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| March 2007 |
MEASURING PERFORMANCE IMPROVEMENT
Beware of new brooms that sweep away meaningful data – and people
March 2007
Quality Digest
by Praveen Gupta
Business performance measurements have existed ever since the first grain merchant scratched some notes to himself on a clay tablet. Traditionally, performance measurements have implied only levels and trends, and have focused on outcomes. During the last two decades, measurements have moved from outcomes to activities and, more recently, have included inputs and supply chains. Since the 1980s, businesses have improved by using methodologies such as total quality management, ISO 9001 and Six Sigma, and the results have been astonishing. During the 1960s, overall business performance yielded about 50 to 60 percent, compared to 80 to 90 percent in recent years. Such gains come with a price. These days, most improvements in business performance must involve cost-cutting, which means some tough decisions for CEOs.
How does one measure, communicate and perpetuate improvement? Does improvement alone make a business successful? Experience shows that cost-driven improvement can shrink business, while capability-oriented improvement can lead to growth. Among the current issues surrounding business performance measurement are layoffs, severance compensation, outsourcing and reducing employment in developed economies. To implement the best measurements for their organizations, CEOs must examine the relevance, purpose, adequacy, effectiveness and outcomes of all possible decisions.
When a growing company appoints a new president or chief operating officer, it often hires reliable professionals to help manage growth and plan for expansion. The direction in which the company is headed seems clear, and forecasts are generally positive. During this phase, the company flourishes and everyone is happy. With a struggling business, however, a new president usually cuts jobs first, then figures out what to do to stay in business. Prospects don’t improve right away. Times are tough for employees, who worry about losing their jobs as they compete with their co-workers and friends to stay on the payroll. Both types of organizations focus on the bottom line, either to improve profits or simply to survive. When measurements that can guide decision making toward sustained growth and profitability are lacking, the cycles of growth and cutbacks will continue irrespective of leadership.
During a growth phase, a company shouldn’t simply monitor growth, and during a decline it shouldn’t simply cut costs and jobs. In either case, top management must plan for sustained profitable growth. To achieve this, a growing company must focus on profit, while a declining business must focus on growth. Thus, any company must look seriously into implementing measurements for ensuring steady improvement during both good and bad times. During good times, improvement measurements can ensure profitability, and during a decline they can provide resources for turning the business around.
Improvement initiatives
Recently, organizations have implemented focused improvement methodologies such as lean and Six Sigma. However, measurements for the effectiveness of these implementations haven’t been directly related to the methodologies’ purposes. For example, when an organization implements Six Sigma, it rarely measures its corporate sigma level. Or, when it implements a lean initiative, its effectiveness in terms of specific objectives hasn’t been determined. In other words, the ideal state of either Six Sigma or lean hasn’t been defined, targeted or measured to ensure its optimum realization.
The objectives and ultimate measurements used by top management are unrelated items. The measure of head-count reduction communicates to employees that somehow they’re part of the “waste” to be reduced. Similarly, in the case of Six Sigma, performance improvement implies financial improvement that can be adversely affected by many factors unrelated to the methodology. If the bottom line is negatively affected due to adverse marketing conditions or a poor business growth strategy, for example, Six Sigma is blamed for the poor performance. So the question is, “What should we measure to determine the effective implementation of Six Sigma or lean?”
Performance vs. improvement
After 15 years of creating scorecards that balance financial and other measures, organizations still have too many measurements that are of little use. As a result, a new industry of business intelligence has appeared. Conferences abound that focus on business process management, performance measurements and information sharing. Obviously, the need exists for establishing the right measurements.
Performance-driven measurements are more passive than improvement-driven ones. Simply gathering information without transforming it into intelligence is a waste of critical resources.
Organizations need to have a better understanding of their strengths, a better-defined improvement initiative, direct measurements to drive improvement, effective methods of communicating improvement and an effective plan for continuous improvement. To determine the improvement opportunities that may exist in an organization, consider the following:
• Loss of market share
• Ineffective outsourcing
• Lack of business intelligence
• Organizational problems
• Operational inefficiencies
• Product or service problems
• Customer complaints
• Growing competition
• Outdated employee skills
Measurements must be geared toward realizing business objectives. Many times, business objectives aren’t clearly spelled out, and the focus instead is on meeting month-to-month or quarterly goals. Therefore, it’s critical to communicate the fundamental business strategy, which in most cases must be concerned with achieving sustained profitable growth.
Understanding measures for performance improvement
To establish cost-effective and meaningful measurements, an organization’s leaders must first establish a value stream to the fundamental business strategy of achieving sustained profitable growth. The five elements required to achieve the fundamental business strategy include benchmarking, business scorecards, Six Sigma or lean, innovation and good process management. Benchmarking is required to understand an organization’s competitive position in the industry and establish goals for improvement based on opportunity and market position. Business scorecards are necessary to identify drivers and establish measures for ensuring progress. The scorecard should consist of financial, nonfinancial, objective and subjective measurements throughout the organization. Six Sigma or lean initiatives are implemented to reduce waste, and innovation produces new products or services for realizing growth. Finally, good process management is necessary to sustain improved performance.
Improvement measurements must indicate improvement in various aspects of business. One of the dilemmas with this is “measurement madness,” or too many measurements. Thus, measurements for improvement must identify key areas and key opportunities, and link them back to the overriding goal of achieving sustained profitable growth.
These main measurements take into consideration leadership, management, employees, key areas and processes. Some of the measurements also relate to Six Sigma and lean improvement initiatives. For example, to measure process quality identify key processes and calculate their individual quality levels in defects per million opportunities (DPMO) to determine overall DPMO and the sigma level. Similarly, for key parts, one looks into the critical parts and ensures their quality to the highest level.
Note that areas such as employee recognition, idea management and rate of improvement aren’t often measured. However, these factors do play a significant role in an organization’s success, and more companies are using such unconventional measurements. Organizations are realizing that along with improvement, innovation will help them grow and improve their bottom lines. On the other hand, innovation is still a little-understood process and, consequently, one that’s difficult to measure. However, idea management, a process that feeds into innovative products or services, isn’t an unknown process, and it can be measured and improved.
Ideas for improvement and innovation
Due to the increased demand for innovation, companies need many more ideas than their research and development departments can supply for new products and services. Thus, it’s critical to involve all employees and solicit their ideas for new products and services. Fortunately, new software tools with built-in filters and improved analytical capability have been developed to manage the volume of new ideas.
To generate innovative ideas, it’s necessary to look beyond simply good ideas. I’ve developed a four-step process to help organizations do this. Typically, companies hold brainstorming meetings that tend to be dominated by a few individuals and suppress others in the room. The four-step process ensures that everyone has an opportunity to contribute. To do this, the team leader takes four sets of 3 × 5 in. cards of different colors—green, yellow, red and purple. First, hand each participant a green card and give them three minutes to write down their “good” ideas. After the allotted time, turn the cards over. Next, give them the yellow card, on which they will take three minutes to write down their “crazy” ideas. Repeat the process for the red card (“stupid” ideas) and the purple card (“funny” ideas). The thinking time per idea will be equal to three minutes divided by the number of ideas.
This exercise demonstrates that the thinking time per idea (along with the extent of innovation) increases from “good” to “funny” ideas. Experience shows that so-called “good” ideas are captured without much thinking. Real innovation begins with the “crazy” ideas and maxes out with the “funny” ideas, which are the hardest to uncover.
Generating new and innovative ideas is fundamental to driving improvement. Having established a business model consisting of key processes, and mastered the technique to generate innovative ideas, top management can focus on driving improvement in every department. Focusing on improvement will create a more exciting environment, and lead to employee engagement and a forward-moving, growing organization. This can create new opportunities for employees by the use of additional resources gained through improvement initiatives such as lean or Six Sigma.
Establishing measures for performance improvement
Once improvement becomes part of an organization’s culture, measurements can be established to monitor and sustain it. Usually the tendency is to establish financial measures for keeping top management informed and preventing the initiative from being dropped. However, direct measures of improvement will improve an initiative’s success rate as well as the organization’s bottom line. After talking to many Six Sigma professionals, I’ve noticed a reluctance to measure the corporate sigma level and a tendency to focus on financials instead. However, financials depend on many uncontrollable internal or external factors. If market conditions change, management strategy must also change, and financials could be affected regardless of the Six Sigma initiative. Thus, to monitor total progress, a corporation implementing Six Sigma must measure its sigma level at the process as well as corporate level unless the implementation is local or project-specific. Similarly, for lean initiatives local measurements such as kanban, inventory levels and cycle time are necessary.
Measuring overall improvement can be done by monitoring the rate of improvement. Each department should be asked to improve quality, timeliness and cost at a certain rate. If the improvement isn’t realized as expected, appropriate action can be taken to sustain the improvement rate. To establish the right measurements, organizations must answer three questions:
1. What’s the purpose of the improvement initiative?
2. What’s the expected outcome of the improvement initiative?
3. What’s the measure of its adequacy and outcome?
Once the measurements are identified, the organization can decide how it will establish direct and indirect measurements. When measuring improvement, the organization mustn’t forget its fundamental business objective—which is to achieve sustained profitable growth.
Too often, a new management team will walk into a company, lay off 10 percent of the work force right away, shuffle the remaining people around, bring in its buddies and within a year leave the company worse than when it arrived. Companies that use cost-cutting alone to create profit will not last long. Leadership must drive change to grow the business profitably, and create opportunities for current and potential employees. Establishing the right measures of key processes for driving improvement is critical to achieving sustained profitable growth. Any corporate improvement initiative and related measures must demonstrate improvement to the overall culture as well as the bottom line.
About the author
Praveen Gupta has worked in the business performance improvement field since the 1980s. He founded Accelper Consulting in 1989 to provide training and consulting services to businesses. Accelper Consulting focuses on improving business performance through quality methods and new tools such as the 4P model for sustaining process excellence. Gupta, an ASQ Fellow and a Six Sigma Master Black Belt, is the author of Six Sigma Business Scorecard (McGraw-Hill, 2006), The Six Sigma Performance Handbook (McGraw-Hill, 2004), Business Innovation in the 21st Century (Accelper Consulting, 2007) and Stat-Free Six Sigma (Accelper Consulting, 2007).
Praveen is speaking on “Measurements to Sustain Lean and Six Sigma” at WCBF’s Lean & Six Sigma Summit, April 29th – May 2nd 2008 at The Westin Lombard, Chicago IL, and giving away free signed copies of his new book “Virtually Statfree Six Sigma” at the summit.
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| January 2008 |
Lean, Six Sigma and the Continuous Improvement Tool-Kit to Promote Business Growth and Innovation
Lean and Six Sigma have a major role to play as enabling tools for process excellence. However, it is important to consider how Lean and Six Sigma can be used in conjunction with other processes and methodologies to support successful innovation and business growth.
Design for Lean Six Sigma, Malcolm Baldrige and TRIZ for Innovation
Lean Six Sigma and Design for Lean Six Sigma (DfLSS) are emerging as important enablers for innovation.
Russell Ford, President and CEO at Prestolite Electric Inc. has been looking closely at how Lean, Six Sigma, Design for Lean Six Sigma (DfLSS) and innovation can work together in an organization. Prestolite strives to create the infrastructure to allow and promote innovation to thrive within Lean, Six Sigma and DfLSS environments.
Overcoming resistance from within the organization for the integration of DfLSS is a key challenge that Dr Stephen Hoover, Vice President at the Xerox Research Center, and his colleagues at Xerox Corporation, have strived to confront through their process improvement efforts and working closely with customers and employees.
Baldrige has also been applied to achieve process excellence and innovation as achieved at Sharp Healthcare (2007 Malcolm Baldrige National Quality Award recipients). Nancy Pratt, Senior Vice President, Clinical Effectiveness and her team at Sharp Healthcare have combined Lean, Six Sigma and Baldrige to create a process-oriented organization to achieve award-winning success in numerous clinical and non-clinical processes.
For practical innovation in quality improvement, TRIZ can also be used to increase creativity in Lean and Six Sigma to maximize customer satisfaction, productivity and profits according to Ellen Domb, Ph.D., Founding Editor of The TRIZ Journal. TRIZ is fully compatible with Six Sigma and Lean, representing a systematic innovation methodology that helps organization’s to find creative solutions for all kinds of business and technical problems. Dr Domb has been named by Quality Digest Magazine as a leading voice for the future, citing the integration of TRIZ for innovation in quality improvement and quality planning systems.
Xerox Corporation, Sharp Healthcare, Prestolite Electric Incorporation and The Triz Journal will share their insights into the role of Lean and Six Sigma as part of the Continuous Improvement Tool-Kit for innovation and business growth at WCBF’s 4th Annual Lean & Six Sigma Summit, April 29th – May 2nd in Chicago.
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| August 2007 |
GENERAL CARLSON EMPHASIZES LEAN TECHNIQUES
30 August 2007
US Fed News
By Kathy Paine 72nd Air Base Wing Public Affairs
During a two-day visit to Tinker AFB Aug. 28-29, Gen. Bruce Carlson, commander of Air Force Materiel Command, structured tours of the Oklahoma City Air Logistics Center around his three focus areas: mission, people and continuous process improvement.
General Carlson emphasized how AFMC is working to increase future workloads at the depots through programs such as Air Force Lean Initiative for the 21st Century, and the 10 core processes of the Air Force.
"We developed the life-cycle management approach to acquisition and sustainment of all weapon systems to ensure we considered the most economical and effective solution for the long term," said General Carlson.
The life-cycle management approach is part of the Air Force's Transformation Vision, a strategy to re-engineer critical processes, identify and prioritize processes for improvement, and redesign them whenever they fall short of the immediate or long-term expectations.
The strategy also includes harvesting resources to support transformation and modernization of Air Force and joint capabilities. Part of the strategy also includes establishing a culture of continuous improvement to achieve increased efficiencies that will allow the Air Force to return resources toward recapitalizing Air Force weapon systems and infrastructure.
One of the many process improvements General Carlson saw was a Black Belt Project about an in-dock cabin pressure decay check. The presentation was given by Brian deFonteny, Industrial Engineering technician within the KC-135 organization and team leader on this Black Belt project.
"I was honored to have the opportunity to brief the Six-Sigma Black Belt Cabin Pressure project at such a high level and I appreciate General Carlson's influence to promote the engagement of future projects throughout the Air Force," Mr. deFonteny said. "Six-Sigma is a relatively new approach to problem solving here at Tinker, and has huge potential to save millions of dollars with process refinements and task standardization."
After the briefing, Gen. Carlson praised the team of Tinker KC-135 personnel who used modern Lean techniques to reduce work flow days caused by repeated cabin pressurization tests. The Lean thinking saved the Air Force $212,500 in labor and redesigned the way future work is done.
Hear from the US Army and the US Navy at WCBF’s Government & Defense Benchmarking Forum at WCBF’s Lean Six Sigma Summit, April 30th - May 2nd 2008, Chicago IL |
| May 2007 |
Keep processes simple and measurable
MENTOR
14 May 2007
Business Line (The Hindu)
(c) 2007 The Hindu Business Line
The link between strategy and results is management, or the so-called middle management, says Praveen Gupta in Six Sigma Business Scorecard management by objectives (MBO) has been the mantra for the way of doing business. The MBO approach led to a system in which managers focus heavily on narrowly defined results." Since the objective is set in terms of numerical goals there is a danger that MBO degenerates to a manipulation of numbers at all company levels from the president to the operator.
You can smell the malaise around you if you find managers complaining, "My plate is full... I have a million things to do... I have so many fires to fight, I do not even know where to start."
this is. Because "This very mindset on the part of managers is what leads to the high cost of poor quality which many consultants estimate to be as much as 40 per cent of sales."
Gupta narrates a process example: "A manager told the engineer to produce electronics boards as fast as possible. The engineer bought a machine for soldering and set it at the highest temperature and belt speed to produce the highest number of soldered boards in the shortest amount of time."
What was the result? "On paper it appeared that capacity goals were achieved. However, the high temperature of the machine caused some parts on the electronics boards to melt." Therefore, to correct the melting, the manager complained to the design engineer, who came up with a solution: `a heat sink to absorb the extra heat'.
Additional heat was thus absorbed, but there was a different problem, now: the thermal profile of the board got changed, as a result, and caused `some connections to become unsoldered and displaced'.
Directed by the manager to tackle the high defect rate, the process engineer recommended the setting up of a repair and rework station. This increased the number of good boards. Alas, `field performance of the boards, however, had degraded.' Also, `warranty cost increased.' A series of visits became necessary by the customer service personnel and the manager, to go and observe the failures in the field.
Worried about the falling profitability, the manager established a quality improvement programme, and hired a consultant, who trained the employees in problem solving. "But most of them didn't get much out of it because they could not understand why they were being trained they currently had no problem." The programme eventually led to insignificant gains.
"Just as one punctured wheel disables a car, a poorly managed process can kill a company," observes the author. "Similar examples exist in almost every company, whether service or manufacturing, software or hardware, or private or government... One process can eat away the profitability of the entire operation."
Management must keep the processes simple, measurable, and managed, advises Gupta. "Management's job is to enable its people to do well at work, accomplish a lot, and have fun doing it."
Praveen Gupta is speaking at WCBF’s Lean Six Sigma Summit, April 30th – May 2nd 2008 in Chicago, IL.
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| June 2007 |
LEAN IN THE JOB SHOP; ADVANCED LEAN TECHNIQUES: MOVING BEYOND THE OBVIOUS
01 June 2007
F&M (Fabricating & Metalworking)
ISSN 1541-2415; Volume 6; Issue 6
"Copyright 2007 Cygnus Business Media"
By David Dixon
In previous columns (archived at http://www.fandmmag.com) we have tried first to dispel the notion that lean techniques and other world-class improvement tools are not applicable in a job shop. We addressed the requirements for leading the lean implementation and overcoming resistance to change; we surveyed the lean tool kit and we looked at demand-pull techniques and lean plant layout in more detail.
In this article, we will suggest that even with a basic lean infrastructure in place, there will be more to do-more opportunities to remove waste, drive productivity up, reduce lead time and inventory, and improve quality. This will require an ever-increasing level of sophistication in the use of lean techniques.
What follows is, perhaps, a look into your future. It is a longer-term vision of where you will want to take your business if you are just starting the lean journey or a set of "next steps" if you are at a plateau.
GETTING STARTED
Every successful lean implementation rests on a foundation of capabilities and disciplines forged from lean principles and the application of basic techniques. Figure 1 (also seen in previous columns) depicts the lean tool kit. Many of these tools are fundamental to our success, and we put them to work early. Examples are value stream mapping, fast setup, focused layouts, pull systems, standard work, line/load balancing, error proofing and 5S housekeeping.
Working from value-stream maps and market-driven performance-improvement needs, projects will be selected and executed to set up lean pilot cells, to elevate capacity at constraint operations and to remove non-value-added time. One by one, these projects will bring us to significantly increased levels of profitability and customer service. At some point we are flowing small lots through cells to a demand-driven takt time.
It may be two to four years before we realize the full benefits of our basic implementation. Eventually, progress will be stalled out by realities embedded in process equipment and tools that drive us to batching rather than flowing one piece at a time.
Common examples are paint systems, plating systems, heat-treating ovens and any equipment that drives a lot size greater than one owing to a long, complex setup. Further productivity improvement may also be limited by process technology requiring a full-time man/machine interface; that is, certain machines require full-time attendance.
As we face the "brutal reality" of these issues, we must consciously decide if we want to take them on. Some companies have done so, others are beginning. There are good reasons to consider this challenge.
APPROACHING THE ONE-PIECE FLOW
There is magic in the one-piece flow. It represents the ultimate lean system, where we have the best chance of minimizing lead time and cost. Throughput is fast and predictable, and problems are immediately visible. People are ideally positioned to solve problems, balance workloads, make good decisions and continuously improve. With this in mind, every effort should be made to remove impediments to this fundamental lean objective. There are many ways in which a mature lean organization will work to break down the obstacles. We will discuss three very important techniques here.
Right-sized equipment. Enormous amounts of waste are associated with the need to remove product from a cell to perform painting, plating, heat treating, deburring or other operations. To combat this waste, many companies are developing smaller pieces of equipment that are sized specifically for the geometry and the volume of work being run in the cell. Sometimes the solutions are fairly easy and inexpensive to develop; in other cases they are quite difficult and expensive. One company developed a CNC-controlled, portable plating machine to support cellular operations and eliminate a central plating system. The equipment runs a wide variety of product and requires virtually no setup.
The company built several of these machines at a cost of $250,000 each!
Advanced lean thinkers will understand the pay-off provided by these decisions. And because commercial solutions are often unavailable, they design and build their own.
One-Touch Setups. Setup time is another formidable enemy of a one-piece flow. Early setup reduction efforts often enable us to flow work in much smaller lots, but setup time still drives us to a transfer batch size considerably greater than one. At this juncture, we will need to approach zero setup time. To achieve this goal, especially in a job-shop setting, will require truly innovative thinking and equipment/tooling combinations that allow an operator to accomplish a setup with a single motion.
Here again, we will probably not find off-the-shelf solutions. Creative design/build projects will be required.
Autonomation. This technology takes us to a new level of productivity by separating the man from the machine. It is assumed that we are already running a one-piece flow, multiple operators are working in a cell and we are seeking to improve the output per labor hour. This is accomplished by automating the machine cycles wherever possible. Operators then load material or parts, initiate the machine cycle and rotate to another workstation while the machine does its work. Manpower requirements are reduced by the amount of non-value-added wait time eliminated by automating the machine cycles.
Many commercial equipment builders provide this kind of automation, but custom applications will eventually be needed. Again, you will probably have to design and build your own.
HOW TO DEVELOP ADVANCED TECHNIQUES
Efforts to develop advanced solutions are usually focused on a set of improvement objectives associated with a given value stream. These objectives will give rise to performance specifications for projects to develop right-sized equipment, one-touch setup and autonomation. Other advanced techniques will also be selected and implemented as needed to lean out the value stream.
At this point we adopt an R&D mentality. We will search the literature, benchmark, brainstorm and collaborate with equipment, tooling and automation suppliers to develop concept solutions. Stand-alone experimental prototypes will be used to test the concepts, and model lines/cells will be used to prove them out.
Patience and determination are critical. As in all breakthrough thinking and related development, the sought-after solution seems always just out of reach. Only the persistent reach their goals.
CONCLUSION
Industry Week magazine's 2006 survey of North American companies reveals that only about 20 percent of the participants have yet to begin a formal continuous improvement effort, and most of them are using lean as the primary improvement vehicle. This suggests that in the not-distant future, most companies will be enjoying the benefits of a basic lean implementation. The "low hanging fruit" will be mostly plucked, and the performance levels of entire industries will be significantly better.
From a competitive standpoint, lean will have become a commodity. Any competitive edge will then have to come from the mastery of advanced lean techniques. Fortunately, the techniques discussed above, coupled with other initiatives (e.g., Six Sigma, world-class systems and resource management, and administrative lean) provide ample opportunity for continuing performance gains.
Plan now to keep your competitive edge by implementing the more difficult lean tools in an extraordinary way..
Gain insight into the practical lessons learned by advanced Lean Six Sigma practitioners who are more than 7 years into their Lean Six Deployments at WCBF’s Lean Six Sigma Summit, April 30 – May 2 2008 in Chicago, IL
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