May 1, 2011
By Darren Dolcemascolo
A very common complaint that organizations have when implementing improvement initiatives is a lack of "bottom line" results. Many take the approach that each project must individually deliver cost savings and logically conclude that if the total "cost savings" from a number of projects is in the multiple millions, the bottom line should reflect the savings. Why is that rarely the case? I believe the cause is a lack of systems approach to implementing improvement initiatives. Instead of looking for individual, unrelated projects that should yield the maximum amount of cost savings, companies should be working on groups of "projects" that collectively improve a value stream and thus company profitability.
Projects that individually have high cost savings estimates might not actually save real money. The savings might be based on assumptions that are untrue. Revisit the book The Goal by Goldratt, and you will conclude that improving a particular part of a system might not improve the entire system in reality. The "cost savings" might actually be accounting magic. A cost allocation might change, but there isn't a true cost reduction, and, thus, no true improvement to profitability. We need to ensure that improvement initiatives will actually improve the business rather than one point in the process only (even if, on paper, that one point in the process will "save the most money.")
Whether a company takes the lean six sigma approach or the lean manufacturing/Toyota Production System approach, it should begin with executive vision and company goals. Executives should get together and answer questions like the following:
What are the short-term and long-term company goals?
What are the product lines or services that will grow given market conditions?
What kind of profit margins are needed on such product lines / services?
What kind of people and partners do we need to accomplish our goals?
Specific measurable goals need to be identified. Based on these high-level goals, specific metrics and goals should be developed at the lower levels so that the individuals working on delivering value (front-line workers) can measure their processes in an appropriate way. For example, front-line workers can determine if their processes are meeting customer demand (takt time) on an hourly basis (if that is appropriate). Also based on the executive level goals, the most important/impactful value streams (product lines /services) should be selected for value stream mapping /analysis. Based on this analysis, specific projects/improvements that will impact the value stream will be identified. Then teams, whether they are Six Sigma teams led by Black Belts/Green Belts or Problem Solving Teams or Kaizen Teams, will work on making the improvements. After the improvements are made, the results will certainly be felt in the bottom line. If projects are selected in this way, they will be aimed at hitting high-level company goals, not simply "cost savings."
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