This document discusses integrating Lean and Six Sigma approaches to achieve breakthrough improvements in quality, productivity, and competitive position. It outlines key metrics like cost of poor quality, process lead times, inventory turns, and process efficiency that can be improved. Value stream mapping is presented as a tool to identify improvement opportunities and track progress. Linked scorecards are proposed to monitor performance across key areas like profits, products, processes, projects and people.

1. Integrating Lean & Six Sigma Using Value Stream Mapping and Linked Scorecards to Achieve Breakthrough Improvements in Quality, Productivity and Competitive Position Ron Mitchell ASQ, Hamilton, Ontario – 3/10/04

2. Ron Mitchell Ron Mitchell is Director of Lean & Six Sigma Services at Omnex. He is a trainer and consultant with twenty years experience-helping clients understand and apply Lean Manufacturing and Quality Improvement Technologies. Ron studied the Toyota Production System at NUMMI, the joint General Motors and Toyota Motors Corporation facility in Fremont, California; and, he was part of the team that helped launch Synchronous Manufacturing at General Motors. Ron received his training in Quality Management from Dr. W.E. Deming, Dorian Shainin and through The Crosby Quality College. Ron is a Lean Manufacturing Master Black Belt and a Six Sigma Master Black Belt. Ron holds Bachelor’s and Master’s Degrees in Industrial and Organizational Psychology and a PhD – Abd in Behavioral Systems Analysis.

3. Integration & Alignment Lean Six Sigma ISO/TS 16949 New Products ISO 14001 Cost Reductions Mergers/Acquisitions Consolidations/Layoffs New Technology

4. Cost of Poor Quality and Sigma COPQ Sigma PPM Position 20-25% of Sales 2.0 308,537 Non Competitive 15-20% of Sales 3.0 66,807 Average Company 10-15% of Sales 4.0 6,210 5-10% of Sales 5.0 233 <5% of Sales 6.0 3.4 World Class

5. Quality engineering and administration Inspection/test (materials, equipment, labor) Expediting Scrap Rework Rejects Warranty claims Maintenance and service Cost to customers Excess inventory Additional labor hours Longer cycle times Quality audits Vendor control Improvement program costs Process control Opportunity cost if sales greater than plant capacity Cost of Poor Quality (COPQ) “ What about the greatest cost of all… the cost of a lost customer?” Dr. W.E. Deming

6. Cost Savings from Six Sigma General Electric reported that Six Sigma produced in excess of $2 Billion in savings in 1999 alone. Motorola used Six Sigma to win the first Malcolm Baldrige National Quality Award and reported cumulative savings in excess of $14 Billion in the first ten years. Ford Motor Company reported that Six Sigma projects saved over $385 Million in 2002.

7. The Lean Enterprise* Lean companies use less of everything than do mass production companies: half the human effort in the factory, half the manufacturing space, half the investment in tools, half the engineering hours to develop a new product in half the time, less than half the inventory *From Womack, Jones, et.al., “ The Machine that Changed the World.”

8. Extra Handling & Storage Costs Expediting Costs Premium Freight Charges Late Deliveries Long Leadtimes Cost to Customer Excess Inventory Excess Scrap & Rework Cost of Capital Lost Customer Loyalty Excess Labor Costs Opportunity Costs When Potential Sales Greater Than Current Capacity Cost of Poor Flow (COPF) Excess Capital Investments

9. Cost of Poor Flow and Inventory Turns COPF Inventory Turns Competitive Position 20-25% of Sales 8 to 10 Non-Competitive 15-20% of Sales 10 to 20 Average Company 10-15% of Sales 20 to 50 5-10% of Sales 50 to 100 <5% of Sales 100 Plus World Class Company

10. World Class Processes C – Combine L – Lean A – And S – Six S – Sigma Lean Productivity with Six Sigma Quality equals WORLD CLASS Performance. Better, Faster and Cheaper!

11. Toyota Production System

12. Toyota Today FY 2003 profit report - $12 Billion in pre-tax operating profits. More than the Ford, GM & Daimler/Chrysler... combined. Toyota has 11% share of the global market compared with over 60% for The Detroit 3. Toyota’s current market capitalization is $100 billion…. more than the market caps of the Detroit 3 combined.

13. Show Me the Money!!! Cost of Poor Flow Cost of Poor Quality

14. Why SO LITTLE Progress? Lack of Commitment/Support From: Management Supervision Workforce Union Suppliers Customers Lack of Direction / Focus. Lack of Resources: Time Budgets Skill

15. Managing Change - the Key to Success

16. Change Management As Competition Changes: Technology Must Adapt – Manage the Technology Organization’s Must Adapt – Manage the Culture Groups/Teams Must Adapt – Manage the Group Dynamics Individuals Must Adapt – Manage the Psychology

17. 21 st Century Management Plan - identify and prioritize improvement projects; Organize – provide the resources to drive improvement; Motivate - manage the change process.

18. Balanced Scorecards Performance measures must address the concerns of ALL STAKEHOLDERS . You don’t want to optimize one measure at the expense of the others. Price Quality Delivery Technology Service Profit Margins Customer Satisfaction Employee Satisfaction

19. Profits Products Process Projects People Scorecard Scorecard Scorecard Scorecard Scorecard Linked Scorecards Planning for Improvement Planning Improving

20. Profits Products Process Projects People Scorecard Scorecard Scorecard Scorecard Scorecard Customer Research - Surveys Value Stream Maps Continuous Flow Supermarket Pull Six Sigma Quality SMED/TPM/FIVE S Standards Education Training Resources Feedback Planning for Process Improvement

21. Profits Products Process Projects People Scorecard Scorecard Scorecard Scorecard Scorecard Achieving Process Improvement New Knowledge, Skill, Attitudes and Behaviors Improved Methods & Technology Lean Productivity & Six Sigma Quality (Better, Faster, Cheaper) Customer Satisfaction Increased Sales Increased Margins

22. Study the Process - Value Stream Mapping To design and communicate the Lean / Six Sigma Vision – the future state . To identify and quantify the process improvement opportunities – the gaps between the current state and the future state. To develop project plans for achieving the future state. To evaluate progress towards the future state.

23. 8400 pcs/mo Skid = 40 pieces Distributors & Installers Weekly FS = 600 SQ FS = 800 SQ FS = 300 SQ FS = 4000 SQ 9.5 days 7 days 2.4 days 1.9 days 5.2 days 11.4 days 25 seconds 60 seconds 35 seconds 20 seconds 40 seconds Weekly Ship Schedule Weekly Schedule C/T=25 sec. C/O= 90 sec. U/T = 95% QR = 99% SHEAR PUNCH C/T=60 sec. C/O= 0 U/T = 95% QR = 98% FORM C/T=35 sec. C/O=40 min. U/T = 90% QR = 95% 1 C/T = 20 C/O=0 U/T = 99% 1 FS = 600 SQ S. WELD QR = 98% QR = 97% PAINT/BOX 1 1 PRODUCTION CONTROL MRP Weekly PO fax 90/60/30 Day Forecast 90/60/30 Day Forecasts Weekly Order Weekly I Sheets 4000 I 3000 I 1000 I 800 I 2200 I 4800 Lead Time = 37.4 DAYS Value Added Time = 180 sec 2500 Sheets Michigan Steel Co. 10 C/T=40 sec. C/O=0 U/T = 95% SHIPPING Staging

24. Process Scorecard Process Scorecards provide baseline measures for monitoring and evaluating progress: Lean / Six Sigma Process Scorecard Measures: Rolled Throughput Yield (RTY) Process Leadtime (Dock-to-Dock) Process Efficiency (% Value Added) Inventory Days (Raw, WIP & FG Days) Floor Space Used (Square Feet / Square Meters) Direct Labor Productivity (Sales / # of Operators) Process Availability (Process Uptime - %)

25. Measure Current State Future State Improvement Raw Inventory Days WIP Inventory Days F.G. Inventory Days Process Leadtime Process Efficiency Rolled Throughput Yield Floor Space Labor Productivity Process Scorecard for: DSM Cabinet Body Mfg. 9. 5 Days 16. 5 Days 11. 4 Days 37. 4 Days 88% 2300 SQ Ft. * 105 / OP. * . 02% * Mfg. Only – excludes paint and assembly operation. Availability 90%

26. 8400 pcs/mo Skid = 40 pieces Distributors & Installers Daily Daily Ship Schedule 2 Days 10 PAINT/BOX   Body Cell 2 Days Daily  1 Future State Map DSM Cabinet Body Cell October 7, 2003 TT = 60 sec. U/T Cell Pull Supplier Develop PRODUCTION CONTROL MRP Daily PO fax 90/60/30 Day Forecast 90/60/30 Day Forecasts Daily Order 500 Sheets Michigan Steel Co. SHIPPING Staging 1 Day 40 40 100 C/T = 59 sec. C/O = 90 sec. Uptime = 99% FTQ = 99.9% FS = 875 FS = 4000 SQ C/T=40 sec. C/O=0 U/T = 95% FTQ = 99.9% FTQ FTQ C/O

27. Measure Current State Future State Est. Savings Raw Inventory Days WIP Inventory Days F.G. Inventory Days Process Leadtime Process Efficiency Rolled Throughput Yield Floor Space Labor Productivity Availability Process Scorecard for: ____________________ DSM Cabinet Body Mfg . 9. 5 Days 2 Days 16. 5 Days 1 Day 11. 4 Days 2 Days 37. 4 Days 5 Days 88% 99.9% 2300 SQ Ft. * 875 SQ Ft. * 105 / OP. * 420 / OP. * 90% 99.9% . 02% . 07% * Mfg. only – excludes paint and assembly operation.

28. Measure Current State Future State Savings Raw Inventory Days WIP Inventory Days F.G. Inventory Days Process Leadtime Process Efficiency Rolled Throughput Yield Floor Space Labor Productivity Availability TOTAL SAVINGS Process Scorecard for: ____________________ DSM Cabinet Body Mfg. 9. 5 Days 2 Days $147,100* 16. 5 Days 1 Day $313,404* 11. 4 Days 2 Days $185,484* 37. 4 Days 5 Days 88% 99.9% $2,387,045 2300 SQ Ft2 875 SQ Ft2 $28,500 105 / OP. 420 / OP. $270,000 90% 99.9% $1,034,208 $4,365,741 . 02% . 07% *Fixed cost savings from reduced inventory carrying costs… $3.2 Million in capital savings.

29. Accounting Human Resources Operations Purchasing Sales Strategic Measures – Voice of the Customer/Stakeholder Process Variation Process Measures Voice of the Process Leadership Team Objectives Organizing for Breakthrough Improvement Projects

30. Lean / Six Sigma Improvement Organization

31. Managing Change - Motivating Set High Expectations Communicate, Communicate, Communicate Remove the Roadblocks Accept Failure, Recognize Success The ONLY CONSTANT is Change

32. Lean / Six Sigma Management Planning Value Stream Maps Lean / Six Sigma Project/Change Management OEE & Quick Pull Continuous T.P.M & Six Sigma 5 S and Changeovers Scheduling Flow (Cells) Error Proofing Quality Process Visual Mgmt. Design Develop Purchase Produce Assemble Inspect Deliver Lean Six Sigma Projects Begin Here

33. Questions & Answers