time to continually eliminate wasted time and efficiently execute the entire end-to-end process. Think about it as a never-ending cycle of continuous improvement that's driven by changes and the needs of our customers.
Lean and the Concept of Value-added
In this topic, we will explore the concept of value added. Value is defined by how well a product or service actually meets our customer's requirements. An important question we can ask to determine value is, will the customer be willing to pay for this? If the answer to that is clearly yes, then we can argue that it has value. So value added includes activities that actually add value to the end product, and that our customer is willing to pay for. So logically, we would say that non-value added would be any activities the customer is unwilling to pay for. So let's say we provided a detailed invoice to our customer, and we broke down every single activity that was included in the price. If the customer was able to cross off anything and say hey, I don't want to pay for that in my price, that would help us to identify the non-value added activities. Let's explore this in more detail. There is a very helpful three point test. We can break down each activity in the process, perhaps using value stream mapping. For each activity we ask three critical questions. Does it fulfill our customer's need or preference? Does it physically change something about the product or service? And is it done right the first time? We have to say yes to all three of these questions or this step in the process may not add so much value.
For example, let's say you went shopping for an article of clothing, and you had a coupon with you for a discount. If you take the clothing and the coupon to the checkout and they quickly and efficiently scan it and you receive instant savings, that's value added. And they're actually doing it right the first time. However, if they have to stop and go find a supervisor to get approval or go research it someplace before they can give you your discount. You probably would not see that as value added activity because of the delay and not getting it right the first time. Let's discuss non-value add activities. Just because we mark something as non-value add, doesn't mean we can necessarily scrap it. For example, with physical items we may repurpose it, recycle it, or sell it at a discount. Or maybe it's something we have to do because it's necessary to operate the business, or it's a regulatory standard. We also have to support activities such as human relations, information technology, finance, and legal could fall on this category. Or maybe our customers have given us mandates that require additional inspections or documentation before we can provide that product or service.
There will always be some non-value add activities that we just can't change easily. The concept of Lean includes the classic seven wastes. Let's start with overproduction. This is any effort beyond what's required to meet the customer's requirements. Building inventory or having a bunch of people sitting around waiting for a phone call is a form of that. After that, we have extra processing, which can include reworking a product or service. Motion would be the physical movement of people, material, and information that's taking up time or space, but not really adding value. Waiting would be delays, both planned and unplanned, that consume time and money, but don't really add value in the opinion of our customer. Transportation would be trucking, logistics, and shipping in excess of the minimal requirement needed to deliver to the customer. Inventory would be excessive inventory beyond just what's needed to support a smooth pull of production of information through the value stream. And then finally, any defects. This includes any need to fix, repair, scrap, or otherwise correct and inspect that could be avoided by doing it right the first time.
Lean Tools: Just-in-time
In this topic, we will discuss the tool of Just-in-Time or JIT that's part of the lean tool bag. Just-in-Time is important to us because it's a very clear and easy to execute control of inventory processes. It controls the flow of materials and products to meet the drumbeat of customer demand. Also known as Takt time. We don't have the waste of waiting with a well executed Just-in-Time system. We use one unit of inventory and we're able to get another one immediately and move on. And we can minimize waste such as storage costs. One example in the manufacturing industry is automotive assembly plants and the practice of sequencing. They trigger automotive interior trim like headliners, door trim, and instrument panels to be assembled nearby. And then delivered in exactly the right order of color and combination exactly when needed. In the service sector, a great example would be hot dogs. And a really cool process I've seen is where the order ticket is stapled to a paper bag. The paper bag moves down the counter as you do. And each team member adds the ingredient, so that when you arrive at the end of counter, there's your bag ready to go, hot and fresh. Just-In-Time is based on the Pull manufacturing approach. And it's driven by various kinds of signals such as Kanban, or visual signals, or Heijunka box, or other techniques like that. The benefits of JIT involve controlling inventory. Controlling the flow of materials and products, reducing waiting and reducing waste. JIT is based on the Pull Manufacturing approach. Production is driven by signals and is used to create synchronized assembly lines.
The benefit of this is that it helps create synchronization between assembly lines. You can actually have visual signals to pull in components just when needed for finished products. This in turn results in a much smoother flow in production, and reduces the overall inventory cost to operate the business. There are many benefits and limitations associated with Just-in-Time. We can free up working capital in the form of inventory throughout the facility. But we can also free up space. For example, a printing company was considering expanding it's facility to accommodate pre-press operations. But after using Just-in-Time techniques, they freed up so much space that they avoided spending $100,000 for added square footage. As a result of successful JIT, we may be able to downsize and save on rent, heating, and cooling. We also can reduce wasted motion and efforts associated with maintaining inventory. We can also have more working capital than what would have been allocated to the purchase and maintenance of excess inventory. Now, there are some caveats for each of these techniques. We need to recognize that Just-in-Time is not necessarily a good fit for all applications. The benefits of using JIT are that it frees working capital, makes space to use for other needs such as production. Allows downsizing to a lower cost, generates less waste, and lowers inventory costs. One of the limitations of JIT is that it does not work for all replenishment scenarios.
Additional limitations are the distance from suppliers. Potential supply shortages, a sudden spike in market demands, and delays in the delivery of materials to name a few. For example, what if we are far from the suppliers? If we are in the United States but the supplier is in China, they're going to need to ship the product by boat. It can be very difficult to design Just-in-Time in that kind of situation. We have to make such significant buffers in our calculations that we're probably better off using enterprise resource planning or a technique like that. Another potential issue is the potential supply shortages that could happen in the market. Does this product have a volatile supply base? Is there a risk of tsunamis taking out the supply source? Are there other things that can create significant risk to us with respect to supply chain execution? What about a sudden spike in market demands? If we design our inventory system to work with Just-in-Time at 100 a day, but suddenly the market spikes to 1000 a day, Just-in-Time isn't going to respond very well to that particular problem. Finally, can there be unexpected delays in the delivery of materials? This is often driven by things like the weather or cross border movement of materials and goods through customs. Or perhaps transport issues associated with things like railroads. Or special kinds of transportation equipment required to move the product or service that are not predictable. In summary, before implementing JIT, it's important to examine both the benefits and the limitations based on your specific operation.
Lean Tools: Poka-yoke
Poka-yoke is an important aspect in the application of lean in production environments and in service environments as well. Poka-yoke translates roughly in Japanese as mistake proofing. We also might hear it as error proofing. What we're doing with error proofing methods and Poka-yoke is determining where human errors can occur in a process. We work to continuously eliminate these mistake opportunities, and to make it easy for the human being to get it right the first time. So for example, in an assembly area, we're going to be assembling a product with screws. If we position and stage the standard work, so if there are exactly ten screws available for each assembly, it gives us a visual signal when we've used all ten and there's none left over. That would be an example of error proofing in the application of an assembly operation. In the service sector, we may use color coded forms. Or maybe the information technology system does not allow us to exit a screen until we properly fill in all the required values in certain fields. There are many types of Poka-yoke devices. There's really no limit to these, but let's cover some of the important ones.
The first would be checklists so that we don't forget the important things that need to happen and the particular order they may need to follow in order to ensure a quality result. Screening is also a very powerful technique, giving us the ability to force the accepting of legitimate values or options within a given process. Simple screening devices might prevent problems with accepting agreements that we don't want when we're accepting software licensing. Andon lighting or signaling methods are very powerful with different colors of lights denoting different actions by the support team. And finally, control methods such as color coding or providing safety mechanisms so that we have smooth movement of material without injuries or safety problems or damage to the product. There are endless examples of how Poka-yoke can be utilized. In a manufacturing example we may have checklist, screening, signaling, and control methods all in play. Additional examples may include enclosing the moving parts of a machine so no oil or chips could fly up and loose clothing cannot get caught in the gears. Some machines are designed so that safety doors must be engaged before the tools will move. We have computer controls and computer aided manufacturing tools that allow for fewer mistakes by the operator in terms of programming the equipment. All of these Poka-yoke devices help to prevent or minimize human error.
Lean Tools: Kanban
In this topic, we will discuss the concept of Kanban. Kanban is Japanese term associated with the notion of a white card, or a card that you can see and touch. But in reality, it's any form of a signal that can be used to pull materials into the value stream. It could be anything. Colored golf balls, bins or containers, empty spaces on the floor, lights or sounds. A great advantage of using Kanban and pull is avoiding overproduction, by only making what's needed when it's needed. Making sure we have only enough material in the system to meet all requirements to pull things through helps us reduce inventory beyond the absolute minimum levels. Minimizing inventory and work in progress also means better product quality, because we'll have less inventory moving through the system that could encounter problems that need to be fixed. However, there are disadvantages as well. Whenever we have major disruptions in delivery of materials, it can cause a Kanban system to break down. The notion of Kanban pulls works like this. We have a customer, which could be the end customer or a downstream operation. The Kanban stream begins with the supplier who provides the material flow to production. From production there's a product flow to the customer. When the customer requires a product, a Kanban pull signal is sent to production from the customer. Then a Kanban pull signal is sent from production to the supplier.
When we use the standard amount or unit of material, we create a Kanban pull. This could be a physical ticket, or a container, or a signal that's going upstream. This authorizes the feeder operation production to produce another unit and ship it down to the customer. When we consume the raw materials in turn, we would have a Kanban pull that goes upstream to our supplier. This process simply repeats again and again over time to continually refill that standard unit in response to Kanban pull signals between us and our customers or between us and our suppliers. There are many examples of how Kanban pull can work. For example, in a manufacturing organization, I once used this technique to manage pallets. Pallets were used for shipping. And because of intermittent demand requirements from our customers, we often ran out of returnable packaging. Because it was impossible to plan how many pallets we would need, we simply created a standardized footprint in the parking lot. And we authorized our pallet supplier to come by every two business days, take an inventory with a checklist, and then come back two days later to fill the empty spots.
By doing this every two days, we never had more than the footprint would allow and we had enough on hand to handle any spike in demand from our customer. In the service sector, maybe we would be doing claims processing. And in the claims area we would have bins from which we're pulling the claims ready to process. As the bins become empty, they could flow upstream to the mail room where they can refill the bins with more claims to process. This in turn could trigger a pull from the mail holding area to bring in more unopened mail to be processed to refresh the inventory of claims to be processed. There are many great opportunities in the application of Kanban and pull. It reduces inventory, work in process, and cycle time required to support our customers. It can also reduce turnaround time for a given customer demand. It also reduces machine downtime because we won't run out of things we need to keep everything productive. At the same time, we can improve visibility of quality issues. That said, there are also issues and challenges associated with the application of Kanban and poll. We need steady flow along a fixed path. Large variations in volume or product mix can disrupt the flow and undermine the performance of the Kanban system. It may not work so well when there are vast differences that separate our assembly plans and our suppliers from one another. Another obstacle could be unexpected demand in the market, which makes it very difficult for the Kanban system to respond quickly to meet that market demand.
There are many applications of the physical Kanban signals, we could use containers or physical cards. For example, I worked with our suppliers to use standard containers for raw materials to supply my automotive supplier plant that was making parts for the auto industry. The returnable container would have a standard amount of material, and when consumed, we would return that container and that would trigger replenishment. The same concept can be used with a physical Kanban card as well. There are some issues with cards, particularly when we're not co-located with our suppliers and our customers. If there are long physical distances between the point of use and supply, we have to move the cards physically, or scan them, or somehow fax them. And if we lose cards, that can be a real headache. A modern intervention that's working extremely well is what's called an e-Kanban system. So in an assembly plant or a production facility, as we consume a standard amount, we could barcode scan or use an RFID scan to say we've gone empty. This signal transmits automatically to our supplier department or outside supplier. The authorization to make and ship another unit of inventory. The newer approach using e-Kanban system is a great adaptation that integrates technology with Kanban cards to overcome the challenge of distance.
Lean Tools: Value Stream Mapping
If I were only allowed to pick one tool out of the entire Lean Six Sigma tool bag, it would probably be value stream mapping. A value stream map depicts the flow of resources and information as it goes across the entire value stream. It defines and shows us how value is derived and delivered from start to finish. We need to remember that waste disrupts value flow, and waste could be of all kinds. A current state value stream map may demonstrate the effort required, the time required, and defects and mistakes that occur in our present operation. We would also like to have a future state value stream map, to show the entire value stream in an ideal situation. We should recognize that value stream mapping is a technique to identify value and waste. And it gives us clues about how we can address these for continuous improvement. Using a simple example of value stream mapping using a popular technique, we can identify some basic information being captured. The flow of information is represented with single skinny arrows, with some kind of production scheduling pushing things to execution. An output may be a signal to push things through the process. We use a directional arrow to show the movement of the physical material, or the information coming from the supplier's source.
Moving through the process and then off to some kind of transmit mechanism to our customer, who, in turn, is probably communicating, electronically or otherwise, the requirements to us to drive our production planning and control process. So it gives us a sense for the flow of information and material across our value stream. There are four steps in the process of analyzing the value stream. Step 1 is defining the product family. Step 2 is creating a current state map. Step 3 is creating a future state map. And step 4 is planning the implementation of improvements. To analyze a value stream, we have to start with first defining a particular product or family. And generally, you shouldn't overshoot this too much or bite off more than we can chew. It's usually a good idea to pick something very discreet. A particular piece of information we're going to process, like an insurance claim. Or a particular part we're going to produce, like a stamping that's used in a mechanical assembly. We define this product pretty narrowly, and then follow it through the process. You kind of staple yourself to it by becoming the thing and marching through the process.
You capture what happens to it as you create a current state map. Once you've done that, you can do the analytics and move into analysis and identifying what could be done in the future state for a better future state and better results. The real benefit comes in when we get to the very end of the process. And we do the analytics, comparing the current state to the future state. If we evaluate the current state, we can identify five different steps. [They are fabrication, molding, machining, painting, and inspection.] In the future state, we've noted a design work cell Kanban burst, and we've done a project to combine these three operations into one. [He points at fabrication molding and machining. In the future state, we have three steps: fabrication molding and machining, painting, and inspection.] We moved away from pushing things through the value stream, instead now pulling them through. The benefit can be quantified in the amount of effort and the amount of time. In the current state, the value add time is about 45 minutes per unit going through the value stream, and about 15 weeks of total lead time to get things through. In their future state, we drop that down to 31 minutes of value add time, which is about a 33% improvement in productivity. And we've reduced the time from 15 weeks to just 10 weeks of total lead time. What an improvement using value stream mapping can make.
Six Sigma and Lean: Differences and Similarities
Six Sigma and Lean are complementary methodologies and, in fact, they overlap a great deal. However, it's important to recognize there are important differences between the methodologies as well. First, let's think about the focus. The focus of Six Sigma is around eliminating sources of variation, the number of mistakes and defects we're making. As opposed to Lean, where we're trying to take unnecessary time out of the process and eliminate waste wherever it happens. The methodology associated with Six Sigma suggests a very rigorous five step process. Define, measure, analyze, improve, and control, where we're gathering the data and going through a number of different steps that are highly rigorous and very oriented around data. With Lean, we're less focused on the data, at least the precision of it. Lean uses a four step process of identifying the end-to-end value stream. Identifying the opportunities to improve the overall end-to-end performance, designing a solution, implementing the solution, and taking steps to make sure that the improvement is continuous and lasting. In Six Sigma, we tend to be very focused on a point in the value stream. The performance, say, of a single step and our ability to produce quality at that step. Lean, on the other hand, considers the entire process and what we can do to improve the process to deliver things faster with better quality and more efficiency at the same time.
The key tools associated with Six Sigma are narrowly focused on specific problems and very statistical in nature. We use metrics and statistical process control tools to bring things under control and keep them controlled. [Exploratory data analysis, management and planning tools, and SPC tools are also used.] Using a Lean line of thinking, we might use tools like theory of constraints for identifying bottlenecks and removing them. The concept of removing muda, the Japanese word for waste, is another technique. We eliminate waste through the use of value stream mapping, pull systems, the 5S methodology, the notion of standard work, error proofing, creating flow, and more. [such as Kanban, poka-yoke, setup reduction, kaizen and kaizen blitz, TPM, and visual factory.] The success of Six Sigma depends on reliable data and scientific methods. This is a bit different than Lean, which is about eliminating waste and taking non-value added time out of the process wherever we can. On the Lean side, we're less concerned with precision in the data. Instead, we're seeking information about what to improve and why to improve it. It's about total value stream performance and overall customer satisfaction.
Lean focuses on removing waste, improving the overall operation of the business, and being committed to continuous, small incremental improvements over time. In total, between both of these tool kits, there are more than 100 different defined tools that can potentially be learned and mastered in your learning journey. Zero defects and zero waste. We may never get there, but we want to be continually dedicated to improving quality. While at the same time working toward a totally waste-free value stream that delivers results that our customers want to pay for. Remember that all of this is inspired by the plan, do, check, act cycle of continuous improvement. PDCA and other methods like it tap into systemic problem-solving tools. The Six Sigma statistical tool bag, the DMAIC methodology. Other methodologies like the 5Ys. And additional tools like fishbone or Ishikawa diagrams and many more. Both Six Sigma and Lean depend on teams and people being motivated to come together and work toward a common purpose. Both require significant buy-in by the organization as well. Without that, we can't get the commitment and the support required for success. Both methodologies, and particularly when they are leveraged together, are proven to deliver significant benefits and customer satisfaction, employee satisfaction, overall cost reductions, and making the company a better place to be.
Integrating Lean with Six Sigma
Integrating Lean and Six Sigma is the focus of this topic. Think of them as pieces of the puzzle that interlock and create tremendous value for any kind of organization. One of the techniques I like to do when doing value stream mapping is to take the data output from the value stream mapping, and begin to identify which relative few steps in this value stream account for most of the effort that's being spent. At the same time, I examine the steps to see which few steps make up most of the defects and the mistakes that we're finding across this value stream. These would be the key vital steps where the bulk of the opportunities lie. Next, I decide which tools come into play. We can use Six Sigma to reduce the variation and reduce the number of defects. And we can use the Lean techniques to speed things up and create stability in the process. Lean and Six Sigma overlap, and are very powerful when working together to eliminate waste and variation, to drive value for any organization. Remember, on the Lean side, we're going after speed, flow, eliminating waste in its various forms. [such as excess inventory and wasted time and motion.] And in removing constraints that are preventing a smooth flow of product value. We are also working to increase flexibility and reduce complexity. At the same time we're working on this, we will also identify opportunities to strategically and tactically apply Six Sigma concepts. With a focus on what the customer requires, we work to reduce defects and improve our performance. We also engage in fact-based decision-making, optimizing and controlling the infrastructure and developing teams of people that can support us as we develop and implement our overall methodology. When working to integrate Lean and Six Sigma, there are some considerations.
The various criteria include the time frame, the nature of the problem, capacity for culture change, and just how pervasive the problem is. When comparing Lean and Six Sigma, it becomes evident that certain methodologies have advantages in certain circumstances. For instance, if it's relatively inexpensive, low risk, and we can do something quickly, the Lean tool is superior. However, what if there's a lot of risk associated with making the change? If safety is a top priority and there is a risk compromising safety in implementing a change without thoroughly testing it, we're probably better off using Six Sigma tools. That would take a longer time, with much more rigor in the data analysis. If we want to go after the waste and improve velocity when we have too much inventory, Lean is the great way to go. If, however, we are making a lot of mistakes and we're putting a lot of inventory through re-work because we can't count on reliable results, this is where Six Sigma is very powerful. What about capacity for change? If we want to ease change into the organization, build quick wins, and drive long-term behavior, Lean is a wonderful technique. With Six Sigma, it can take longer because we need data and a longer period of time to show the results. Finally, the pervasiveness of the problem is a consideration as well. Is the problem isolated or is it something we can easily identify and go after as low hanging fruit with Lean methods? However, if mistakes and defects are rampant, it will require a more intensive and data-based approach utilizing Six Sigma.
Lean Six Sigma Deployment
The stages of Lean Six Sigma deployment follow the plan, do, check, act cycle. This includes identifying an opportunity, designing a solution, implementing it, and then moving into a continuous improvement cycle. To do that successfully means we have to equip people with the right skills and the knowledge about what we're doing and why we're doing it. Sharing the objectives will help others to participate and support us in taking action. We need to recognize the all important customer and how they define value using voice of the customer data collection tools. From there, we can identify existing opportunities. We can observe or measure the current situation and identify the biggest sources of waste and variation that we can immediately address in order to increase value for the organization and for our customers. Designing a solution very often is dependent on some level of process or value stream mapping. There are four stages in a Lean Six Sigma deployment. Stage 1 is identify opportunity. Stage 2 is design solution. Stage 3 is implement solution. And stage 4 is ensure continuous improvement. The steps for stage 1 are employee training, recognizing customer defined value, and identify existing opportunities. In stage 2 of Lean Six Sigma deployment, we design the solution.
Let's consider an example where we're mapping out the flow of a direct mail piece. It begins with the compiling of names and data. We then verify who we want to send our offer to based on their credit. We merge that data and we transfer it to our vendors who actually produce the flyer document. Finally, we will send the document to the vendor who will actually print the flyers and mail them to our customers. In this situation, the task is to develop a new mail piece in 52 days. The master schedule has five activities, each having a varying duration. The first task is compile names, which takes 3 to 6 days. The next task is verify credit and addresses, which takes 16 days. The third task is data merge, that takes 31 days. The next task is to transfer to vendors which takes 1 day. The final task is to print and mail vendors, which takes 10 days. The total lead time is 61.64 days. One of the important things about designing a solution is to zero in on where we get the biggest bang for the buck and where we're likely to find our biggest improvement opportunities. So if we evaluate the limited data with 61 days in this value stream, reducing time sounds important. And we calculate that just two of these five steps make up 47 of those 61 days. That would be a clue that maybe we want to focus there first. So how do we identify which improvements to address first? Well, there are some pieces to that. We want to assess the impact. We need to understand what the low hanging fruit is that would affect people the most. We might want to prioritize those things where we can involve people in the solution. People would have to support that and maintain it in the future.
We also like that to be highly visible. We need to generate quick wins early in the implementation of Lean and Six Sigma. We have to be very cognizant of these issues as we move through the process. In the third stage of Lean Six Sigma deployment, we decide which improvements to address first. We then prioritize low hanging fruit, which are improvements that involve workers and processes that have highly visible waste. To ensure continuous improvement, it is important to create employee buy-in and ownership. There are many things we need to do including deploying high performing teams methodologies, involving people in the process, training them to be cooperative, and communicating to gain their support. We need to listen to and honor people in the process. We need to commit to eliminating defects and waste in our process. And the focus is zero, zero defects and zero waste. We also need to ensure that those processes and improvements are sustained over time. There are a number of tools that can help with this, such as error proofing or poka-yoke, standard operating procedures, balanced scorecard, and other things like statistical process control. But we're never done. We need to remember that Six Sigma and Lean Six Sigma together are a continuous improvement methodology. In the fourth stage of Lean Six Sigma deployment, we ensure continuous improvement requires employee buy-in and ownership.
They need to continue to find new ways to eliminate waste, ensure that improvements are sustained, generate new ideas, and act on ideas. We also need to remember that ideas are great, but until we act on them, until we take action, ideas have no real value to the organization. So from a Six Sigma perspective, there are many Lean tools that we want to apply. For example, just on a general level, we need to apply the notion of value chain and value stream, creating flow and perfection in the ability to process, to execute flawlessly. We also don't want to overlook many different process improvement tools that we use, for example, waste elimination techniques. The use of value stream mapping to help understand where in the value stream we can make improvements that would have the biggest effect on the customer and on the organization. Can we put in kanban and pull systems, make things just in time, create better flow. We're looking to leverage the tools of kanban, pull signals, and things of that nature and leverage things like poka-yoke and error-proofing with standard visual work throughout the process. And finally, let's discuss Lean tools used by Six Sigma. The general Lean concepts that may be used are the ideas of value chain, flow, and perfection. The process improvement tools are waste elimination, value stream mapping, pull systems, just-in-time, cycle-time reduction, continuous flow, kanban, and poka-yoke. And the control tools are Total Productive Maintenance, or TPM, visual factory, and visual controls.