I am sure you recognize a few of these programs. Have you ever wondered what the difference is between each of these? There are many consultants in the market that are advocating the use of one of these improvement methods to solve all of your organizational problems. But will all of these work in any situation? Or, are there specific situations that are better suited for a particular approach?

This month we are going to compare and contrast the first three improvement programs: Six Sigma, Lean Thinking, and the Theory of Constraints. We will explore the advantages and disadvantages of each one and the best way to use each method to realize improvement.

I. SIX SIGMA

In statistics, a ‘sigma’ (s) refers to the standard deviation from the mean of a population. Standard deviation describes the likelihood of your next data point deviating from the mean of the whole data set. The sixth sigma refers to the likelihood that only 3.4 out of every 1 million data points will appear outside the sixth standard deviation. That translates into less than 4 errors per million transactions.

Six sigma is all about variance reduction. What do we mean by variance? We are talking about the amount of control you have over your processes. Another way to look at it is how good you are at predicting or forecasting the future outcomes of a given process.

For example, if we are talking about an accounts receivable process with a goal (effectiveness criteria) of collecting all receivables within 30 days, then we would measure the time variance of each individual receivable collected against the average days outstanding (let’s say it’s 35 days) for the whole population of receivables collected. If your individual collections range from 25-90 days then we would say your process variance is high, which translates into a low sigma. The difference between the process average (35) and the goal (30) would reflect your process’ capability or your process’ ability to meet the target.

As we have seen in business metrics for results, variance is a symptom of waste. So, the higher the sigma, the greater the control you have over your process, which means greater forecasting accuracy and less error. Processes that exhibit a lot of variance mean they have a lot of waste.

The name six sigma tells us a lot about this particular improvement program. You can see that the six sigma approach involves a little advanced math, some statistical tools to understand the various fluctuations of a process, and a lot of data to run the calculations.

DMAIC

Six sigma is very problem focused. It uses a scientific approach called DMAIC to analyze a specific problem. DMAIC stands for Define, Measure, Analyze, Improve and Control, which is also known as the learning loop or PDCA.

Six sigma is ideal for scientific or numbers based organizations including: high technology manufacturing (semiconductors), high transaction businesses (check or postal processing), fast paced research and development (electronics, pharmaceuticals), or environments where errors are extremely expensive (surgical operations, space exploration, aircraft takeoff and landings).

Motorola and General Electric are two high technology companies that have helped to popularize the six sigma concepts. Motorola developed the methods back in the 1980’s to improve manufacturing yields. However this method is not ideal for low transaction situations (most small businesses) or mature industries with simple manufacturing processes (like baking).

Six sigma requires a rigorous application of DMAIC and statistics that may not be suited to many organizations. It is also highly problem focused, which works well for big problems but can lead to sub-optimization when applied across an entire organization. That is one department or process being optimized at the expense of another.

A lot of process improvement programs are available on the market today. If you are in a high technology, high transaction, or expensive error environment then six sigma will work real well for your organization. If not, then perhaps Lean Thinking (waste reduction) or the Theory of Constraints (throughput improvement) would work better. Next week we will discuss these next two and see how they can work for your organization.

II. LEAN THINKING

First, what is Lean Thinking anyway? As the name implies, it is a mindset — a way of viewing the world. Lean is about focus, removing waste, and increasing customer value. Lean is about smooth process flows, doing only those activities that add customer value and eliminating activities that don’t.

Adding value is another way of saying “generating revenue”. If it doesn’t generate revenue then it must add cost, not value. Sounds easy, doesn’t it? After all, this is what we do every day…or is it? Let’s see…

PROCESS FLOW

There are five basic steps in assessing lean operations:

Identify the activities that create value
Determine the sequence of activities (also called the value stream)
Eliminate activities that do not add value
Allow the customer to “pull” products/services
Improve the process (start over)

For example, let’s take a look at the most fundamental cycle within a lean operation, the order-to-delivery cycle. The top level activities, in sequence, are:

Taking an order,
Building the order, and
Delivering the order.

The activities that don’t add value include order entry, backlog, inventory, and shipping delays.

In a lean operation, we could have the customer enter their own orders; products made on demand, so we would have no backlog or inventory, and then product could be shipped overnight for minimal shipping delay (or downloaded in the case of software).

Companies with very short order-to-delivery cycles (and not using inventory as a buffer) are lean operations. Lean operations have a strong cash cycle. In general, the shorter the cycle, the leaner the operation. Do you know any companies like this?

Here at Bizmanualz, we carry very little inventory. Customers enter their own orders via the web, we make product on demand, and we ship it. Our order-to-delivery cycle is very short: Orders go out the same day if they’re received before 2:00 pm, US Central time — otherwise, by the end of the next business day.

5S SYSTEM

Another important tool used in lean thinking is the 5S system of organization. The idea is that a messy workplace, desk, or manufacturing cell makes it hard to find things, easier to get distracted, and can introduce accidents or mistakes. The “5S” stands for:

Sort – Sort needed and unneeded items
Set in Order – Arrange things in their proper place
Shine – Clean up the workplace
Standardize – Standardize the first three S’s
Sustain – Make 5S a part of the job (make it ongoing)

Note the visual nature of Lean. Lean Thinking is very visual, picturesque, even Zen-like. It is definitely a state of mind. Clean, clear, and focused at the task at hand and nothing else. It does not require a lot of mathematical analysis, unlike Six Sigma.

III. SIX SIGMA VS. LEAN THINKING

Six Sigma is problem-focused, with a view that process variation is waste. Lean Thinking, on the other hand, is focused on process flow and views any activity that does not add value as waste. Six sigma uses statistics to understand variation. Lean uses visuals: process mapping, flowcharting, and value stream mapping, to understand the process flow.

Program

Six Sigma

Lean Thinking

View of Waste

Variation is waste

Non-value add is waste

Application

Define
Measure
Analyze
Improve
Control

Identify Value
Define Value Stream
Determine Flow
Define Pull
Improve Process

Tools

Math-Statistics

Visualization

Focus

Problem focused

Process flow focused

Taiichi Ohno is credited with creating the Toyota Production System (TPS), which is one of the better known implementations of Lean Thinking anywhere in the world. The concepts of lean were born out of the severe resource constraints in postwar Japan, which leads us to next process improvement program – Theory of Constraints.

Lean Thinking is ideal for mature (energy), slow growth (automotive), low transaction industries (small business) or an organization where mathematical tools are not common. Lean begins to use systems thinking and considers all of the process interactions.

But lean is still a reductionist approach focused on eliminating waste (cutting costs). What is needed is to balance the resources released through Lean or Six Sigma improvement programs with an increase in throughput and need for resources. Otherwise you enter a cost cutting, job losing cycle and your process improvement program will grind to a halt.

If you’re in a mature, slow growth, low transaction, or non-math business, Lean Thinking will work really well for your organization. So what’s left? Six Sigma and Lean use two different approaches to get the same end result – process improvement. The Theory of Constraints (throughput improvement) takes the concepts of Lean Thinking to another level of systems thinking.

We will discuss throughput improvement and see how it ties the capacity or resources released through Lean or Six Sigma waste reduction programs to an increase in throughput without costing jobs while motivating people to keep improving.

IV. THEORY OF CONSTRAINTS

The critical question to ask is: how do constraints affect our performance? A constraint is a bottleneck, delay or a barrier to our full potential. The more we can reduce the barriers (constraints) to our performance, the closer we can come to realizing our full potential.

PERFORMANCE = FULL POTENTIAL – CONSTRAINTS

To find the constraints we need to look for the things that are holding us back. This is a lot easier than it sounds. Ask anyone in production what is holding up the delivery of an order and you will get an immediate answer. Everyone knows what the constraint is but nobody is sure of the right way to resolve it.

TOC is about thinking in logical, systematic, or structured processes similar to the PDCA learning loop. It is about analyzing cause and effect, verifying underlying assumptions and exploring alternatives. Compromise is not one of TOC’s primary objectives. Instead, buy-in and communication are used, specifically verbalizing one’s intuition and the problem at hand, while respecting the other party involved in a conflict and acknowledging his/her needs. Only in this way can we truly create WIN-WIN solutions and facilitate change. WIN-WIN solutions are the primary goal of TOC.

THINKING TOOLS

1. Identify and define problems. Ensuring consensus on the problem, which, if effectively addressed, will improve the entire system.

2. Find and devise solutions. Ensuring consensus on the needed change and verifying that any new solutions do not create other significant negative results.

3. Construct action plans to achieve these solutions. Ensuring consensus on the needed actions which include:

a. How to do it?

b. Who should do it?

c. When to do it?

FOCUSING STEPS

The Theory of Constraints provides us with a solution for finding the core processes using the five Focusing Steps.

Identify the system’s constraints.

Example: look for inventory accumulating before the constraint [i.e. manufacturing cell].

Solution: the inventory buffer [work-in-process] represents the waste or inefficiency of the constraint. The greater the inefficiency, the bigger the constraint.

Exploit or maximize the efficiency of the system’s constraint.

Example: if a constraint has only 24 hours available per day and the system [all company operating expenses] costs $500,000 per month to operate then each hour of the constraint costs $1,041.67 [$500,000 / (24 hours * 20 business days per month)] per hour of use or down time.

Solution: keep the constraints utilization as close to 100% as possible in order to squeeze every available hour out of the constraint.

Subordinate everything else to the constraint.

Example: inventory results from other processes producing more than demand.

Solution: keep as little inventory as possible by balancing the other processes output to only what’s needed to fill the constraint’s needs.

Elevate the systems constraints [reduce unnecessary demand on the constraint].

Example: the constraint is the most expensive process in a system because it restricts throughput.

Solution: ensure the constraint is only producing product committed for sale to a customer and not for inventory. Inspect before the constraint to ensure only good inputs are used. Find alternative resources or processes to reduce demand on the constraint.

If within the previous steps, a constraint has been broken, go back to step 1 [but do not allow inertia to cause a system constraint].

Example: the system’s conditions change when constraints are broken violating old rules, or policies.

Solution: review the system’s components again including existing policies. Policy constraints typically have the greatest effect on limiting system performance.

V. SIX SIGMA, LEAN THINKING, AND THEORY OF CONSTRAINTS

We have discussed how Six Sigma is problem focused with a view that process variation is waste. Lean Thinking is process flow focused and views any activity that does not add value as waste. Theory of Constraints is systems focused looking for any system element that reduces the throughput of the whole system. It is less concerned with an individual process.

Six sigma uses statistics to understand variation. Lean uses visuals like process mapping, flowcharting, and value stream mapping to understand the process flow. TOC is holistic: It addresses emotions, intuition, and the thinking process of the whole person. It helps to remove blame by shifting negative energy against someone to positive energy towards solving the problem, together, focusing on individual needs.

Program	Six Sigma	Lean Thinking	TOC
View of Waste	Variation is waste	Non-value add is waste	Constraints drive waste
Application	Define Measure Analyze Improve Control	Identify Value Define Value Stream Determine Flow Define Pull Improve Process	Identify Constraint Exploit Constraint Subordinate Others Elevate Constraint Repeat Cycle
Tools	Math-Statistics	Visualization	Systems thinking
Focus	Problem focused	Process flow focused	Constraint focused

TOC was created by the physicist Dr Eli Goldratt who developed the Theory of Constraints because of his work at developing software for production planning systems. He noted that the policy constraints the users were operating under limited the effectiveness of his software. It seemed that no amount of software modification would correct for such a powerful system constraints and that the only way for process improvement to work would be to change the policy assumptions or constraints and thus the Theory of Constraints was developed.

The Theory of Constraints takes the concepts of Lean Thinking to another level of systems thinking. You will see a lot of similarity between TOC and Lean. Both are focused on reducing waste and increasing process flow. However, TOC goes beyond Lean with its focus on throughput. Reducing waste is nice but the emphasis should be on making more money by selling more product not just by cutting costs and this is where the two diverge.

TOC is used to focus on the right problem and the right solution at the right time. Then Lean is used to reduce non-value add within the subordinated processes while Six Sigma is used to solve the efficiency problem of the constraint. Now all three can be used together. TOC is more strategic whereas Lean and Six Sigma are more tactical.

By Bizmanualz, Inc.

Resource: http://www.bizmanualz.com