Integrated Enterprise Excellence White Paper

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Is Six Sigma Still Relevant in A Dynamically Changing World?

“With the growing level of dissatisfaction with programs such as Six Sigma, the question that needs to be asked is quite simply this . . . what are the key elements of a successful process improvement initiative?

This white paper focuses on the possible reasons behind the alarming number of failed or struggling programs, as well as providing insight into why Deming’s System of Profound Knowledge establishes a meaningful foundation upon which Forrest Breyfogle’s Integrated Enterprise Excellence methodology consistently delivers superior results.”

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  • Congruent with all we have seen and experienced - well done! Great to see demmings SOPF quoted. Randy Schenkat of Winona Quality council worked directly with Deming on this and has quoted PCC's systems as being entirely in-tune with deming, please do come and see what we're saying here http://www.pcchange.org.uk
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Integrated Enterprise Excellence White Paper

  1. 1. Ottawa, Canada 2009 The Key Principles behind the Integrated Enterprise Excellence Methodology White Paper A Knowledge Leadership Publication By Procurement Insights Author Jon Hansen
  2. 2. The Key Principles behind the Integrated Enterprise Excellence Methodology Table of Contents INTERCHANGEABLE STRATEGIES . . ..................................................................................2 IS SIX SIGMA STILL RELEVANT? ………………………………………. . . . . ……………3 THE DEMING PHILOSOPHY . . . .............................................................................................4 TRANSFORMATIVE COMMUNICATION AND COLLABORATION ...............................6 REMAINING TRUE TO THE DEMING VISION.....................................................................7 A CASE IN POINT . . . .................................................................................................................9 A FINAL POINT . . . . . . . . . . . …………...……………………………….. …………………11 ABOUT SMARTER SOLUTIONS . . . ......................................................................................13 Appendices APPENDIX A ...............................................................................................................................15 1
  3. 3. The Key Principles behind the Integrated Enterprise Excellence Methodology Is Six Sigma Still Relevant in a Dynamically Changing World? With the growing level of dissatisfaction with programs such as Six Sigma, the question that needs to be asked is quite simply this . . . what are the key elements of a successful process improvement initiative? This white paper, authored by critically acclaimed business writer Jon Hansen, focuses on the possible reasons behind the alarming number of failed or struggling programs, as well as providing insight into why Deming’s System of Profound Knowledge establishes a meaningful foundation upon which Forrest Breyfogle’s Integrated Enterprise Excellence methodology consistently delivers superior results. 2
  4. 4. The Key Principles behind the Integrated Enterprise Excellence Methodology Interchangeable Strategies and the Attempt to Find the Right Combination for Success “Traditionally, Lean and Six Sigma have been viewed and utilized as distinctly separate methodologies to analyze and improve processes. Rather than employing them separately, many process gurus now advocate a marriage of the two for more dramatic process improvement. While this approach is valid, project leaders of process improvement efforts that forcibly combine the two methodologies without understanding what they are trying to improve will achieve limited success. Process Professionals must first understand their level of process maturity to choose the appropriate blend of Lean and Six Sigma methods and tools.” Making the Marriage Work: Lean, Six Sigma, And the Business Process Maturity Model Forrester White Paper by Andy Salunga, Sharyn Leaver and Meghan Donnely November 21, 2007 3
  5. 5. The Key Principles behind the Integrated Enterprise Excellence Methodology Is Six Sigma Still Relevant in a Rapidly Changing World? Like the over reliance on technology to deliver significant savings in areas such as supply chain efficiencies has led to the continuously high rate of costly initiative failures, the all encompassing, seemingly blind embracement of the latest “mix” of business process methodology improvement concepts do not fare much better. A fact that is reflected by an increasingly cynical business community and illustrated in a variety of venues including the Six Sigma Works: Fact or Fiction Forum. More telling than the results of an impromptu December 2008 forum survey in which only 29.85 per cent of respondents claimed success (37.31 percent indicated that their Six Sigma initiative was an outright failure, while 32.84 per cent indicated that they had achieved marginal success), were the corresponding commentary from forum members. The following is an example of just one of the many exchanges: “I’ve lately come to realize that the current infatuation with SS stems from a neophytes perception that the co-opted “core tools” of SS – understanding variation, finding root causes, methodological problem solving – are valid and valuable, is based their zeal to take the plunge and accept the fallacies of the related 1.5 shift, the folly of 3.4 Defects Per Million Opportunities (DPMO), and the ugly transmogrification of the simple PDCA into DMAIC – at face value. In other words they see the tried-and-true-assets of SS and assume that the garbage must be OK too. However, when you strip away the garbage and the ridiculous caste system you discover that in reality you have relatively simple concepts that have been with us for a long time.” Rather than being viewed as a seditious ranting of an isolated and uninformed malcontent, the response to this highly critical assessment of Six Sigma was generally met with approval. One response that stood out in particular came from Australia, where the member expressed the belief that by “stripping away the garbage and the ridiculous caste system to return to a Deming-based model, would cost many consultants a great deal of revenue and cause great embarrassment to managers who have blindly jumped onto the bandwagon. 4
  6. 6. The Key Principles behind the Integrated Enterprise Excellence Methodology 3.4 DPMO might be as much nonsense as Iraq’s WMD or McCarthy’s Cold War “reds under the bed” rantings, but that didn’t stop the pursuit of such phantoms. As long as managers can claim results from a bit of brainstorming or looking for root causes, they will hail Six Sigma. No one seems concerned that billions have been wasted along the way, teaching about non-existent normal distributions, using enumerative tools in analytical studies, the aforementioned absurdity of the 3.4 DPMO and the remaining elements of the Six Sigma panoply. Industry has once again reached a time of great crisis. There is a need to return to the fundamentals of sound process management. To this end, managers would find great benefit in reading (or re-reading) Deming’s classic text “Out of the Crisis.” The Deming Philosophy The reference to W. Edwards Deming is interesting in that it touches on one of the seemingly contentious elements of the Six Sigma program relating to 3.4 DPMO, and in particular the importance of quality. Deming’s philosophy has been summarized as follows: “Dr. W. Edwards Deming taught that by adopting appropriate principles of management, organizations can increase quality and simultaneously reduce costs.” The key to the Deming approach was the emphasis on practicing “continual improvement and to think of manufacturing as a system, and not as bits and pieces.” This viewpoint was reflected in another Six Sigma Works: Fact or Fiction Forum member’s response to the expressed concerns regarding the validity of 3.4 DPMO. “3.4 DPMO is exactly what it is. How you define the defect is up to you. If someone makes a determination that customers say it is OK for a gas pump to be off by 1 gallon in 10 gallons pumped, one could say that gas pumps operate at a Six Sigma level in that for everyone who visits a pump, only 3.4 people in every million visits will have more or less than an extra gallon of gas for 10 gallons pumped on the meter. We did not say that you could have 3.4 people with an extra gallon and another 3.4 people short more than a gallon. A defect is either a defect or not a defect. 5
  7. 7. The Key Principles behind the Integrated Enterprise Excellence Methodology When you look at specification limit, such as the tolerance between two mechanical parts, you can define that the pieces need to be between .005 inches and .025 inches. If you are less than the .005, that would be a defect and if you were greater than .025, that would also be a defect. If you say that .004 inches is really acceptable, then your lower specification is not set correctly at .005. Therefore, when you look at a control chart, a process that is in control will have most of the points between the upper and lower Control Limits. These are different from specification limits. A process can be in control, but be at a very low Sigma number as the target you consistently hit does not meet customer expectations. If you put a rifle on a stand, aim with a scope, and shoot 10 rounds, the process can be very much in control with all 10 shots hitting in a small grouping, but if the grouping is 5 inches to the right of the target, you also have 10 defects out of 10 shots.” Interestingly enough, the following excerpt from a Deming case reference involving the automotive industry would seem to support the forum member’s position. “The Ford Motor Company was simultaneously manufacturing a car model with transmissions made in Japan and the United States. (Note: Deming and his methodologies were widely accepted and hailed in Japan long before the United States recognized the validity of his work.) Soon after the car model was on the market, Ford customers began requesting the model with the Japanese transmission over the USA-made transmission, and were willing to wait for the Japanese model. As both transmissions were made to the same specifications, Ford engineers could not understand the reasoning behind the customers’ preference. What they discovered was that the Japanese model delivered smoother performance with a lower defect rate.” Based on this feedback, Ford’s engineers decided to take apart the two transmissions to ascertain the root cause of the different results. After an extensive analysis, in which it was determined that the American- made parts were all within the specified tolerance levels, the engineers discovered that the Japanese parts “had much closer tolerances than the USA-made parts.” Specifically, “if a part was supposed to be one foot long, plus or minus 1/8 of an inch, then the Japanese parts were within 1/16 of an 6
  8. 8. The Key Principles behind the Integrated Enterprise Excellence Methodology inch.” The result is that the Japanese-made cars ran smoother with less problems than their American-made counterpart. Outcomes such as the Ford example clearly demonstrate that “tangible results cannot be achieved through a simplistic application or adherence to a formulaic mix of the right specifications or guidelines.” If this is in fact true, and the steadily increasing level of dissatisfaction with programs like Six Sigma would tend to support this position, then we need to ask “what are the key elements of a successful business process improvement program?” Fortunately, Deming’s System of Profound Knowledge provides the answer. An answer which also explains why Forrest Breyfogle’s Integrated Enterprise Excellence program is achieving outstanding results in a market that is desperately looking for answers given the current economic environment. Transformative Communication and Collaboration Deming’s System of Profound Knowledge contends that “the prevailing style of management must undergo transformation.” However, Deming concluded that a “system cannot understand itself,” and therefore requires “a view from the outside.” In this outward looking in process, true discontinuous transformation begins at the “individual level,” and comes from an “understanding of the system of profound knowledge.” Once transformed, Deming believed that the individual will “perceive new meaning to his life, to events, to numbers, to interactions between people.” And based on this new found understanding or insight, the individual will “apply the principles in every kind of relationship with other people.” In essence, the individual will have a “basis for judgment on his or her own decisions as well as for the transformation of the organization to which he or she belongs.” As a result, the individual will be able to a) set an example, b) be a good listener, but will not compromise, c) continually teach other people, and d) help people to pull away from their current practices and beliefs and move into the new philosophy without a feeling of guilt about the past. 7
  9. 9. The Key Principles behind the Integrated Enterprise Excellence Methodology Based on this transformation principle, Deming deemed that it was critical for managers to fully understand the following four key elements or parts of the system: 1. Appreciation of a system: understanding the overall processes involving suppliers, producers, and customers; 2. Knowledge of variation: the range and causes of variation in quality, and use of statistical sampling in measurements; 3. Theory of knowledge: the concepts explaining knowledge and the limits of what can be known; 4. Knowledge of psychology: concepts of human nature With the exception of the second element, points 1, 3 and 4 are directly linked to an effective communication/collaboration mechanism. What the Integrated Enterprise Excellence system delivers is a methodology that not only provides the framework or model for success, but also equips key internal as well as external stakeholders with the tools to establish and manage the critical communication channels that are necessary to maximize both knowledge and collaboration and therefore effect positive and sustainable results at the collective enterprise level. Results, which according to a senior executive, whose company’s success with the Integrated Enterprise Excellence system is a featured white paper case study, are unique to Breyfogle’s Smarter Solutions organization. Specifically, the executive stated that “we have had a lot of outside consulting work all the way from financial to operational, and the best value and certainly most successful help has been through Smarter Solutions.” Remaining True to the Deming Vision On September 29, 2008 Smarter Solutions’ Forrest Breyfogle was nominated for the Deming Medal. Citing his “proven knowledge” relating to the foundational principles behind Deming’s concepts, Breyfogle’s Integrated Enterprise Excellence methodology reflects the natural and effective evolution of the Deming System. This is an important distinction in that while many best practice or business process improvement models have their origins tied to the Deming thought process, very few have successfully maintained the difficult balance 8
  10. 10. The Key Principles behind the Integrated Enterprise Excellence Methodology between innovative adaptation to the current market while remianing true to the core elements of the Deming model. This ability reflects Breyfogle’s unique insight into the complex inner workings of the modern, global enterprise. And by adhering to the “14 key management principles” for effective business transformation that was first introduced in Deming’s book “Out of the Crisis (p. 23, 24), Breyfogle provides his clients with a strategically sound, historically proven road map to process understanding and redefinition that is in line with the realities of doing business in a rapidly changing world. That said it would be a mistake to think that the Integrated Enterprise Excellence methodology is a simple duplication of the Deming System. While the principles associated with the 14 points remain valid, the fact is that the world has dramatically changed since Deming’s time. And as Colin Powell once stated in a well known speech that even though “it is important to seek the input of experts,” it is equally important to recognize the fact that the experts “may have hit their plateau in terms of current day relevancy and effectiveness,” Breyfogle’s approach represents both an innovative and important breathrough in business process improvement methodology. The implication here is not to disparage the innovators who have come before us, but is instead intended to point out the fact that with time circumstances and conditions change. Therefore, what worked in the past may not necessarily carry the same degree of relevance and applicability in today’s world. In essence, and in the spirit of Powell’s military background, the biggest mistake a commander can make is to fight yesterday’s war today. And as alluded to earlier, this is one of the primary differences between Breyfogle’s approach and those of his contemporaries, as he has effectively achieved the balance being extracting and leveraging the critical Deming attributes while simultaneously incorporating the unique perspectives that reflects the reality of doing business in today’s diverse and challenging corporate climate. This is truly relevancy without redundancy. 9
  11. 11. The Key Principles behind the Integrated Enterprise Excellence Methodology A Case In Point The Smarter Solutions Case Study of North Carolina-based Oracle Packaging tells a compelling story in the opening few minutes by stating that “board members, investors, regulators, employees, suppliers and customers can present conflicting priorities.” One such example of the how these apparently competing demands within a single enterprise create a conflict occurred when Smarter Solutions focused on Oracle’s Working Capital. While it was never quantified, there was a general awareness within the company that a large amount of material completed for the internal customer was not being shipped. This led to the obvious question “why would an internal customer place an order for something that was not needed in the immediate future?” It took the Integrated Enterprise Excellence methodology to uncover the existence of several internal policies that while intending to optimize divisional performance, simultaneously had a negative impact on Working Capital as valuable cash resources were tied up in inventory that had an unconfirmed future delivery date. Similar to the Information Technology service sector’s practice of setting aside and assigning inventory for the future requirements associated with meeting a contractually demanding Service Level Agreement, the Oracle policy addressed the interests of only one area of the business. And like the IT example, while the certainty of future usage was relatively guaranteed this belt and suspenders practice impeded critical process improvements in other areas of the operation such as planning and scheduling. Through a proper alignment of enterprise-wide policies with operational imperatives that resulted from reviewing the organization’s practices an Integrated Enterprise Excellence analyses enabled Oracle to increase throughput by 30 per cent, while simultaneously reducing Work In Progress (WIP) inventory levels in half. As a means of providing some context relative to the impact of this breakthrough on the company’s Working Capital, prior to introducing Integrated Enterprise Excellence Oracle’s practice was to maintain 400 coils 10
  12. 12. The Key Principles behind the Integrated Enterprise Excellence Methodology of aluminium (re WIP inventory) worth an estimated $3 million dollars. By reducing WIP inventory by 50 per cent through the utilization of Integrated Enterprise Excellence advanced metrics, tangible bottom line savings were achieved within the first three months. And rather than having a negative impact on production requirements, the Integrated Enterprise Excellence process improvements provided the added benefit of reducing lead times from as much as five weeks to as little as eighteen days. According to Oracle Packaging Supervisor Kenny Hanna, the company is actually “running more production out the back door now” that at any other time. Based on the success of the process improvements to date, company Vice President Hank Bird expressed his belief that the Integrated Enterprise Excellence methodology is “more of a business system than a project driven deal,” which in his estimation is one of its greatest benefits. In short according to Bird, Integrated Enterprise Excellence “is the way to run a business.” The true testimony to Integrated Enterprise Excellence’s effectiveness however is reflected in the general belief that the proper alignment of performance measurement with operational metrics through a meaningful collaborative process will ultimately touch all areas of the business. Ernest Holley, Oracle’s Vice President of Operations confirmed this broader vision for Integrated Enterprise Excellence impact when he stated that, “with what we’ve learned from Integrated Enterprise Excellence we can look at any system, any type of process and we now have the tools that we can say hey let’s take this thing apart – how can we improve on it, how can we really build for the future and build something that is long lasting and sustainable.” And according to Oracle CEO Scott Dickman, Integrated Enterprise Excellence’s impact is not just confined to the here and now. Specifically, the CEO believes that Integrated Enterprise Excellence also “gives us an opportunity to develop our strategic plan as it evolves.” As a result, having critical data as well as “understanding what the data is telling us, definitely will help us to keep our strategic plan up to date and current.” 11
  13. 13. The Key Principles behind the Integrated Enterprise Excellence Methodology A Final Point What is ultimately the most important testimony to the effectiveness of the Smarter Solutions’ Integrated Enterprise Excellence program is found in comments from clients such as Oracle VP Hank Bird who said, “We have had a lot of outside consulting work all the way from financial to operational, and the best value and certainly most successful help has been through Smarter Solutions”. 12
  14. 14. The Key Principles behind the Integrated Enterprise Excellence Methodology 13
  15. 15. The Key Principles behind the Integrated Enterprise Excellence Methodology About Smarter Solutions Forrest W. Breyfogle, III, is the CEO of Smarter Solutions Inc. and the developer of the Integrated Enterprise Excellence system. In 2004 Mr. Breyfogle received the American Society for Quality Crosby Medal for his book, Implementing Six Sigma, 2nd edition. He is a professional Engineer, an ASQ fellow, and a member of the board of advisors for the University of Texas for Performing Excellence. He has authored over one hundred books and articles on Integrating Enterprise Excellence, Six Sigma, and Lean methods. Smarter Solutions is a world-class provider of training and consulting with an excellent track record in the delivery and execution of Executive, Champion, Black Belt, Green Belt and Master Black Belt education and coaching. Mr. Breyfogle has conducted numerous workshop sessions worldwide – serving a distinguished group of clients, including BAMA, CIGNA, Dell, IBM, Oracle Packaging and TATA. He has a MSME degree from the University of Texas and a BSME from the University of Missouri at Rolla. © Procurement Insights 2008-2009 14
  16. 16. The Key Principles behind the Integrated Enterprise Excellence Methodology About the Author Jon Hansen has studied and written extensively about e-Procurement and the changing face of procurement around the globe. In addition to being a highly acclaimed international speaker, his Procurement Insights Blog reaches 300,000 syndicated subscribers each month worldwide, and is currently available in several languages. He has written more than 200 articles and papers on subjects ranging from supply chain optimization and the utilization of agent-based modeling in the software development process to the evolution of sustainable purchasing practices and the impact of traditional ERP-centric implementation methodologies on the high rate of supply chain initiative failures. Funded by the Government of Canada’s Scientific Research and Experimental Development (SR&ED) program Mr. Hansen’s work in both identifying the existence of Commodity Characteristics as well as defining and recording their impact on “best value” purchasing practices represented a seminal breakthrough that led to the establishment of new theories surrounding the practical utilization of synchronized platforms in achieving sustainable coordinated savings and overall process efficiencies. Other white papers by Jon Hansen: The Greening of Procurement: How Social Consciousness is Re-Shaping Procurement Practices Talent Attraction and Retention in a Global Economy SAP Procurement for the Public Sector Strategic Sourcing Practices in Higher Education Yes Virginia! A Profile in Excellence To obtain copies of the above referenced white papers, or to inquire about Jon’s availability to speak at your next conference or seminar contact Jennifer Cameron at jenncameron@sympatico.ca, or 819-986-8953. 15
  17. 17. The Key Principles behind the Integrated Enterprise Excellence Methodology The Key Principles behind the Integrated Enterprise Excellence Methodology White Paper Appendices 16
  18. 18. The Key Principles behind the Integrated Enterprise Excellence Methodology APPENDIX A Reference Links Making the Marriage Work: Lean, Six Sigma, And the Business Process Maturity Model Forrester White Paper by Andy Salunga, Sharyn Leaver and Meghan Donnely November 21, 2007 http://www.forrester.com/Research/Document/Excerpt/0,7211,43634,00.htm l Six Sigma Works: Fact or Fiction Forum http://elsmar.com/Forums/showthread.php?s=18083682b7d1658f98f1e2300 5373908&p=287191#post287191 W. Edwards Deming, Wikipedia Article (updated January 24, 2009) http://en.wikipedia.org/wiki/W._Edwards_Deming Forrest Breyfogle – Deming Medal Nomination Outline http://www.slideshare.net/piblogger/deming-medal-nomination-forrest- breyfogle-presentation Oracle Case Reference (Video) http://www.youtube.com/watch?v=EDQpxnMmbuU 17

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