Try this scenario on for size: You're a manager who's been given the task of saving a manufacturing plant from going under. You think you have a year, if you're lucky, to start showing real improvement. Your product quality is bad; your productivity is terrible. Competition is banging on your door from China, India and several countries you couldn't find on a map. You know you must make some changes and quickly, but what changes? Consultants peddle the promise of quality circles, self-directed teams, ISO 9001, lean manufacturing and Six Sigma to the point of near hysteria. All these systems have succeeded in some companies, but in many others, they've failed or been left to die from neglect. You have only one shot at getting this right, so if you invest capital in a process improvement system, it better be the right one. You can see the vultures circling. What should you do?
Let's see if we can clear up the confusion. This article presents a roadmap to help any manager make an informed decision about where to invest precious resources. Like any good manager, you must have a plan--the simpler the better. To help you decide on the best process improvement system for your company, ask the following four questions about your prospective choice. If all of them can be answered in the affirmative, you have a winner.
1. Can the system be introduced to all types of business models?
2. Will the system give a good return on investment (ROI)?
3. Can the system grow with the business?
4. Is the method easily understood and assimilated into the company culture?
Now that we have the roadmap, let's review our choices. Looking around the landscape, several stand out: ISO 9001, Six Sigma, theory of constraints and lean. Which system should you start with to get your plant moving in the right direction? Remember, you're on the clock, and time is running out.
The ISO 9000 series of standards was first released in 1987. The goal was to standardize a group of requirements that any type of business could use to meet customer requirements. The standards were revised in 1994 and again in 2000. To become registered to the standard, your company must pass an audit from an independent third-party registrar. After the initial audit, surveillance audits are required, and a recertification audit must occur every three years. ISO 9001 contains requirements for management responsibility; resource management; product realization; and measurement, analysis and improvement. As you study the requirements, they make sense. You need to document your processes; you need to calibrate your gages and so on. You have some of your processes documented but not as formally as the standard requires.
But wait a minute. You need help now. First you have to do all this formal documentation, and then you have to train internal auditors, hire a registrar and pay for all the audits. Your research shows that for a company your size (fewer than 500 employees), you can expect to take six months to a year before your company will be ready for an audit. Initial internal and external costs to achieve certification can approach $100,000. Looking back at our four questions, you must ask yourself: Where is my payback? Maybe you should use the ISO 9001 standards as a guideline to complete the documentation of your processes, but the standard isn't the answer you need now.
You can't pick up a business magazine without reading something about Six Sigma. Based on what you've read, every major company must be using this system to save boatloads of money. As you begin your research, it appears that two underlying assumptions support the methodology: Users must understand how numbers can characterize a process, and reducing variation is always a good thing. A process operating at a six-sigma level will produce approximately 3.4 defects per million opportunities. Well, hey, that has to be a good thing; sign me up! But first, you should do a bit more research and figure out what the heck a sigma is. (Remember our questions. Is the system easily understood?) You look up the definition of "sigma."
Sigma: The Greek letter (s) used in statistics to indicate standard deviation.
A bit daunted but still intrigued, you look up the definition of "standard deviation."
Standard deviation: A formula that shows the amount of variation in a set of data from the mean.
This may be harder than you thought, but you press on. Six Sigma is generally broken up into five phases, although some organizations only use the last four.
1. Define the project and goals.
2. Measure the process as currently configured.
3. Analyze the data collected during the measurement phase.
4. Improve the process to reduce defects.
5. Control or sustain the improvement generated.
All of this sounds great, so you start to review the training requirements. What are these various roles--Champion, Master Black Belt, Black Belt, Green Belt and Yellow Belt? Are you running a manufacturing plant or a martial arts dojo? Your entire engineering and quality department consists of eight people; where would you find the human resources? The Master Black Belt and Black Belt should be full-time positions, according to your research. But maybe you're overreacting, so you look at training costs. After you review them, your stomach starts getting queasy. You're looking at numbers approaching $10,000 per person. Let's go back to our questions. Where is your ROI? You read that projects should save in the $250,000 range. You know that your company has problems, but you're having a hard time coming up with many improvement projects in that price range.
The more you read, the more confusing it gets. What the heck is this 1.5 sigma shift all about? If experts disagree on the interpretation of the statistics, how can you be expected to understand it? You find that some of the original users of Six Sigma, including General Electric Co. and IBM, are quietly moving away from the methodology. Even if you had those types of large projects, what would you do with these highly trained people in the long term? The odds are that you're going to make a huge training investment and they'll leave for greener pastures. You can certainly see some areas where Six Sigma tools could be useful in continuous improvement projects, but the answers to our questions aren't yes, so we move on.
The Goal: Beating the Competition by Eliyahu M. Goldratt and Jeff Cox (Gower Publishing, 1986), a novel about a plant manager named Alex Rogo who's trying to save a plant from being closed. That situation sounds very familiar. The theory of constraints (TOC) introduced there was intriguing. TOC proposes that every process has a constraint. If constraints weren't present, then a system could produce infinite profits. TOC declares that many of the traditional measurements of cost accounting, such as efficiency and utilization, are flawed. Rogo makes the following observation in Goldratt's follow-up book, It's Not Luck (North River Press, 1994): "All the improvements that I initiated in production and engineering were flying in the face of all cost accounting measurements. Efficiency; variance; product cost; you name it, I had to violate it. It was the only way to improve the companies."
You remember years ago reading
You imagine approaching your controller and announcing that utilization, efficiency, variances, productivity and absorption will be replaced by throughput, inventory (a liability, not an asset in TOC) and operating expense (by the way, no more indirect or direct labor). For some reason, you picture a mushroom cloud in response. Well, put that thought aside for a moment. You learn that TOC consists of five steps. That seems simple enough.
1. Identify the constraint. The system must be viewed as a chain, not a collection of processes. The constraint is the part of the chain with the worst performance.
2. Exploit the constraint. Once identified, actions are taken to improve the constraint.
3. Subordinate all other activities to the constraint. When the constraint is at capacity, other processes are paced to the capacity of the constraint. This is why utilization isn't important to TOC. Some processes will sacrifice individual productivity to benefit the system.
4. Elevate the constraint. If the output of the system still isn't adequate, further investment in equipment or manpower might be necessary.
5. Repeat. If anything has changed, go back to step one.
It all sounds pretty good so far (except for the mushroom cloud). Now how do you make all this happen? The metrics of throughput, operating expenses, etc., seem simple, but the problem-solving stage brings challenges. Reality logic trees, undesirable effects, evaporating clouds and future reality trees make your eyes glaze. As you try to answer the questions, you come to the sad conclusion that challenging traditional cost accounting practices could take years. The problem-solving techniques and terminology are new, difficult to understand and may prove troublesome for front-line managers and supervisors to use.
At this point you're becoming depressed and thinking it might be a good idea to update your Monster.com ad.
Lean concepts are certainly nothing new. Consider this quote from Henry Ford in 1926: "One of the most noteworthy accomplishments in keeping the price of Ford products low is the gradual shortening of the production cycle. The longer an article is in the process of manufacture and the more it is moved about, the greater is its ultimate cost."
Well, if it was good enough for Ford, let's keep going! In essence, lean seeks to remove waste and improve flow. The seven areas of waste are identified as overproduction, waiting, transportation, overprocessing, excess inventory, motion and defective product. George Alukal defines an eighth waste as not using people's skills and experiences ("Create a Lean, Mean Machine," Quality Progress, April 2003). How do these wastes factor into lost quality and productivity, you ask? Overproduction uses resources that might be used more effectively in other areas. Waiting time is time that can never be recovered except by overtime. Excessive movement of material is always nonvalue-added. Overprocessing wastes money by using expensive machinery to perform a task that lower-priced equipment could handle. Excess inventory affects cash flow and space utilization. Wasted motion leads to excess walking, turning, bending and lifting. By definition defective product is waste--wasted effort, wasted money. A company that doesn't use all its employee's talents is wasting improvement ideas. You can't argue with any of that logic. But how do you make this happen?
There are several building blocks in the lean toolbox. Typically, a company might start with a 5S program. The 5S system consists, logically enough, of five steps:
1. Sort (Seiri in Japanese). Items in the workplace are divided by frequency of use. Items could be widgets, or they could be paperwork or pens and pencils. The concept is to have available only the things that are needed; everything else goes away.
2. Straighten (Seiton). Tools that are left are arranged to reduce or eliminate wasted motion. A place for everything, and everything in its place, applies perfectly here. This is just like cleaning your garage and putting your wrenches where you can find them. Pretty simple.
3. Shine (Seiso). This is probably the most misunderstood step. Although housekeeping is important, in a manufacturing environment the cleaning is done more to identify equipment problems such as oil leaks or loose wiring. Keeping machinery running effectively is the real reason behind the shine step.
4. Standardize (Seiketsu). Documentation is developed to ensure that all persons working in the facility do their jobs in the same manner. This step helps facilitate training and diminish shift-to-shift issues.
5. Sustain (Shitsuke). Finally, charts or checklists are developed to make sure that the controls put in place stay in place. Audits are generally taken at prescribed intervals to measure compliance.
You don't see anything very complicated here. Most of the concepts are common-sense stuff. So far, so good.
After learning the lean tools, the next step for most companies is to create a value-stream map. Although it sounds complicated, the map is really just a diagram of a process. A current-state map is created to show how the process is operating now, and a future-state map helps identify potential areas for improvements in productivity, communication flow and inventory reduction. Typically, someone will be trained as a Champion to help develop this process. Training costs are generally less than $1,000 per person.
Other tools can also be used and include:
• Visual controls so everyone can tell the status of a process at a glance
• Plant layout optimization
• Batch size production (i.e., one-piece flow)
• Point-of-use storage (i.e., reduced material handling)
• Single-minute exchange of dies (i.e., quick setups)
• Pull (i.e., production flows from downstream processes)
• Total productive maintenance (i.e., equipment is maintained to maximize effectiveness)
Any or all of these concepts may be used as necessary.
We need to recap what we've learned. Six Sigma has too many negatives to be our first choice. Because of the training costs and manpower resources required, a company like yours most likely won't have the types of cost reductions available to justify the expense. According to a recent Quality Digest article by Dirk Dusharme ("Got Six Sigma on the Brain?" November, 2004), after about three or four years, companies abandon Six Sigma because the major cost savings have been realized.
ISO 9001 creates a framework that most businesses can use. However, there's little evidence demonstrating increased productivity or profitability just by registering to the standard. The costs are high and never-ending due to the necessity of surveillance audits to maintain registration. You figure you need to formalize your documentation, but that can be accomplished without incurring the expense of third-party auditors.
Theory of constraints offers some very interesting ideas. However, you come to the conclusion that the changes in metrics from traditional cost accounting practices are a large hurdle to overcome. Remember that you need change now .
That leaves lean. Can we answer our earlier four questions with a yes?
1. Can the system be introduced to all types of business models? Whether you're looking at a service or manufacturing model, there's waste to be removed.
2. Will the system give a good ROI? The investment required for training and/or capital is low. You can start small in a cell or department, but either way changes can be implemented quickly and within a tight budget.
3. Can the system grow with your business? The techniques work whether you're a 10-person team or a 10,000-person corporation. How much of the toolbox you use is up to you.
4. Is the method easily understood and assimilated into the company culture? This may be the area where lean has the biggest advantage over other systems. Everyone has organized a garage or kitchen. Everyone can understand the concepts of reducing waste. You don't need a lot of math, and you don't need months of training. You'll start to see results almost immediately.
By Jove, I think we have it. All four quality tools you've researched offer benefits, but to jumpstart your plant's performance, nothing works better than lean. You might actually be able to get some sleep tonight. As you nod off, a phrase rolls around in your head: "Lean today, here tomorrow." Words to live by.
Allen Huffman is the plant manager of Ridgid Products and has more than 20 years' experience in quality and manufacturing. Huffman thanks his associate, William Utz, for the slogan, "Lean today, here tomorrow."