Friday, January 31, 2014

Focus and Leverage Part 300

I got side-tracked from my postings on the TLS series because of Atlanta’s significant winter weather event and how “forecasting” played a role in a rather inadequate response to it by local and state government officials.  So in today’s posting I will now discuss the other two components of TLS, Lean and Six Sigma.


Much has been written about Lean over the past several years, but its basic philosophy is centered on a whole-systems approach that focuses on the existence and removal of non-value-added (NVA) ac­tivities within a process or system. These NVA activities are charac­terized as waste in the Lean vernacular. As an improvement initiative, Lean teaches you to recognize that waste is present within every pro­cess and that we should take extreme actions to either eliminate it or significantly reduce it.

The entire premise for doing this action is to facilitate a flow of value through the entire process. If this is true, then it begs the question—What is value? There have been many attempts to define value, but the best definition is based on the customer value and not the producer value.  In its simplest terms, value, is whatever the customer feels good about paying for. Customers know what they want, when they want it and how much it is reasonable to pay for it—so in the long run, value clarifies itself.

Lean has become recog­nized as one of the most effective business improvement strategies used in the world today, but if this is so, then why are so many Lean implementations failing at such an alarming rate? In this case, failure implies the inability to not only achieve, but also sustain, the needed effort.

Six Sigma

Like Lean, much has been written about Six-Sigma methods and the now infamous acronym DMAIC. Whereas Lean is attempting to remove non-value-added and wasteful activities, Six Sigma is at­tempting to remove unnecessary and unwanted variation. Six Sigma uses the road map Define, Measure, Analyze, Improve and Control (DMAIC) to seek out sources of variation, and through various sta­tistically based tools and techniques, attempts to limit (control) vari­ation to the lowest possible level. The professed power of Six Sigma lies in the disciplined structure and use of the tools and techniques.

However, this supposed power sometimes ends up being a detriment to some companies because in many instances they will experience enormous information overload, coupled with a failure to launch the information into viable solutions. In essence, these companies are suffering from analysis paralysis. Like Lean, many Six Sigma ini­tiatives have failed to deliver true quantifiable bottom line improve­ments and, therefore, have been abandoned. Six Sigma can be dif­ficult to employ. It is heavily dependent on mathematics (statistics) and formula derivatives that quite frankly most people do not enjoy or involve themselves with. At times is seems as if you need to call Merlin the magician just to get started.

There is also popular hybrid of Lean and Six Sigma known as Lean-Sigma which, as the name suggests, is a merger of the two ini­tiatives. The primary assumption of Lean-Sigma is that eliminating or reducing waste and variation in the system will lead to major cost re­ductions. It seems to make perfect sense that if each initiative delivers its own separate improvement, then combining output from both of them should optimize the process and result in a double-dip reduc­tion in cost. However, in the final analysis, the primary functions of Lean and Six Sigma are aimed at cost savings. Saving money is indeed a strategy, but it’s just not an effective strategy for making money. The overall issue is not with either one of these methodologies, but rather the belief that the way to increase profitability is through cost reduc­tion. Cost reductions have implied mathematical limits, and once those limits are encountered, the improvement effort stops or slows down significantly. Consider this—have you ever heard of a company that has actually saved themselves into prosperity? If cost reduction is not the answer, then what is the best route to profitability?
In my next posting we'll dive deeper into this integrated methodology and discuss why these three improvement methods work so well together.
Bob Sproull

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