IMPLEMENTING LEAN SIX SIGMA: ADVANTAGES AND DISADVANTAGES
Working Paper Series
2010
RICARDO ROJAS MONTERO e-mail:
[email protected]
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Copyright statement Copyright in text of this dissertation rests with the author. Copies (by any process) either in full, or of extracts, may be made only in accordance with instructions given by the author. Details may be obtained from the Programme Administrators. This page must form part of any such copies made. Further copies (by any process) of copies made in accordance with such instructions may not be made without the permission (in writing) of the author. The ownership of any intellectual property rights which may be described in this document is vested in the Author, subject to any prior agreement to the contrary, and may not be made available for use by third parties without the written permission of the Author, which will prescribe the terms and conditions of any such agreement.
About the Author Ricardo Rojas is a Management Consultant who has experience in Strategy, Supply Chain and Public Policy through more than 20 consulting projects at national and international level. His professional objective has been to help organisations to design its business strategy to maximise value in a cost effective manner and implement such strategy in their operations and supply chain. Ricardo studied a Bachelor Degree in Political Sciences and a Master of Business Administration (MBA) at ITAM followed by a Master in Operations and Supply Chain Management at Manchester Business School.
Contact details: Ricardo Rojas Montero e-mail:
[email protected]
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Implementing Lean Six Sigma: Advantages and Disadvantages.
Abstract. This essay examines the advantages and disadvantages of implement Lean and Six Sigma to improvement in manufacturing and service operations. The level of Quality Management adoption and the correct use of the Improvement Approaches are hypothesized to be the factors that determines the result of implementing Lean Six Sigma. Literature review on implementing Lean and Six Sigma shows that low level of Quality Management adoption has a negative impact on the success of Lean Six Sigma. The implication for managers are: first, they have to understand the scope and limits of quality approaches; second, before any LSS programme, companies must to apply quality assessment in order to be prepared to implement Lean, Six Sigma or both. The value of this essay is in providing an explanation about the success and fail of companies in its way to LSS.
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Introduction.
Lean Six Sigma (LSS) has gained important attention in the academic and business field due to its financial impact and levels of customer satisfaction (Smith 2003; Arnheiter and Maleyeff 2005; Cheng 2008; Proudlove, Moxham et al. 2008; Shah, Chandrasekaran et al. 2008). Companies which have adopted Lean or Six Sigma have reported increase financial performance in short term (Thomas, Barton et al. 2009), cost reduction (Anchanga 2006), improvement in customer satisfaction and cost saving (Sharma 2003). On the other hand, not all the companies that implement a Continuous Improvement programme have been able to capture its entire economical benefits (Cusumano 1994; Bossert 2003; Sharma 2003). According to the literature review, some of the explanations for unsuccessful results are: •
Flavour of the Month. Companies adopt new procedures to resolve old problems when the actual tools don’t work (Näslud 2008).
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Misunderstand of Lean and Six Sigma relationship. The effectiveness of Lean and Six Sigma is undermined due to firms misunderstand or its principles and risk related to its implementation (Bossert 2003; Lee-Mortimer 2006).
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Immature firm readiness to apply Lean Six Sigma. Companies have to identify and understand its level of Quality Management Adoption in order to achieve a properly implementation (Sharma 2003; Lee-Mortimer 2006).
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Deficient stock of knowledge and monetary resources. Because of its statistical and parallel organization nature, LSS demands specific skills to implement LSS tools and techniques and economic resources to hire external consultants (Thomas and Web 2003; Lee-Mortimer 2006; Thomas, Barton et al. 2009).
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Unclear link between strategy and LSS projects. Undermined or localized impact and unsustainable improvements is the result of develop LSS initiatives that don’t support the business strategy (Proudlove, Moxham et al. 2008).
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Lack of key process structure into the organisation. LSS projects are expected to be successful when process are well defined and a relatively stable performance (Lee-Mortimer 2006; Proudlove, Moxham et al. 2008).
Lean Six Sigma refers to a hybrid methodology that associates Six Sigma and Lean approaches in order to increase its improvement effectiveness (Sheridan 2000; Arnheiter and Maleyeff 2005; Proudlove, Moxham et al. 2008). In service sector, George (2003) defines LSS as a methodology that increase investment value by improving process speed, customer satisfaction and decrease cost. According to Pande and Holpp (2002), Six Sigma is a breakthrough business improvement initiative in which products or services will be delivered almost without defects. Six sigma is based on customer satisfaction and use DMAIC
(Define-Measure-Analyze-Improve-Control)
as a main
problem solving
methodology (Näslud 2008; Proudlove, Moxham et al. 2008). In contrast, Lean is a systematic approach to eliminate not adding value activities (Andersson, Eriksson et al. 2006) through a smoothly flow of products and avoiding inventory at lowest possible cost (Slack, Chambers et al. 2006). This essay attempt to identify the advantages and disadvantages of combine Lean and Six Sigma to improvement. The level of Quality Management adoption and the correct application of Lean and Six Sigma are hypothesized the factors that explain the successful implement this combined approach.
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Improvement approaches
Lean improvement approach. Concept, strength and limits. Lean is a considered as an improvement approach that use a set of tools and techniques to identify and eliminate waste in business processes, involvement of everyone in the business and the adoption of continuous improvement philosophy (Shah and Ward 2003; Arnheiter and Maleyeff 2005; Slack, Chambers et al. 2006; Dale, Wiele et al. 2007). Lean management has its origin on the Toyota Production System (Andersson, Eriksson et al. 2006) and can be considered as a continuous more than a breakthrough approach. According to Dale (2007), the key components of lean concept are: •
Value: Customer value through providing the right product/service, right price, at the right moment.
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Value stream: the set of add value actions involved from product/service concept to delivery.
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Flow: Smooth flow of materials, information and people.
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Pull: Focus on produce exactly the volume demanded.
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Perfection: continuously improving the capacity utilization and elimination of waste.
Lean is a useful approach to operational, administrative and strategic improvement. Its correct application has to consider that the main strengths of Lean are in reducing work-inprocess, increasing inventory turns, increasing capacity, reducing Cycle-time and Improving customer satisfaction (Andersson, Eriksson et al. 2006).
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On the other hand, before to implement any Lean initiative, managers have to understand some disadvantages of this approach, according to the literature review its limits are: •
Lean principles do not always apply when customer demand is unstable and unpredictable(Andersson, Eriksson et al. 2006; Slack, Chambers et al. 2006).
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JIT deliveries cause congestion in the supply chain, leading to delays, pollution, shortage or workers (Cusumano, 1994).
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One characteristic of Lean manufacturing is the use of “small scale simple process technology”, which requires use small machines rather than a single machine (Slack, Chambers et al. 2006). For Small and Medium Enterprise, in the short term, requires sacrifice financial resources.
Six Sigma. Concept, strength and limits. Six Sigma is continuous and breakthrough improvement approach that employ parallel organization in order to reduce cost, variability defects into the business process and increase customer satisfaction (Andersson, Eriksson et al. 2006; Slack, Chambers et al. 2006; Näslud 2008). Although Six Sigma has its origins in TQM, it is more structured and precise, achieves financial results in the short term and create dramatic process changes (Revere, Black et al. 2004; Andersson, Eriksson et al. 2006; Dale, Wiele et al. 2007). Before implementation of a Six Sigma programme organisations must to consider the next Critical Successful Factors (Andersson, Eriksson et al. 2006; Dale, Wiele et al. 2007). 1. Management involvement. Manager commitment and identify the responsibility of each organisational area. 2. Training. Requires trained managers in Statistical Tools and use of DMAIC methodology. 3. Organization. A medium level of Quality Management. 4. Understanding of customer needs 5. Six sigma program should begin from strategy, that means a top down approach. 7
The main benefit of Six Sigma is its positive financial impact due to cost saving, risk reduction in process variation (Slack, Chambers et al. 2006); a common tool set, problemsolving approach, and project linked with business objectives (Ingle and Roe 2001). However, Six Sigma has different downwards one of the main is its inflexible process for improvement and problem solving. The parallel organisation that characterize SS into the organizations motives attitudes of elitism and unique language making difficult to transfer knowledge and skills into the host organisation (Ingle and Roe 2001).
Lean Six Sigma. Concept, strength and limits.
As we discussed Lean and Six Sigma are two different approaches. Lean is focus on increase product flow and eliminates waste (non value added activities), while Six Sigma is based on reduce variability. But more than be contradictory approaches, Lean and Six Sigma helps companies to fast deliver of products and services without defects at minimal cost (George et al. 2004). That is, Lean manufacturing has focused on process flow and waste while Six Sigma is on variation and design. The main strengths of Lean Six Sigma are in its combined approach. Specifically, Six Sigma complements Lean (George 2003) in three different ways. First, Six Sigma could provide cultural infrastructure and senior management commitment that sometime Lean initiatives are unable to generate. Second, Six Sigma takes the customer as a core of its activity something that is not the main objective in Lean approach. Third, Lean tools and techniques are unable to reduce variation. On the other hand, Lean complement Six Sigma (George 2003) in four areas. First, identifying non value added activities. Second, improving responsiveness and speed in the processes. Third, Lean has a group of robust tools focus on increase speed and rapid 8
response to improvement. Fourth, Six Sigma benefit could be improved if Lean eliminates non value added activities. Finally, Arnheiter (2005) argue that firm which have implemented only Six Sigma or Lean practices might exhibit diminishing productivity returns and implementation of LSS helps to boost the company productivity. Companies that implement LSS trends to apply a set of tools that are common to both approaches: 5 why, Cause and effect, Pareto, Creativity tools, histograms, Process Charting, Scatter diagram, and Poka Yoke (Krumar, Antony et al. 2006; Lee-Mortimer 2006). However, it is important to mention that one of the main weaknesses of LSS is the high skills required in order to implement its tools and techniques. As Carreira and Trudell (2006) said: “having a Black Belt is not absolutely necessary, but having someone with certain skills is”
Implementing Lean Six Sigma
The capacity of companies to create, learn and maintain their continuous improvement capabilities is the base for the implementation of more sophisticated approaches like Lean Six Sigma. In this sense, the Implementation orientation allows us to understand how Continuous Improvement programmes uses its capabilities in order to apply new tools and techniques (Shah, Chandrasekaran et al. 2008). Dale (1994) and Dale, Wiele et al. (2007) describe the Continuous improvement process as a cycle of improve, maintain and assess (Fig 1). Under this point of view, successful implementations of Lean Six Sigma have to be based on existing Quality Management systems, like Lean, Six Sigma or TQM.
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Taylor and Wright (2003) found that there are some necessary factors for TQM success. These factors are: •
Time of adoption of TQM.
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Understanding of the purpose of TQM
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Understanding of the relationship between ISO9000 and TQM.
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TQM treated as a key strategic planning process.
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Senior management involvement
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Firms motivating their employees to become Involvement in TQM.
Figure Sustaining a Continuous Improvement Programme. Source: Author based on Dale 1994; 2007.
Some authors describe Six Sigma as an advanced version of TQM (Arnheiter and Maleyeff 2005; Näslud 2008). According to Cheng (2008) in order to implement Six Sigma via TQM some tools and techniques have to be implemented and stable. But most important is the impact of the technical skills, Cheng (2008) establishes that without mature TQM technical Skills it is impossible to implement the Six Sigma. Shah et al. (2008) is one of the first studies in focus on identify the existence of a Lean Six Sigma implementation pattern. This author, based on absorptive capacity theory, argues that efforts to implement a Six Sigma programme will be more successful in firms that have 10
implemented other quality management programme. Analysing a sample of 2511 firms, they detect six practices that have the highest impact on Six Sigma implementation: o Process capability measurement o Statistical Process Control o Continuous improvement o Error proofing o Quality management o JIT/Pull system Finally Arnheiter and Maleyeff (2005) explore the routes to implement LSS in Lean and Six Sigma corporations: According to them, Lean firm could implement Six Sigma throughout: 1. Applying more data in decision making, as well as, the DMAIC approach in order to use a more scientific approach to problem solving. 2. Gathering data and using Statistical Process Control, in order to keep under control the production process. In the case of Six Sigma firms implementing Lean: 1. Produce to order company, they have to implement lean will result in faster deliveries and increase in dependability, i.e. percentage of deliveries “on-time, in full”. 2. Produce to stock enterprise, lean practices could improve the firm profitability by decreasing lead times and replenishing inventory more frequently.
Business Case 1: National Health Service in UK (Proudlove, Moxham et al. 2008) In 2004 the NHS Modernisation Agency (MA) established a Six Sigma Green Belt project in order to test the viability of Six Sigma in NHS. Six Sigma was seen as a solution to the lack of measurement and more scientific problem solving methodology used in the NHS to
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improve the quality of services. Four projects were selected and evaluated throughout observation and interviews with GB. As we described, the factors affecting Lean Six Sigma success in NHS are related with the level of Quality Management adoption and the low capabilities developed before implementation. Some of the factors are: •
Flavour of the Month. Quick solution to old problems.
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Unclear link between business strategy in the NHS
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Lack of well-designed processes.
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Lack of structure project support on the organisation.
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Difficult to stick with the rigour of the approach, many NHS project jump straight to DO or improvement
Main Lessons •
Any process improvement program must to support the global strategy of the company and it is required to identify the level of Quality Management adoption before any implementation.
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Strategic framework is required in order to avoid localized impact of Lean implementation.
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Identification of processes is a key prerequisite to eliminate waste, identify value, implement and sustain improvement.
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Team working is a key element in Green Belt projects.
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Required internal employee skills to develop and implement LSS.
Business Case 2: Small engineering company (Thomas, Barton et al. 2009) In 1990, a small company leader in seating systems for automotive and aerospace industries experienced the need to become lean and responsive to client due to increase in competition from low cost countries. The use of external consultant was unfruitful so to create in house expertise was option for implementation. In order to diversify its product portfolio, the 12
company decided to sell product into the high value market, this strategy demanded highest standards of quality and more responsiveness to customers. Enable factors: •
Historic awareness to quality and investment in infrastructure to assure total customer satisfaction.
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Ability of the organisation to continually innovate.
Factors affecting Lean Six Sigma success. •
Lack of intellectual and financial capacity as primary issue to poor system implementation.
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Low application of statistical methods in SME and Management do not have sufficient knowledge to obtain the full potential of using statistical tools.
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Insufficient statistical data limit the effectiveness of some tools and techniques (e.g. problem solving benchmarking, continuous improvement)
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Complexity of implementation
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The cost to machinery reconfiguration to implement Lean approach.
Main Lessons •
Develop in house expertise for future process systems development, creating internal capabilities and saving cost.
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Develop advanced statistical techniques and to become “technical” in the approach to problem solving implementing Six Sigma.
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The lean approach developed a culture towards continuous improvement and elimination of non value added activities before Six Sigma implementation.
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TPM approach within the lean strategy allowed the company to develop more advanced maintenance analysis techniques and fewer breakdowns.
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Business Case 3: Stanford Hospital and Clinics (George 2003) Stanford Hospital was applying the basic elements of Lean Six Sigma mid-1980s, the first approach to LSS was throughout Total Quality Management. In 1990s, the clinics needed more profitability in order to sustain its operations. Healthcare organisations cannot fully control their fixed costs. The first failed quality implementation was in mid-1980, after that they implement Operation Improvement initiative, in late 1980s. Enable factors: •
Ten year implementing quality systems.
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Development of Operation Improvement fosters the quality culture into the organization.
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OI build the first basement to tools and techniques
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Link between improvement program and business strategy.
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Develop internal capabilities throughout training employees.
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First, TQM implementation; following by Lean and finally LSS
Factors affecting Lean Six Sigma success. Lack of entire service vision. Main Lessons •
Use of cross departmental team in order to understand and analyse the entire process.
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Developed of Numerical skills to identify critical process indicators.
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Implementation throughout flexible methods according to teams needs and styles.
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Conclusions In this essay we investigate the advantages and disadvantages of implement Lean Six Sigma. After an extensive literature and case review, the applicability of LSS is valid in services and manufacturing sectors. We found out, that the main factors that explain the successful implementation of LSS is the level of Quality Management adoption (i.e. developed quality capabilities into the company) and the correct understanding of the scope, limits and use of quality approaches. The main implications of this research are: 1. In order to obtain the whole benefits of any Quality program, the firm has to identify its level of quality capabilities. Every improvement approach has different tools, techniques, critical success factors, objectives and limitations, managers have to understand these elements and identify its applicability into their companies. 2. Literature review shows some possible routes forward a successful implementation of Lean Six Sigma. There are some factors that have highest impact to implement quality approaches. But there is not a unique route. 3. One important implication to managers is the strategic impact of Quality Management. Implementing a quality program increase the company capabilities, under limit resources, managers have to take trade off decisions at selecting the approach and its components. 4. Finally, the human factor is still one of the most important determinants of Success. As we see in the Small company case, training employees not only help to develop internal capabilities, but have a positive financial impact.
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References
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