The importance of Data-Driven Management

Management decision based on objective data is a key component in any company. For example, on a project-by-project basis, Lean Six Sigma projects provide means of analyzing process data to achieve process improvements. In the larger organizational view, these process improvement are initiated so that the organization can achieve its organizational priorities. The priorities are developed bases on analysis of key stakeholder needs and wants, including the costumer, shareholder, and employee groups. In this way, data driven management provides a means of achieving organizational objectives by quantifying needs or wants of stakeholder groups relative to current baselines, and acting upon the data to reduce those critical gaps in performance.

The choice of what to measure is crucial to the success of the organizational. Improperly chosen metrics lead to suboptimal behavior and can lead to people away from organizational´ s goals instead of toward them. Joiner (1994) suggest three system wide measures of performance – overall customer satisfaction, total cycle time, and first-pass quality. An effective metric for quantifying first-pass quality is total cost of poor quality. Once chosen, the metrics must be communicated to the members of the organization. To be useful, the employee must be able to influence the metric through performance, and it must be clear precisely how the employee´s performance influence metric.

Rose (1995) lists the following attributes of good metrics:

·         They are customer centered and focused on indicators that provide value to customer, such as product quality, service dependability, and timeliness of delivery, or are associated with internal work process that address system cost reduction, waste reduction, coordination and team work, innovation, and customer satisfaction.

·         They measure performance across time, which shows trends rather than snapshots

·         They provide direct information at level at which they are applied. No further process or analysis is required to determine meaning.

·         They are linked with organization´s mission, strategies, and actions. They contribute to organizational direction and control

·         They are collaboratively developed by teams of people who provide, collect, process, and use data.

Nowadays, Balanced Score cards help the organization maintain perspective by providing a concise display of performance metrics in four areas that correspond roughly to the major stakeholders – costumer, financial, internal process, and learning & growth (Kaplan and Norton, 1992). This table shows an example of objectives and the performance metric:

Balanced scorecard metrics
	GOAL(Objective)	Candidate Metrics (Measure)
Financial	Increase in turnover of 15% on last year	Monthly turnover
Customer	Customers must receive their deliveries in full and on time	What % of monthly deliveries reached desired destination in full and on time
Process	Appoint a new sales person Enter all orders into the production planning system promptly	Date salesman appointed Number of orders entered within 24 hours.
Innovation	Change infrastructure - install a new XYZ widget maker	Installation date of new machinery

With performance metrics you take a measurement and rate it against a Target for comparison. The Target is usually graded into levels like Outstanding, Above target, on Target and below target. In the presentation of results the target levels are usually color coded so you can see at glance if you are on target, below target, above target, etc….

Ask yourself!!

·         Do you have good metrics?

·         Are your improvement initiatives tied to organizational objectives?

The Toyota Production System (TPS)

 

The Toyota Production System is Toyota´s unique approach to manufacturing. It is the basis for much of the “lean production” movement that dominated manufacturing trends (along with Six Sigma) for the last 10 years or so. Despite the huge influence of the lean movement, I hope to show that most attempts to implement lean have been fairly superficial. The reason is that most companies have focused too heavily on tools such as 5S and Just-in-time, without understand lean as an entire system that must permeate as organization´s culture. In most companies where lean is implemented, senior management is not involved in the day-to-day operations and continuous improvement that are of lean. Toyota´s approach is very different.

What exactly is lean enterprise? You could say it´s the end result of applying the Toyota Production system to all areas of your business. In their excellent book, Lean Thinking, James Womack and Daniel Jones define lean manufacturing as a five –step process:

1.       Defining costumer value,

2.       Defining the value stream,

3.       Making it “flow”,

4.       “pulling” from the costumer back,

5.       And striving for excellence.

To be lean, manufacturing requires a way of thinking that focuses on making the product flow through value-adding process without interruption (one-piece flow), a “pull” system that cascades back from costumer demand by replenishing only what the next operation takes away at short intervals, and a culture in which everyone is striving continuously to improve.

                Taiichi Ohno, founder of TPS, said it even more succinctly:

All we are doing is looking at the time line from the moment the costumer gives us an order to the point when we collect the cash. And we are reducing that time by removing the non-value-added wastes. (Ohno, 1988)

Now consider the following counter-intuitive truths about non-value-added waste within the philosophy of TPS.

·         Often the best thing you can do is to idle a machine and stop production parts. You do this to avoid over production the fundamental waste in TPS.

·         Often it is best to build up inventory of finished goods in order to level out the production schedule, rather than produce according to the actual fluctuating demand of costumer orders. Leveling out schedule (heijunka) is a foundation for flow and pull systems and for minimizing inventory in the supply chain. (Leveling production means smoothing out the volume and mix of items produced so there is little variation in production from day to day.)

·         Often is best to selectively add and substitute overhead for direct labor. When waste is stripped away from value-adding workers, you need to provide high-quality support for them as you would support a surgeon performing critical operation.

·         It may not be a top priority to keep your workers busy making parts as fast as possible. You should produce parts as the rate of costumer demand. Working faster just for the sake of getting the most out of your workers is another form of over production and actually leads to employing more labor overall.

·         It is best to selectively use information technology and often better to use manual process even when automation is available and would seem to justify its cost in reducing your headcount. People are the most flexible resource you have. If you have not efficiently worked out the manual process, it will not be clear where you need automation to support the process.

In other words, Toyota´s solutions to particular problems, often seem to add waste rather than eliminate it. The reason for these seemingly paradoxical solutions is that Ohno had learned from his experience walking the shop floor a very particular meaning of non-value-added waste: it had little to do with running labor and equipment as hard as possible, and everything to do with the manner in which raw material is transformed into a saleable commodity. For Ohno, the purpose of his journey through the shop floor was to identify activities that added value to raw material moving to a finished product that costumer was willing to pay for. This was a radically different approach from mass production thinking of merely identifying, enumeration, and eliminating the waste time and effort in existing production processes.

I challenge you to make Ohno´s journey for yourself, and look at your own organization´s process and you will see materials, invoicing, service calls, parts in R&D, etc…being transformed into something costumer wants. But on closer inspection, they are often being diverted into a pile, someplace where they sit and wait for long periods of time, until they can me moved to the next process or transformation.

What are you going to do about it?

Blending Lean and Six Sigma to Optimize Service

Why does Lean Need Six Sigma ?

As robust as Lean is for dealing with lead time and non-value-add costs, there are several critical problems you won´t find addressed in the seminal books of lean. Six sigma provides robust solutions to these problems, which explains why Lean needs six sigma

• ·         Lean does not explicitly prescribe the culture and infrastructure needed to achieve and sustain results

• ·         Customer critical-to-Quality needs are not front and center

• ·         Lean does not recognize the impact of variation

Why does six sigma Need Lean ? 

Just as there are gaps in Lean methodologies that can benefit from Six Sigma, let´s turn the tables and see where Six Sigma falls short compared to Lean has to offer. The overarching message is this: as many companies have demonstrated, you can make a lot of gains with six sigma. But there´s a hitch. No matter what tool you pick, if you don´t have a Lean component to it, if you´re not focusing on improving speed and reducing WIP, any gains will eventually die. The process will still be slow and cumbersome, and its costs will be too high. More specifically, here are five reason why Six Sigma benefits from Lean:

• ·         Identifying waste

• ·         Improving process speed or cycle time

• ·         Specific speed tools (5S, TPM, etc..)

• ·         Methods for rapid action (the Kaizen DMAIC process)

• ·         Six sigma quality is approached much faster if Lean eliminates non-value-add steps

The fact is that lean six sigma is a powerful tool for executing the CEO´s strategy, and a tactical tool for P&L managers to achieve their annual and quarterly goals. If executives aren´t engaged in Lean Six Sigma, the company will likely be out-competed by companies whose executives embrace Lean Six sigma.

Blending the key themes of lean and six sigma provides us with five “laws” that provide direction to our improvement efforts. Here are the five:

• 0         The Law of the Market: Costumer critical-to-quality defines quality and is the highest priority for improvement, followed by ROIC and Net Present Value. We call it the Zero Law because it is the foundation upon which all else is build.

• 1         The Law of Flexibility: the velocity of any process is proportional to the flexibility of the process

• 2         The Law of Focus: 20% of the activities in the process cause 80% of the delay

• 3         The Law of Velocity: the velocity of any process is inversely proportional to the amount of work-in-progress (or number of things-in-process. Little´s Law states that:

·         The number of things in process in turn is increased by long setup times, rework, the impact of variation in supply and demand, time and complexity of the product offering

• 4         The Lay of Complexity and Cost: the complexity of the service or product offering generally adds more non-value-add costs and WIP than either poor quality (low sigma) or slow speed (un-lean) process problems.