Lean and Six Sigma improve profits and customer satisfaction
by Sandford Liebesman
Lean and Six Sigma are two methods aimed at improving the quality of an organization’s operations and its financial results. Both concentrate on customer satisfaction and improved business performance.
Lean’s focus is on time and waste reduction and improved throughput, while Six Sigma concentrates on reducing cost and increasing profits by eliminating variability, defects and waste. It was natural to combine these programs because of the large amount of synergy among their goals and activities.
Lean Six Sigma (LSS) has links to financial management, ISO 9001, ISO 14001 and IT. The projects implemented as part of an LSS program generate value to the customer and to the organization, but they cannot operate in a vacuum. They require effective financial, quality, environmental and other management systems.
Conversely, these management systems can be greatly improved by using LSS to provide valuable changes that result in positive effects to the organization’s bottom line.
The major goal of LSS is to reduce the cost of operations and thus add value to the organization’s bottom line.
A financial management system is defined as consisting of six elements:
- Investment management.
- A statement of cash flow.
- A profit and loss (P&L) statement.
- A balance sheet.
- A general ledger.
- A system of internal control.
Although LSS can contribute to each of the six, its major contributions are to the P&L statement and the balance sheet.
LSS contributes to the P&L statement by improving net profits. Profits are improved by increasing revenues through improved customer satisfaction, reducing waste and increasing product throughput by creating a more efficient manufacturing or service program. Thus, the organization can better satisfy its customers and earn increased revenue.
LSS also can improve the expense line in the P&L by reducing the cost of goods sold (COGS). It does this by improving the quality of supplied products and services and by reducing the cost of not only purchased materials, but also of operations and production. Again, reducing wastes can have a major impact on the expense line.
LSS’s goal of reducing defect levels results in lower costs and better customer satisfaction. LSS can also be used to eliminate nonvalue-added activities, improve the efficiency of the organization’s processes, decrease transaction costs and optimize organizational efficiency.
LSS can contribute to improving the balance sheet by reducing the cash tied up in inventory or decreasing the spending of capital. Also, reduction in nonvalue-added activities can eliminate the need for staff expansion. LSS can also improve intangibles such as customer satisfaction, employee satisfaction and workplace safety.
LSS is quite explicit about the desired financial benefits of each project, and many organizations define yearly dollar improvement levels expected for Champions, Black Belts and Green Belts.
LSS success stories
Many LSS success stories have been written. For example, the Naval Surface Warfare Center, Indian Head Division, initiated an LSS program in 2004 after other improvement programs failed. Naval personnel at the center manufacture war materials for fighters, including propellant mixtures, rockets, mines, undersea weapons and ship-mounted guns.
From 2005 to 2007, the center saved $8.9 million as a result of its LSS efforts.1 Two of the improved processes were vendor certification, in which labor hours were reduced by 1,000, and the time needed to process travel orders, for which labor hours were reduced by 183.
The center also created a utilities algorithm that saved $584,000. In manufacturing, the center staff created real-time X-rays and digital X-raying of the Zuni Rocket. This reduced labor by 5,000 hours and saved about $300,000 in material requirements.
In another example, Honeywell International has had a great deal of success with LSS. From 1994 to 2002, Honeywell exceeded $3 billion in financial benefits from its program.2
At one of its chemical plants in Europe, the LSS team turned a $900,000 loss into a $3.4 million gain. The key tools used were variance reduction based on design of experiments and process flow simplification.
ISO 9001 and 14001
For LSS to be effective long term, an organization must have efficient quality and environmental management systems, such as ISO 9001 and ISO 14000. Let’s look at how Six Sigma’s define, measure, analyze, improve and control (DMAIC) process works with these standards.
Define: The define phase is used to create project purpose, scope and scale. A team is created during this stage and may contain a sponsor, Black Belt leader, Green Belt support and other members. During this phase, the organization must hear the voice of the customer (VOC) to determine customer requirements.
Planning clauses of ISO 9001 relate to the define phase. Clause 7.1, planning of product realization, requires defining quality objectives and requirements; developing verification, validation, monitoring, inspection and test activities, acceptance criteria and records needed.
The organization is required to determine the requirements of the customer in clause 7.2.1, review the requirements related to the product in clause 7.2.2 and provide a means of communicating with the customer in clause 7.2.3.
The last clause related to the define phase is 7.5.1, control of production and service provision, which describes methods for planning and carrying out production. This includes requirements for product information; work instructions; availability of suitable equipment, including monitoring and measuring devices; and defining release, delivery and postdelivery activities.
The relevant ISO 14001 clause is 4.4.6, operational control, which requires creating procedures to identify significant environmental aspects and communicating applicable procedures and requirements to suppliers.
Measure: The measure phase is used to create a baseline for determining current performance of the product or service. ISO 9001 has three clauses relating to data gathering: 8.2.3, monitoring and measurement of processes; 8.2.4, monitoring and measurement of product; and 8.2.1, customer satisfaction measurements.
The relevant ISO 14001 clause is 4.5.1, which requires procedures to monitor and measure operations that can have significant environmental impacts.
Analyze: Sources of variation are investigated during the analyze phase. This phase starts with historical data but then focuses on gathering new data and looking for root causes of variability.
The relevant ISO 9001 clause is 8.4, analysis of data, which requires analyses to assure conformity to product requirements, understanding characteristics and trends of processes and products, and opportunities for preventive action. The relevant ISO 14001 clause is 126.96.36.199, which requires evaluation of compliance to legal and other requirements.
Improve: The next DMAIC phase is improve. This phase is supposed to create lasting process improvements. The team needs to decide which potential root causes to address and how to counter the effects of these causes. This phase also includes a small-scale implementation.
The relevant ISO 9001 clauses are 8.5.1, continual improvement; 8.5.2, corrective action; and 8.5.3, preventive action. The relevant ISO 14001 clause is 4.5.3, which requires identification of nonconformities and corrective and preventive actions.
Control: The final DMAIC phase, control, is where solutions are evaluated and the gains are maintained. The organization maintains control of the inputs and monitors outputs with the goal of reducing variation. A methodology is developed to provide early warning of problems.
The organization documents new procedures, sets up data collection and develops ongoing monitoring processes. During this phase, the implementers determine what they learned and pass the information on to the rest of the organization.
The ISO 9001 clause that supports control is 5.6, management review. This clause requires determination of the status of the quality management system. Subclause 5.6.2 requires a review of the audit results, customer feedback, process performance and product conformity, status of preventive and corrective actions, and follow-up of actions from previous management reviews. Subclause 5.6.3 requires decisions and actions to improve processes and products and provide needed new resources.
The corresponding ISO 14001 clause is 4.6, management review, which contains input and output requirements similar to ISO 9001.
There is a great deal of similarity between the way ISO 9001 and 14001 work with DMAIC and how they work with design for Six Sigma (DFSS). Table 1 shows the relationships to the DFSS process called define, measure, analyze, design and verify (DMADV).
The major link between LSS and IT is project management. Software used by organizations may have been developed for general projects, but LSS requires special software because of the vast array of LSS tools and the need to keep track of success stories, especially those showing financial gains.
Software is also needed to show the connections to the customers and suppliers of the organization. An effective LSS project must show an understanding of VOC and the communications with the design team and suppliers. There is a strong need to capture events, including periodic reviews of progress, as part of the project’s history.
Database and program availability need to be straightforward so the LSS team can effectively pursue the project goals. This is especially important for those who work at remote locations or from home.
The automation of these tools and the management systems that use them require software professionals with a strong background in statistical analysis and program management. They must understand the fundamentals of LSS.
The basic goals of LSS are a simplification of processes by removing nonvalue-added activities and a reduction in variability and defectives during operations. Software developers need to keep these in mind when developing the LSS software. Of equal importance is the need to simplify the organization’s processes before handing them over to the developers.
The LSS philosophy can have a positive effect on the development of software. In fact, DMADV or DMAIC philosophies are often applied to develop new software or reengineer old software.
LSS development will go through the same stages as any other software development. At the start of the project, the error rate will be high, and new problem conditions will be identified. Then, as fixes are applied, new sets of problems will arise. This is when application of DMADV or DMAIC can result in superior software being developed.
A good example is the basic cash flow process in a company. Good transaction management requires accurate purchase orders, a fast flow of information and low cost of management. IT is used to manage the transactions, and the system can generate a useful amount of data. This data can then be used as inputs to a host of automated LSS tools.
There are two types of software used to support LSS: analytical tools that perform statistical or process analysis and program management tools that track the LSS program and individual projects.
Lean engineering seeks out VOC and then focuses on customer satisfaction while improving the speed of operations and reducing waste. Six Sigma determines the causes of defects and focuses on eliminating process variability.
Combining the two gives you a powerful program with a successful track record in improving the bottom line of a company and providing value to its customers.
- Terry Widner and Mitch Gallant, “A Launch to Quality,” Quality Progress, February 2008, pp. 38–43.
- William J. Hill and Willie Kearney, “The Honeywell Experience,” Six Sigma Forum Magazine, February 2003, pp. 34–37.
Sandford Liebesman is president of Sandford Quality Consulting LLC, Morristown, NJ, following more than 30 years of experience in quality at Bell Laboratories, Lucent Technologies and Bellcore (Telcordia). He is an author of TL 9000, Release 3.0: A Guide to Measuring Excellence in Telecommunications, second edition, and Using ISO 9000 to Improve Business Processes. Liebesman, a fellow of ASQ and chairman of the Electronics and Communications Division, is a member of ISO technical committee 176 and the ANSI Z-1 committee on quality assurance and a RABQSA International certified ISO 9000 and TL 9000 lead auditor.