How One Company Saved $243K Annually with Lean Six Sigma

In today’s newsletter, I will share with you a case study that presents a clear roadmap of how structured process improvement methodologies can make a significant impact on an organization's bottom line and operational efficiency.?

It highlights the importance of measuring, analyzing, and controlling improvements, demonstrating the tangible benefits of Lean Six Sigma in a real-world setting.

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CASE BRIEF

Established in 1911, the company under study is a leading manufacturer of industrial cleaning equipment, with its headquarters located in northwest Ohio, USA. The company has a strong global presence, conducting business in over 60 countries.?

It boasts annual sales of over $3.1 million and employs a workforce of 155 individuals. The company operates one shift, and its hourly workers are unionized.?

In response to increased costs and economic downturns, the organization has considered options to relocate its operations to regions with lower labor costs, such as Mexico or the southern United States.

CHALLENGES

The company faces several challenges related to its final assembly line for an automatic commercial floor scrubber. This assembly line handles three distinct models and incorporates 416 different parts.?

There are different waste forms, including excess movements, redundancies, rework, errors, poor training techniques, and poor process flow.

After discussion with the top management, the company identified several areas for improvement. The targeted improvements include:

• 40% improvement in space utilization
• 50% reduction in work in process (WIP)
• 30% improvement in quality
• 20% improvement in worker productivity
• 20% increase in capacity
• 10% reduction in operating costs per unit
• 10% reduction in scrap, with improved scrap control

These challenges require strategic solutions, and the company aims to apply Lean Six Sigma concepts to reduce waste and develop a more efficient facility layout.

DEFINE PHASE

Problem Description

The facility is currently operating at an annual production capacity of 8,000 units, which is insufficient to meet increasing market demand. This capacity limitation is leading to potential missed opportunities and revenue loss. Additionally, the normalized weekly operating costs are higher than industry standards, leading to a larger cost per unit. This is negatively affecting the profitability of the facility.

Project Objectives

Given the issues outlined in the problem description, the project aims to:

1. Increase the annual production capacity of the facility by 20% to better meet market demand and seize revenue opportunities.
2. Reduce the per-unit cost by 10% to align with industry standards and improve profitability.

MEASURE PHASE

During this project phase, essential steps include identifying key performance metrics, developing a data collection process, and establishing baselines for the current system's performance and variation.?

A SIPOC diagram and vital X analysis were pivotal tools used, with the SIPOC diagram being specifically mentioned as displayed in the below figure.?

The team's focus was on analyzing output variables such as manufacturing capacity and operating costs.?

A brainstorming session led to the identification of several input variables potentially causing system variation:

• Lack of real-time product and order data
• Inefficient facility layout
• Lack of communication
• Training and associated documentation
• Lack of standardized/efficient processes
• Lack of work standards
• Lack of control mechanisms

Data for the project were meticulously collected over the previous two years, incorporating record reviews, database analysis, and real-time data collection methodologies.?

These efforts were directed by the improvement team using standardized forms to ensure consistency.?

The project's metrics were grounded on this data, focusing on process cycle time, weekly operating costs, value-added activity, and material handling flows/costs. These measures provided a robust, quantified baseline of the current process's operational time and costs.

ANALYZE PHASE

In the Analyze phase of the DMAIC cycle, the Lean Six Sigma team took decisive steps to understand the current process and identify areas needing improvement:

1) They applied multiple Six Sigma tools to grasp the process capability and pinpoint the root causes of delivery failures and cost overruns. These tools included:

• Value Stream Analysis
• Pareto Analysis
• Root Cause Analysis
• Failure Modes Effects Analysis (FMEA)

2) They established a performance baseline for the current process and performed process capability analysis by:

• Gathering data on-site for 8 weeks.
• Analyzing the data concurrently over a 14-week period.

3) The team meticulously developed a value stream map to illustrate the product's journey from customer to supplier in three key phases:

• They mapped the current state of the process.
• They carried out time studies to establish baselines for current process metrics.
• They identified opportunities for continuous improvement to reduce non-value-added activities.

4) To document the current-state map, they conducted interviews, observed work units, and collected extensive process data, including:

• Identifying customers, suppliers, operational steps, flows, stocks, transport, cycle times, and much more.

5) They created process flowcharts for all assemblies to easily represent the process and spot areas of value and waste. The team also:

• Developed a spaghetti flow diagram to track product flow and employee movement, identifying inefficiencies and waste.

6) The team performed baseline time studies on the current process to understand mean times and variances by:

• Observing inconsistencies in how different operators performed their tasks.
• Consulting with a trained operator to standardize the process for the time study.

7) They identified opportunities for improvement and methods to cut non-value-added activities by:

• Conducting a Pareto analysis to find the largest contributors to cost overruns, mainly due to lack of standard procedures by 50% and an inefficient layout by 40%.
• Analyzing the data and system through FMEA to identify and evaluate failure modes and their effects.

The team's analysis directly informed the Improve phase's targets, which included standardizing procedures and enhancing layout efficiency, among other improvements to cut costs and streamline the process.

IMPROVE PHASE

In the Improve phase of the DMAIC cycle, the Lean Six Sigma team took the insights from the Analyze phase to identify and implement system improvements.?

They compiled a list of initiatives to tackle each identified issue, collaborating with customers, managers, line workers, suppliers, engineers, and other staff through meetings and focus groups to refine these improvement strategies.?

They determined the following key actions:

• They redesigned the facility layout to enhance efficiency by minimizing the movement of employees and materials in the work area.
• They focused on improving and continuously monitoring labor utilization against engineering standards to confirm that the improvements were yielding savings.
• They standardized and documented all new processes.
• They trained employees and supervisors in the new processes.

Facility Layout Redesign

For the new facility layout, the team reviewed the current-state layout, identified significant waste due to overlapping traffic, and applied facility planning tools to devise an improved layout.

This new future-state layout aimed to reduce travel within the facility, cut transportation costs for parts and products, support a proposed supermarket concept, and organize the facility layout more neatly. The result was a reduction in the space occupied by the work unit, leading to more efficient material and information flow, as shown in the below figure.

Labor Utilization

When it came to labor utilization, the entire facility was operating below the desired efficiency, with most operations running at less than 60% efficiency based on engineering time standards.

The team identified a lack of managerial oversight on these standards and outdated specifications as key reasons for the inefficiency.?

Furthermore, several newer product lines lacked established labor standards, and many work cells had low utilization rates while performing operations similar to other cells.

CONTROL PHASE

To maintain the improvements made, the team established some actions:

• Implemented standard operating procedures (SOPs) to maintain improvement gains.
• Enhanced training programs for employees on new processes.
• Set up a daily tracking system for employee performance.
• Maintained logbooks at work centers to record key metrics.
• Displayed graphical charts daily to track planned versus actual operation costs.
• Held weekly meetings with key staff to review performance, customer feedback, and SOP adherence.

PROJECT ACHIEVEMENTS

The project resulted in a more streamlined operation. This table shows the result of implementing the DMAIC approach, highlighting layout redesign and value stream analysis.

The table indicates both percentage improvements and nominal terms of a more streamlined operation.

Savings were achieved by reconfiguring the layout and work processes, informed by the spaghetti diagram, and by analyzing travel distances and standard operation times.

Changes to the work unit layout are expected to yield annual savings of over $243,000, calculated from reductions in cycle time and labor costs at a production volume of 8,000 units per year.

The layout modifications are also projected to result in a nearly 20% increase in production capacity.

KEY TAKEAWAYS

1. Tackle Global Pressures: Use Lean Six Sigma to navigate economic challenges.
2. Set Clear Objectives: Define measurable goals for efficiency and quality.
3. Measure to Improve: Benchmark performance to track and drive progress.
4. Dig Deep with Analysis: Employ Six Sigma tools to uncover inefficiencies.
5. Strategize Improvements: Redesign and optimize for productivity gains.
6. Maintain Improvements: Develop SOPs and training to sustain success.
7. Celebrate Success: Achieve and recognize significant financial and operational benefits.

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