If you’ve read Chapters 1 through 5 of this book, you’ve probably picked up on some key themes in Lean Six Sigma:
This chapter takes these concepts one step further to introduce the Five Laws of Lean Six Sigma that describe simple principles we can use when selecting projects and making improvements. Before getting there, however, we need to first walk through a few more basic concepts and terms you’ll need to know.
If you get involved in Lean Six Sigma efforts or hang around other people who are, you’ll hear a number of words or terms that come up all the time. We’ll walk through some of the most common.
WIP (pronounced like the word “whip”—the letters stand for Work-in-Process)
WIP is the amount of work that is officially in a process and isn’t yet complete. That work can be anything from customer requests, checks waiting to be processed, phone calls you have to return, reports you need to complete, emails you need to respond to, a pile of incoming parts that need to be assembled, etc. Measuring or calculating WIP is as fundamental as having a doctor take your blood pressure at every visit. Like blood pressure readings, the amount of WIP is an overall indicator of process health.
Lead time is how long it takes you to deliver your service or product once the order is triggered. Understanding what creates long lead time (meaning a slow process!) is much simpler than you might think, thanks to a simple equation known as Little’s Law (named after the mathematician who proved it):
We just covered Work-in-Process (WIP) above. Lead time is how long it takes for something to cycle through the process from start to finish. Completion rate is how many items of work get finished during any given time period (day, week, month).
Once you learn this equation, you can apply it quickly and easily to any process you work on. Most of us don’t have a clue what our average delivery or lead time is, let alone what the variation is. But knowing these figures is critical in any Lean Six Sigma improvement effort. The thought of having to track an order through every step in the process is daunting, especially if you have a process that takes days or weeks to complete. (The city staff in Fort Wayne, Indiana, who issue building permits had a process that took 51 days on average. Can you imagine having to somehow track a single permit for almost two months?)
Little’s Law isn’t just a good theory. It has a lot of practical implications. For example, it tells us we can speed up any process by reducing the amount of WIP, even if we do nothing to speed up the completion rate. In other words, if we just eliminate WIP, we can get the work done faster without having to get better at actually doing the work. What a bargain!
Little’s Law also allows us to estimate lead time simply by counting how much work is sitting around waiting to be completed (work-in-process) and how many “things” we can complete each day, week, etc.
Whenever you have WIP, you have work that is waiting to be worked on. In Lean Six Sigma, this work is said to be “in queue” (in line) and the time it sits around waiting is “queue time.” Any time that work sits in queue is counted as a delay, no matter what the underlying cause. And delays are bad if you want to provide fast, timely service to customers.
Imagine that one of your customers came to tour your work area. What would they think of everything they saw? Every process has some work that adds value in the eyes of your customers (and hence is called value-added work). Each process also has work that our customers would not want to pay for if they had the choice (the non-value-added work).
Another word for non-value-added work is waste. The goal of Lean Six Sigma is to eliminate as much waste as possible. Some waste we can never get rid of because no method known to humankind will make us 100% effective. But remember this: the more waste there is, the more delay you’ll have in the process. Lean Six Sigma helps us recognize and eliminate waste and not simply accept it as “the way work is done around here.”
Many people would describe the processes they work in as “complex.” But the word “complexity” has a special meaning in Lean Six Sigma. It refers to the number of different types of products, services, options, features, etc., that your processes have to handle. Some complexity is a good thing because it means your customers can get options that suit their needs. But too much complexity simply adds cost to the organization without any payback. Complexity issues mostly arise at a strategic level, such as which products or services a company should sell, what features they should offer, and so on. So you may hear the term from managers, but few Lean Six Sigma teams make decisions about complexity.
Since speed is a key goal of Lean, the natural questions are: How fast is fast? How slow is slow?
The answer comes by applying two concepts discussed above to calculate the process cycle efficiency: the ratio of value- add time (work that customers would recognize as necessary to create products or services they are about to purchase) to total lead time (how long the process takes from start to end). Process cycle efficiency lets us gauge the potential for cost reduction.
Let’s look at one example. A supplier for major auto companies knew that there was less than 3 hours of value-add time in their process. However, the total lead time from release of raw material into the line to shipment was an average of 12 days.
Based on having an 8-hour work day at the plant, the ratio of these two measures gives us process cycle efficiency:
Value Add Time = 3 Hours
Total Lead Time = 12 days X 8 hours/day= 96 Hours
Process Cycle Efficiency = 3 Hours/ 96 Hours = 3%
In other words, it was taking them 12 days to inject 3 hours of value into the product—the material is waiting for 11.6 days.
You may think that a 3% process cycle efficiency (PCE) is low, but it is fairly typical. A PCE of less than 10% indicates that the process has a lot of opportunity for improvement! And most processes today run at a cycle efficiency of less than 10%. (Take some data on your own processes and calculate the cycle efficiency. You’ll be surprised.)
Now that you’re getting the vocabulary down—customers, lead time, WIP, efficiency, complexity—you’re ready for the Five Laws of Lean Six Sigma:
Law #1: The Law of the Market—Customer needs define quality and are the highest priority for improvement. You can’t get sustained revenue growth without this.
Law #2: The Law of Flexibility—The speed of any process is proportional to its flexibility (that is, how easily people can switch between different types of tasks). If you want to be fast, you have to get rid of anything that causes a loss of productivity anytime people want to stop what they’re doing and start on something new. (On the shop floor, inflexibility is seen in long set-up or changeover times. In service areas, inflexibility is seen when people have to track down missing information, change from one computer system to another, and so on.)
Law #3: The Law of Focus—Data shows that 20% of the activities in a process cause 80% of the problems and delay. So you’ll make the most progress if you focus your efforts on those 20% (what you may hear some people call “Time Traps”).
Law #4: The Law of Velocity (Little’s Law)—The speed of any process is inversely related to the amount of WIP (work- or things-in-process). So as WIP goes up, speed goes down. As WIP goes down, a process speeds up. (Lesson: to make a process faster, cut down on how much work there is in process at any given time.)
Law #5: The Law of Complexity and Cost—The complexity of the service or product offering generally adds more costs and WIP than either poor quality (low Sigma) or slow speed (un- Lean) process problems. So one of your early improvement targets may well be reducing the numbers or varieties of products and services your work group is involved in. (This is a management decision that has to be based on good financial and market information.)
As you can probably tell from the past six chapters, implementing Lean Six Sigma requires time, effort, and dollars. So why would organizations go to all the trouble? Because the foundations of Lean Six Sigma we’ve discussed here have proven pay- back. Customers start getting better products and services, and become more loyal to your company and its brands. Costs go down. Employee loyalty goes up because people benefit from the Lean Six Sigma training and experience. In short, the company can be more profitable and provide better job security.
Just how all these changes come about is the subject of the next chapters. We’ll show examples of how Lean Six Sigma is rolled out, examine how improvements get made, and look at what’s in it for you to become involved.