Insight # 7 : Pulling Together : Lean, Six Sigma, and Project Management

Lean, Six Sigma, and Project Management : A Marriage Made in Heaven

By Ishai Perelman & Peter Wilson

When a major auto company sought to improve its downstream supply chain to take costs out and improve customer satisfaction, Lean and Six Sigma came to the rescue - as one might predict in a story involving process change and manufacturing. But in this story, that's only where the rescue began, not where it ended. Also essential was the practice of project management.

Both Lean and Six Sigma are highly useful disciplines for identifying waste and variability in processes. Lean, introduced formally during post-war Japan, is a methodology to achieve continuous flow while eliminating non value-added activities along the process. Six Sigma, first formulated by Motorola in 1986, is an analytical discipline armed with statistical tools to root out the hidden causes of problems and variation, solidly supported by statistical methods.

They're both quite tactical and can achieve amazing insights in specific areas. But they only go so far since they tend to focus on single projects at a time. When a business really needs to transform how it's run and make a step-change in performance, that entails taking an end-to-end view of an entire program, which typically consists of a portfolio of projects.

What we propose in this article is the amalgamation of all three components to obtain optimal results - Six Sigma to identify and reduce variability, Lean to remove non-value-added activities, and project management to obtain a structured and strategic approach across multiple projects.

Improving How Cars are Produced and Delivered

The auto manufacturer faced a number of challenges in its supply chain operation : siloed operations where numerous stakeholders had different goals reflecting their individual needs and where partner integration was non-existent; complex operations due to non-integrated processes and systems and a widely diverse product range; competing objectives, where, for example, factories produced with little insight about what customers wanted and the focus was on reducing costs vs. investing in logistics activities; and decision-makers with no meaningful metrics and poor visibility about performance.

The company started by using the statistical tools of Six Sigma to identity where the profit was coming from in the vehicle product range. As is often the case a small percentage of products was delivering the bulk of the profits.

It also implemented the Six Sigma process, voice of the customer. The goal of VOC is to hear out what is important to the customer and continually capture those requirements, whether through interviews, surveys, focus groups, observation, study of behaviors, scrutiny of complaint logs, etc. This feedback - both direct and indirect - would be used to determine value-added activities from the customer perspective.

Lean principles and techniques pinpointed waste in the operations. For example, the manufacturer had multiple stocking points and factories to do what it called pre-delivery inspections. Each was used to prep the vehicle to be moved onto the next stage of production. Shifting a vehicle from one factory to the next required transportation. When a car or truck is put on a huge transporter for delivery, it gets damaged with dings and dents, requiring rework, which in turn requires more transportation resulting in even more dings and dents. Reducing the number of stocking points and factories down to one would drastically remove a lot of duplication waste from the manufacturing process and eliminate excess transportation costs.

But getting to that endpoint would demand many changes throughout the entire supply chain. It would also require revisions to the activities of its numerous stakeholders, including production, distributors, retailers, and transport companies, many of whom were in external organizations.

The transformation would also call for managing how participants were rewarded, how the computer systems were linked, how production planning was done. It would also require a complete shutdown of the production line during the time the changes were being implemented. That alone would have a huge financial implication for all participants, making it a hard sell for executives.

Ultimately, the changes came down to seven broad mandates:

  • To reduce the product range.
     
  • To allow customer demand to drive all activity.
     
  • To restructure stocking points and the logistics network.
     
  • To integrate the planning process.
     
  • To integrate the information systems.
     
  • To set clearly-defined key performance indicators.
     
  • To redefine the reward systems - to understand what's in it for "me" at all levels.

For example, to redefine the reward system required reviewing contracts and supplier relationships. Of course, the expected payoff in this area was huge too. Benefits would include greater commitment from partners, better focus on new objectives, and a greater profit share if new targets were achieved.

In turn, each mandate contained numerous projects, which require the maintenance of schedules, costs, and quality. So whereas the effort used the best techniques from Six Sigma and Lean to provide a vision of the future, program and project management had to be plugged in to deliver that vision and make it happen, project by project.

This integrated approach, which Pcubed calls value engineering, delivers multiple benefits : It helps the organization become leaner and more agile; helps to convert ideas into desired outcomes; improves customer satisfaction and removes wasteful activities; optimizes processes and creates a culture of transparency, efficiency, and consistency; increases the speed, productivity, and quality of projects; and helps to accelerate change and growth in the organization and delivers an improved return on investment.

The Principles of Change Management

Managing the complexity of a huge change endeavor such as this one really has only a few principles, what we call a blueprint for success. Since implementing each principle can be a huge challenge for most companies, we advise calling on the skills and experience of outside experts to guide the effort.

  1. The organization needs to build a detailed, clear vision. The techniques of Six Sigma and Lean can help in the assessment aspects of that.
     
  2. A major change program requires strong leadership; management across all levels has to buy into the vision.
     
  3. The organization has to understand the benefits and how stakeholders will be rewarded. Key performance indicators can show evidence of progress and keep participants motivated.
     
  4. The organization has to organize for success - using the appropriate methods (including Lean and Six Sigma) under the umbrella of disciplined program management, to build the delivery capability.
     
  5. The organization has to have a strong communication program in place, before, during, and after the transformation.

Ultimately, the most difficult aspect of organizational transformation - whether in manufacturing or some other industry - is making the change happen. Understanding the voice of the customer isn't complicated. Analyzing statistics from various programs has become quite mechanistic. But countering the inevitable resistance to change from stakeholders, communicating the new vision to participants, maintaining a measurable grasp of progress, that's where leadership is required and where the real benefits surface. Pulling off a major change program is where project and program management ultimately excel and where marrying it to other disciplines such as Lean and Six Sigma will result in a happy ending.