business policy unit VI essay and DQ question

MONEY MATTERS BY CHRISTOPHER CROUCH

LEAN SIX SIGMA V A L U E — I S THE CONCRETE INDUSTRY READY FDR IT?

Industry veteran Chris Crouch heads Jacksonville, Fla.-based CCI Consult- ing. He continues this month with the 10th of a 12-part series identi- fying increased profit opportunities in the Ready Mixed Business. He can be reached at 404/275-3865 and [email protected]

What is Lean Six Sigma (LSS)? It is the com- bination of two world-renowned process im- provement and quality philosophies that make for a powerful means to achieve and sustain continuous quality improvement and exceptional performance in all functions of your business.

Taken separately. Lean is a process-improve- ment quality philosophy that stemmed from a history of process enhancement within Toyota, supported by the initial work of Edwards Dem- ing, Malcolm Baldridge, Henry Ford and others, both before and after World War II. The foun- dational ideas were then taken to new heights by the leadership of Toyota, which ultimately developed the "Toyota Production System" (TPS) and the "Toyota Way," encompassing Lean manufacturing and used within many in- dustries today. Six Sigma, on the other hand, was developed by Bill Smith of Motorola as a means of statistical measure for processes and subsequent quality controls. In this issue, we will further define these two historical process control philosophies and their relationship and value to the concrete industry.

It's important to note that many, if not all, industries have adopted levels of LSS. It influ- ences your everyday life and almost all the things you do, from the alarm clock that wakes you to the light switch you turn off at night. Recently, I see its use more within our indus- try, in addition to contractors considering the power of adopting these tools. In order to bet- ter understand each of these principles, you need to embrace the idea that almost every part of your business is a process. From the ob- vious steps of ordering, batching, mixing, de- livering and invoicing, to the more obscure of sales, technical service, HR, accounting, as well as IT, all are processes and can be im- proved upon to add value to your business.

To best understand Lean is really to take into account the history of Toyota manufac- turing, because that is where this philosophy truly "cut its teeth." In 1894, inventor Sa- kichi Toyota set out to build better looms for exceptional quality weaving, then through continuous trial and error, tackled automat- ing them. In 1926, he started the Toyota Au- tomated Loom Works with worldwide acceptance for quality and performance. In 1930, he and his son Kiichiro sold the patent rights and used the capital to start the Toy- ota Motor Company. Later in the 1930s, they visited both Ford Motor and General Motors to better understand mass production, only to identify that Japan's market was too small and the demand too fragmented to employ

the same production techniques (much like the concrete business).

By studying Henry Ford's book Today arid To- morrow, where the author preaches the impor- tance of creating continuous material flow throughout the manufacturing process, stan- dardizing processes and eliminating waste, they found more solutions to implement. Toyota modified the production process to fit the smaller "just in time" market in Japan following these and other process and quality philoso- phies of the rime, slowly growing their business. After the war, Eiji Toyota (cousin to Kiichiro and successor) was asked to visit Ford's new River Rouge Complex near Detroit, to better under- stand "modern" mass production. Upon his re- turn, he challenged the company to equal Ford's production, while maintaining high quality, low cost, short lead time, with just in time supply and flexibility (inclusive of a systematic ap- proach to problem solving techniques and qual- ity learned ftom Edwards Deming).

By the mid-1950s, on their return visit to the U.S. auto manufacturers, it was clear that the process here had not evolved and was full of "waste"—in time, product, employee effi- ciency, quality, inventory, process control and agility. Ironically, what Henry Ford preached in his book was not being implemented by his own company, much less the other U.S. auto makers. Toyota continued improvement and crafting of the foundational Lean principles and ultimately most of you know the rest of the story. By 2003, Toyota's profits were greater than GM, Ford and Chrysler combined, and its autos were recognized for quality. Sub- sequently, all auto manufacturers and most major industries have embraced the lean process originated by Toyota. The Toyota Way (Lean) has 14 foundational principles that can build value within your business.

Principle 1. Base your management deci- sions on a long-term philosophy, even at the expense of short-term goals. This may be hard to embrace, but the proof is shown in a num- ber of companies that it works. It also pushes you to have a mission/plan/strategy you be- lieve in. I see this inherently within some con- crete businesses, but you really need to look in the mirror and have the fortitude to stay the course on a business philosophy, which in times like today, can be challenging.

Principle 2. Create continuous process flow to bring problems to the surface. Strive to eliminate process waste so that there is no idle or waiting time. When you break your business down into each process, it is easier to see waste or non-value time/activities. How often

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MONEY MATTERS L E A N SIX SIGMA

do you study a specific process—delivery, for example—to see if there is time to save? In a previous article we discussed taking site wash down to 3-6 minutes max. How long is your site wash down? It's im- portant to go through each process to iden- tify waste and get rid of it if you can because it does not add value to your busi- ness or your customer.

Principle 3. Use "pull" systems to avoid overproduction. Minimize work in process and inventory, creating a "just-in-time" en- vironment. The concrete business tends to do this naturally, with inventory turns measured in hours, not days, but you must look at all processes. How much do you have sitting around your shop or in the cabinets collecting dust?

Principle 4. Work hard to level out the work load and production as an alternative to the stop/start approach. This can be dif- ficult for concrete delivery, but what about all the other processes in your businesses? Remember stop or wait time is waste.

Principle 5. Build a culture of stopping to fix problems to get quality right the first time. Use all modern quaUty-assurance methods available and put countermeasures in place. If you have ever had the same problem twice, you need to jump on the principle and adopt the philosophy across your business. Remember concrete only gets more expensive to remove the harder it be- comes. Too often, energy is spent on a solu- tion to a problem rather than what caused the problem to occur in the first place.

Principle 6. Standardized tasks are the foundation for continuous improvement and employee empowerment. Use Standard Operating Procedures (SOPs) throughout your business and standardize to today's best practices. Standard procedures help employees know what is expected and management to ensure consistency. One big reason for inconsistency is a lack of stan- dardized procedures. Look at your business and imagine if every employee did things the same as your best employee.

Principle 7. Use visual controls so no problems are hidden. For example, make the fly ash coupling different from cement to prevent contamination, use magnetic flags to highlight mechanical needs on a truck, and have color codes cards for spe- cific will call business each day.

Principle 8. Use only reliable, thoroughly tested technology that serves your people and processes. Check and double check new technology to ensure it works and does not conflict with other parts of your business.

Make sure when adopting new technology, all are aware and involved (cross functional) to address open issues, create "buy in" and promote fast implementation when ready. The original phrase, "The road to hell is paved with the best of intentions," holds true (I always thought it was asphalt). There have been some great ideas that cost more than they're worth because operations, sales, IT, HR, back office were not involved.

Principle 9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others. Experience pays and always has, especially if there is a sound mission/philosophy in concert with it. As many have found out the hard way, the concrete business is a very challenging ven- ture, with many opportunities to gain or lose profit, so look for leaders with experi- ence and help them constantly build on it.

Principle 10. Develop exceptional people and teams who follow your company's phi- losophy. First, you need to have a philoso- phy, and then uve it every day within your business. When you are passionate for the business it shows to your employees and cus- tomers. You also need to continuously chal- lenge your employees to develop and grow. There is more than a lifetime of things to learn about ways to improve profitability in the concrete business. Just when you think you have mastered it you find more to learn.

Principle 11. Respect your extended net- work of partners and suppliers by challeng- ing them and helping them improve. Have you set targets, goals and objectives for your suppliers lately? What is the net effect if they improve their product, which ulti- mately improves yours? Because concrete sits in the middle between multiple suppli- ers and contractors, pushing your suppliers to improve can benefit you and your cus- tomers. Use your supplier sources to the max; they should never be looking for something to do.

Principle 12. Go and see for yourself to thoroughly understand the situation. Get your boots on and jump into a situation, don't just listen to hearsay from a distance. With problem solving and process improve- ments, you need to see the issue first hand. In the case of concrete, 'Tsad news needs to take a fast horse." So, make sure you have an environment where you don't kill the messenger and the focus is on improvement.

Principle 13. Make decisions slowly by consensus, thoroughly considering all op- tions; implement decisions quickly. Do your homework, be detailed and focused, then get it done quickly. Do not allow the im-

plementation of a great idea to lose mo- mentum due to a slow pace of getting it done. Wherever you see a potential for value, especially now, go after it and save money fast.

Principle 14. Become a learning organi- zation through relentless reflection and continuous improvement. Constantly be looking at your business for ways to im- prove in process and people. Break the business down into individual processes or have someone do it for you, then drive out waste with passion to find extra value.

Standard procedures help employees know what is expected and management to ensure consistency. One big reason for inconsistency is a lack of standardized procedures. Look at your business and imagine if every employee did things the same as your best employee. — Lean Prinríple 6

SIX SIGMA Lean develops principles that are right for your business; by diligently practicing them, you achieve high performance and continue to add value to your customer, to society, and to your business through being compet- itive and profitable. There is a lot more depth to Lean that I urge you to discover, but the concrete industry is ready and primed to em- brace the potential of these process improve- ments and quality philosophies.

Six Sigma, on the other hand, was founded on quality, measures and perform- ance to reduce variation and defects, and to provide measurable financial results. The evolution of quality systems and measures over the past 100 years has produced count- less supporters of components, tools and

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measures, that, when implemented, further define total quality, variance and perform- ance, ultimately targeting zero defects.

Motorola's Bill Smith formulated and in- troduced the Six Sigma methodology in 1986 (inclusive of all previous quality initia- tives and tools) with dramatic success. With a foundation based in statistical engineer- ing. Six Sigma is data driven and focused on

removing process variation so that no more than 3.4 defects occur in 1 miluon instances (fairly close to zero defects).

Another way to visualize this is a process that is 99.9997 percent accurate. What does it really mean? In the past, we ac- cepted 99 percent (3.8 Sigma) as the best we could do. Not anymore. The 99 percent threshold now is considered "good" not

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"great" (Six Sigma), so what is the differ- ence? At 99 percent accuracy, two either short or long landings occur at major air- ports each day, versus one long or short landing at a major airport every five years. At 99 percent, 20,000 pieces of mail are lost each hour versus only seven pieces per hour with Six Sigma. Apply this to concrete production, and it adds up. For instance, how many times a day do you over batch a design and give away material at your cost. On another front, how many do you need to re-invoice due to errors at $30-$50 per instance, or what's the optimum level of air in truck tires to maximize fuel efficiency and are you hitting the mark each day. These and many more are all instances where the principles of Six Sigma could op- erate within your business.

From a statistics standpoint, Sigma refers to standard deviation, which also defines variation in a process. The difference from "normal" standard deviation is that Six Sigma examines the range of performance to provide more information as to capabilities than just averages. After all, customers feel and understand performance not averages. Six Sigma uses a multitude of tools and measures to provide detailed information and typically utilizes trained professionals who are either classified as Green or Black Belts in the process. It provides a world-class leadership system that is very disciplined for achieving, promoting and sustaining contin- uous high-end improvement, but you need to have an appetite for taking your business to this level of measure.

While I see a few entering this space, I believe we have a way to go as an industry before we fully embrace Six Sigma. As a trained professional, I am cautiously con- fident in the concrete industry's acceptance of the total system, yet believe there are many tools that would be beneficial to any producer as a means of measure today. Therefore, I once again urge you to learn more about how to utilize this methodol- ogy within your business, as it could allow you to find tremendous value.

Together Lean and Six Sigma work in concert to improve processes in any busi- ness. Where Lean focuses on dramatically improving a processes' speed and reducing waste. Six Sigma reduces variation and de- fects. Together they will add value to the concrete business; and "yes", I believe as an industry we are ready for it.

Hext Month: The Value of Industry Participa- tion and Advocacy

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