Competition or Complement: Six Sigma and TOC

The first two articles of this series (June 2007, "Know the Score" and August 2007, "Becoming Lean") discussed strengths and limitations of SCOR and Lean. This final article covers Six Sigma and TOC and offers a summary that compares and contrasts all four.

Six Sigma has a five-step improvement methodology called DMAIC, which uses statistical tools for reducing variability and eliminating defects. The purpose of Six Sigma DMAIC is to improve growth, cost and working capital performance. DMAIC is a powerful tool set, which is best applied when a problem’s root cause is unknown or not easily identifiable. Improvement projects to eliminate defects are prioritized based on how well they achieve annual business plan goals. Some defect examples are customer dissatisfaction, high cost, high inventories or other negative financial measures.

DMAIC’s five steps:

  1. D – Define considers the process to be improved, sets a clear project goal and establishes a project charter. It is the most critical step and most common source of project failures.
  2. M—Measure defines process metrics, establishes baseline data, measures defects and validates measurement method reliability and repeatability.
  3. A—Analyze determines process variation root causes.
  4. I—Improve selects improvements which will eliminate root causes.
  5. C—Control ensures improvements are institutionalized.

Success with Six Sigma requires a significant investment. A program office with a high-level leader responsible for training, implementation and coaching is important. Credible outside training support is also usually needed to learn the methodology. And, management must be trained as program and project champions. Business units and/or functions need to establish a hierarchy of full-time Master Black Belts (MBB) or Black Belts (BB) and train all salaried personnel as Green Belts (GB). Once trained, everyone is expected to be a contributing member to project teams.

Six Sigma goes beyond solving problems and is a valuable experience for developing leaders and changing an organization’s culture.

For example:

  • Black Belts gain cross-functional experience;
  • MBBs and BBs lead teams without having formal authority;
  • A common language, tool set and methodology is created;
  • Collaboration occurs across businesses and functions through cross-functional projects;
  • Data-based decision making becomes the norm.

Six Sigma is a company-wide improvement methodology that engages management and salaried workers. It is project-centric, focusing on resolution of specific defects, and it measures hard savings, thus ensuring benefits are realized.

Although Six Sigma requires infrastructure for implementation training and ongoing support, its limited tool set makes scale up relatively easy. The fact-based DMAIC rigor results in a high level of confidence that true root causes are being addressed and helps create a data-based decision making norm. An acceptance strategy is part of every project that uses stakeholder analysis tools, so implementation goes smoothly. Rigorous control plans are established, ensuring improvement is permanent and benefits are realized.

In addition to direct financial benefits, Six Sigma develops leaders and contributes positively to company culture. Common language and tool sets contribute to improving skills of the entire organization. The project focus, measurable defect elimination and direct financial benefits are easily understood by business leadership, increasing the likelihood of buy-in and support.

Six Sigma Limitations
Six Sigma identifies projects that eliminate operating plan improvement barriers and resolve known process defects. What Six Sigma doesn’t have is an overall value chain, supply chain or plant assessment tool to understand how improvements projects will affect the entire system. This can lead to projects without the greatest total system benefit being highly prioritized or positive impacts for one project offseting effects in other processes.

In addition, Six Sigma programs normally only train salaried personnel, leaving shop-floor team members feeling excluded. Six Sigma can also lead to a rigid view of continuous improvement, force fitting every other improvement methodology into the DMAIC framework.

There is nothing wrong with inclusion of Lean tools in the Six Sigma toolkit. What’s wrong is selling the combined solution as Lean or Lean Six Sigma, implying that this captures the real essence and purpose of Lean. Six Sigma has no process or tools for ensuring complete alignment of metrics and projects across the entire organization. This will lead to projects that serve one function well but don't provide the best total-business benefit.

In addition, Six Sigma projects take a number of months because all solutions must be identified, developed, tested and then implemented. Finally, Six Sigma lacks system assessment tools, which continually regenerate high-value projects. A few years of eliminating low-hanging fruit results in a declining size of Black Belt projects, making the return on infrastructure investment more difficult to justify.

Theory of Constraints
The Theory of Constraints (TOC) was developed by Eli Goldratt and became broadly described in Goldratt’s 1984 book The Goal. TOC views a business as a system with resources linked together to meet its goals. All systems have constraints that limit an organization from achieving its goals. A constraint is a constriction in a system that establishes the system’s maximum throughput. There are many types of constraints, such as equipment, procedures, policies, manpower, process stability and scheduled work time. It is critical that resources are applied to system constraints to maximize success; working on other improvements will have no effect on increasing system output.

There are five steps in the TOC improvement process:

  1. Identify the constraint: What is limiting the system from producing more?
  2. Exploit the constraint: Get the most out of the constraint.
  3. Subordinate everything to the constraint: All resources and activities, including all other operations, must be subordinate to the constraint.
  4. Elevate the constraint: Enlarge the capacity of the constraint.
  5. When the constraint is broken, go to step one and start over again.

TOC focuses on increasing throughput. When the existing system constraint is resolved, a new system constraint is then identified, thus creating a continuous cycle, which drives performance improvement forever.

The metrics used in TOC measure a system’s added value. ‘T’ is the throughput produced or sales value, less raw material cost. ‘I’ is system inventory, and ‘OE’ is operating expense. Dividing ‘T’ by ‘OE’ gives a productivity measurement—the rate at which operating expenses convert raw materials into throughput (T). Inventory turns are measured by ‘T’ over ‘I’—the money generated from sales minus raw materials divided by inventory value.

TOC also has concepts used to schedule operations. The constrained operation is scheduled in a specific product sequence, aligning resources to meet customer demand. This system drum sets the pace for all other operations. Non-constrained operations are planned to run with extra capacity, so all product made by the constrained operation can be processed. Upstream, raw materials are time buffered to make sure they are available when needed to support constrained operations. Time buffers are used downstream from the constraint, so shipment promise dates are met, and shipping buffers protect promise dates from inevitable process variability. Work is released into production at the rate dictated by the drum and started based on the predetermined buffer length. In TOC, this time-based linkage is called the ‘rope’—the connecting mechanism of the system.

TOC Thinking Process
TOC’s five-step improvement methodology:

  1. Construct a Current Reality Tree, identifying root causes and core problems.
  2. Use the Evaporating Cloud to define the solution.
  3. Build a Future Reality Tree by establishing desirable solution effects.
  4. Apply the Prerequisite Tree by determining conditions that need to be in place for future reality tree objectives.
  5. Develop a Transition Tree by creating implementation plan details.

TOC is a top-down-driven system improvement methodology. The heart of TOC is the focus on system constraints to ensure all resources are applied to maximize system benefit. TOC will always regenerate opportunities for improvement because systems always have a constraint. It also provides a set of concepts for building order scheduling and flow control processes of a plant or supply chain.

TOC’s thinking process, based on the scientific method, identifies the root cause(s) of a problem and develops effective solutions. The TOC thinking process has great merit and should be included in a company’s improvement plan as the tool of choice when a breakthrough is needed.

TOC Limitations
Nevertheless, the unique language and thinking process of TOC aren’t easy to master, and that can create a barrier to effective use across the enterprise. The problem-solving process uses an “intellectual” language requiring well trained experts for effective application. TOC’s process and language complexity, along with its top-down nature, aren’t conducive to engaging all team members.

The bottom line: Improvement methodologies should not be viewed as competing strategies, as each has significant value and should be applied differently, depending on the objective.

I hope these articles contributed to the discussion of supply chain improvement, and I welcome comments from readers.

Paul Husby recently completed a 38-year career with 3M, where he was managing director of 3M Brazil, division vice president of the abrasives division and corporate staff vice president of manufacturing and supply chain services. He is a certified Six Sigma Champion and has practiced all four methodologies during his career. Contact Paul at [email protected]

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