In the depths of the dot-com bust of 2001, the high-tech industry went on a diet — cutting costs, downsizing, scaling back. There were many different types of diets, but some electronics companies embraced a particular approach called Lean Six Sigma as their salvation.
Lean Six is much more than a diet, proponents say. Rather, it is a prescription for regaining business health and transforming a company, a way to cut waste from its operations and of increasing productivity and improving quality.
Electronic Business, Design News' sister publication, interviewed four electronics companies in various phases of deploying Lean Six: Celestica, ON Semiconductor, Solectron and Xerox. Without exception, each company is healthier now than it was five years ago. Three of them have turned profitable, and the fourth — Celestica — is close to turning the corner (see table, page 68). The question is how much credit for their progress goes to Lean Six. Most of the companies claim that their improved business results are a direct result of Lean Six, and they are looking to increase those results by applying Lean Six beyond their manufacturing divisions and even beyond their companies to customers and suppliers. And the evidence appears to strongly support the claim.
A Merging of Trends
Lean Six is a blend of two methodologies. In general, the lean approach focuses on eliminating all types of waste, including overproduction, waiting time, transportation, processing, inventory, motion and scrap. Originally developed by Toyota in the 1980s, lean improves quality and reduces production time and cost. Six Sigma — pioneered by Motorola in the 1980s — is a set of tools that use statistical analysis to identify and eliminate defects. General Electric was one of the first companies to blend the two approaches and is credited for popularizing the mix.
With their own jargon and complex frameworks, each methodology alone is hard to understand (see “Lean Six Sigma lingo,” page 66). Put them together and add each company's own unique recipe, and identifying the exact ingredients is next to impossible. However, a typical implementation begins with mapping the value stream, which means listing how each process or operation is performed, step by step. Once the value stream is mapped, each step is evaluated. If it adds value —meaning that it's something the customer would pay for — it's kept. If it does not add value, the goal is to eliminate it. Perhaps because they consider it such a competitive advantage, most companies won't say exactly how much they've spent or saved, making any return-on-investment calculations difficult. Xerox uses an internal measure called “economic profit,” which is project value minus cost, says Bob Shea, communications manager for corporate Lean Six Sigma. Those internal figures (which Xerox doesn't release) are then rolled into the company's overall financial numbers.
“We don't try to separate out the monetary gain we get with Lean Six, because it's incorporated into the management process,” says Arthur C. Fornari, vice president and corporate deployment officer for Xerox Lean Six Sigma. Nevertheless, Lean Six projects have contributed hundreds of millions of dollars in cost savings, cost avoidance and revenue to Xerox, says Shea. Solectron also declines to cite numbers, other than to point to its bottom line as proof of Lean Six's benefits. “Three years ago, we had 16 quarters of losses, but we now have nine quarters of gain behind us,” says Marc Onetto, Solectron's executive vice president, worldwide operations. “There are many other factors, but Lean Six Sigma is a big contributor.” Typically a company can get a tenfold return on investment within two years after implementing Lean Six, says Bill Kastle, a senior vice president at George Group, a Lean Six consulting firm that counts ON Semiconductor, Solectron and Xerox among its clients. Savings fall into the three categories to which Xerox refers. Type 1 is hard dollar savings, which are directly measurable. Type 2 is cost-avoidance savings — expenses the company did not incur, because of fewer process steps and/or increased productivity. Type 3, the most difficult to measure, is growth in revenue that results from process improvement such as shorter lead times.
Manufacturing and Beyond
The most obvious and usually the first application of Lean Six is manufacturing, where workers are comfortable using metrics and results are easily measured. “We recommend that companies initially target their Lean Six projects at Type 1 savings,” says Kastle. “No one will debate those savings, and you'll gain the confidence of the organization.” One easy-to-understand manufacturing application of Lean reduces the number of steps workers must take to accomplish a particular task. The Lean Six team follows a worker, tracing the exact steps the worker walks, which often results in a “spaghetti chart,” says Onetto. Working from there, the team and factory workers start rearranging things such as bins of components to straighten out the spaghetti, creating a more efficient path for workers. Although companies tend to shield overall ROI figures, most of them can easily point to specific, dramatic improvements in manufacturing operations. For example, Celestica cites a string of improvements at its Monterrey, Mexico, plant. Over the course of 18 months, workers reduced equipment setup time by 85 percent, shortened time between receiving an order and shipping it by 71 percent, reduced floor space used by 34 percent, reduced consumables by 25 percent, reduced scrap by 66 percent and reduced the investment in surface-mount technology (SMT) lines by 49 percent.
Lean Six experts tend to eat, sleep and breathe this type of approach. Dave Cooper, vice president of supply chain solutions at Solectron, has rearranged all his clothes at home to improve his system for getting dressed, he notes.
“I can get dressed within fewer than eight feet,” he boasts.
The staff at Solectron's Guadalahara, Mexico, plant also applied Lean Six to wardrobes, specifically to the process of providing uniforms and electrostatic shoes to factory workers. By limiting the number of available sizes to four, they reduced the time it takes to assign them to workers by 70 percent.
“We had something like 25 sizes of shoes,” says Onetto. “We could have employed a dwarf and a giant.”
Indeed, Lean Six can be contagious in many respects. Some companies are finding that Lean Six is spreading organically from manufacturing operations to other areas of the company.
“People start seeing the results and want to apply it to their own processes,” says Robert Hemmant, global lean architect at Celestica, which adopted Lean Six in 2001. “We see that as we improve manufacturing, a lot of other processes will need to change; otherwise, they'll limit the rate of improvement.” The company has Lean Six projects in human resources, finance and purchasing, he says.
ON Semiconductor is using Lean Six on a more limited scale but nevertheless is experimenting in areas besides manufacturing. About a year ago, the company started training 24 people to be Lean Six “black belts” — 12 in manufacturing and 12 in other areas of the company, says John Mallon, director of supply chain management at ON Semiconductor. Among the nonmanufacturing projects is one involving forecasting. By applying Lean Six, ON Semiconductor is identifying places in its communications process where information gets lost, Mallon says. The company is still debating the merits of using Lean Six throughout the corporation. “We want to deploy some projects and see what results we get,” says Mallon.
Companies that apply the discipline across the entire corporation stand to net the greatest benefits from Lean Six, contends Kastle. “If a company wants to do this in just one area, it is going to leave some 70 percent of the savings on the table,” he says.
Achieving maximum benefit is the hope at Xerox, which has applied Lean Six across the entire company all at once, says Fornari. Starting in early 2003, Fornari was charged with incorporating Lean Six into every function in the company. He appointed 33 Lean Six Sigma “champions,” each responsible for deployment in their respective areas. The company now has about 633 black belts and master black belts, 3,500 green belts (an intermediate level) and 30,000 yellow belts (a basic level) out of 55,200 employees.
And yet Xerox has not been able to parlay this commitment into growth in its revenue, which has remained stuck at $15.7 billion for the last three years. Likewise for the other Lean Six proponents: They may have cut enough waste from their operations to reduce their costs, but they aren't seeing revenue growth yet. The next step for Xerox is to leverage Lean Six as a platform for services. The company is beginning to show customers how to apply Lean Six to improve their business operations. One example is how Xerox helped the Monroe County, New York, sheriff's office improve its accident-report-filing system. Xerox studied the path of those accident reports and designed an electronic system in which an officer would scan a driver's license and registration, after which report forms would be automatically populated with the data.
In the case of the sheriff's office, Xerox did not charge for its consulting services, but it is charging customers today. “The great thing is that you're cleaning your own company's processes and you can do it for your customers, too,” says Fornari. Such techniques come directly out of the playbook of Lean Six pioneer GE, says Kastle. Working directly with a customer at its own facility gives a company an ideal way to see customer problems firsthand and then design a solution to sell to it, he notes. Indeed, Solectron is following this path with its Supply Chain Solutions (SCS) group, which works with customers to improve their operational model through Lean Six Sigma, according to Cooper. (This isn't surprising, because Onetto and at least one other Lean Six executive at Solectron—Ravi S. Ramanan, vice president of functional excellence, hail from GE Medical Systems.) In one case, SCS helped a customer reduce order delivery time from 12 to six weeks, Cooper says, with a target of further reducing it to two weeks. “Supply Chain Solutions is not a profit center, but it certainly is garnering more business for Solectron,” says Cooper. “We're helping customers change the way they compete in the marketplace. When their business goes up, our revenues go up.” That's the goal, anyway. Solectron's 2005 revenue fell by $1 billion, but sales for the first half of 2006 were running about 2 percent higher than in 2005.
|Companies implementing Lean Six Sigma have reduced their losses and even turned a profit, but revenues have stalled or declined.