Does implementing Lean Six Sigma make business sense?

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We organised a power packed seminar on ‘Electronics Manufacturing Challenges and Best Practices’—an initiative that aims to bring all the stakeholders of the electronics manufacturing ecosystem on to a single platform, to share their best manufacturing practices.

By Srabani Sen

Saturday, February 19, 2011: The seeds for this seminar were sown almost eight months back when a team of senior journalists undertook a tour to the facilities of electronics manufacturing companies, located at the various manufacturing hubs like Baddi (HP) and Pune. It is during their interaction with the production teams at these manufacturing facilities, that they took note of the many challenges these units are facing. These included maintaining lower costs and higher quality while scaling up production volumes; training and retaining skilled manpower; sourcing components; ideal level of automation for manufacturing and testing, etc. The team also found that many of these manufacturers have adopted best practices that helped them to address many of the challenges mentioned.

It is some of the challenges that the team identified during this experiential journey, which were addressed at the seminar by experts from the electronics manufacturing domain, who had dealt with these obstacles successfully.

In a series of articles, we will bring to you these tried and tested best practices, which you can also adopt in your facilities to make your organisation more efficient.

While this article is based on the speech given by eminent speaker, BN Shukla, head, quality and Lean Six Sigma, Jabil Circuit, at the seminar, more information has been added to make it complete and more meaningful for our readers.

Whenever we talk about the challenges being faced by Indian manufacturers, we always point a finger towards the government for not coming up with policies concerning manufacturing and look up to it for solutions. The current government policies do not promote manufacturing in India and, in turn, generate more employment and better growth. Sooner or later, we may see some industry friendly policies, but Indian manufacturers have to go a long way in enhancing quality concepts and business excellence to be a differentiator. Companies involved in manufacturing in India have to be globally competitive with respect to quality, and the country has to be a low cost manufacturing base (besides China, Vietnam is also emerging as a low cost country for production, and hence, we need to be differentiator by producing world class quality products).

Indian manufacturers indeed need to learn to invest in process excellence and cut down on non-value added activities. India has to be a low cost manufacturing centre, even while producing excellent quality products. Manufacturers, therefore, need to reduce lead times, cut costs, and increase profits. Surprisingly, competitiveness has remained one of the most understudied areas in India. In fact, the competitiveness of a nation brings about competitiveness in the industry, which in turn, contributes to the nation’s competitiveness.

Traditional vs modern business models

Traditionally, the growth model of a company was such that sales revenue and resource costs were proportionate, that is, profitable growth was achieved by increasing sales revenue. At the same time, allocation of resources has to be stepped up to cope with the increased demand. If the revenue of an organisation increases in the same proportion as the increase in resource costs, in the long run, this business model will not work. For instance, the growth of the company may be constant throughout the year, but profits will be lowered as resource costs will also increase throughout the year. This is one of the reasons why many companies that thrived in the 70s, had to close shop.

But now, with the lean growth model, profitable growth is achieved by removing waste and operating more efficiently. In this model, profits increase by ‘doing more with fewer resources’, that is, the percentage of growth will be more as wastage gets cut down to reduce the cost of running your business.

Another new trend is to be customer focused. Today, products are manufactured keeping the customers in mind. End users demand more flexibility, lower costs, 100 per cent on time delivery and 100 per cent quality products and services. Traditionally, the price of a product was set by the manufacturer; delivery was slow; products had fewer features; and it was a seller’s market. So the cost of production, plus the profit, determined the price of the product.

Today, the price of a product is set by the market. Besides, deliveries are faster; products have more features; and the market is buyer oriented. So the business formula has also reversed—today it is price – cost = profit. In this model, you have no other option but to reduce the cost of the product by increasing value added activities and eliminating non-value added activities.

Why Lean manufacturing?

To achieve breakthrough performance, manufacturers must look to maximise production capacities, and reduce costs by controlling wastage. It is high time that Indian firms adopt Lean manufacturing—a business performance improvement tool that focuses on enhancing quality, controlling costs, prompt delivery and training people. This approach makes continuous improvements within the company possible. Using Lean manufacturing, today Toyota has transformed itself into one of the largest car manufacturers in the world.

Through Lean manufacturing, Indian companies can achieve two vital goals—improve quality and at the same time, cut their production and operations costs. For example, you can lower costs by reducing the amount of energy and raw materials consumed in the production process. You can also save on the time spent when eliminating any waste in the process of production.

Lean manufacturing intends to eliminate waste or anything that does not add to the value of what your customer buys. Whether or not something adds to the value of your product is determined by your customers, rather than by you. For example, a customer may consider the cost of extra packaging as a waste. Since your customers don’t want to pay for it, you can reduce costs by eliminating it, as much as you can. Ideally, every production process should help add to the product, only what your customers want, and for which they are willing to pay. Everything else is wasteful and of no value.

However, Lean manufacturing is not just beneficial to your customers. If you implement a Lean manufacturing programme in your company, it can help you in becoming more competitive by freeing up more time, energy, and money for expansion—an obvious option to attain competitiveness and earn more profits. A successful Lean effort has a significant impact on the entire organisation’s performance as in-process cycle times and lead times drop, inventory shrinks, and quality is enhanced.

Lean and Six Sigma: What’s the difference?

Lean and Six Sigma (a concept made popular by Motorola in the 1980s) are both initiatives to reduce or eliminate waste. While Six Sigma is a programme, Lean is a philosophy. As a programme, Six Sigma uses a methodology called DMAIC (determine, measure, analyse, implement and control) to identify and eliminate variation. As a philosophy, Lean is also about continuous improvement through elimination of waste. Hence, they complement each other. Lean Six Sigma is a powerful marriage. If both are successfully merged, the organisation will definitely transform itself.

In electronics manufacturing, Six Sigma is a level of quality equal to 3.4 defects per million opportunities and that translates into 99.99966 per cent defect-free product. This means, every time 1 million components are placed in the SMT equipment, for instance, you cannot have more than 3.4 defects on the surface of printed circuit boards (PCBs). That is tough to achieve, but you need to strive to meet that target.

Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects. It uses a set of quality management methods, including statistical methods, and creates a special infrastructure of people within the organisation (Black Belts, Green Belts, etc) who are experts in these methods. Each Six Sigma project carried out within an organisation follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase).

Lean Six Sigma pays off

Enterprise-wide cultural adjustments are typically required for successful implementation of Lean Six Sigma. Investments are also needed as the Six Sigma methodology requires training, organisational infrastructure and cultural evolution.

However, implementation of this concept will soon pay off. An evaluation of the results of Six Sigma with some very large firms showed that savings as a percentage of revenue vary from 1.2 per cent to 4.5 per cent. However, the investment could be as much as 10-15 per cent of revenues. The number of years needed to achieve these results varies with each company.

Although Six Sigma is typically associated with large companies, with proper planning and monitoring systems, it can be adapted to small and medium enterprises as well.

Six Sigma tools

A company may have very few big problems, few medium-sized problems and many small problems. There are different Six Sigma tools to eliminate non-value added activities. One needs to select the right tools as per the problems, and 80-90 per cent of the problems can be solved by simple tools. In Jabil Circuit—an electronics solutions company—almost 80 per cent of its problems are addressed by Lean manufacturing while Six Sigma tools are used for very complex problems, where there is more variability and the problem is not visible through value stream mapping.

There are many Six Sigma tools that can be used in a process improvement project. A Six Sigma team determines which tools it will use based on the nature of the problem, the type of product or service being improved, the type of data to be collected and other considerations. The tools are used to help the team understand the process, collect and analyse data to identify problems and develop solutions.

How to implement and measure success

Lean is simple to understand and it easily penetrates to every level of employee. The success of these business excellence initiative totally depends upon the business leaders. It starts from the top. Lean does not apply to just manufacturing processes. It involves eliminating waste in the entire organisation. However, it is important that the leadership within the organisation is ready to embrace Lean because its implementation is a complex undertaking. It is not just a matter of changing one or two processes or moving around a couple of pieces of equipment. A successful Lean initiative involves changing the paradigms of how manufacturing is scheduled to run.

The best way to start is to do value stream mapping, a Lean manufacturing technique used to analyse the flow of materials and detect problem areas. After detecting the areas where waste is taking place, the company launches Kaizan—the war against waste, a manufacturing concept pioneered in Japan. Every employee is motivated to eliminate non-value added activities, and each contribution is given importance.

Lean Six Sigma should not be confined to training just a few employees who evolve to become Black Belts. Every employee to contribute to this initiative. The top management plays the role of facilitators by organising training sessions and getting involved and promoting gemaba culture, etc, but every employee across the organisation contributes. It also partners with external knowledge partners for gaining knowledge on Lean. This is shared with other employees to build competency and capability. Then its performance should be measured through value stream mapping transformation.

We must also recognise the contributions and reward the employees. Through a powerful communication mechanism, Jabil has successfully made every employee aware of Lean Six Sigma and its benefits. So, the whole organisation is involved in the journey of continuous improvement.

Starting this journey in 2009, Jabil first focused on transforming the workers as the products are build by them. Once the people were transformed, the firm shifted its focus on cultural transformation in 2010. After the governance process and the online learning model was set, it became mandatory that operational heads and managers needed to be Six Sigma certified. This year, Jabil is focusing on tool tranformation by integrating Lean and Six Sigma concepts. None of the tools will be successful if the people are not capable of using the right tool at the right time, and if the organisational culture is not supportive. So employee transformation, cultural transformation and tool transformation are the key aspects for the success of Lean Six Sigma, which in turn, leads to the transformation of the company.

Jabil does regular competitive assessments that quantify where improvements are needed most. It creates and communicates a shared need in order to make sure everybody understands why Lean Six Sigma is necessary. It makes sure everyone in the organisation is able to derive a personal benefit in the company’s undertaking. So communication is one of the key aspects of this endeavour.

Reaping the benefits

Within three years of implementing Lean Six Sigma, Jabil has derived huge benefits with respect to its performance indicator and employee development. It has achieved 100 per cent customer satisfaction. Many other Indian companies like Wipro and Xerox India, have also reaped benefits from Lean Six Sigma. Wipro has ensured 91 per cent of its projects are completed on schedule.

Companies like Xerox India used Lean Six Sigma to improve retention (of skilled talents) strategies. Globally, MNCs such as General Electric and Dell have also used Lean Six Sigma to push for better performance in their respective businesses.

How to sustain this success

Six Sigma efforts usually fail due to lack of management commitment and attention to the investments and resources needed to reach the new levels of performance. Thoughtful planning and focus will sustain the drive needed to reap the benefits of Lean Six Sigma.

Any change to a complete process is only successful and sustainable in the long run if the stakeholders truly adopt the change and monitor its progress. Process and technology improvements cannot be implemented without a change in the systems of the organisation as well as a total transformation in the hearts, minds and behaviour of the people involved in the change.

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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