10 posts tagged “six sigma”
Before learning Six Sigma and Lean techniques I followed standard accounting:
(All tables and numbers are courtesy of Ron Crabtree, CPIM, CIRM Villanova Lean Accounting Lecture)
Total Burdens 1,550,000
Direct Labor ‘Planned’ Hours 98,000
(50 people working 49, 40-fr weeks)
Burden absorption rate to apply: $ 15.82
Direct labor rate: $ 15.00
Fringes, vac./hol. And taxes at 27% $ 4.05
Total variable labor hourly: $ 19.05
Labor with Burden $ 34.87
A new method of accounting is Activity Based Costing – Comparison to “Absorption”
Absorption Activity Cost Approach
- Job Overhead absorbed - Job A and B ABC:
in hourly rate - OE cost $100
- Job A uses 10 hours @ $16= 160 - Purchasing $150
in overheads - Work order $125
- Job B uses 100 hours = $1,600 in overheads - Accounting $125
- Eng. Supt. $200
- Activity Cost Total $700
If you used the Absorption method you over charge the customer an extraordinary amount for Job B and end up taking a loss on Job A.
Now to answer the original question I posted:
We use Throughput Accounting based on the Theory of Constraints. Because you are practicing Lean and Six Sigma Techniques you know your total system, the constraints, and are thus better able to focus on Value Add time. You know how to calculate system output value.
For 100 items
Job A hrs. req’s Job B hrs req’s Job A req’s Job B req’s
Resource X 7 5 700 500
Resource Y 3 6 300 600
Resource Z 8 7 800 700
Sales Value $100 $125 $10,000 $12,500
Knowing your system you know that Resource Y is a capacity constraint resource and only has 400hrs available. If you chose B then you can only produce 67 x $125 = $8,375. BUT if you chose A then you can produce 100 x $100= $10,000 plus you have another 100hrs available from resource Y and can produce 17 units of B at $125 = $2,125
Total profits if you chose A = $12,125
Total profits if you chose B = $8,375
When I first posted this question Rob, as I expected, was right on target with his questioning… he knew to look further.
“Michael,
I am not sure we have enough information. Job A and B each require the same amount of total hours of resources which you say are all costing the same amount. Let's say in your example the three resources are x= designer, y= installer, z=service technician. Job A requires more design time, and more service time, but very little installer time, Job B requires a more balanced number of hours, and it also pays more.
I would want to know whether there are any limits on the amount of each resource (emphasis added) and whether one of these resources was more iffy in terms of delivery or availability,
(text removed)
Rob
Is Your Corporation Protecting You?”
I cannot state the reason for this post more effectively than Sales Trainer and Coach www.SteveChambers.com stated:
“Six Sigma is a cool tool (emphasis added) and a neat philosophy with which to approach business. Thinking in a lean and efficient manner is a key business strength.”
Ok, it has been supposed that small business owners really have no need for Lean / Six Sigma.
Velocity Marketing (my first company) employed 55 sales reps and 7 installers. As your typical small business owner I have constructed tables as the one below.
Question: Which job do you take? Supposing the burden rate per hour is the same for each resource (the materials cost is calculated in the burden rate per hour).
For 100 items
Job A hrs. required Job B hrs required Job A req’s Job B req’s
Resource X 7 5 700 500
Resource Y 3 6 300 600
Resource Z 8 7 800 700
Sales Value $100 $125 $10,000 $12,500
After everyone has had the opportunity to comment I will post another blog
Motorola claims savings of over $15 billion since the 1980s
American Express claims savings of over $1 billion annually from 2000-2003
Allied Signal’s operating margin went from single digits to high teens
GE’s operating margin went from low to high teens
HSBC dispute resolution went from 36 days to less than 3 days
HP (went from) 30% accuracy to 60% accuracy resulting in over $3million in cost savings
Extracted from George Eckes Villanova Greenbelt lecture
As a business owner/operator you want perfection, it is the only way to stay in business. Six Sigma provides greater insight on how to achieve perfection or near perfection and it shows you how to reach this level while at the same time reducing costs.
Six Sigma and Lean are tools to be utilized across all industries. Being a business owner Six Sigma and Lean courses have opened my eyes to wasteful practices I was unconciously involved in and helped me rethink how I conduct business.
Every small business owner should become a certified Villanova or ASQ Six Sigma Green Belt.
On to Poisson-
Having never before encountered this equation it caused me days and days of greif.
Math type wants to create a picture for every symbol so I am going to use M for Mu
M = np = the population mean
r = number of defectives
e = 2.71828 the base of natural logarithms
and finally ! = Factorial Example: (courtesy of Rob Northrop www.corporateveilpro.com Is your corporation protecting you?) If the typical number of failures in a day is 5, what is the probability that you will get 7 failures in a day?
P = 5^7 * e ^(-5) / 7! = .104 so the probability is 10.4%
The Poisson Distribution counts the distribution of defects when you are dealing with large sample sizes.
“7 or 8 Sigma – Airline Safety
6 Sigma – 3.4 per 1,000,000 = 1 misspelled word in a small library
5 Sigma – 230 per 1,000,000 = 1 misspelling in a set of encyclopedias
4 Sigma – 6,200 per 1,000,000 = 1 misspelled or misplacement per 30 pages
3 Sigma – 66,800 per 1,000,000 = 2 Misplaced words on each page”
-George Eckes
"99.9% = 1hr unsafe drinking water every month,
99.9% = 2 plane crashes at every major airport everyday
99.9% = 16,000 pieces of mail lost by the USPS every hour
99.9% = 500 incorrect surgical operations each week
99.9% = 50 newborn babies dropped at birth by doctors each day
99.9% = 22,000 checks deducted from the wrong bank account."
-George Eckes
"I know of no more encouraging fact than the unquestionable ability of a man to elevate his life by a conscious endeavor." Henry David Thoreau
Implementing Six Sigma and Lean practices is challenging. You are contradicting everyday practices.
When I was a child I caught Poison Ivy. After roughly three days it was apparent my allergies were severe. The Poison Ivy crawled up my left arm leaving a trail of blisters, some an inch high. This spread continued until almost every square inch of my body was covered in red blisters full of clear liquid. The best part of this experience was its occurrence during the first week of my 5th grade year... everyone made sure I knew how severe my reaction was.
Several doctors appointments... and weeks later I was healing nicely. Since then I have come in contact with this wonder plant numerous times. My body has gradually learned how to cope and no longer breaks out. Now a small patch will form in the contact area then, almost overnight, it will disappear.
How does this story apply to implementation of Lean and Six Sigma methodologies? Six Sigma is a culture, as is Lean. If your company has never before dealt with or encountered the Lean and Six Sigma philosophies then the initial reaction is extreme if not contained (Project Scope will be discussed later). As your company begins to adopt and 'become' this new culture the projects will become less and less extensive, with Six Sigma and Lean techniques eventually become the tools that keep you ahead of your competition.
Michael Christian Neumann
"A journey of a thousand miles begins with a single step." Lao-Tzu People 'watch your feet', clients, co-workers, those you manage, even your direct family. Both figuratively and literally ( www.geox.com ) you must practice what you teach and teach what you practice. Today I received a complement, but had to correct the giver. A very successful friend of the family recently emailed me... and directly stated that I was better than she. This young lady has seen the same difficulties as I, worse even, yet still managed to climb the corporate ladder breaking through the 'glass ceiling' in the process. Thinking that I am better is simply ridiculous. We are equal yet different. What made such a silly thought 'pop' into such an intelligent lady's head? She was watching my actions. I expect nothing less than perfection in everything I do; Six Sigma and Lean techniques and I are of the same substance. My work area IS the 5S approach, when planning a vacation, trip, major purchase, etcetera I use the same strategies I teach during Six Sigma discussions. If I am dissatisfied with something... I change it. I challenge "accepted" or "assumed" knowledge and often triumph. She was so caught up in watching my actions that she did not see her own successes, she did not realize that I was watching her. When I am judging someone I look at what they have done, what they are doing, and what they are planning to do. Then I consider what is coming out of their mouth. Does it match? Are they “successful” yet wearing Payless Shoes? Michael Christian Neumann
The best soldier does not attack. The superior fighter succeeds without violence. The greatest conqueror wins without a struggle. The most successful manager leads without dictating. This is called intelligent non-aggressiveness. This is called mastery of men." — Lao Tzu
Chinese Taoist Philosopher
Let us to reveiw two of the easier to understand tools used in Lean and Six Sigma. These two were chosen because of their wide range of uses/diversity. Kano's Model and the CTQ Tree(Critical to Quality Tree) can help reduce a large problem or plan down to bit sized chunks. The below models could have been broken down a little further, you generally proceed along the same lines as the examples below until you reach a point were actual measures are required (Breaking down measures will be covered in a later blog). Right now my wife and I are looking for a new home so we each built a Kano and CTQ Tree detailing what we consider acceptable.
Kano’s Model – Choosing a house
|
Must have Nice Neighborhood Good Schools |
Nice to have Club house Pool Tennis Court |
Delighters Low HOA fees Low Taxes
|
Frustrates Poor neighborhood Poor schools
|
|
Well maintained yards; Sidewalks; little traffic; A+ ranked district; low student/teacher ratio; diverse student population |
Full club house with gym; large pool available for swimming laps; Tennis court open for either roller hockey or Tennis |
Below average HOA fees for the area; Lower real estate tax than average |
High and/or dead lawns; rough broken or no sidewalks; High traffic flow; High Student teacher ration; Low performing; etc. |
Must have – Having this does not make you excited but not having this makes you mad.
Nice to have – Having this is a nice surprise and not having this does not affect you.
Delighters – Having this differentiates you from others; something special.
Critical To Quality (CTQ Tree)
____High performing_______
___Low Student/Teacher ratio
__Gifted and Talented classes
____Diverse population_____
Good Schools_____
_Well maintained/Landscaped yards_
______Low Traffic Flow ________
_______Pleasant to stroll through__ _
___________Club House__________
Nice Neighborhood _
_____New house________
__ __Brick/Rock exterior______
_Wood/Tile/Upgraded Carpet flooring_
_____Open well light floor plan ____ _
_____Energy efficient appliances/ AC_
Well constructed______
Michael Christian Neumann
"The only thing we can’t make is something we can’t think about" – Henry Ford
Kaizen Blitz and Implementing 5S - Sort, Straighten, Sanitize, Standardize, Sustain
Today I was walking around camp observing the various trades at work, trying to determine how the philosophies of Lean Six Sigma can be integrated. One of the most notable problems the personnel are encountering is a lack of tools. An investigation has commenced pertaining to this concern but I believe the results will show each department, outside of light vehicle maintenance, has sufficient stock in this area. The problem, in my opinion is a lack of organization within the shops. The layout of each shop - Carpentry, Plumbing, Electrical, HVACs, Power Generation, and Light Vehicle Maintenance - was not thought out in advance and seems to be thrown together. Each individual tradesperson maintains his/her own stock of tools, not because they have been issued these tools but because they have required these tools at various times and just never returned them. The two departments that have made an effort to recoup the tools and establish a tool room have had only mild success at best.
Later today the Chief of Services is scheduled to stop by the office. During our discussion I plan on suggesting a Kaizen Blitz lasting 3 days and involving 2 of each trades personnel. This event will attack shop/tool room arraignment, tool control, and 5S. As facilitator I am going to judge the success of the event by the following outcomes:
-Reduciton of "personal" tool sets
-Reduction in time spend looking for required supplies/equipment – non-value add time
-Standardization of tool room access
-Improvement of work flow through the shop areas with increased floor space
-Elimination of loose materials throughout work shops
The ability of a Kaizen event to change and improve the work station lies in the fact that the employee... the one being affected by the change... is the one making the change and determining its magnitude. Management is involved simply to support the group, as a display that whatever ideas they decide upon will receive attention and action. If conducted properly the Kaizen event and the application of 5S approach to office maintenance will show an improvement through faster response times and a reduction in time spent on the job. Michael Christian Neumann
"All we are trying to do is shorten the timeline... from order receipt to collecting the cash for the goods or services provided" Taiichi Ohno when asked about the essence of TPS (Toyota Production System)
Did you know some people list inventory under assets? This ludicrous practice is an easy way to go bankrupt! A bold statement but widely acceptance... let me explain.
Inventory, whether it be finished product, unfinished product, half completed projects, or standard manufacturing inventory - all costs money to purchase, to house, to track, you name it. A simple question that provokes several more - How are you benefiting from holding this inventory? Now - Is cash flow increasing or decreasing? What storage cost are you incurring? Remember storage costs are not only measured by the footprint material creates but also by the impact on your material/thought flow.
Stacks of paper on your desk severely inhibit performance just as stacks of 'Widgit A' inhibits movement of personnel through a warehouse. A now common technique suggested Kiichiro Toyoda first applied to the Toyota Motor Company as a way to reduce costs, reduce error rate, and increase flow though the plant. Kiichiro Toyoda, while visiting the U.S., stopped in a local supermarket after touring a Ford Plant. While there he noticed how only 3-5 of each item were stocked. As customers shopped and material diminished stockers would come and replenish the shelf, using the appropriately labeled slot. The same techniques can be applied to almost any industry.
Create folders, each folder applies to a specific project and nothing else. Take on projects as you complete projects. If you are easily distracted or have difficulty remembering moments of genius create a specific folder for ideas and label it as such. In this way when you are struck with an idea you can record it quickly and then return to your original project rather than creating another open project. This reduces the number of open projects and increases productivity.
Michael Christian Neumann
MOST PEOPLE WOULD RATHER LIVE WITH A PROBLEM THEY CAN'T SOLVE, THAN ACCEPT A SOLUTION THEY CAN'T UNDERSTAND. - R.E.D. Woolsey and H.S. Swanson
Lean, now joined with Six Sigma to form the Lean Six Sigma methodology, is commonly traced back to Henry Ford's attempts at reducing wasted movement and materials in his production plants. Moving from there the Toyota Production System (TPS) is credited with making the lean methodologies main stream.
Lean has a fairly short learning curve, focuses on reducing waste and operating costs, increasing throughput, and the average project lasts 1 week to 3 months.
I highly recommended reading Eliyahu M. Goldratt’s The Goal. (Listen to it on Audible.com 
) The book is enthralling, I found that not only does it provide for an exciting read but also teaches Lean and Six Sigma methodologies in such a way that even those without introduction to these concepts can easily grasp their benefits and uses
Michael Christian Neumann
Neighborhood
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