For anyone who engages in
discussions on LinkedIn, or more specifically the TLS Group on LinkedIn, we
have been having a series of discussions on the strengths and weaknesses of TOC
primarily. In my 2009 book, The Ultimate Improvement Cycle – Maximizing
Profits Through the Integration of Lean, Six Sigma and the Theory of
Constraints, I had written a chapter which had included a similar
discussion. In today’s posting I’d like
to share that excerpt from my book.
Comparison
of Lean, Six Sigma and TOC
Early on in my book I talked about Goldratt’s
throughput accounting measures (i.e. Throughput (T), Inventory (I), and
Operating Expense (OE)). I stated that during this
first cycle of improvement we should have lowered inventory by not
over-producing product at the non-constraint operations and we should have also
“burned off” any excess inventory that had collected within our system prior to
the first cycle of the UIC. If we did
these two things, then this reduction should have had an immediate, one-time
positive impact on cash flow for the company.
In addition, our operating expenses should have decreased as well
because we now have fewer defects, fewer repairs, less scrap, and less waste
within our process. While both the
inventory and operating expense should be respectable in terms of bottom line
improvement, the real impact on the company will have come from increased
throughput! Assuming we haven’t added
large amounts of labor to break the constraint, which we should not have had to
do, all of our new throughput (revenue minus truly variable costs) should flow
directly to the bottom line!
So now let’s try one more time to
answer the question of why so many Lean, Six Sigma and TOC initiatives might
have failed. Some authors have stated
incorrectly, or at least implied, that the Lean and Six Sigma philosophies are
at odds with or are contradictory to TOC.
Still others have suggested, also incorrectly, that Lean and Six Sigma
are just complementary to TOC. It is my
belief that Lean and Six Sigma are, in fact, essential ingredients for success
of TOC. By the same token, success in
Lean and Six Sigma initiatives is driven by adopting TOC as the basis for
improvement simply because TOC supplies both the focus and leverage points needed
for true improvement. It is my contention that all three initiatives, when
implemented in concert with each other as presented in the Ultimate Improvement
Cycle, represent the best possible strategy for maximizing revenues and
profits! These three initiatives form a symbiosis where they not only co-exist, they benefit
from each other’s presence. In fact,
they form the ultimate improvement cycle and act as a guide for maximizing
profits!
Table 1 summarizes all three
improvement initiatives. Look at it
closely. Is it apparent to you yet why
lean and six sigma are not just complementary philosophies to the TOC? They are all vital ingredients for success! Look at the principle activity of each
initiative and you’ll see that they are all complementary and not independent
as some have suggested. The primary
deliverables of each initiative cover the entire gamut of improvement. Think about it, fewer defects, less
variation, less waste, faster cycles and improved capacity. Aren’t these all the things we want out of an
improvement initiative? Finally, the
financial impact of these three initiatives, reduced operating expense, reduced
inventory, and increased throughput and revenue all translate into big profits. Problems and processes are each contained within
any system and potentially add intrinsic value to the system if we just
capitalize on them.
Table
1
Why the
Integration Works
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,”
Jason 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 Table 2
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.
Table 2 again 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 the 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.
Bob Sproull
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