Continuous Improvement Using Lean Six Sigma

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The Value Of Lead Time - Fast and Flexible Using Lean Six Sigma Principles “See” the Drivers That Reduce Your Process Lead Time 

How flexible is your process in meeting the dynamic and demanding needs of your customers?

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Learn the drivers that slow your process and make them harder to adapt to the changing business environment

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Understand the relationship between Process Lead Time, Work-In-Process and Exit Rate using a Lean Six Sigma simulation

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Key Lean Definitions Work-In-Process Exit Rate

Process

Process Lead Time

Lean is all about the reduction of waste in a process Process Lead Time (PLT) The time from release of a product into a process until its completion  Example: The elapsed time from when a homeowner calls to when the mortgage refinancing closes averages 33 days

Work-In-Process (WIP) Product that is within the boundaries of the process  Example: There were 3,300 refinance applications in process at the end of the month

Exit Rate (Throughput) The output of a process over a defined period of time  Example: Our process closed 100 mortgage refinance applications per day last month 3

Traditional Processes Lots of Stuff the in Process = Long Lead Times

INPUT

OUTPUT

Lead Time

Work In Process

Process

Transport Time

“Touch” Time

Rework

Queue Time

Goal is to reduce the work in process in order to attack the hidden barriers 4

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Traditional Processes Uncovering The “Hidden Rocks”

OUTPUT

Process

Lead Time

Work In Process

INPUT

Slow Learning Cycles

High Rework

Waiting for Info/ Materials

Variable Process

Can’t Find Things (High WIP)

Expedited (“Crash”) Orders

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Two measurements that can be used Understanding our process utilizing Little’s Law 

Process Lead Time



Process Cycle Efficiency

The right hand and left hand of how well our process is operating 6

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Process Lead Time (PLT)

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Process Lead Time 

Little’s Law describes the relationship between WIP, PLT, and Throughput:

PLT    

WIP EXIT RATE

Used to the size number of people, paperwork, projects Applicable for any process! Lower Process Lead Time = More “Learning Cycles”

(Learning Cycle = number of instances to learn about the process)

To improve PLT – you either focus on reducing WIP or increasing the Exit Rate 8

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Lead Time = WIP / Exit Rate Think about the merchandise return lines at a store in July Lead Time =

WIP Exit Rate

=

5 1

people

person /minute

Lead Time = 5 minutes

…and then think about them in late December… Lead Time =

WIP Exit Rate

=

13 1

people

person /minute

Lead Time = 13 minutes

Conclusion:

Fixed Capacity (Exit Rate) + Increased People (WIP) = Slower Lead Times (PLT) 9

The Value of Lead Time What Is Our Goal? The goal of Lean Improvement is to increase the speed of a process Controlling and reducing Lead Time (and lead time variability)  Will generate faster feedback cycles on improvement projects  Increase process velocity and thus cycles of learning Controlling and reducing Lead Time (and lead time variability)  

is a key driver to: Facilitating productivity improvements (reduced cost) Facilitating capacity improvements (increased revenue)

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The Value of Lead Time Why Lean Improvements? Lean Improvements

Old Process

New Process

Lead Time

Long Lead Time Low Flexibility

Short Lead Time High Flexibility

Flexibility

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Faster feedback on process performance (increased learning cycles)

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Improved first pass yield (results in improved productivity)

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Improved process stability (results in improved throughput)

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Uncovers process deficiencies (forces problem resolution)

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Less work-in-process (reduced risk)

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Improved customer satisfaction (flexibility and responsiveness)

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The Value of Lead Time - Example In the week prior to Mothers Day, you estimate that there will be 1 million incoming items (packages, letters, and cards) each evening that need to be processed. There are currently 100 employees working in a processing center 

Assuming the current work force can process 100,000 items per hour, how long will it take before the last item leaves the center?

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PLT = WIP/ER WIP = 1,000,000 pieces of mail ER = 100,000 pieces of mail per hour PLT = 1,000,000 pieces/100,000 pieces per hour = 10 hours to process

  

Inputs

Process Process WIP WIP Exits Lead Time

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Process Cycle Efficiency (PCE)

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Value Add A Customer Perspective All processes consist of three components: Customer Value Add

Those items that the customer is willing to pay for you to do

Business Value Add

Those items that are necessary to run the business but the customer is not willing to pay for you to do

Non Value Add

Those items that add no value to the customer or the business 14

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Value Add A Customer/Business Perspective Customer Value Add (CVA) Questions 

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Does the task add form, feature, or function to the process or service? Does the task enable an advantage (reduced price, faster delivery, fewer defects)? Would the user be willing to pay extra if he or she knew you were doing this task? Example CVA Activities:    

Perform surgery Place mail in box Process patient Check-in guest

Business Value Add (BVA) Questions 

Does this task reduce owner financial risk?



Does this task support financial reporting requirements?



Would the process of producing the service break down if this task were removed?



Is this task required by law or regulation?



Typical BVA Activities:     

Taking an order Invoice processing IRS/OSHA/EPA reporting Internal Financial Reporting User Required Inspection

Non-Value Add (NVA) Questions 



 

If the user knew we were doing this, would they request that we eliminate the activity so we could reduce cost? Does the task fit into either of the other two categories? Can I eliminate or reduce this activity? Typical NVA Activities:       

Question handling Document handling Inspecting Transporting/Moving Stocking/Storing All Rework Loops Signoffs

Goal is to maximize the CVA – Minimize the BVA Eliminate the NVA activities in all processes 15

Process Cycle Efficiency (PCE) PCE is a measure of the relative efficiency in a process 

It represents the percentage of value add time (changing form, fit, function) of a product down the critical path

It is calculated using:

Process Cycle Efficiency 

Customer Value Add Time Process Lead Time

PCE is the performance indicator of how efficiently the process is converting work-in-process into exits. Shows us how much waste is in our process 16

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Process Cycle Efficiency World Class Process Cycle Efficiency Benchmarks Application

Low-End PCE Goal

High-End PCE Goal (World-Class PCE)

Creative/Cognitive Processes

5%

25%

Transactional Processes

10%

50%

Batch Transfer Assembly

15%

35%

Continuous/One Piece Flow Assembly

30%

80%

Utilize ‘High-End PCE Goal’ if current process is greater than Low-End Goal but less than High-End Goal. Utilize ‘Low-End PCE Goal’ if current process is less than that goal. If current process is significantly less than Low-End Goal, shift decimal point of current PCE one digit to the right. 17

Calculating Process Cycle Efficiency What is the Process Cycle Efficiency for the process below? PLT = 5 days (40 hours) Process 1

Process 2

Process 3

CVA =0.4 hrs

CVA =0.4 hrs

CVA =0.7 hrs

Exit Rate = 20 Units/Day

WIP = Sum of All Work Within Physical Work Area = 100 Units

Our Example PCE is: PCE PCE PCE

= CVA Time / PLT = 1.5 hrs / 40 hrs = 3.5% How much BVA and NVA is in our process? – 96.5% Our goal – reduce and eliminate 18

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Process Lead Time Process Cycle Efficiency Process

Input

Work In Process & CVA Time

Exit Rate

Process Lead Time

PLT = WIP / Exit Rate PCE = CVA Time / PLT Recall that:  Work-In-Process (WIP) = “Things in Process” – Orders, People In Queue, Documents, etc.  Exit Rate = The output of a process, expressed in units/time (equal to the rate of the time trap (constraint) operation)  Process Lead Time (PLT) = the time from release of a product into a process until it is completed  Customer Value Add Time (CVA Time) = the amount of time that value is actually being added to a product (the time that the customer is willing to accept) 19

Variability in a Process

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What About Variability? “A fault in the interpretation of observations, seen everywhere, is to suppose that every event (defect, mistake, accident) is attributable to someone (usually the nearest at hand), or is related to some special event. The fact is that most troubles with service and production lie in the system. Sometimes the fault is indeed local, attributable to someone on the job or not on the job when he should be. We speak of faults of the system as common causes of trouble, and faults from fleeting events as special causes.” – W. Edwards Deming

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Can We Tolerate Variability? 

There will always be some variation present

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We can tolerate this variation if: 

The process is on target

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The variation is small compared to the process specifications

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The process is stable over time

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However, as variability increases, lead time increases

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We need to recognize that variation should be minimized

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Key is not just moving the mean, but reducing the span as well

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Variation in Demand or Supply can radically increase wait time: It can be predicted and prevented Ratio of Actual Queue Time to “Touch Time” Per Order

Note: R2 – Describes the fit of the line. 1.0 would be perfect fit.

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Applying the Tools for Results Lean Six Sigma Reduces ProcessLead Cycle Time, Improving Lean Improvements Reduce Process Time for User X, On- Time Delivery Performance forPerformance Tier One Auto Supplier Improving On-Time Delivery (Average Reduced from 14 Days to 2 Days, Variance from 2 Days to 4 Hours)

(Average PLT Reduced from 14 days to 2 days, standard deviation reduced from 2 days to 4 hours) 90% 80%

% Distribution

70%

60% 50% 40% 30%

Mean Delivery Time Reduced 20%

Time Variation Reduced 10% 0% 0

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4

6

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Lead-Time to Customer (days)

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The Value Of Lead Time - Fast and Flexible Using Lean Six Sigma Principles Value of Lead time answers the questions…… How long will it take? How much waste is in my process?   

Helps us to determine how flexible our processes are in meeting the dynamic and demanding needs of our customers Helps us learn the drivers that slow our processes and makes them harder to adapt to the changing business environment Show us the relationship between Process Lead Time, Work-In-Process and Exit Rate

Helps us understand that we can improve throughput without adding resources to our process by managing WIP and Exit Rate 25

Transactional Lead Time Simulation

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Learning Objectives

Demonstrate the fundamental relationship between:   

WIP (Work In Process) Lead Time Exit Rate

Demonstrate the impact of increasing WIP on process performance 27

What’s in It for Me? 

When performing process improvements, be able to understand the fundamental drivers to improve lead time and to improve throughput rate

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Understand how WIP drives process inefficiencies

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Lead Time Simulation   

Each team will consist of 5 people Seats are arranged in an assembly line process Each Station will have an assigned role (Station 1 through 5)

Station 1

Station 2

Station 3

Station 4

Station 5

Customer

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Assignment Responsibilities 

Station 1 

At pre-defined intervals… 

Record release time in upper right hand corner of the letter

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“Damage” the letter (crumple, tear (not 100% tear), etc…)

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Release letter to Station 2

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Station 2

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Station 3

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Station 4

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“Repair” the letter (un-crumple, repair the tear with tape) Copy the address on an index card (must be legible) Place letter and index card (with index card on top of letter) in Damaged Letter Envelope

Station 5 

Record start time and completion time on log sheet

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Seal envelope

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Calculate total elapsed time for each letter (seconds)

Work the letters in the order you receive them! 30

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Simulation – Part 1a

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We will pilot the process by running one letter through the process so we make sure everyone knows their job.

In order to improve – we must first baseline 31

Simulation – Part 1b

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We will now run another letter through the process   

The first one was practice This one is real This will establish our base line

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Simulation – Part 1b Results 

What was the lead time in seconds? Example

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Simulation – Part 2 

We will now run one letter every 10 seconds through the process

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This process will run for 180 seconds (3 minutes)

Un-managed WIP – What do you think will happen? 34

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Simulation – Part 2 Results 

How many letters were we able to process?

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What was the lead time for each letter?

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Do you notice a trend? Why?

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How do we get a predictable lead time? Example

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Simulation – Part 3 

We will now run one letter every 30 seconds through the process

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Run for 180 seconds (3 minutes)

Managing the WIP to the process What do you expect to happen? 36

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Simulation – Part 3 Results 

How many letters were we able to process this time?

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What was the lead time for each letter?

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Is the trend the same as Part 2 of the exercise?

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Was each Station fully utilized?

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What happens if we balance the workload throughout the process? Example

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Simulation – Part 4 

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Station 3 writes Name and Street Address on index card, then passes index card and damaged letter to Station 4 Station 4 writes City, State ZIP on the index card, then passes damaged letter and index card to Station 5 Station 5 reads start time on letter, then puts letter and index card (with index card on top of letter) into damaged mail envelope, seals envelope, and records start and end times on log sheet.

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Run one letter every 10 seconds through the process

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Run for 180 seconds (3 minutes) Semi-balancing the line WIP is un-managed 38

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Simulation – Part 4 

How many letters were we able to process this time?

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What was the lead time for each letter?

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Observations?

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How do we reduce lead time?

Example

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Simulation – Part 5 

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Use the same tasks per Station as in Part 4 (either suggested solution or solution developed by team) NEW: You MUST WAIT to pass your letter to the next Station until they have passed their letter to their next Station Run for 180 seconds (or 3 minutes)

One piece flow – managing the WIP and the Exit Rate What do you expect to happen? 40

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Simulation – Part 5 

How many letters were we able to process this time?

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What was the lead time for each letter?

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Observations?

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How do we reduce lead time?

Example

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Simulation Observations  

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In Part 1, we determined the lead time of the process In Part 2, we noticed the lead time for each letter was increasing  Why? We had time traps in the process. We were releasing letters into the process faster than some Stations could process them. In Part 3, we slowed the release of letters into the process to 30 seconds – approximately the lead time of Dept 3’s operation – and noticed the lead time for each letter was fairly consistent In Part 4, we balanced the workload between the Stations to better utilize available capacity and noticed an increase in throughput In Part 5, we created a work control system or pull system and noticed WIP was reduced and the exit rate equaled the start rate To reduce lead time, we need to reduce Non-Value Add Activity 42

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In Conclusion Lead time is related to WIP and Exit Rate by Little’s Law: Process Lead Time = WIP / Exit Rate 

As WIP increases, lead time increases, but Exit Rate is unaffected

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Exit Rate is controlled by the time trap operation

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Exit Rate can be improved/increased by reducing the processing time at the time trap workstation

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Lead time can be improved/reduced by reducing WIP or reducing the processing time at the time trap workstation Two ways to improve your process: Manage your WIP and Manage your Exit Rate You can improve your throughput without adding resources 43

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