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Beware the Hawthorne

“We have great news for you. Our project is delivering results already.” The team is all smiles when they give this update during the project meeting. The carefully prepared graphs unveil a remarkably shorter time for the whole process, from customer request to delivery of results. “We have applied a hypothesis test and the result is significant with a p-value of flat zero!” They sound like they know what they are doing. When asked for the change in the process, they all give different answers. When asked what the root cause to have achieved this effect was, their smiles fade. “We actually only implemented some Quick Hits. They turned out to have a greater effect than we thought. Isn’t this a nice surprise?” They asked. Or, is it just a Hawthorne?

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Gemba? I was There

When Uwe asked me whether I would like to go to Gemba in order to help understand the client’s process we have been studying, I looked it up on Google. To my surprise, Gemba is not a secluded, unknown part of Singapore. Gemba (现场) is a Japanese word that means “the real place”. Japanese detectives use Gemba to point to the crime scene. In our process excellence context, Gemba stands for the place where the “real value for customers is created”. I was wondering about the need for this. After all, we had received detailed information about both, flow and timing for all processes directly from project teams.

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Banking – A Productivity Gold Mine

When I joined General Electric Capital fifteen years ago, I asked them why they would hire an engineer with no prior banking knowledge. The answer was quite a pleasant surprise: “We have enough people who understand banking. Unfortunately, we do not have those with a process mind-set.”

To assume that banks have changed since then, might be baseless. For me, banking is the real productivity gold mine. Here is a snapshot of some of the questionable activities that banks have been engaging in recently.

Why do we do the Things, the Way we do

We have just acquired a bottle of Italian craft, homemade and aged balsamic vinegar from a dear family friend who we think is trying to expose us to the wonders of dipping bread into the vinegar, for a total sensory experience. This is ironic because he is definitely not a fussy eater and is the epitome of ‘eat to live’. But, that’s a different story.

Nuts and Bolts of Project Selection

The art and science of project selection for improvement projects is one that most organisations take rather seriously. Some companies in a variety of industries have developed highly sophisticated methods for project screening and selection to ensure that the projects they choose offer the best promise of success.

Even without having such kind of method at hand, it is necessary and possible to screen projects before embarking on them. Some common sense questions may help:

1. Why is This Project Worth Doing?

Project Selection is not a Result of Gambling

Project Selection is not a Result of Gambling

Every project must have a crystal clear business case. The first reason for this is that the project needs support by not only the sponsor but also other stakeholders in order to be successful. This support can be ‘organised’ by deriving the compelling need for this project from Customer Satisfaction, Financial Benefits or Employee Engagement reinforced by rock solid data. The positive side effect of having this kind of business case is that the team will likely be more motivated to spend their extra time on this kind of effort.

Pareto charts are powerful management tools to explain business case and therefore support project selection. Do not forget to have financial calculations be signed off by the experts.

2. Why is it Important to do This Project Now?

A business case that shows a growing backlog, a decrease in customer satisfaction or employee engagement over time is a compelling reason for doing this project now. If, in contrast, the situation has been getting better over time, i.e. the backlog is melting away as a result of other initiatives, it is much harder to justify this project. Then the question really is: Can we not sit by and wait for the problem to resolve itself?

A simple time series plot may help to understand the history and even to forecast the future.

3. What are the Consequences of not Doing This Project?

Sitting by and waiting will not be a good idea if the problem might grow in future. Knowing the current state well is a prerequisite. And, having a more than rough appraisal of the future demand as well as the expected changes in the industry will enable some good assumptions that help to heighten the need for the said project. These assumptions may be used to create a basic simulation to generate credible data before project selection.

The resulting scenario, well presented to the management, will certainly generate support for your project idea.

4. Which Activities Could Disguise Your Project Results?

No organisation has only one initiative or project running at any given point in time. Usually, there are plenty of overlapping activities changing the business environment on a larger or smaller scale every day. Such activities may have affected historical data why it is not always wise to use a long data window for deriving the business case without ensuring that the tackled process was more or less undisturbed. Such activities may as well confound with your project work in future. If you already know that there will be unrelated changes that will affect your process, make sure you have a chance to see which process change triggers what change in the result. Without that, you may get improvements but you do not know why.

Ensuring a very close-loop, data-driven cause-effect-chain for all activities will help untangling the coils. Based on that, the project selection has more foundation.

5. How Does it Fit With Business Objectives and Targets?

If the business case is important enough, related KPI’s will be on some managers’ scorecards. These managers will be supporting this project naturally since it drives their targets and hence the business objectives. In case the suggested project is targeting on improving something that is not someone’s KPI or is not even measured yet, two situations can occur:

Firstly, the project idea may not be a good idea after all.

Or secondly, it is certainly a good idea and it needs to be made a KPI as soon as possible. Then, it should  appear on the management dashboard frequently.

All project proposals should be linkable to the organisation’s or departmental dashboards, hence must have someone with ‘skin in the game’ who is likely the project sponsor.

Conclusion

Starting projects ill-prepared is much worse than not starting at all. Failures in project selection usually lead to frustration amongst team members and confusion within the organisation. It will make your initiative a nonstarter if this happens at the beginning. Time well spent in selecting projects saves a multitude of that time later.

Choose the right projects to maximise your organisation’s performance to the benefit of customers and employees.

 

Lean Six Sigma and Innovation

Over the last decade, companies and organisations in nearly every industry all over the world have introduced Lean Six Sigma to increase customer satisfaction and to deliver impressive results. An outstanding example is General Electric, the company who has made Six Sigma as popular as it is today.

Another term that has drawn tremendous attention in the business world is Innovation. On the one hand, Lean Six Sigma works towards very low variation in processes with high efficiency. Innovation, on the other hand, seeks to find undiscovered, uncertain territory. Such efforts are rather inefficient. Innovation requires risk-taking, making mistakes and learning from failures.

Can a corporate culture be developed on both key thinking patterns in order to get the best out of Lean Six Sigma Efficiency and Innovative Solutions? Does it make sense to think Innovation Six Sigma?

Lean Six Sigma Deployment Q+A

Here are some typical Questions and our Answers regarding the Lean Six Sigma deployment in an organisation. If you have more questions, please feel free to add them as a comment and we will try to answer.

Q: Where does Lean Six Sigma come from?

Lean Six Sigma is not a “slim version” of Six Sigma. It is rather a combination of two powerful methodologies. Lean has been developed mainly by Toyota over the last 40+ years. Six Sigma is a result of Motorola’s work to improve the quality of their TV production line from 1985 to 1988.

Q: What is the difference between Lean and Six Sigma?

Lean focuses on reduction of waste with the main idea of getting rid of non-value-added steps in any kind of process. Six Sigma focuses on reducing the variation in processes that are really needed. Only combined can these two methodologies with their powerful tool sets achieve the best impact.

Q: Which company can apply Lean Six Sigma?

It is hard to answer this question because there is rarely an organisation that has no room for improvement. The wide application of this powerful approach speaks for itself. There is always use for an application of modern methods to close performance gaps. Whether these gaps and the environment need a customised approach and not the full suite of tools is something that needs to be decided case by case.

Q: How do we start a Lean Six Sigma deployment?

One of the most important tasks for the senior management is to explain why your organisation needs this. It is additional work for many people and they may not like the idea without understanding the need for a Lean Six Sigma deployment. Create a shared need!

Then, you should look for some projects that will definitely help the organisation and that will definitely succeed. Run these as pilots, use them to gain more buy-in and develop some belts on the way.

Before you start, make sure you do an excellent job in defining these projects.

Q: Who will be involved?

The senior management has the important job of explaining the “burning platform” at the outset, overseeing selection of projects and belts at the beginning, keeping the people involved motivated and guided along the way as well as challenging and monitoring results. If senior management is not committed, do not start a Lean Six Sigma deployment!

Sponsors are members of the management team who want to have their process “fixed”, have gaps closed and performance improved. They are usually attached to one or a few projects as the management representative. They usually do not sit in team meeting but join at important junctures.

Lean Six Sigma Deployments need Green Belts or Black Belts

Green Belts or Black Belts are the Project Leaders for Lean Six Sigma Projects

Black Belts and Green Belts are the project leaders. They have full responsibility for leading the team, application of tools, communicating with the sponsor, addressing issues and delivering results.

Team members are part of the project team in order to make sure that the team as sufficient knowledge and experience with the whole process to be improved.

Master Black Belts are internal or external coaches who are usually necessary in the first phase of deployment when belts and sponsors are inexperienced with the new approach.

Q: How much time do Lean Six Sigma teams spend on their project?

This is hard to say. A rule of thumb is: over a period of 4 to 6 month they should spend some hours to half a day, i.e. up to 10% on the project related work. During some periods, they will probably need more time due to voice of the customer collection or due to data gathering. Sometimes it is definitely less.

Q: Do we need to give the people involved some training?

Definitely yes. Black Belts and Green Belts will need to handle a multitude of new tasks involving new tools. They certainly need to be trained otherwise they can not perform the task. Green Belts usually receive up to 12 days of training – spread over a period of about 2 to 3 months. Black Belts are Green Belts with project experience and additional training of another up to 10 days.

Some sponsors think they do not need. Wrong. Over the course of the project they will recognise that their teams speak a language they do not understand. They then ask for training. Two to four days is a good start.

Even the teams deserve some basic introduction. A day could be a good start and a nice support for the work of the Green Belt.

Q: Who should be a Black or Green Belt?

For both of them, similar criteria apply: They are from lower to middle management levels, belong to your talent pool and are planned for a significant promotion mid-term. They have some leadership competencies like ability to drive change cross-functional, coaching skills, communication skills, ability to prioritise to the benefit of the company, project management skills and a great enthusiasm. And, they need some basic analytical skills enabling them to learn and run powerful analysis tools.

Q: What is a “good Lean Six Sigma project”?

The “perfect project” addresses a significant business issue, can show improvements in 4 to 6 months, has a committed sponsor, improves a process that cycles often, i.e. at least daily with data readily available, and needs to be tackled with or without Lean Six Sigma. Here are some hints:

  • A good project is starting with a “pain” that is measurable. Something like “Customers complain about the turn-around-time between submitting an application for a loan and receiving the decision.”
  • A good project has an objective, which is often only put in place after getting some data about the problem. A SMART objective would look like “Reduce the turn-around-time for small consumer loans from currently 92% above 2 days to 90% below one day until end of August.”
  • A good project has a sponsor who wants this problem fixed, a Black or Green Belt who has a stake in it and a team who is able to cover the process from beginning to end.

However, I have not seen many “perfect projects”.  🙂

Q: How do we “find” these projects?

There are plenty of sources highlighting process issues. These are customer complaints or feedback, employee complaints or suggestions, process issues seen in your KPI or dashboard system, your balanced scorecard or even your financials. Even things that do not look like process issues such as “Large Accounts Receivables” stem from some kind of process upstream. Even “lack of knowledge” of some frontline officers shows that either the recruitment process or the training and development process or the appraisal process hide some gaps.

If someone tells me that his company has no Lean Six Sigma project candidates, I would either conclude that he is not very serious about his business or he can not see the flow of his business in the process perspective.

Q: Are there other approaches apart from Lean Six Sigma focussing on process excellence?

Yes, definitely. There are other approaches that can complement or substitute LSS. Lean Six Sigma focuses on mainly common cause variation, i.e. variation that is immanent of the process. It is rather weak when it comes to fire-fighting. Unfortunately, we need fire-fighting sometimes. Kepner Tregoe or PSDM is the better choice for this. I do not really like to recommend something like TQM. I have never seen one clear definition of what it comprises. LSS is very structured, very rigid, very driven and therefore it will certainly deliver results.

Q: Why should someone be interested in participating as a Green Belt if this is that much additional burden?

This depends on your positioning. If you can make and communicate it as part of a staff development programme that only selected people can attend, people will queue in front of your door. When Jack Welch announced in 1997 that you can only get a promotion to a certain level at GE when you are able to show a Green Belt, thousands of managers started joining the programme.

On the other hand, many high-level leaders in companies like GE have been developed out of the pool of successful Black Belts or Master Black Belts.

Q: Is Lean Six Sigma similar to ISO 9000 or any of the Quality Awards like MBQA, EQA, SQC/SQA etc?

No, it is not. It is rather complementing them. The above mentioned frameworks show requirements an organisation has to fulfill if they want to achieve high customer satisfaction, process efficiency and staff motivation. These frameworks say, WHAT needs to be done. Lean Six Sigma has tools to fulfill the requirements. It answers many HOW questions by showing the way. For example, ISO9000 requires the organisation to make sure that representative measurements are collected in a repeatable and reproducible manner. LSS has Gage R&R to fill this gap with a very powerful approach.

Q: Is there any Innovation in LSS solutions?

Actually, this depends. LSS does offer creativity techniques to come up with more creative solutions if needed. It is a matter of how the project is scoped, how the team is led by sponsor and belt as well as how the tools are being trained. We will certainly work with Creative Problem Solving (CPS, Buffalo) tools when it comes to solutioning.

Q: What can go wrong during a Lean Six Sigma Deployment?

There are some drivers for success of a Lean Six Sigma deployment: As usual, firstly, the senior management must believe in it. Otherwise, it will most likely fail. Secondly, it is key to involve the right people. Selecting the HiPos sends the signal that this is important to the management. Thirdly, recognition and rewards should be part of the plan. This could involve even considering promotion for those who make it – consistently. Lastly, selecting the right projects that help solving company issues is a major driver for success. There are some more that only become important when the aforementioned are in place.

Seven Habits of Highly Effective Process Managers

Not every organisation needs to develop process managers with Lean and Six Sigma skills. Yet, every organisation deserves to have managers with some basic process management skills. Even better, if process management skills became part of the daily business routine and were applied unconsciously, became habits. What are the seven habits of highly effective process managers you should be cultivating?

What for? How does it Matter?

I was chatting with a friend of mine who is in a senior leadership position. He wanted to implement a relocation strategy and he mentioned that based on his intuition all the processes should move to a particular country.

I asked him whether he knew why the processes were where they were today. His answer: “What for? How does it matter?”

I was taken aback and puzzled by the question and I remained speechless. Not because I did not know but the questions were bizarre.

Can Our Staff Innovate?

Innovation has drawn tremendous attention in the business world over the last decades and seems to be up on the radar screens again. The character of Innovation has changed over time from the traditional research-based theory towards the knowledge-driven approach that is based heavily on our social networks. Innovation has made its way from the laboratory into all parts of business life.

The more important is to identify drivers and hindrances for Innovation. The Readiness to Innovate depends on basically three factors: Individual Creativity and Innovativeness, Support by Organisational Climate and System Openness. This article aims to explore the motivation for Individuals’ Innovativeness and hence their influence on company’s growth and revenue.

Why Six Sigma Black Belts Make Better Leaders

Besides business and functional know-how, a successful leader must have competencies in leading change and improving, designing and managing processes. A Six Sigma program helps prepare leaders by providing on-the-job training through project work.
A recent survey by iSixSigma Magazine of more than 1,300 business professionals whose companies are using Six Sigma revealed that leadership development programs which involve Six Sigma training are six times more likely to be called “highly successful” than those without. Many of these leadership development programs involve a Black Belt track for future leaders. Thus, the obvious question is, What skills and know-how do Six Sigma professionals acquire that gives them an edge as leaders?

Innovatively Leveraging on Six Sigma Framework

Some time ago, I was facilitating a Six Sigma project group involved in solving a process challenge. This group had been working on defining the parameters regarding recruitment policies. This included the allocation of cubicle, phone number, password, printing of name cards, email, pass card, etc for the new hires. The process involved seven people, taking about five months to complete. The team had dutifully performed all the analysis required, used the necessary tools and come up with detailed process delays corresponding to different positions to be delivered to the new hires. It all pointed out to be a ‘people problem’. “If Mr X and Mrs Y did their job properly we would not have any delays” was the assumed concluded answer to all the problems.

Every Beginning is Difficult

New undertakings or experiences are always challenging at first. This is no different when Schenker Singapore (Pte) Ltd, a transportation & logistics company, decides to embark on something new like Lean Six Sigma. It might seem to be even more demanding at the outset since the number of 3rd party logistics providers rising to this challenge is very limited. Best practices in this industry are not widely spread and hard to come by.

Three Rules for Data Analysis: Plot the Data, Plot the Data, Plot the Data

The job of purchasing is obviously to source for reliable suppliers who deliver products conforming to specification on time within a certain price range. The more data is available about potential suppliers the better the decision will be. However, how shall the data be analysed?
FridgeMaker used to get supplies of a very crucial part, the Spacer, from Supplier X. Unfortunately, over the last months Supplier X has been struggling with waves of reorganisation resulting in unreliable deliveries and hence line stoppages for FridgeMaker.

Table 1: Supplier Qualification Data for Spacer (USL=10.8, LSL=10.2)

FridgeMaker is looking for new suppliers for all parts coming from Supplier X. Purchasing has already started the supplier qualification process for the Spacer (10.5 +/-0.3) and has received parts from suppliers A, B and C. The data are shown here. Following this data purchasing can make their decision on price. All of the suppliers meet the requirements set out in the tender document.   

Tightening Credit Terms for Almost Free

How do we know if receivables are well managed to credit terms? Are we performing at our best? What if we are the best in industry according to external benchmarks? How may we then do better or is it possible at all? Credit managers often face these questions in the never-ending quest to collect to terms and to drive down terms where possible. An analysis of the customer master is requisite to answering these questions as well as to enable one aspect of credit term optimisation.

Customer Master Analysis

As firms grow a variety of factors lead to an accumulation of ‘multiple’ customer line items. These items are found or logged in the customer master (or equivalent in an ERP or accounting system) are the details for each customer including entity name, billing details, terms and other notes that relate to the customer. We have found common errors in both paper and IT based systems of firms we have worked with and these include:

    One customer listed multiple times due to spelling differences or billing/contact address differences
    Multiple differing terms due to numerous customer listings from the point above though this results more often as a result of legacy resulting from personnel turnover
    Both points above are found as a result of M&A activity where names, addresses and terms are inherited or grandfathered

Understanding this level of detail permits one to commence investigation into terms granted to a customer from the working capital management perspective. Conducted either together or apart from an aged trial balance for third party receivables this analysis allows the firm to ‘clean’ up administrative details such as multiple names for a single entity (see ‘client’ in table below). Sales is often involved in this project to enable an organisational understanding of where the client stands and should stand. A cross functional and cross-business unit project – customer analysis enables a common understanding among different business units that may be selling to the same client.

The optimisation that occurs upon analysis of the customer master is that of simplifying billing (to a single entity as opposed to multiple entities) and reducing the opportunity for disputes (spelling error, legal name error, billing address errors etc) that delay payment.

Terms Analysis (BPDSO)

A derivative of fields from both the customer master as well as current receivable data we are able to calculate what an appropriate Best Possible Days Sales Outstanding (BPDSO) would be.
This is performed by aggregating the receivables found listed across the differing ‘entities’ that represent one client or one segment.

Credit Terms Analysis for a single customer

Sample of Terms Analysis for a single customer

Table 1 demonstrates the receivable data put together with the customer master and ‘open’ or ‘uncollected’ receivables data. Adding all weighted terms (% AR * Real Terms) for this particular customer, represented by 7 recorded entities, yields a summed number of 36.94. BPDSO therefore represents in real terms that at this point in time there should be not more then 36.94 days worth of sales in terms of uncollected receivable for this customer – with the assumption that all receivables are paid on time and in full. This is despite that there are a variety of terms ranging from 15 days through 90 days.
BPDSO is far more accurate since there is a weightage assigned to the oustanding receivables, unlike a simple average terms analysis – 42.86 days outstanding in Table 1 – which many credit managers are prone to use as a measure of best possible performance when faced with a multi-credit term customer.

Term Optimisation

Combining the customer master file analysis reveals terms that a customer already finds acceptable. For sales conducted across multiple business units (supplier and customer) this information represents an optimal credit term which the customer finds acceptable. A Credit Terms Analysis yielding a BPDSO tightens overall credit terms and assists credit managers as well as sales persons to keep customers on a well defined credit scheme.

BPDSO is also a useful indicator for best possible internal performance (internal benchmark) especially when one may already be performing at relative industry ‘best.’
For several clients with whom we have performed Account Receivable projects for this portion of the project yields:

    An overall tightening of terms by 10% to 35% resulting in and from simplified credit schemes for customers – resulting in quicker cash in and also lower operating costs as a result of less conflicts and confusion between sales and finance
    An ability to forecast cash requirements resulting from open AR (a portion of cashflow forecasting)
    Management’s ability for clearer insight into customer behavior and opportunity to formulate strategic sales deals utilizing credit as a facility responsibly
    An ability to gauge AR and credit term performance particularly when external benchmarks are no longer applicable

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