Sunday, January 27, 2013

Focus and Leverage Part 184

Before I get into how the UIC works, I want to talk about the current state of Lean, Six Sigma and Lean-Sigma initiatives as it relates to sustainment.  The Lean Enterprise Institute2 (LEI) conducts annual surveys on the subject of how well Lean implementations are going. Considering the last three surveys (2004, 2005, and 2006), the results do not paint a rosy picture. In fact, the LEI reported in 2004 that 36 percent of companies attempting to implement Lean were backsliding to their old ways of working. In 2005, the percentage of companies reporting backsliding had risen to almost 48 percent, while in 2006, the percentage was at 47 percent. With nearly 50 percent of companies reporting backsliding, we are not looking at a very healthy trend, especially when you consider the amount of money invested in the initiative. Add to this what Jason Premo of the Institute of Industrial Engineers3 reports: “A recent survey provided some shocking results, stating that over 40 percent of Lean Manufacturing initiatives have hit a plateau and are even backsliding, while only 5 percent of manufacturers have truly achieved the results expected.”  And finally in 2010 research by McKinsey & Co. showed that 70% of all changes in organizations fail!

In the case of Six Sigma initiatives, the results have been more impressive, but not as impressive as they could or should be. Celerant Consulting4 carried out a Six Sigma survey in 2004, generating responses from managers across all business sectors, and although the results of the survey were more positive than negative, there were several problems that did surface The survey suggests that most businesses new to Six Sigma often find that running effective projects has been a significant challenge, with Six Sigma projects often quoted as taking four to six months or even longer to complete.  Poor project selection is a key area where many businesses still continue to struggle. Industry experience suggests that about 60 percent of businesses are currently not identifying the projects that would most benefit their business.

OK, so if Lean, Six Sigma or Lean-Sigma aren’t working well enough, then what do I recommend should replace them.  The fact is, we shouldn’t replace them at all.  They are vital to the success of all improvement initiatives.  What is missing is the necessary focus needed to maximize your return on your improvement investment.  What I’m about to explain is a methodology that has never failed me.  By focusing the Lean and Six Sigma principles, tools, and techniques on the operation that is limiting throughput, your profits will accelerate.  And here, in its most basic form, is how it works.

Figure 15 is a graphical representation of what I have named the Ultimate Improvement Cycle.  What you see are three concentric circles representing three different cycles of improvement.  The inner or core cycle represents the Theory of Constraints (TOC) process of on-going improvement6.  TOC provides the necessary focus that is missing from Lean and Six Sigma improvement initiatives.  Based upon my experience and results, the key to successful improvement initiatives is focusing your improvement efforts on the right area, the system constraint.   Remember, the constraint dictates your throughput rate which ties directly to bottom-line improvement.  Throughput in this context is revenue minus totally variable costs (TVC).  TVC’s includes things like the cost of raw materials, sales commissions, shipping costs, etc…..anything that varies with the sale of a single unit of product.

The second circle represents the Six Sigma roadmap popularized by at least two authors7,8.  Here you will recognize the now famous D-M-A-I-C roadmap associated with Six Sigma.  The outer circle depicts the Lean improvement cycle popularized by Womack, Jones9 and others.  Both Six Sigma and Lean are absolutely necessary for my methodology to work…..the only difference being where and when to apply them.

Figure 25 summarizes the tools and actions needed to effectuate the improvement in the constraint and a general idea of when to use them.  Keep in mind that all processes are not the same, so the type of tool or action required and the usage order could be different depending upon the scenario.  This is clearly situation dependent.  I won’t go through each step in Figures 1 and 2 because they are self-explanatory. 
Figure 1
Figure 2
In my next posting we'll look at a case study using this integrated methodology and demonstrate how to use it to solve a real world problem.
Bob Sproull

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