Cost Out! A Lean Six Sigma Approach to Drive Out Costs*

Transcription

1 Cost Out! A Lean Six Sigma Approach to Drive Out Costs* Toronto, Canada *connectedthinking PwC

2 Lean Six Sigma Key Messages for Today A different perspective is required to see new Cost Out opportunities A structured, rigorous approach is required to realize savings Lean Six Sigma is a broad methodology and toolset Lean Six Sigma can be applied to any process, in any industry Page 2

3 Agenda Introduction Case Studies Lean Six Sigma in Action Cost Out! A Lean Six Sigma Approach Summary

4 Introduction Page 4

5 Introduction Lean Six Sigma An Exercise Scenario: You are the owner of a very successful Pizza restaurant. You are leaving for a two month business trip and have asked the manager of your restaurant to you a report every Monday morning that includes five pieces of data about your restaurant that are most important to you. List five: Page 5

6 Introduction Lean Six Sigma An Exercise Scenario: Now assume you are a customer looking to go out for pizza with your family. You have several choices of pizza restaurants. They are all about the same distance from home. How do you decide which restaurant to go to? List five: Page 6

7 Introduction Lean Six Sigma An Exercise Owner s List: Revenue Costs Customer Satisfaction Employee Attendance Supplier Issues Customer s List: Price Waiting Time Adequate Parking Friendliness of Staff Taste of the Pizza 1. Define value from the customers perspective 2. Balance customer needs with the business constraints 3. Identify and prioritize improvement opportunities 4. Drive improvements and realize cost savings Page 7

8 Introduction Lean Six Sigma Core Concepts 1. Measure your process 2. Eliminate Waste 3. Eliminate Non value added activities 4. Reduce Variability 5. Eliminate Defects 6. Repeat Significant costs can be removed from the organization by focusing on these core concepts. Page 8

9 Case Studies Lean Six Sigma in Action Page 9

10 Case Studies Lean Six Sigma in Action ROI for Lean Six Sigma General Electric 2.5 Maple Leaf Foods Canada Invested ($B) Savings ($B) Invested ($M) Savings ($M) GE Annual Report Lean Six Sigma Leveraged Lean manufacturing s tools for reducing cycle time with the problemsolving capability of Six Sigma In the last two years; - Transportation improved inventory turns from seven to nine - Advanced Materials improved receivables by six turns - $2.7 billion of improvements in working capital in Commercial Finance focus on margin expansion, risk management and lower cost Page 10

11 Case Studies Lean Six Sigma in Action The Impact of Lean Six Sigma Crown Corporation/Service Provider Paying customers are suppliers Moving it faster doesn t improve cash flow Mid 90s Big batches from one process to next Wait, then processed as fast as possible Adopted concept of Flow, Voice of the customer Benefits Despite declining volumes (due to ): 10 years of consecutive profitability Reduced footprint Reduced material handling. Reduced on-floor inventories Reducing lead time, improving quality Increased capacity Improved labor relations Operation Balance Chart Takt time of 24 sec Each bar represents one operator built by stack up of work elements Page 11

12 Case Studies Lean Six Sigma in Action The Impact of Lean Six Sigma 2000: 26 Planes Early '90s, facing a deregulated commercial airline industry that had begun to focus on profitability Needed to reduce costs and improve quality Today, Aerospace leader in profitability Washington 737 Factory Line moves products from one assembly team to the next at the steady pace of two inches per minute 2005: 5 Planes Benefits Shortest final-assembly time of any large commercial jet Assembly time (11 days) - 61 percent reduction WIP inventory - 55 percent reduction Stored inventory - 59 percent reduction Allow for interior configuration and systems decisions closer to delivery Page 12

13 Case Studies Lean Six Sigma in Action Major Canadian Bank Background Role Key issues Major Canadian bank has a branch network of more than 1200 branches across the country The bank has high sales volume of personal and small business loans The loan process takes more than 14 days to complete with error rate higher than 63% Review the end to end process Radically rethink and redesign the process to bring about significant cost savings and significant quality improvements Expensive operation High error rate Too many hand-offs and redundancies Outcome Error rate reduced from 63% to 20% Overall lead time went from 14 days to 5 days Cost was reduced by $2.5M Radical process redesign generated significant improvements in Cost, Lead Time and Quality. Page 13

14 Case Studies Lean Six Sigma in Action International Manufacturing Company Background Role Key issues Major Plastics manufacturing company 9% of all invoices needed to be corrected Increasing customers complaints about receiving multiple invoices Invoice errors impacting the ability of the business to predict average selling price (ASP) and forecast costs Determine the root causes for invoice inaccuracies Improve the process to avoid invoice errors for the future Multiple broken processes Complex processes involving many different functions and systems Cross Functional teaming required Outcome Increased cash flow by $10M Reduced costs by $8M Reduced variability in pricing estimates by 80% Modifications to billing process created significant benefits in Costs, Cash Flow, and Accuracy of Pricing Estimates. Page 14

15 Case Studies Lean Six Sigma in Action Major Transportation Company Background Role Key issues Outcome Major transportation company needed to: - Increase customer satisfaction - Acquire more market share - Increase efficiency in their finance functions Identify inefficiencies in finance function Improve customer service Redundant Processes Increasing costs Poor customer satisfaction Eliminated non-value added steps in finance function Potential to reduce staff by 20 FTE s Reduced product/services costs by over $1.2M Back office focus increased resource efficiency and generated cost out by targeting high dollar contracts. Page 15

16 Case Studies Lean Six Sigma in Action International Manufacturing Company Background Role Key issues Outcome Major Glass manufacturing company Inventory cost is more than 50% of the cost of operation 70% of a fabrication plant space is used for inventory Plans to purchase more space to accommodate an expansion in the operation Improve the current process to avoid the anticipated expansion requirements Large inventory Lack of space High product scrap rate Low product turnover due to inadequate product quality Map the end to end plant operation for each product family Developed a Just-In-Time pull system Reduced On hand Inventory by 70% Increased available space by more than 50% Increased Inventory turnover by 50% Created a Pull-System to reduce WIP, drive inventory turns and eliminate the need for an additional warehouse. Page 16

17 Cost Out! A Lean Six Sigma Approach Page 17

18 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Roadmap to Cost Out! 1. Have a clear vision. Provide a standard that must be achieved. Listen to your customers, your shareholders, your business. 2. Link your vision to your business strategy, and your business strategy to tactical execution. 3. Select projects/initiatives that will advance your strategy the most. Use data to decide. 4. Involve your people. Get data. Use the right tools to solve the right problems. Fix broken processes. 5. Repeat the process. Cost out is part of overall strategy. Use data, not intuition, to direct your efforts. Page 18

19 Mean StDev N 799 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Roadmap to Cost Out! 3. Select projects/initiatives that will advance your strategy the most. Use data to decide. 3a. Measure Performance Develop KPIs that link to strategy Measure constantly Hold people accountable Frequency Transaction Volume Pareto Chart of Transaction Volume by Product Type C15 A B C D E Other Count Percent Cum % Example of Lost Selling Price Analysis Scatterplot of PwC_avg_net_price vs ListPrice Normal Net price Percent 3b. Respond to Breakdowns Focus on KPIs that are failing Analyze data to identify broken processes Pinpoint problems Percent of Selling Price that has been Lost ListPrice Identify Big Hitters and focus efforts on reducing process variation and eliminating the Hidden Factory. Page 19

20 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Roadmap to Cost Out! 4. Involve your people. Get data. Use the right tools to solve the right problems. Drive out variation and non value added work. Goal CREATE FIX STREAMLINE Create effective and efficient processes where none exist Design error free products and services Improve existing processes Reduce process variability Eliminate root causes of errors Improve existing processes Eliminate non-value added activities Eliminate waste CYCLE TIME Before After Tools Six Sigma Six Sigma Lean Empower your people to solve problems. Focus on the data, eliminate root causes and mistake proof the solutions. Page 20

21 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Core Concept: Measure your process Sigma a Greek letter that represents the statistical measurement of the variability or spread of data. Six Sigma measures how well a process or product meets customers requirements. The higher the sigma, the fewer the defects, the better the performance. 6 σ represents a near flawless process (3.4 defects per million opportunities). Most organizations operate at 3 σ to 4 σ σ Defects per Million Opportunities 697, ,770 66,810 6, Page 21

22 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Practical Meaning 99% Good (3.8 σ) % Good (6.0 σ) 20,000 lost articles of mail per hour Unsafe drinking water for almost 15 minutes each day 5,000 incorrect surgical operations per week Two short or long landings at most major airports each day 200,000 wrong drug prescriptions each year Seven articles lost per hour One unsafe minute every seven months 1.7 incorrect operations per week One short or long landing every five years 68 wrong prescriptions per year Source: American Society for Quality Page 22

23 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Core Concept: Focus on Variation Companies tend to measure and track averages Why? Defects cost money Customer requirement Average (Typical Business Goal) Time Customers feel the effect of variation, not averages. Variation = Opportunity. Page 23

24 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Core Concept: Focus on Variation Market Suppliers Inputs Business Processes Process Outputs Critical Customer Requirements Defects Output variation is caused by both variation in process inputs and by variation in the process itself Variation in the process output causes defects Process variation creates Defects. Defects cost you money and frustrate your customers. Follow the defects and fix the root cause. Page 24

25 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Core Concept: Rolled Yield Example: Business Process with 3 key steps What is the probability of accomplishing the task error free? Supplier Inputs Process A Process B Process C Outputs to Customer Sigma Score For Process Steps 3.0 Sigma 3.8 Sigma Efficiency of Process Step 93% Good 93% Good 93% Good 99% Good 99% Good 99% Good Overall Yield 81% Good (2.4 Sigma) 97% Good (3.4 Sigma) 6.0 Sigma % Good % Good % Good) % Good (5.8 Sigma) Waste and Rework are anchors that limit the capacity of the organization and increase costs! Page 25

26 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Core Concept: Example: Identify and Eliminate the Hidden Factory Current Situation Lean Six Sigma Efforts What Management thinks it is What it really is What it should be What it could be The Hidden Factory is any non value added process step. Page 26

27 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Core Concept: Focus on Waste Observe that 2 things are always happening in any process Before After Time Value Added Work Non Value Added Work Things that customers will pay for Work or Value Things that customers do not want to pay for Focus on reducing the amount of Non Value Added work. The customer will not pay for inefficiencies.

28 Cost Out! A Lean Six Sigma Approach Lean Six Sigma Targets Cost Out Increase productivity Improve capacity and output Increase product reliability Reduce exposure to risk Minimize inventory Improve efficiency of supply chain Improve delivery and quality performance Other Improvements Improve customer satisfaction Better understand and meet changing customer requirements Create new customer opportunities Define key metrics Improve market position relative to competitors Different problems require different solutions. Page 28

29 Summary Page 29

30 Summary Lean Six Sigma Some Final Thoughts Adopting a different perspective allows you to see new opportunities. Identifying variability and waste in your process is critical to taking cost out. Tools do not solve problems. People do. Lean Six Sigma is a means to an end. Vision + Leadership + People + Tools = Results Page 30

31 Thank you. Scott Crowley Paul Snowdon Joe Rafuse , Canada. PricewaterhouseCoopers refers to, Canada, an Ontario limited liability partnership, or, as the context requires, the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of. *connectedthinking PwC