Question

What is Lean Six Sigma? Discuss three tenets of the lean philosophy using a relevant industry firm as example.

Give examples of the COPQ (internal and external failure costs) and the cost of quality assurance (prevention and appraisal) costs, using relevant industry example(s) to illustrate your point(s).

Answer 1

Lean Six Sigma is a team-focused managerial approach that seeks to improve performance by eliminating waste and defects. It combines Six Sigma methods and tools and the lean manufacturing/lean enterprise philosophy, striving to eliminate waste of physical resources, time, effort and talent, while assuring quality in production and organizational processes. Simply put, under the tenets of Lean Six Sigma any use of resources that doesn't create value for the end customer is considered a waste and should be eliminated

Increasingly, organizations that use Six Sigma are making an effort to integrate Lean into their existing process-improvement framework. For many, combining Six Sigma’s focus on process quality and Lean’s emphasis on turn-around time results in more high-impact, quick-hit projects. To gain this advantage, however, organizations must face a difficult obstacle: integrating Lean without creating ripples in the existing Six Sigma structure. If the Lean introduction is not done properly, it can lead to more pitfalls than successes.

With a structured approach, though, it is possible to merge Lean into a mature Six Sigma framework, as was experienced by a business unit of a Fortune 10 company. During a Work-out, the unit evaluated the various principles of Lean to determine which could be subtly introduced and used effectively to augment the existing Six Sigma framework. They found that five Lean tools and principles were particularly applicable:

1. Value Stream Mapping

In the Analyze phase of a DMAIC project, a value stream map can be created that shows the flow of materials and information, and categorizes activities into three segments: value enabling, value adding and non value adding. The focus of this tool is on identifying and eliminating the non-value added activities in each process step and reducing the wait time between consecutive steps wherever possible. Value enabling activities, however, cannot be totally eliminated from a system. Instead, they can be sub-classified into value adding and non-value adding activities, allowing those value enabling activities that are non-valued added to be eliminated. These eliminations help make a process more compact – a benefit in process improvement projects aimed at reducing variation. This tool also can be a part of a Kaizen cycle, incorporated within the Analyze and Improve phases.

An example of how the company used value stream mapping: In a digitized process under study, the value stream map demonstrated that the workflow went to the same approver step twice – without any value addition from the previous step to benefit the approver at the later step. Also, the subsequent steps were not dependent on the second approval. Hence, the second approval did not add any value to the process – and it was eliminated from the workflow.

2. Takt Time

Takt is a German word that can be roughly translated as “beat.” Takt time is the rate at which a completed project needs to be finished in order to meet customer demand. For processes involving cycle times, such as manufacturing or incident management, the as-is cycle time can be captured in the Measure phase. Then, during the Analyze phase, the cycle time can be compared with existing service level agreements (SLAs). If a mismatch exceeds the tolerance, improvements would be needed to match the cycle time with the takt time for the system.

For instance, an incident-management tool was studied that had a significant number of cases missing their SLAs. The study revealed that the tool, which had two basic stages for providing the resolution, always missed the SLA in the second stage. The resolution time for the case was measured as the end-to-end resolution – resulting in most of the SLA period elapsing in the first stage and little time remaining for the second stage. To resolve this, the SLA for the case was split into different components for the two stages. This helped distribute the total SLA time among the two stages so the slippage could be monitored individually.

3. Ishikawa (Cause-and-Effect) Diagram and 5 Whys

In the Analyze phase, the absence of concrete statistical data sometimes can make the identification of a root cause difficult. In those scenarios, the 5 Whys – asking “Why?” five times – along with a cause-and-effect diagram, can make the task more manageable. The 5 Why’s tool also can help uncover the process dynamics and the areas that can be addressed easily.

4. Heijunka (Load Balancing)

A Japanese term, Heijunka refers to a system of production designed to provide a more even and consistent flow of work. This principle can be incorporated in the Design phase if the root cause analysis during Analyze points to bottlenecks in the process. Load balancing can be used to introduce a pull in the system rather than letting it operate on push – thus alleviating the bottlenecks. Efforts for introducing a level load balance in the system also automatically reduce inventory. If takt time principles are used while designing the system, it would help ensure a level load balance.

5. Poka-yoke (Mistake Proofing)

A Japanese phrase meaning mistake proofing, poka yoke can be used to tune process steps and also when designing a new system altogether with DMADV (Define, Measure, Analyze, Design, Verify). A combination of an Ishikawa chart and Pareto analysis can be useful in Analyze in listing the major issues plaguing the as-is process. During the Improve and Design phases, the possibilities for eliminating a major cause of errors can be explored by improving or redesigning the system to avoid error-inducing scenarios.

An example of poka-yoke in action: A large amount of workflows in a payroll process were being terminated abruptly. Users were provided with a standard set of action buttons for each step: “Approve to Next” and “Approve to Close.” The former approved the step and sent the workflow forward, while the latter approved and closed the workflow. The cause for the high number of terminations was the confusing nomenclature on the buttons. The issue was resolved by providing mouse-over texts on both the buttons clearly labeling the scenarios when each should be used.

The Next Steps

The Work-out team went on to formulate a roadmap to introduce Lean Six Sigma (LSS) by starting with a push and gradually transitioning into an induced pull. The key milestones in the roadmap:

• Identify initiatives to be executed using LSS by dedicated Black Belts and showcased organization-wide on completion.
• Hold LSS awareness sessions for all associates. Create and make available LSS training materials for associates.
• Assign Green Belts projects that require them to use applicable Lean tools as part of the Six Sigma rigor. Recognize the best-executed LSS projects.

Based on the action items from the Work-out, the team also modified the storyboard, which was previously modeled purely on the Six Sigma approach for process improvement, to include Lean tools and principles to facilitate execution of LSS projects. The new system also was subject to continuous analysis and evaluations with a view for further improvements. When the possibility for improvements in key areas arose, the team took them up as Kaizen events.

Through the initial push from the leadership team, combined with learning aids on Lean tools, the LSS approach was widely accepted throughout the organization. This boosted both the tangible benefits and the turn around time for process improvement projects at the company.

Cost of poor quality (COPQ): The costs associated with providing poor quality products or services. There are four categories: internal failure costs (costs associated with defects found before the customer receives the product or service), external failure costs (costs associated with defects found after the customer receives the product or service), appraisal costs (costs incurred to determine the degree of conformance to quality requirements) and prevention costs (costs incurred to keep failure and appraisal costs to a minimum).

Cost of quality is a methodology that allows an organization to determine the extent to which its resources are used for activities that prevent poor quality, that appraise the quality of the organization’s products or services, and that result from internal and external failures. Having such information allows an organization to determine the potential savings to be gained by implementing process improvements.

Quality-related activities that incur costs may be divided into prevention costs, appraisal costs, and internal and external failure costs.

Let’s assume that Fahrrad Company (a fictitious entity) manufactures and sells bicycles. In 20X2 the company had $1,000,000 in sales. The following information is available for Fahrrad in 20X2:

Costs:
Materials inspection	$    4,000
Finished products inspection	20,000
Product design reviews	10,000
Quality testing	3,000
Rework	5,000
Scrap	12,000
Employee quality training	30,000
Customer quality complaints	18,000
Returned goods	8,000

Let’s create a simple cost of quality report for Fahrrad Company in 20X2.

Fahrrad Company Cost of Quality Report For the Year Ended December 31, 20X2
Category	Cost ($)		% of Sales
Prevention costs:			4.40%
Materials inspection	4,000
Employee quality training	30,000
Product design reviews	10,000
Total prevention costs	44,000
Appraisal costs:			2.30%
Finished products inspection	20,000
Quality testing	3,000
Total appraisal costs	23,000
Internal failure costs:			1.70%
Scrap	12,000
Rework	5,000
Total internal failure costs	17,000
External failure costs:			2.60%
Customer quality complaints	18,000
Returned goods	8,000
Total external failure costs:	26,000
Total cost of quality:	110,000	11.00%

The cost of quality report can help management identify areas that need improvement. Cost of quality controls can help to improve productivity, return on assets, return on investment, transportation, scheduling, vendor relations, etc. Quality controls can also reduce lead time, order process time, dock-to-stock (i.e., inspection-free materials acceptance), warehouse space, etc.