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Arun Hariharan

Lean

Three Types of Lean Six Sigma Projects

A look at the strategies and tools that work for each

Published: Wednesday, July 31, 2013 - 16:26

During the past dozen years, companies I have worked with have, between them, completed more than 1,000 lean Six Sigma (LSS) projects. Based on this experience, I’ve found that improvement projects can be broadly categorized into three types: quality-improvement, revenue-enhancing, and cost-saving.

A brief description of the three types of improvement projects, and the strategy that these businesses followed, are given below.

Quality-improvement projects

The quality-improvement project is the quintessential LSS project. About 60 percent of our projects were of this type. A quality-improvement project typically attacks a defect or customer complaint, and seeks to reduce, eliminate and, ideally, prevent the defect. Relevant data are usually available for such projects. The heart of such a project is data analysis to find out the root cause of the defects. Once discovered, the root cause is eliminated by a change or improvement in the process, so that the problem doesn’t recur. This process-change is often some form of poka-yoke or mistake-proofing.

I also include turnaround-time (TAT) reduction projects in this category, to the extent that the TAT reduction is primarily aimed at streamlining the process and improving the customer’s experience. We found value stream mapping (VSM) to be a useful tool to identify bottlenecks in the process.

Revenue-enhancing projects

We were pleasantly surprised to find that LSS projects were extremely effective not only for reducing defects or improving quality for customers, but also for directly increasing revenue. Examples of such projects are activating inactive distributors, getting repeat business from existing customers or increasing first-time-right (FTR) sales. Our experience with revenue-enhancing projects was that they usually need only the most basic lean or Six Sigma tools. However, they often involve a change in behavior and mindsets. For companies that are up to this challenge, these projects can yield very positive business results. We found that such projects typically involve putting some basic process discipline in place where none existed before, and putting some simple in-process measurements in place where previously, only the end output (e.g., sales or revenue numbers) were being measured.

For example, one company that sells through distributors realized that a large number of distributors were inactive—that is, they hadn’t sold anything for the past several months. Although the company knew it had a problem, it was unable to get a handle on it. The company tried to solve the problem through traditional methods (such as senior sales managers yelling at junior salespeople, and junior salespeople yelling at distributors), but without any results.

When all else failed, the CEO decided that he had nothing to lose if he threw the problem as a challenge to the LSS team. When the same problem was taken up as an LSS project, the focus shifted from people (as in whom to blame) to the issue. Three things were done differently. First, the team put in place a standard definition of what exactly the company meant by “inactive distributor.” This may sound basic, but the fact was that several companies had no standard definition, and “inactive” meant different things to different people within the same company. Second, a simple process was put in place that would begin the day a distributor became “inactive” according to the company’s standard definition. The process itself was nothing revolutionary—it typically would involve two or three simple steps, such as a company salesperson contacting the distributor with a standard script, inquiring if there was any problem that the company could help the distributor with (as opposed to the earlier practice of yelling matches), and a joint visit to a prospective client by the distributor and the company’s salesperson. Third, in-process measurement began. Where earlier only the end output of sales or revenue numbers was measured, now, the company started measuring the number of distributors that fell into the inactive funnel each week, and how many of the inactive distributors went through the “reactivation” process that was now in place. It was mandatory to measure and report on these figures each week.

Our experience with every business that did such projects has been that the discipline a process brings, along with a focus on the right enablers, results in significant and sustained improvement in revenue. In fact, the revenue results from several such projects were so significant that we couldn’t believe it ourselves at first. Some of us wondered whether this would have happened regardless of the LSS project. So we did a little experiment. In one company, 29 percent of the previously inactive distributors became active after they went through the LSS process. We compared this with another control group of inactive distributors that had not yet been through the LSS process. There was no other difference between the two groups. At the end of the same period, the percent of distributors from the group that did not go through the LSS process, and that became active, was 0.8 percent. Compare that with 29 percent for the LSS group—and imagine what this can do for revenue.

Another kind of revenue-enhancing project is to increase FTR sales, which is simply ensuring that during the sale, the company collects 100-percent complete and accurate requirements from the customer the first time, and that the customer is not pestered repeatedly because the company failed to collect or understand some requirement. One company noticed that only about 20 percent of the sales orders brought by its salespeople were FTR. In other words, for 80 percent of the sales orders, the company had to go back to the customer more than once to complete some requirement that was missed the first time. What was really worrisome was that nearly half of the 80 percent of customers had changed their mind when the company went back to them, and were no longer interested in buying.

The company took this up as an LSS project. In a few months, its efforts started paying off. The percent of FTR orders to total sales orders sourced went from 20 percent to more than 90 percent. A year later, the CEO acknowledged that the company’s revenue for the year was 35-percent higher than what it would have been otherwise, solely because of the increase in FTR sales. The effect on profit was even more spectacular. The company estimated that its profit for the year was about 50-percent higher than what it would have otherwise been, given that, now, nearly all sales orders were FTR. Compare this to the situation a year ago, when 80 percent of the orders were incorrect or incomplete, calling for additional cost of rework. Even after incurring this cost, half of the non-FTR orders never got converted into actual sales. The additional revenue and profits were achieved with the same number of customers and sales orders, at no additional cost and no additional sales effort (in fact, with significantly less effort because the effort that was earlier made on rework was now almost entirely eliminated).

Cost-saving projects

These projects typically are concerned with eliminating waste. We found that after training employees on simple lean concepts such as the various types of waste and value stream mapping, they are able to go back and look at their own work processes to identify possible wastes and eliminate them. We also found useful the practice of systematically looking at top expense items on the company’s financial statements to see if one or more of the types of waste had crept in and could be removed. Here again, an organizational culture of accountability and waste-consciousness, with senior management walking the talk and setting personal examples, can go a long way.

It is important to remember that waste-elimination and cost-cutting are as different as chalk and cheese. Waste identification and elimination is a continuous, never-ending activity, but cost-cutting is often a one-time activity. Another big difference is that the benefits of waste elimination can happen in difficult as well as good times. Perhaps the biggest difference is that waste elimination doesn’t come at the cost of customers or employees. How can anything that hurts customers or employees be good for your business in the long run?

A summary of the three types of improvement projects and the suggested approach for each is given in the table below.

Type of improvement project

Most appropriate approach

Quality improvement

Root-cause analysis to find out cause of defect; value stream mapping to identify process bottlenecks; and process-improvement, mistake-proofing and training to eliminate defects

Revenue-enhancing

Introduce process discipline and in-process measurements for sales-related processes such as activating inactive clients, distributors, agents, and prospects; and promote FTR in sales

Cost-saving

Use the various types of waste identified by lean as a checklist to find and eliminate waste; use value stream mapping to simplify processes because simpler processes usually cost less

I haven’t covered design for Six Sigma (DFSS) here, which is a methodology for process generation in contrast with process improvement. Instead, I've focused on more common and universally applicable improvement projects—often called define-measure-analyze-improve-control (DMAIC) projects.

In the companies we’ve dealt with, we try to ensure that, at any given time, we have a healthy mix of all three types of the improvement projects described here. This practice has proven useful because the businesses derived comprehensive benefits from LSS. They achieved short-term results, while not losing focus on what was important for the long term. You may want to try these strategies in your company.

For more information on team training, check out Quality Digest’s Knowledge Guide, “Eight Steps to Team Problem Solving.”

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About The Author

Arun Hariharan’s picture

Arun Hariharan

Arun Hariharan, author of Continuous Permanent Improvement (ASQ 2014), and The Strategic Knowledge Management Handbook (ASQ 2015) is a strategic quality, knowledge management (KM), and performance management practitioner with nearly three decades of experience in these fields. He has worked with several large companies and helped them achieve substantial and sustained results through quality and customer focus. He is the founder and CEO of The CPi Coach, a company that provides partnership, consulting, and training in business excellence and related areas. Former roles held by Hariharan include president of quality and knowledge management at Reliance Capital Ltd, and senior vice-president of quality and knowledge management at Bharti Airtel Ltd, India. He is a frequent speaker at quality and KM events around the world. He is also the author of more than 50 published papers on quality and KM.