Difference Between Six Sigma and Lean

I was recently asked by a university student what the difference was between Six Sigma and Lean.  In order to make it easier to understand I used the example of a process that generates dozens and dozens of Weekly Reports for a large project management office (PMO).  In each example the starting point is the same.  However depending on which method you chose the outcome can be quite different.

For the sake of example consider the following situation:

• Process: dozens of project managers, project coordinators and other support staff put together detailed reports each week outlining the status of each project within the organization.
• Product: 100 project status reports each containing 100 pieces of data on average
• Total Data Points: 100 x 100 = 10,000
• Effort Required: 4 hours per report
• Total Effort Required: 4 hours x 100 reports = 400 hours
• Total Cost: 400 hours x $50/hr = $20,000 per week or $1,000,000 per year
• Error Rate: 10%
• Average Number of Errors: 10% x 10,000 = 100 errors
• Standard Deviation: 10 errors

Six Sigma Approach:

A team is assembled to study the problem of errors appearing on weekly project reports.  They interview stakeholders throughout the process and discover the following major problems:

1. Inconsistent Training: Initial training when the electronic reports were first introduced was extensive.  However over the past year and a half there have been many new staff who do not always receive the same level of training.
2. Inconsistent Auditing: Some departments have extensive review and feedback processes in place designed to catch errors and report them back to the project teams for correction.  However across the organization the level of auditing and tolerance for errors varies widely.
3. Lack of Restrictions: There are many pieces of information that should follow a standard format.  However the electronic forms do not take advantage of the error catching capability of the software.  As a result project managers are allowed to enter and submit incorrect information.

Using the information collected the team quickly comes up with a list of recommendations.  In addition they install run charts throughout the entire process to track the rate of errors.  Based on this quantitative information they are able to quickly identify the departments where most of the errors occur.  Corrective actions such as re-training and consistent auditing are utilized to reduce the number of errors.  Also they are able to use their tracking data to get approval from senior management to pay for the re-configuration of the on-line reports so that many of the errors are caught at the point of entry.

The Six Sigma Results:

• Effort Required: 3 hours per report
• Total Effort Required: 3 hours x 100 reports = 300 hours
• Total Cost: 400 hours x $50/hr = $15,000 per week or $750,000 per year
• Savings: $250,000 per year
• Error Rate: 2%
• Average Number of Errors: 2% x 10,000 = 20 errors
• Standard Deviation: 2 errors

Lean Approach:

A team is assembled to study the problem of errors appearing on weekly project reports.  They start by talking to the organization's customers to find out how much Value the reports provide.  What they discover after talking to external and internal customers is the following:

1. External Customers: Not surprisingly the team quickly discovers that the external customers, those who purchase the products and services produced by the organization have little or no idea that the firm even has a Project Management Office.  And these customers certainly have no idea what the Weekly Status Reports are or why they would need them.
2. Internal Customers: Perhaps somewhat surprisingly the team learns that even the internal customers who are the beneficiaries of the various projects have little use for the reports.  In fact one manager comments "all I want is the project finished on time, on scope and on budget.  Maybe they should spend less time on those reports and more time managing my projects."
3. Senior Executives: Most surprising of all they learn by talking to the senior executives, the group who everyone agrees asks for the reports, that they only read a very few of the 100 reports that are generated weekly.  When asked why they asked for the reports in the first place one executive explains "well having them make all those reports is how I ensure everything is being properly managed."

Based on the Voice of the Customer the team is forced to acknowledge that the Weekly Status reports add no Value to the firm's customers and are therefore Waste.  They begin work on the Value Stream used to create the reports and classify each task as follows:

1. Type 2 Waste: These tasks can be immediately stopped with no negative impact
2. Type 1 Waste: These tasks require Kaizens or small improvement efforts before further action is taken

After a series of Kaizen events are conducted changes similar to the following examples are made to the process that generates the reports:

1. Reduce Data Points: The number of required data points on each report is reduced from an average of 100 down to less than 10 Key Performance Indicators.
2. Reduce Reports: The number of reports is reduced from 100 down to 25 to track just the projects with a high Impact or a high Risk for the organization.
3. Reduce Auditing: With the simpler reports it is discovered that it is no longer necessary to have an extensive audit system in place.  In addition the senior executives acknowledge that holding people accountable for errors in the reports is not a substitute for good project governance.

The Lean Results:

• Effort Required: 15 minutes per report
• Total Effort Required: 15 minutes x 25 reports = 6 hours, 15 minutes
• Total Cost: 6.25 hours x $50/hr = $312.50 per week or $15,625 per year
• Savings: $984,375 per year
• Error Rate: n/a
• Average Number of Errors: n/a
• Standard Deviation: n/a

Conclusions:

In both instances the organization did the right thing by establishing teams to address the problem with reports.  And in the case of the team that used the Six Sigma approach they also did the right thing by engaging all the internal stakeholders in order to gain consensus on what the root causes of errors were and how best to fix them.  What this example illustrates however is the risk that any process improvement effort takes when they do not listen to the Voice of the Customer in order to properly assess Value and Waste.  By assuming that the reports represented Value the Six Sigma team focused all their energy on reducing errors.  By learning from their customer that the entire process was Waste the Lean team focused their energy on eliminating all but the minimum essential effort required.

The irony is that most often the further one gets in an organization from the paying customer the easier it is to forget about listening to the Voice of the Customer.  The result being the greater the likelihood that any improvement efforts will do little more than optimize Waste.

@leanmind