By Tracy O'Rourke | Posted on May 24, 2012
Tracy O’Rourke explains what Lean Six Sigma is, why businesses use it, and why it should matter to you as an individual.
The following is a transcript of this video:
I do a lot of travelling and the biggest question I get is “what is Six Sigma?” So I’m going to spend a little bit of time talking about:
- What Lean Six Sigma is
- Why companies are using it
- Why it’s important for companies to have an initiative
- And why you should care about that, what does it do for you as an individual
So obviously it’s important to know what companies want if you want to get a job, but it’s also important to know what it really does for you as well. So I’ve put all that in there and I’m going to try to cover it in 15 minutes.
So here’s just a little bit about me and some companies I’ve helped. I started in this industry at GE. I was actually in sales and they asked me to become a Black Belt because they wanted me to talk to GE customers, and they tried a few engineers in that role, it didn’t really work out. So they thought it might be easier to train me how to talk about statistics rather than try to teach a statistician how to talk to customers – that’s not what I said, that’s what they said. It worked out pretty well.
What is Lean Six Sigma?
I’m going to talk a bit about Lean; this is at a really high level. It is under the process improvement umbrella. So what that means is that you’re trying to improve processes, and when I talk about processes, I’m talking about processes in all kinds of processes in all types of Industries. You can see that Jack had mentioned that I’ve been helping Callaway Golf, DC Shoes, financial services, the government – you can apply this anywhere. If you don’t know the root cause of the problem, you can apply Six Sigma and Lean to it.
How many of you have kids? Are their grades failing? Root cause analysis! You can even apply it for that. I’ve talked to people about how you can apply this in almost every situation where you don’t know the solution. How many of you have worked for a company where you don’t know the solution? Don’t know the root cause? This is why companies implement this because they want their people to step back, don’t jump to solutions – analyze the data. Although we all know that our managers are sometimes the ones that jump to solutions, right?
Lean and Six Sigma used to be sort of separate initiatives if you will. Lean started at Toyota in the 40s. Six Sigma started at Motorola in the 80s, and just recently they’ve come together now to become a combined tool kit. So if I had to explain in a few words what the difference is between Lean and Six Sigma:
- Lean is really about identifying and wasteful activities and gaining speed in the process. What is really called NVA (non-value add) to the customer – and how do we either eliminate or minimize that out of the process. And what’s really value-add? Are we measuring those things and are we actually making an improvement. If we don’t know where we are with those things, what can we do to make improvements.
- Six Sigma is more about identifying root causes and controlling variation and defects. So a different set of tools, and again, to simplify – it’s really about tools do you need to use out of your toolbox.
Here’s an example of some of the tools you might learn in Lean: Gemba walk, value stream map, standard work, cell layouts, one-piece flow. If you don’t know these things, its OK, that’s why you might want to get more information on Lean, but these are all very valuable tools that come from the Lean side of the house of process improvement.
Then we’ve got things on the Six Sigma side like swim lane maps, measurement systems analysis, histograms, root cause analysis, fishbone diagrams, design of experiments. How many of you guys have heard or used some of this stuff before? Look at all those hands! See!
The common goals really are focusing on the customer. That’s one of the really nice things about this. A lot of people think that Lean mean that less employees are needed. So not true! I love my job and I would not love if it were eliminating jobs. What it’s really trying to do is cut the stuff that is really unnecessary and so that’s what these tools are for – eliminating the NVA (non-value add), reducing variability.
Variability is inconsistent processes. How many you have been a customer of an inconsistent process before. Anybody every try to get a loan modification? Don’t do it! Oh maybe you’ve had a good experience! Here’s a good example: how many of you go to McDonalds for the food? We go there because it’s fast, it’s quick, we know what we’re going to get, lots of minimized variation. Our cheeseburger will be the same no matter which McDonalds we go to in the entire country. Same with Starbucks, they have really good consistent processes. How many you have ever worked at Starbucks? They have lots of processes and standardization.
Increasing speed, reducing errors and ultimately becoming more profitable. It’s just expanding your toolkit on how to do that.
What is Six Sigma? These are your sigma levels on the left – you’ve got one sigma, three sigma and six sigma for example. In the middle is DMPO – that stands for defects per million opportunities. Then you’ve got your yield over here – 99.9997%. So if you have a process that is Six Sigma, that means you have only 3.4 defects per million opportunities.
I’ll give you an example. Let’s say you run a call center, and your goal is that every call will be answered in less than one ring. If that process is Six Sigma, that means out of a million calls, that means only less then four calls will not be answered after one ring. That is a Six Sigma process. That’s pretty high quality, right? Three sigma, obviously not so good.
The best example that I like to give as far as practically as far as Six Sigma and three sigma is the airline industry. How many of you travel? How many of you have heard that traveling by air is the safest way to travel? How many of you believe that? Let me as you this – how many of you feel confident that you will arrive at your destination alive? Pretty good, right? So it’s actually better than Six Sigma! If you get on a plane you have better than a 99.9997% chance of making it to your destination alive. So you should feel really good – it’s very low probability that this will happen. As a matter of fact USA reported that nobody died on any airline last year.
However, the airline luggage process – is not a Six Sigma process. It is a lot less than that. Which one do you think it is? Sadly it is three sigma. It’s still in the 90s (%). What this means that out of a million pieces of luggage, they will lose, misdirect, mishandle or it will not arrive at the same time as you 66,807 times. So how many of you have had a bad experience with your luggage? Look at that! How is it possible that it’s only this many times that this many people have had that bad experience? Sometimes people travel a lot. Take a look at this – how many pieces of luggage come through LAX in one day? We’re talking millions just at that one airport. So just magnify this 93% / 66,807 pieces of luggage over and over and over, we’re talking millions of luggage. That’s why it hurts, that’s why we feel it because of that defect.
Do you all feel more comfortable about what Six Sigma means? Pretty high quality, right? OK. Sometimes quality is the reason why people do it, sometimes it isn’t. We’re going to talk about that. These are the people that I’ve just helped. There are lots of other companies that are implementing Six Sigma. How many of you know companies that are using Six Sigma programs? Sometimes they call it process excellence. Sometimes they call it operational excellence. There are lots of different names for it because some people don’t like the name Six Sigma because people ask, “What’s Six Sigma?”
Why Do Businesses Use Lean Six Sigma?
Here are some of the reasons. I’m going to talk briefly about why companies want Six Sigma and why it’s been at the forefront of many companies – especially large companies, but small companies can do it, too. Back in the old day, if companies wanted to make more money, all they did was they’d take the selling price and they’d increase it, right? What’s wrong with that today? Too much competition, you cannot get away with that. You’re going to lose business very quickly. You’ve got savvy shoppers, savvy consumers, they’re not going to put up with it. So now the strategy is that you can’t increase the selling price – if you want to more profitable, you’ve got to take it out of your cost to produce – operating expenses. Six Sigma does that. Lean and Six Sigma do that. They are vehicles to reduce operating costs and it’s not necessarily to eliminate people. It’s about looking at the process and asking what can we do to minimize waste.
I ask companies ask, “Why are you doing this? Is it to cut heads? “Cause I’m not your girl if that’s what its for. Do people become more streamlined? Do they need less people sometimes? Absolutely, but what do you do with those people and what’s the strategy? If you do a Six Sigma project and then got a laid off, what do you think’s going to happen when you try to do a Six Sigma project at the next department? Nobody’s signing up for that project. That is not the goal.
This is another reason why companies want to do it. This is the reason Jack Welch wanted to implement it at General Electric when I was there. Traditional quality cost – the cost of poor quality is expensive. It’s actually more expensive to have poor quality than good quality. They say said about 10% of sales revenue is related to the cost of poor quality. That’s just the stuff you can capture. The problem is that not all waste is captured. Its embedded or buried somewhere in cost of goods sold and you can’t capture it. So in essence, really, additional cost of cost of poor quality can equal about 35% of sales.
Let’s think about that – if you’re a million dollar company, what’s 35% of your sales? $350,000 is kind of a lot of money. It can be a big amount of money. At GE, it was in the billions of dollars. Just take any company, maybe you’ve worked there, maybe you know they have really bad quality. Even if you gauged it at 20%. Things are really hard to measure like change orders or re-tooling or expediting. How many of you have worked for a company that’s said “gets the out to the customer now, whatever it takes!” Expediting costs money. Setup slow processes, late deliveries – “I’m sorry we screwed up, here’s a free product.”
All that stuff’s waste. Cost of poor quality. So, how do we get rid of this because if you minimize the waste, you’re going to improve how much you make in terms of profitability? Those are the big reasons why companies want to implement it.
Here are some of the benefits – ultimately drive profitability, but the nice thing about Six Sigma is that it focuses on the customer. It says that if you’re going to improve processes, what is your customer want? And design those processes around what the customer wants first. That’s really important. Being balanced, being efficient and effective is a big goal of Six Sigma. How do we be effective in the customers’ eyes and be efficient in the pocket book by giving them what they want inexpensively.
Most companies feel like they have to do either or. Either we can make a lot of money – OR – we have to satisfy our customer. You can do both! But you have to be very strategic about what is important in the processes to get that balance.
Empowering employees is a big deal. You can’t “do” Lean Six Sigma to people. They have to want to do it. The only way to do that is collaborating with people, not telling them.
Gaining a competitive advantage and then not jumping to solutions in another benefit. Those are some of the reasons why companies want to implement Lean Six Sigma.
Why You Should Care About Lean Six Sigma
So why should you care? Yes, you want to save companies money – that’s great. But why should care individually about process improvement? You can make more money! I don’t have any statistics but Black Belts can make anywhere from 65k to 85k, Master Black Belts can make anywhere from 90k to 130k. Green Belts usually have a regular job so you don’t really see that as much.
Here are some interesting statistics – the U.S. Department of Labor estimates that today’s learners will have 10 to 14 jobs by the age of 38. So, no longer do we have a career for our entire life, so that’s kind of compelling. The top 10 in demand jobs in 2010 did not exist in 2004. We’re moving in exponential times, things are moving quickly; jobs are being created – high paying jobs too.
The amount of new technical information is doubling every two years. For students starting at a 2-year technical degree, this means that half of what they’ve learned their first year of study will be outdated by their third year of study. I’m not showing this to depress you. What does this really mean? We’re moving really quickly these days. How as an individual can you prepare for that kind of movement? We’re currently preparing students for jobs that don’t yet exist, using technology that hasn’t been invented in order to solve problems we don’t even know are problems yet. This is very, very important. It should be a part of your decision making.
What does this all mean? We live in exponential times. The only thing that is constant is change. Dealing with change will never become obsolete; process improvement is about changing things, making them better and the cycle of continuous improvement. There will always be problems, you’ll always need to find the root causes to problems, that’s never going to change. It is not the strongest of this species that survive, nor the most intelligent, but the one most responsive to change. Put that in your pocket!
Pick something you’re going to use no matter what you do, even if you’re a mom. You can use process improvement – it’s nature of the beast, it’s the nature of our world.
Presenter: Tracy O’Rourke of Catalyst