17 Mar 2009
UNDERSTANDING THE NEED FOR LEAN
Is your company experiencing any of the problems listed below? If so you might want to consider looking more into what Lean Six Sigma could do for you!
1. Low Profitability
2. Poor Quality
3. Long Lead Times
4. Excessive Inventory
5. Low Productivity
6. Physical Space Issues
7. Unsatisfied Customers
8. Low Employee Morale
I. Why do I need Lean Six Sigma?
Most businesses today find themselves in unfamiliar waters with the current state of the economy. For years, if not decades, we have seen growth and prosperity, but now many are faced with pure survival. What has changed, and is there hope?
Of course the biggest change has been the collapse of the financial and housing markets. We have all seen cycles of highs and lows, but never to this magnitude... so why does it seem like this is worst of times?
Several things have changed over the last decade. One very notable change worth mentioning is the continued development and use of internet. Today, companies from all over the world can now both sell and buy products from the far reaches of the globe. Not only has this presented opportunities for new resources but it has also created new competition and increased global dependency. Therefore, when major economies such as the US, Japan, and China hit difficult times we see the effects all across the globe.
Another change is the higher expectations in domestic competition regarding the areas of cost, quality, 100% on-time delivery, and unprecedented customer service. These, combined with the above, have put extreme pressures on companies to perform and to control costs.
Therefore for us to participate competitively both globally and domestically we need to be the best at everything we do! It means we must be LEAN in all that we do!
Typical Results of Lean
● Cycle Times 40-90% Reduction
● Inventory 30-70% Reduction
● Cost of Quality 50-90% Reduction
● Setup/Changeovers 70-90% Reduction
● Space 40-70% Reduction
II. What is Lean and Six Sigma?
The basic definition of LEAN is: TO CREATE THE MOST VALUE WHILE CONSUMING THE FEWEST RESOURCES!
Lean is more of a methodology of how you operate your business while focusing on the following fundamentals and directives:
Fundamentals of Lean
1) Lean focuses on optimizing only those things that add value to the customer.
2) Lean ensures the elimination of anything else wasteful.
3) Lean utilizes key measurables to evaluate and track performance.
4) Lean creates the most value while consuming the fewest resources.
Directives of Lean
1) Value is defined from the customer’s perspective.
2) Quality is designed into the product or process, not inspected into it.
3) Quality is everyone’s responsibility.
4) High/excessive inventory hides problem and must be eliminated!
5) There must be a relentless commitment to banishing waste and striving for perfection. Focus on eliminating the seven deadly wastes:
● Over Production – creates inventories, takes space & capital
● Excess Inventory – caused by over production
● Waiting – non-value time between each process step
● Unnecessary movement of work products (transportation)
● Unnecessary movement of employees (getting tools, supplies)
● Unnecessary or incorrect processing (non-value added)
● Defects - repairs, reworks, warranty costs, and scrap
SIX SIGMA is another popular catch phrase but really is a MINDSET or METHODOLOGY for solving specific business problems.
● Six Sigma involves simple insights about how to look at your business that will transform how you simplify and streamline it for maximum productivity and profitability.
● Six Sigma is a result-oriented, project focused approach to quality, productivity, and profitability.
● Six Sigma is a data driven process for continuous improvement
● Six Sigma focuses on delays, defects, and variations.
● Six Sigma can be applied to any size business.
If fully embraced, Lean Six Sigma can deliver:
1. Improved Profitability
2. Shorter Lead Times
3. More Flexible Production
4. Lower WIP and FG Inventory (Increase Free Cash Flow)
5. Better Product Quality
6. Better Responsiveness
7. Better Productivity
8. Better Equipment Utilization
9. Better Utilization of Space
10. Empowered and Motivated Employees
11. Improved Safety Performance
12. Improved Customer Satisfaction
III. Measurables, why are they important?
I mentioned earlier the importance of Lean performance measurables and how they are concerned with controlling the value streams through day-today visual control and week-by-week continuous improvement.
Performance measurements and their targets reveal areas that need to be improved and the financial impact of these on-going changes can be predicted and monitored if value stream costing is used.
Everyone in a lean enterprise is responsible for the systematic improvement at their own level. (Sometimes called “accountability”)
Three of my favorite quotes from previous mentors are:
1. What gets measured gets managed!
2. You can’t show improvement on what you do not measure!
3. The goal of any performance system is to provide the right people with the right information at the right time!
To put in plain and simple you need to measure performance to:
1. Support decisions
2. Provide necessary feedback
3. Assess outcomes
4. Assign Accountability
5. Identify Problems
6. Measure progress towards objectives
7. Reward good performance!
8. Enable you to compare yourself with other companies through benchmarking.
9. Foster continuous improvement within your organization.
10. Enhance overall competitiveness within your organization.
Examples of performance measurements:
· On-time Delivery
· New Order Intake
· Training Hours/Employee
· Inventory Turns
· Batch Size
· WIP
· Lead Time
· Days of Inventory on hand
· DPMO (defects per million opportunities)
· Customer Retention
· Health & Safety Record
· Cost of Sales
· Cost of Quality
· EBITDA
· Days Outstanding (Payables)
· First Pass, Yields
· Total Value Stream (VAT)
· Days Outstanding (Receivables)
IV. So Where do we begin?
The question asked by many companies is "Where do we begin?" Every business generally has three big leaks:
1) Delays – between the steps in your process cost you time and money that dampen your productivity and Internal processes that leak like a rusty bucket.
2) Defects – mistakes and errors that have to be fixed or scrapped. Fixing mistakes that should never have happened in the first place consumes time and money that could be better spent serving customers or boosting the bottom line.
3) Variation – small to large differences from piece-to-piece, day-to-day, month-to-month with your products and services.
Therefore to get started you need to learn what’s been termed the F-I-S-H process:
Focus on key problem areas by counting and categorizing your delays, defects, misses, mistakes, errors, and variations.
Improve by eliminating delays, defects, and variations.
Sustain the improvement by monitoring key performance measurables and responding if they become unstable.
Honor your progress!
Simple 8 Step Plan
Step 1: Get help from someone familiar with Lean and Six Sigma (Evans & Associates)
Step 2: Establish Fundamental Training on Lean and Six Sigma Principles.
Step 3: Develop a Lean Implementation Plan
Step 4: Establish Lean Metrics for tracking and measuring performance.
Step 5: Use Lean to eliminate delays between steps (7s, Flow, Waste)
Step 6: Use Six Sigma to reduce or eliminate defects and variations that cause waste and rework.
Step 7: Reduce Batch sizes to as small as possible (to one if possible)
Step 8: Re-focus and revisit delays, defects, and variation!
If your business is struggling with any of the issues mentioned here you really need to look at what Lean Six Sigma can do for you!
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