Integration of Lean, Six Sigma & TOC Improves Performance

It is clear that for-profit enterprises manufacturing products strive to achieve their targeted revenues from their production reliably utilizing their available capacities and resources. Unreliable and below target production levels lead to low revenues and high inventories, causing high operating expenses. As an outcome, profit and ROI are typically compromised. This situation also creates an enormous amount of stress and frustration on the organization's critical resources potentially jeopardizing the future revenue opportunities.

Continuous Process Improvement (CPI) approaches such as Lean, Six Sigma and TOC have been applied to help organizations to improve their efficiencies and profitability. However, there had not been research to quantify the effects and contributions of each of these approaches which led to a recent scientific research conducted from 2003 to 2005. This research also tested effects of a integrated approach applying the three methodology in a logical sequence and compared its effect with the implementations that were using each one of the CPI methods alone.

The integrated continuous process improvement tested in the research is called iTLS. It applies the Theory Of Constraint, introduced by Eli Goldratt, Lean which is best known as Toyota Production Systems (TPS), and Six Sigma developed by Motorola, in a sequence in order to optimize each approach's core strength.

Taking over two and a half years and involving 21 manufacturing plants with 211 CPI team leaders implementing their preferred CPI approaches,105 projects were completed.

The research also quantified the financial contributions realized through implementation of each one of these CPI approaches. The statistical analysis of the results indicated that Lean and Six Sigma contributed significant financial results for their organizations. Both Lean and Six Sigma contributed similar results (P-Value of 0.622, did not indicate significant difference between the two approaches, considering financial benefits factor.) However, the integrated approach, applying TOC, Lean and Six Sigma in logical sequence, resulted in financial benefits that were over 4 times (4X) higher (P-Value of 0.0000, indication of high degree of significance), if either one of these methodologies were applied alone. (For research click here.)

One company that used the integrated approach is Votorantim, which is the 4th largest private Brazilian group and operates in several countries in various market segments, such as mining, metal industries, cement, paper, steel, and fruit juices. Five facilities have adopted and benefitted from the Integrated TOC, Lean, Six Sigma, iTLS approach for continuous improvement developed by Dr. Reza Pirasteh, introduced publicly in 2006 (Pirasteh & Farah 2006), in a deployable form. Two of the plants in this case study were mining operations and three were metallurgical plants.

In this case study the iTLS approach successfully synchronized production with the available capacity levels while providing process stability. This approach was smoothly implemented through involvement and participation of the organizations' people and their powerful commitment for success.

The Integrated TOC, Lean, Six Sigma Model

iTLS integrates, synchronizes and harmonizes the three powerful ingredients (Lean, Six Sigma and TOC):

Focus on the few yet critical elements that limit the global performance of the organization by applying Theory of Constraint tools
Eliminates waste in the form of "hidden factories" with application of Lean tools
Reduces undesirable variability to ensure process stability with Six Sigma tools

The application of this integrated system to production for continuous process environments ensured that the invested capacities and resources were converted into stable production flow generating profitable revenues.

Results

The case study that follows is a summary of application of iTLS in a number of Brazilian conglomerates includes mining plants, ore concentrating plants, and metallurgical production plants. In all cases studied, when the iTLS was applied, within 3 to 4 months production throughputs significantly increased. Continuing with the implementation with additional 3 to 4 months the processes stabilized while achieving the desired strategic target production levels. This was previously perceived as impossible.

The new performance levels are significantly exceeding previous production thresholds without adding and investing in additional capacity. Consequences were simply generation of more revenues, more profits and higher ROI.

Case Study

Initial Condition

All plants were unable to meet production targets and had sporadic production performances, leading to lost revenues, due to missing deliveries.
There was a constant pressure on the plant managers for not being able to achieve the desired strategic production results which trickled down to all levels below in the organization. The other undesired effects observed were:
Targets were not met
Huge quantity of actions for problems solving which were becoming more unmanageable as the quantity of the grew
Growing pressure for acquiring more and more resources
People were frustrated. Their perception was: "the more we do, the less we achieve"
"Finger pointing" and "It was not me!", "I am not part of the problem" was a commonplace, creating an environment of non-cooperation and covering the back atmosphere
The productive utilization of resources were low
Lack of consistent preventive maintenance
Employee apathy

Application

The iTLS model was implemented in all plants simultaneously. The model was applied to bring stable and robust process flows to the market place consisting of the following basic elements:

A Drum that set the production pull tempo, established the delivery TAKT (at the pace that an operation needs to operate in order to meet the customer requirements) for the plant's product flow to the market
Established buffers (Kanbans) that responded to the process drum and protects the vulnerable processes and the shipments from natural process variability
A Pull material release disciplines synchronized with the pace of the Drum
Implementation of Lean tools to identify sources of waste and removing them from the processes, making processes more effective
Application of Six Sigma tools to make improvements sustainable by bringing process performances under statistical control
Establish a repeatable and pragmatic problem solving framework for the workers and management to be able to continuously improve their processes autonomously

There is a direct correlation between responses to the operations' drum and process stability and the amount of financial gains achieved. Once the process drum was identified based on the optimal capability of the constraint resource, the operations drum became the pace for the material release and the shipments.

The constraint operations needed to be protected against variability caused by the feeding and interdependent operations, in order to ensure that full capacity was being converted to the product. In operations with continuous process environments, protecting the constraint which sets the operation drum and shipments was accomplished by creating sized protective buffers feeding them to ensure continuous flow of throughput to the market place.

Once adequately sized and implemented, buffers absorbed the process random variability shocks on the constraint resource and the shipments. It was important to note that the impact of the variability was buffer loss of volume or level, which needed to somehow recuperate. This was possible by utilizing the excess capacities at the feeding operations acting as virtual protective capacity. This allowed them to work when needed, at a pace which was higher (~10%) than the constraint or drum and the shipment's pace to replenish used buffers.

Therefore, any operation with capacity below 110% of the capacity of the drum, was tagged as a constraint, because it could potentially have a global adverse effect and jeopardize the throughput. It may seem that the operation becomes temporarily unbalanced. Then the work teams began working on these operations, in terms of getting more from what they have by reducing waste and stabilizing them by reducing variability by applying lean and Six Sigma tools.

This model used buffer management to optimize decisions making based on interpreting the behaviour of the Buffers over-time. Buffers became the story tellers by letting the operations management know what is going on in the entire flow and allow them to anticipate potential disruptions, identify causes and derive actions for our Continuous Process Improvement (CPI), using Statistical Process Control tools.

The repeatability of results achieved with iTLS implementations was consistent with expectations. The following were some of the results achieved through implementation of this approach in all plants:

Production improved by 10% to meet 100% customer requirement, without any additional capital investments
Profits increased by additional 5%
Pay-back periods were only a few months at each plants and sometimes less as low as 28 days
Process stability improved exceeding the strategic target level expectations

Eugenio Hermont, General Manager of Votorantim Metais Unidade Tres Marias states that "...we have succeeded in another great achievement... that is why Tres Marias achieving all targets...."

Synergetic application of integrated TOC, Lean and Six Sigma, iTLS, provided a rapid and effective approach to improve capacity and productivity in metallurgical mining plants, which significantly improved the operations profitability and meeting 100% customer commitments. This model applied TOC to focus where to make necessary changes, Lean was applied to remove waste and Six Sigma tools were applied to control process performance and variability.

Reza M. Pirasteh, PhD., MBB, CLM is founder of iTLS-ISO Group. http://itls-iso.com/ [email protected] Eng. Celso G. Calia is founder and partner of Goldratt Associados http://www.goldratt.com.br/site