Friday, October 22, 2010

Focus and Leverage Part 17

There has been push-back by some people on the whole concept of Throughput Accounting and as a result, they don’t buy into using TA as a reason for integrating TOC, Lean and Six Sigma. So let’s put the financial side of this integration to the side for a moment. In addition to the financial case made for integrating these three improvement methodologies, there are other rational and logical reasons why this integration works so well. In attempting to answer which of these three initiatives a company should use or “which tune a company should dance to,” Thompson* presents an excellent summary of the fundamental elements, strengths and weaknesses for each improvement initiative. In doing so, Thompson has inadvertently (or perhaps purposely) answered the underlying question of why the three improvement initiatives should be combined and integrated rather than choosing one over the other.

The first four columns in the table below reflect the summary of Thompson’s comparison (i.e. the initiative, fundamental elements, strengths and weaknesses). I have added a fifth column, “Counter Balance” that demonstrates how the strengths of one initiative counter-balance or compensate for the weaknesses of the others. As a matter of fact, by comparing each of the weaknesses and strengths of each of the three initiatives, we see that all of the weaknesses of each individual initiative are neutralized by one or both of the strengths of the other two. This is such an important point for those companies that have experienced implementation problems for any of the three individual improvement initiatives done solo. Let’s look at several examples.

The table tells us that Weakness 1 in Lean, “May promote risk taking without reasonable balance to consequence,” is counter balanced by Six Sigma Strength 3, “The focus on reduction of variation drives down risk and improves predictability.” One thing we know for certain is that as we reduce variation in our process, we reduce risk and our ability to predict future outcomes improves dramatically. This is the cornerstone of statistical process control which means that risks can be minimized if we rely on this Six Sigma strength to do so. Continuing, Lean Weakness 2 tells us that we may not provide sufficient evidence of business benefit for traditional cost accounting. This weakness is countered by both Six Sigma Strength Number 2, the data gathering provides strong business cases to get management support for resources and by TOC Strength Number 4, provides direction on appropriate simplified measures (Throughput, Inventory and Operating Expense). As I have stated many times before, traditional cost accounting induces us to make incorrect decisions, so by adopting Throughput Accounting practices, from the Theory of Constraints, we will have sufficient evidence to make changes to our process, assuming we are focusing on the constraint operation.

Lean Weakness 3 states that Lean has a limitation when dealing with complex interactive and recurring problems (uses trial and error problem solving) is countered by Six Sigma Strength 1, the rigor and discipline of the statistical approach resolves complex problems that cannot be solved by simple intuition or trial and error and TOC Strength 3, (distinguishes policy vs. physical constraints). One of the Six Sigma tools that permit us to solve complex interactive and recurring problems is designed experiments (DOE). DOE’s identify significant factors that cause problems and identifies insignificant factors that do not. TOC Strength 3 helps us in two ways. First, if the problem we are facing is a policy constraint, we use TOC’s Current Reality Tree to identify it and TOC’s Evaporating Cloud to solve it. Both of these strengths will compensate for this weakness in Lean.

Now let’s look at one of the Six Sigma and TOC weaknesses and see how they are compensated for by other strengths. For example, look at Six Sigma Weakness 2, the heavy reliance on statistical methods by its very nature is reactive, as it requires a repetition of the process to develop trends and confidence levels. This weakness is off-set by lean strength 2, directly promotes radical breakthrough innovation, and by lean Strength 3, emphasis on fast response to opportunities (just go do it). Likewise, TOC Weakness 3, TOC’s inability to address the need for cultural change, is off-set by Lean strength 4.

In the same way, if we compare all of the weaknesses in Lean, Six Sigma and TOC to the strengths found in the other initiatives, the three initiatives not only complement each other, but they rely on each other. So, in addition to the demonstrated financial benefits of this symbiotic trilogy, we now see evidence from a logical perspective as to why they should be implemented in unison as a single improvement strategy.
* Steven W. Thompson, Lean, TOC or Six Sigma Which tune should a company dance to?, Article in e-newsletter, Lean Directions
Bob Sproull

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