Sunday, June 15, 2014

Focus and Leverage Part 352

In Part 2 of this series from Appendix 1 of Epiphanized, Bruce Nelson now discusses Lean and Six Sigma followed by the concept of Focus and Leverage.
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?
Focus and Leverage
From what has been stated so far, you might think we have a nega­tive view of Lean and Six Sigma, but such is not the case. In fact, TOC by itself cannot deliver sustainable bottom-line improvement. But it does provide the needed global system focus, and that focus is paramount to facilitating organizational growth. In fact, the primary reason why Lean and Six Sigma have failed to deliver acceptable ROI is they try to improve everything all at once, rather than focusing on the most important leverage points. They promote improvement because they can, and not because they must. It’s like trying to solve world hunger—it’s a tough job when you try to do it all at once. So let us discuss leverage points and what they mean.
The foundational concepts of TOC can be presented in a simple, but understandable way as a reference environment. If you under­stand the reference, you understand the concept. If we use a diagram showing a simple piping system with the primary goal of delivering water, then the reference is defined. By presenting the concept in this format, the basic principles will be much easier to comprehend for people who have not yet had any experience with the Theory of Con­straints.
Figure 1: The Piping System
Figure 1 describes the piping system with different diameter pipes connected together supporting the water flowing through this sys­tem. The water flows from left to right from Section A through the entire length of the system until it exits at Section G. If you were given this water system and asked what you would do to increase the flow of water, or the throughput of water, through this system—how would you answer the question? For most responders, the answer would be to increase the pipe diameter of Section C since it is the choke point, or bottleneck, or constraint of this system. If you increased the diam­eter of any other pipe section, it would have absolutely no effect on the throughput of water through this system.
If you were asked how much you would increase the diameter of Section C—how would you answer that question? Most responders would answer by saying that the increased diameter of the Section C pipe would be determined by how much more water the system needed to deliver (loads on the system). So in order to satisfy the need (demand) for more water, you must have some type of metric for how much more water is needed (increased loads on the system). Let’s say that you increased the diameter of the pipe in Section C to the same diameter as the pipe in Section D. What if the measured throughput of water out of Section G was still not enough to satisfy the new demand—what then? The new focus for system improve­ment would shift to the new constraints (the constraints have moved) which are now both Sections A and E. These two sections become interactive with each other. The diameter of these two pipes now be­comes the new system constraint, and they need to be improved to meet the increased demand. So how does all of this apply to the real world?
The basic principles of understanding constraints are all around us. For example, instead of using the piping system to demonstrate the constraint, we could have substituted an electric circuit with dif­ferent sized resistors and measured the flow of electricity through the circuit. The resistor location with the highest resistance to electrical flow would be the equivalent of Section C in the piping diagram. You could easily demonstrate that the flow of electricity through that sys­tem is completely dependent upon how much more electrical current was needed to satisfy the demand. And in order to increase the elec­trical output, you need to reduce the resistance of the resistor that was limiting the electrical flow.
Figure 2 is another simple visual example of the same concept. Here we have a four-step process used to produce some kind of prod­uct or service. If we apply the same systems thinking and ask the same series of questions about this system, then we can effectively conclude that Step 2, at 17 days, is the process that is limiting the output from this system. By understanding this concept you now know where to focus your improvement efforts. Improving any other process in this system, except for Step 2, yields no system improvements at all. Glob­ally, the system will improve only when Step 2 requires less time.  
Figure 2: The Process
In my next posting, Bruce will tie the three improvement methodologies together.
Bob Sproull

No comments: