Variation Is The Enemy
So if you haven't already noticed there's a little toy uh here on the on the states that we're going to play with in this segment it's a little catapult we like to call it a static pope because we're going to use it to learn a little bit about statistics as we manage our business is in a smarter way statistic can be very, very helpful and useful I know sometimes when people hear the word statistics they think sadistic ce and it's a little scary a little frightening but I assure you what we're gonna be talking about here is essentially maybe uh seventh or eighth grade statistics nothing too significant nothing too fearful so uh yeah and then um we're gonna learn about variation because when we look at things from a six signal perspective uh variations considered the enemy so um we have to be aware of it this variation creeps and all kinds of things and it throws us off balance and customers experience in a number of different ways. When am I going to get my stuff? Is it on time? Not on ...
time is it right? Not right. So very issues creeping into our lives all the time. So this is about taking variation out of our businesses large and small so that we run them in a very lean, predictable, um reliable kind of way itt's pretty key I love this quote from margaret made margaret maids never doubt that a small group of committed people can change the world indeed it is the only thing that ever has so it's a great little quote relative tio what we've been talking about with kaiser you know we can we get the right group of people together with a clear mission and the capability and competence he's in the authority and the empowerment in a room for a week it's really remarkable what we can what we could achieve so we'll take it we'll take some advice here from margaret mead and say you know what? That's true waken prove it so we've already proven it with one simulation the real benefit of course isn't taking these simulations and then doing it for real in the real world, which is what I love doing week after week all right, so in uh in this session we're going to go back to the make the m e a I c defined measure analyzed, improve and control we could also substitute innovate for improved in the eye section there like we saw last time so truly innovative we're going to go back and visit a point, so we talked about point caissons and flow caissons we've we've done an illustration of both using the lean sigma game now we're gonna go back and take another look at a point kaizen using the catapult or static pope tto learn about how do we really identify where variation is coming from and learn how to control it? To some extent, there's always going to be some normal variation. But how do we find that variation that's really hurting us and learn ways to control it? That's the point for this this session? Go back to that point, guys. And so just his review talked about flow. Kaiser's we're looking at a whole value stream or a slice, if you will, of a cross functional section of a value stream. And the reason we do that, of course, is because a lot of the waste is not within the functions it's in between the functions and we have to learn ways to take that out. And we illustrated that with a lean segment game where we hit remarkable numbers numbers that seemed impossible at first, with a few basic changes. We changed our location a little bit. We had offered some cross training where appropriate we eliminated a bunch of wasteful activity. We changed policy to allow one peaceful oh, and one one piece shipment we co located with our client or a customer would get closer to the customer. We figured out a wayto to a deliver in a more user friendly way. We poke a yoked and um steak proofed our quality we came up with an easier a template or tool use we challenge the diamond paradigm to make it easier to put red circles circles in there without hitting the lines and so with a handful of changes weii made we hit astonishing numbers the idea there is to recognize that you know to be successful is an entrepreneur or small business where large business and this day and age we've got to be very creative we've got to be continuing to challenge the boxes that were we're in without even knowing we're in um sometimes coming up with ways tio tio stretch all right so we're gonna go back to point kaizen in this case and we're gonna use it to learn about six sigma so now we're going to switch from some japanese and german terminology to greek so we've got sigma in their sigma small s sigma in uh in greek is used to reference a standard deviation which is a measure of variability capital s signal of course is summation so you see that allowed in excel spreadsheets that's okay add up all these columns you see the capital s signal so we're going to focus on the smallest sigmund this session and originally six sigma was a metric it was a measure if you will of ah a variation of standard deviation but it evolved then over the years into much more than that was more than just a statistical measure it became a business strategy how do we use six sigma thinking as a business strategy to be incredibly precise and accurate and reliable and whatever it is we do so that we don't have all of this cost of poor quality we have right first time whether it's a pager, a phone, a jet engine you know the satellite are, uh a real estate sale we get it right? You know, it's uh, it's a measure of getting it right the first time, right? So it's developed into this better, faster, lower cost, more user friendly business strategy, and we're going to demonstrate that once again with a little simulation to put it in perspective when talk little bit about the quality movement because if you go back to that value proposition value in the eyes of the of the customer val, you usually concludes some element of quality okay think of that is a bucket I want predictability, I want consistency, I want reliability, I want repeat ability, I want the same thing over and over and over again. I don't want to have to guess what I'm going to get her when I'm going to get it I can count on you all right is a as a supplier to me is a business I can rely on you so quality started out by saying ok well let's look at spec limits upper spec limits and lower spec limits think of these like goalpost so a and sports as long as the ball goes through the goal posts I get points so that that was the quality movement in the nineteen eighties song is just get through the goal I get points what difference does it make if it bounces off one side if it still goes through it's centering doesn't really matter doesn't matter I still get points so that's a paradigm that the mind set and that was the quality moment just just get it in the inspect and you're good but what we've learned over the years is that's actually very wasteful it's wasteful thinking because the closer we get to those uh spec limits the more we have to check for example oh yeah we're getting we're getting close so now we have to be sure we're in the inspect so we have to put checkers and we saw that in a lean sticking again we've got to make sure we're checking with checking cost money inspectors, reviewers testers costs money so six sigma was developed to say quality isn't just about getting through the goal post it's about hitting a target it's about it's about hitting a target so that's that doesn't sound like that much of a shift but it's a it's a very significant shift and will will demonstrate that in this session because outside suspect course we've got major loss that's where we get product into the customers so to speak it's just it's no good but we also have trouble with especially in round one and round two of the lean sigma game where it's it's um it's close but we're not sure so as you know I'm a round one and round two I was getting I was getting stuff that I had to send back for some reason you thought it was good I disagreed and we have we've waste in the system and it's expensive so this is more about hitting the center a little more information around the topic of six sigma and useful whether you're running a big business for a small business I certainly use it my one person business is ah benchmarking studies back in the eighties found that the best in class in the world this was in the eighties we're performing with six sigma level quality now I've found over the years that organizations who don't even know it's six sigma means hover in the three signal category area all right now if we were at three sigma and we were an airline we'd have two crashes a date o'hare airport so three signals not all that great uh for sigma will spend about ten percent of its revenue gross revenue on cost two poor quality that could add up to be a lot of money from a million dollar business that's one hundred million dollars one hundred thousand dollars if I'm a billion dollar business it's a hundred million dollars that's a significant number that's it for sigma at three sigma it hovers in the twenty five to thirty percent range of gross revenue that adds up to a significant amount of money spent on cost of poor quality which comes from variation essentially so you can see on this this graph here that will we drive out that variation and we drive down that standard deviation to the point where it's a very it's a very tight precise fit were hitting targets okay our cost of poor quality drops now significantly and we're with three point for defects per million I've quoted that number a few times now all right as opposed to almost sixty seven thousand three signal per million and we were well below that in our darlene sigma game earlier well below three signal maybe maybe a signal or two at best I didn't calculate it this is an interesting chart this actually came out of the six sigma research it's too is part of motorola university what it shows us it's not an eye exam by the way in case you're wondering but what it shows us is that there's a correlation between lean and six sigma now these two things didn't get along all that well, you know in the in the nineties termina lean was coined in nineteen ninety and it competed with six sigma cause, lien said, and there was a paradigm with lean because lane initially was announced his lean manufacturing people still use that terminology today lean manufacturing what happens when I put the word manufacturing after the word lean and your happened you happen to be in banking you happen to be in a, uh hotel business running airlines like well lean's for those guys making widgets doesn't have any to do with me what if you live in an office environment are only your work for a law firm? So now what lean has done is we've eliminated that word manufacture yes, it applies to manufacturing, of course, but we've been taking away the manufacturing calling just lean orleans six sigma orlean enterprise arlene thinking it now we say when you know where we can ply lean anywhere we have a customer anywhere we have a process we can write use it in small businesses large businesses lean is a way of understanding where the waste isn't getting rid of it all right where the complexity isn't taking the complexity out doesn't matter if, uh, you know we're flying airplanes there were we're you know, we're uh selling mortgages weekend so now you see lean and in virtually every industry it's found its way into all of these different industries all right, summer? Well ahead of others. Uh, but pay attention leans all around us these days. So lean on this chart is about going north. Lean is about saying, how do we reduce steps? How do we reduce components? How do we reduce complexity in our business? Because by simply reducing steps in complexity, we've eliminated opportunity for error opportunity for mistakes way have less handoff. So we're gonna have less fumbles. That's the idea of going north in this case. So can we take our process from one hundred steps down to ten? All right. Answers. In many cases we can, we can eliminate a lot of fumbles. We saw that in the lean signal game, so that would be going that would be going north. You know, there's a reason when herb kelleher started, uh, southwest airlines, one of the most successful airlines in the united states and created a huge market cap on it. You know, one time southwest was larger than the top four airlines put together and market camp market captain in wealth. Uh, but how many different types airport airplanes itself, what's fly for many years until it recently you know, acquired was that airtran? I believe so. One type airplane. So here's, an airline running with one kind of airplane, is seven thirty seven below shin we have more kinds of airplane should we complicate things to think about that from a training perspective a maintenance perspective you know spare parts perspective so by leaning out the complexity that came up with a brilliant service model dell computers you've mastered this in many ways so we take away the complexity and just by going north looks what had look what happens to our yield is by going north they improved the reason they improved because we've reduced the number of opportunities for error now we might run a business that's just got a lot of complexity or a cell phone that's got a lot of components its there's just it's complicated so if we've got an operation with thousands of components or parts or product with a thousand different things that could go wrong etcetera and where that we're three signal we're not getting anything right first time we're just getting killed by the hidden factory or the hidden workplace as we go across the sixth segment we're still at a ninety nine per cent true yield so the drive to go east was six signal was to say hey we can lean things out to some extent but yeah we still have a lot of steps we still have a lot of complications and complexities so we've got to go after the variation so lean is about going after the waste in the complexity six it was about going after the variation it's not an either war like it was considered in the nineties and early two thousand's, where it was lean or six sigma needed lean people saying, don't do that six sigma stuff that's analysis paralysis six sick, but people don't know waste your time with lean that's, careless it, sze dunkle there the other organizations competing for a resource is in fact, he had leaned, typically coming into an organization through the manufacturing ari operations director, v p six sigma coming into the organization through the quality vp, and they didn't necessarily speak the same language you get along, so you had to great tool kits and methodologies competing with each other, costing time and energy and resources in business, where, in fact, there's a great synergy when you put these two things together. So there was a consortium of people that got together in the nineties way usedto figure out ways t energize and put these two things together, and this is a nice illustration of how what can happen when we when we put one, pull together and we take different tools, said sets and build on them, I've had people over the years go, you know that issue college I diagramed daniel, that fishbone chart, is that a lean tool, or is that a six sigma tools? Do you care that's where we get so wrapped around the axle we get in our own way it's a tool for problem solving to cause an effect tool and when we get out of this box of lean six or six sigma it's a very useful tool to solve certain types of problems we don't have to worry about whether it's your label it a lean to alert six sigma to some people get very wrapped up in those boxes and not even realizing it doesn't matter I challenge you to think about that they might say, well, where did these numbers come from? I don't get it if I've got a twenty step process and I met three signal you tell him that I only get fifty percent of it right first time it doesn't sound right and if I met you know, uh, forty steps what I mean, that doesn't look right let me show you where these numbers come from just so you can you can have a look if I've got a a process in this case let's just say we have a ten step process we have ten components in a in a widget ten opportunities for error and in step one I've got a ninety three percent yield doesn't sound bad does it in school that's like a a minus maybe that's pretty good ninety three percent yield but that means seven percent going somewhere and we call that the hidden workplace where the hidden cost cost of poor quality so seven percent's going down here it's either being reworked or scrapped we saw that lean sigma game by the way we were nowhere close to ninety three percent yields in some cases being while that ninety three percent goes on to step two and let's say step two's ninety three percent yield to just to keep the math simple each of our steps is operating at ninety three percent now that's not going to net naturally be the case that would be variation among the different steps in terms of yields but what's point nine three times point nine three we start to do the math now who is going down it's going to yield about point eighty six percent so where's the other seven percent going back down here again and if we do the math and we go out to the third power out to the tenth power using the ninety three percent yield are true yield all the way through point nine three times point nine three attempts point nine three you could see it's just going down, down, down, down in this simple illustration we're only getting about half right first time truly right first tap right first time where is the other half it's being circulated through here and that is a significant cost of poor quality now, if we're not aware of this, what white what if we're running this business with ten steps in the ninety three percent yield? What white? What might we think our yield is ninety three percent because we're looking at maybe at this last step ninety three percent good and that that's what we call this the hidden workplace this is all noise in the system amounting to a significant amount of money but we don't even see it because we're seeing this number and people in businesses do this all the time it's like, well who's going to tell mom or dad that way broke the vase telling on telling them people are doing that business all the time he's gonna tell the boss that we got, you know, a whole lot of money we're throwing away down here I don't so there's a fear factor in businesses where we're just people are hiding stuff this is why it's so revealing when a ceo goes undercover, so to speak in some of these these shows and sees what's really going on quite revealing because a lot of that gets hidden all right? And uh how are we supposed to fix it if we don't know about it? So we want we want actually dig up the brutal fact we've talked about that now a number of times in order to fix anything to really get after it so first past yield f p why here? What is it? First past yield is, uh, what's getting through each step. All right, artie, why rolled through put you throw, rolled through put yield is thie first past yield for each step times each step all the way through so it's rolling all the way through and it's very important to know the difference between that because the rolled through put yield just keeps going down, the more steps we have in our process, thus calling for leaning out waste an opportunity for errors and keeping things simple and then standardizing the work. So we get good control around it, and we get a very predictable output, which is what we're going to play with the catapult. So we've we've spent a lot of time now and on lean, leaning out steps coming up with a nice high junk, a system it's peaceful and were flowing um, but we still got an opportunity to to tighten up on on the quality part of it. So dentally, if you're going to do lean caissons and six sigma chi zins in isolation in some way, I always like to do lean six sigma chi zones I integrate, but sometimes it's like let's lean this process out, and then six sigma okay, that's fair uh but because be careful doing it the other way around and one of the reasons I say be careful doing that the other way around is because what happens if you go out and you do it? Six sigma kaisa on a non value added process that you should have gotten rid of lean might reveal that we don't need the requisition department as we know it today it's it's just pure waste but what if we six sigma it or five s it like we did? We spend a lot of time and energy improving a department that should have been eliminated because we didn't know the difference between value had not valuable and we weren't thinking about things from the customer's point of view we just thought it was a good idea to check off things and sign names and patch things and our business that way we were not thinking in terms of lean six sigma and what really matters and what doesn't what are we getting paid for? What do we not so it's a it's an awakening for a lot of people so cost the poor quality c o p q this just shows us again some of those numbers I talked about the cost of poor quality in terms of dollars as a percentage of sales it's it's significant so you know it's six segments down below five percent and that's that's a heck of a lot better than twenty five or thirty percent for operating around three sigma and blow three it's it's just a it's a huge number so some businesses will say I'm gonna calculate what my signal level is I'll show you how to do that but I calculate that to give me some idea of what I might be thrown away and then I want to come up with some caissons to capture some of that a lot of businesses use six sigma then as a strategy to capture the waste that they statistically calculate based on research so where's cost of poor quality coming from think of these is five buckets so to speak one bucket is internal failure internally we we mess things up we make mistakes did we have that million segment game conservative especially around one and two we had a lot of internal failure many we we made a mistake but we caught it internally and then we fixed it we reworked it or scrapped it external failure would be where it got by us and it got to the customer you know and some of us know this in uh in the business world is consumers is recalls that could get really expensive cars get recall drugs get re called on lawsuits happen and it's just it's big those would be external failure costs we have appraisal cost appraisal cost would be checking costs were checked auditing were checking we're inspecting we're testing we're reviewing we're trying to find the defects before they go out before they move on to the next step prevention costs would be we are investing in pope leo technologies were investing in mistake proofing we're investing in prevention obviously so that we don't have the mistakes and then finally we have opportunity costs which are what we're making lousy stuff what else could we be doing? We could be making good stuff so there's revenue loss or what we're dealing with the recalls that we're dealing with aa lot of noise as it relates to things like that what could we be doing so there's huge opportunity costed tuft even calculate that in many ways but when we talk about at three signal you know it might be twenty five even thirty percent of revenues and cost of poor quality that seems like a huge percentage in huge number where is that coming from it's coming from all of this right here incidentally if we did a peredo chart on this and we said all right there's five slices of the pie which one do you suppose is typically the smallest slicing and an average business and the answer is prevention which is the one where you should probably put the most investment okay we spend less on prevention which would be a potentially really good thing and we spent a ton of money fixing stuff that's broken internally and externally and uh testing and checking for things like that so in many cos we've got the equation backwards we're not investing in the prevention the pokey yoke we're just trying to catch it before it gets out the door recover when it does very important to keep this in mind we're back to our hypo you know, I mentioned the other day that this is one of my favorite tools because this is where this is a tool we can use to gain knowledge so we were called the transfer function where y is a function of x why is thies outputs on these otherwise the measurables we need to make sure we measure him so you know in terms of human health this could be cholesterol level blood sugar body mass index whatever okay ph balance things like that overhears all the inputs that propagate to those outputs. So a knowledgeable person a knowledgeable business and knowledgeable process is about understanding that correlation between exes and lies. So if I tweak this x and I change this sex and I do something with this axis going I can predict what's gonna happen with the wise so we're going to play with without with our little catapults here all right? So one of the critical to measure outputs with our catapults just to play with is going to be distance how far does the ball travel and we're going to measure where the land, wherever he's going to get to shoot this catapult three times, and you're goingto we're gonna measure where the ball lands, and we're all going to shoot the same catapult with same ball with same pull back. So you think, well, if we all just do the same thing, wouldn't it all basically land in the same place you can imagine there's gonna be much variation? Well, let's, see, and that's what we're going to play with here. So we're going to use this I p o now to really understand and gain knowledge around variation where it comes from and what we can do to control it.