Inside the July issue

Question of the month: Out of so many process improvement programs available, which one is right for your company?

Find the answer at the end of this newsletter.

BY Chris Anderson
July 27, 2005

This month, we discussed the difference between three process improvement programs – Six Sigma, Lean Thinking and Theory of Constraints. Six Sigma is highly problem focused and uses a scientific approach called DMAIC to analyze a specific problem. Lean Thinking, as the name suggests, is more like a mindset which focuses on removing waste and increasing customer value. Theory of Constraints is about recognizing and reducing your constraints (delays or bottlenecks) and coming closer to realizing your potential.

Reducing Variance with Six Sigma

Six sigma is all about variance reduction. By variance, we are referring to 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. Six Sigma 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.

Scientific and numbers-based organizations can benefit the most from Six Sigma. If you are in a high technology, high transaction, or expensive error environment then Six Sigma could work very well for your organization.

Lean Thinking and Customer Value

Lean Thinking is about smooth process flows, doing only the things that add customer value and eliminating other activities that don’t. 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)

Lean uses systems thinking and considers all of the process interactions, while utilizing the 5S system of organization. Unlike Six Sigma, it does not require a lot of mathematical analysis and works well for mature, slow growth or low transaction businesses.

Increasing Throughput with
the Theory of Constraints (TOC)

The basic premise of the Theory of Constraints is that the more we can reduce the barriers (constraints) to our performance, the closer we can come to realizing our full potential. Created by the noted physicist, Dr Eli Goldratt, TOC provides a solution for finding the core processes using the five Focusing Steps: identify constraint; exploit constraint; subordinate others; elevate constraint; and, repeat cycle.

Although both Lean Thinking and TOC focus on reducing waste and increasing process flow, TOC goes beyond Lean with its focus on throughput. It is nice to reduce waste, but the emphasis should be on making more money by selling more product (throughput increase), not just by cutting costs.

Read more about the Theory of Constraints...

Process improvement can result in real benefits for your organization by increasing performance, reducing waste or improving predictability. A lot of process improvement programs are available on the market today. They all work well in different environments and look at problems differently. While Six Sigma aims to reduce variation, Lean Thinking looks to reduce waste and TOC focuses on improving throughput of the entire system.

To learn more about using process improvement programs for your organization attend the next How to Align a System of People and Processes for Results class. If you are eager to learn more about creating more order out of the chaos you are feeling at work then the How to Create Well-Defined Processes class is right for you. ISO 9000 Quality Auditor classes are forming now for Internal Auditor or Lead Auditor.

Reader Feedback

I am glad we have readers like Larry Stapleton, a Professor of Operations Management at Millikin University, to catch explanations that are not clear. He wrote:

“I was reading your discussion of TOC in a Bizmanualz email. Your example on Exploiting the Systems Constraint is not completely accurate.

When one tries to exploit the constraint, it is necessary to remove those factors that prevent it from producing at its maximum flow. The cost of not maintaining this maximum flow is the loss of the end item, which provides our true cost of a breakdown at the bottleneck. The example you gave focuses on reducing the localized cost at the bottleneck.

A better example would be, if the system produced 20 items per hour with a cost of $100 each then the cost of the constraint being down would be $2000 per hour (20 units x $100). This is because by definition you cannot speed up the bottleneck to catch up so those units are simply lost. The assumption is that these end items are not destined for inventory but are to satisfy a customer order. One can, in a following step, “elevate” the bottleneck to achieve more system output.

Goldratt cites the example in The Goal that to exploit the bottleneck the recommendation was to assign a maintenance person to the bottleneck to ensure that it continues to function at maximum flow. Other examples of making sure that the constraint operates at max flow are to add an inspection station prior to the bottleneck (this action makes sure that products use quality inputs and maximizes flow), to provide training to backup personnel, to continue operation of the bottleneck during lunches, breaks and absences.

If you notice, I did not use the word capacity in this discussion on exploiting the bottleneck because capacity is the potential of the station but flow is the actual output. These are just my thoughts on this topic.”

I did not do a very good job of explaining how the constraint and all of the costs of the system are related. Due to space limitations, I edited out material that left it unclear.

I think Larry’s example better illustrates the focus of TOC on output and lost opportunity cost versus the one I used of operating cost. But, I do not believe my example is inaccurate, just that it illustrates a different view of the constraint. That is that all of the resources, costs and other processes are subordinate to and controlled by the constraint. Thanks Larry for pointing that out.

On That Note

Answer to this month's question:

The simple answer is “it depends!” What process improvement program is best for you really depends on what kind of environment you are in. Scientific and numbers based companies can benefit most from Six Sigma while Lean Thinking works well for mature, slow growth or low transaction (small businesses) organizations.Theory of Constraints less concerned with an individual process and is systems focused, lookingfor any system element that reduces the throughput of the whole system. The strategic nature of TOC can be applied to many different work environments.

Next month we will discuss the organizational design foundation required for successful process improvement including corporate culture, organizational structure, and leadership behavior. Let us know if you'd like any specific topic addressed in our future article-series.

Best regards,
Chris
Bizmanualz, Inc