Statistical Definition

Statistical Six Sigma Definition

What does it mean to be "Six Sigma"? Six Sigma at many organizations simply means a measure of quality that strives for near perfection. But the statistical implications of a Six Sigma program go well beyond the qualitative eradication of customer-perceptible defects. It's a methodology that is well rooted in mathematics and statistics.

The objective of Six Sigma Quality is to reduce process output variation so that on a long term basis, which is the customer's aggregate experience with our process over time, this will result in no more than 3.4 defect Parts Per Million (PPM) opportunities (or 3.4 Defects Per Million Opportunities – DPMO). For a process with only one specification limit (Upper or Lower), this results in six process standard deviations between the mean of the process and the customer's specification limit (hence, 6 Sigma). For a process with two specification limits (Upper and Lower), this translates to slightly more than six process standard deviations between the mean and each specification limit such that the total defect rate corresponds to equivalent of six process standard deviations.

Many processes are prone to being influenced by special and/or assignable causes that impact the overall performance of the process relative to the customer's specification. That is, the overall performance of our process as the customer views it might be 3.4 DPMO (corresponding to Long Term performance of 4.5 Sigma). However, our process could indeed be capable of producing a near perfect output (Short Term capability – also known as process entitlement – of 6 Sigma). The difference between the "best" a process can be, measured by Short Term process capability, and the customer's aggregate experience (Long Term capability) is known as Shift depicted as Z_shift or s_shift. For a "typical" process, the value of shift is 1.5; therefore, when one hears about "6 Sigma," inherent in that statement is that the short term capability of the process is 6, the long term capability is 4.5 (3.4 DPMO – what the customer sees) with an assumed shift of 1.5. Typically, when reference is given using DPMO, it denotes the Long Term capability of the process, which is the customer's experience. The role of the Six Sigma professional is to quantify the process performance (Short Term and Long Term capability) and based on the true process entitlement and process shift, establish the right strategy to reach the established performance objective

As the process sigma value increases from zero to six, the variation of the process around the mean value decreases. With a high enough value of process sigma, the process approaches zero variation and is known as 'zero defects.'

Statistical Take Away
Decrease your process variation (remember variance is the square of your process standard deviation) in order to increase your process sigma. The end result is greater customer satisfaction and lower costs.

Article -what is six sigman

Six Sigma - What is Six Sigma?

Six Sigma at many organizations simply means a measure of quality that strives for near perfection. Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects (driving towards six standard deviations between the mean and the nearest specification limit) in any process -- from manufacturing to transactional and from product to service.

The statistical representation of Six Sigma describes quantitatively how a process is performing. To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. A Six Sigma defect is defined as anything outside of customer specifications. A Six Sigma opportunity is then the total quantity of chances for a defect. Process sigma can easily be calculated using a Six Sigma calculator.

The fundamental objective of the Six Sigma methodology is the implementation of a measurement-based strategy that focuses on process improvement and variation reduction through the application of Six Sigma improvement projects. This is accomplished through the use of two Six Sigma sub-methodologies: DMAIC and DMADV. The Six Sigma DMAIC process (define, measure, analyze, improve, control) is an improvement system for existing processes falling below specification and looking for incremental improvement. The Six Sigma DMADV process (define, measure, analyze, design, verify) is an improvement system used to develop new processes or products at Six Sigma quality levels. It can also be employed if a current process requires more than just incremental improvement. Both Six Sigma processes are executed by Six Sigma Green Belts and Six Sigma Black Belts, and are overseen by Six Sigma Master Black Belts.

According to the Six Sigma Academy, Black Belts save companies approximately $230,000 per project and can complete four to 6 projects per year. General Electric, one of the most successful companies implementing Six Sigma, has estimated benefits on the order of $10 billion during the first five years of implementation. GE first began Six Sigma in 1995 after Motorola and Allied Signal blazed the Six Sigma trail. Since then, thousands of companies around the world have discovered the far reaching benefits of Six Sigma.

What is Six Sigma

Six Sigma

The goal of Six Sigma is to increase profits by eliminating variability, defects and waste that undermine customer loyalty.

Six Sigma can be understood/perceived at three levels:

1. Metric: 3.4 Defects Per Million Opportunities. DPMO allows you to take complexity of product/process into account. Rule of thumb is to consider at least three opportunities for a physical part/component - one for form, one for fit and one for function, in absence of better considerations. Also you want to be Six Sigma in the Critical to Quality characteristics and not the whole unit/characteristics.
2. Methodology: DMAIC/DFSS structured problem solving roadmap and tools.
3. Philosophy: Reduce variation in your business and take customer-focused, data driven decisions.

Six Sigma is a methodology that provides businesses with the tools to improve the capability of their business processes. This increase in performance and decrease in process variation leads to defect reduction and vast improvement in profits, employee morale and quality of product.

Here's an article with more detail on defining Six Sigma: What is Six Sigma?

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Six Sigma is a rigorous and a systematic methodology that utilizes information (management by facts) and statistical analysis to measure and improve a company's operational performance, practices and systems by identifying and preventing 'defects' in manufacturing and service-related processes in order to anticipate and exceed expectations of all stakeholders to accomplish effectiveness.

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Posted By: Craig Tonner
Modified By: pradeep patra
Last Modified: Sep. 3, 2003

Value Stream Mapping to Identify Improvement Projects

By Thomas Bertels

With many companies integrating Lean and Six Sigma methodologies into a single improvement tool kit, value stream mapping has emerged as a preferred tool to identify process improvement opportunities. A number of valuable points can be made about applying value stream thinking to project selection across a range of industries and processes both in the United States and in Europe. They include:

Understand the Overall Goal

The power of value stream thinking lies in looking at an entire business process. With the typical Lean or Six Sigma project focusing on fixing a specific issue in a narrowly defined process, it is critical to have an overall perspective for selecting what projects to tackle. Even more important, value stream mapping not only includes defining the current state, but also includes defining the future state and the gaps between the two.

With a clear picture of how the entire process should operate in the future, it is relatively easy to identify the projects that will close the gap. For discrete manufacturing processes, the ideal of continuous flow often drives the design of the future state. For process manufacturing and administrative processes, the characteristics of the future state are often less well-defined and require a strategic perspective. For example, using value stream mapping for mapping core human resources (HR) processes forces the business leadership team to decide on the future service delivery model – to what extent should the business adopt a self-service approach, what tasks will be performed by HR specialists versus local generalists, etc.

When developing the future state, it is crucial to define the overarching goal for the process that will guide the design. For a staffing process, the goal might be filling a position in less than two months. For a pharmaceutical filling operation, the goal might be to achieve a higher number of fills. A clearly defined business goal for the process provides the perspective that drives the design.

Understand the Real Constraints

When developing the future state, it is critical to understand the real process constraints of the current state and to evaluate to what extent these constraints will remain in the future state. For example, developing the future state for pharmaceuticals manufacturing needs to consider the time required to validate new equipment. A typical future state map describes the state of the process 12 or 18 months from now. If it takes 30 months to get a new piece of equipment in place and validated, the current equipment becomes a constraint for the future state map. Some constraints are real, others are only imagined. For example, headcount should never be a constraint.

Focus on Projects That Help Achieve the Goal

When analyzing the gap between the current and future states, one should focus only on those projects that will help achieve the overall goal. In many instances, the improvement plan is filled with projects that have no clear link to the overall objective. Most companies have only limited resources at their disposal; therefore the available resources should be concentrated on those projects that really need to be done.

Define the Options

In almost every instance, there are several different paths to achieve the future state and meet the overall process goal. For example, when focusing on capacity increase at a bottleneck machine, this goal could be accomplished by reducing process cycle time, unplanned downtime, changeover times or process yield. Defining the alternative "project packages" is helpful to understand the trade-offs and make smart resource allocation decisions.

Integrate Existing Initiatives into the Plan

Initiatives and projects already under way or planned for the foreseeable future need to be integrated into the overall plan to the extent that they impact the future state. However, one needs to be careful and review whether the deliverables for these initiatives are realistic.

For example, a company which was mapping its manufacturing process identified two projects that were expected to yield a substantial reduction in process time. However, when the team reviewed these projects it became obvious that the impact expectations were very unrealistic. When putting together an inventory of these current or planned projects or initiatives, the team should ask itself: Are the objectives for these projects clearly defined? Are these initiatives on track to deliver the expected results? What is the risk of these projects failing? Especially when it comes to technology projects, reviewing the track record of similar projects in the company can help to understand whether the team should count on successful completion or not.

Be Creative and Adapt the Approach to the Situation

Value stream mapping typically focuses on a product family. However, in many instances the concept of product family is limiting. In many process industries, the equipment is not dedicated to a certain product or family, and processing paths can vary from run to run. Similar issues arise in many service processes – for example, when customers can choose between various channels (internet, phone, e-mail, etc). Focusing narrowly on a product family does not really provide much insight into the improvement opportunities available. In such cases, the value stream perspective can be enhanced by combining the mapping with other tools such as bottleneck analysis.

Value stream mapping is a powerful tool that helps to identify the vital few Lean and Six Sigma projects that will yield the highest value to the process in question.

About the Author

Thomas Bertels is a partner of Valeocon Management Consulting, and serves as the global firm's regional director for the Americas. He has worked with clients such as TRW, Siemens, Vanguard and Johnson & Johnson, and also served as the editor of and main contributor to a Six Sigma leadership handbook. Mr. Bertels started his career at ABB (Asea Brown Boveri), one of the early adopters of Six Sigma. Fluent in German and English, he is based in New York, N.Y., USA, and can be reached at thomas.bertels@valeocon.com.

Learning to Recognize Process Waste in Financial Services

By Bill Kastle

One of the biggest challenges for Six Sigma practitioners in financial services is developing the ability to recognize waste.

Imagine an "overnight pack" entering Bank One's wholesale lockbox process for processing remittance payments. By the time it has been through every step, up and down the elevators, back and forth between departments, it would have traveled one-and-a-half miles. Hard to believe? The lockbox staff also thought so, at first. But as they traced the physical flow of the value stream, everyone was floored. "Well, I guess maybe it could travel that far!"

What is even more astonishing is how much that distance could be shortened. Bank One's team came up with a workspace design that required just 386 walking steps to complete the entire process – an 80 percent reduction in transportation.

Most departments or companies that provide financial services are in the same position as Bank One. They accept things like traipsing up and down hallways as simply part of "how work is done around here." But success with Six Sigma means developing new eyes, then critically and regularly re-examining what is being done and how it is being done. The goal is to identify the steps in processes that are value-added in the eyes of customers. That is, steps which customers would value and be willing to pay for if they knew about them. Everything else is waste. A company will never be able to recoup the time, resources and dollars spent on waste.

To help Six Sigma practitioners in financial services begin developing a "waste-sensing" ability, here are seven types of process waste that someone is doing right now somewhere in virtually every company:

Waste No. 1: Over-Processing

Adding more value to a service or product than customers want or will pay for - The basic theme of over-processing is doing more work than is absolutely necessary to satisfy or delight customers. There are two elements to over-processing:

1. Not knowing what customers want. For example, including return envelopes for loan payments is seen as value-added by customers who pay by check, but waste by customers who pay through automatic transfer.
2. Redundancy. Consider a process that involves a number of approval steps or handoffs. Would customers think that each of those steps is adding value? Rather than requiring five managers to sign off on a decision, why not develop a process and guidelines so one manager can make the call?

Waste No. 2: Transportation

Unnecessary movement of materials, products or information - Too much physical back-and-forth movement is one of the problems that plagued Bank One's original lockbox process. Excess transportation is important because every move from one activity to another adds time to a process – and world-class organizations are passionate about reducing time.

Yet in many service processes, it is not uncommon for paperwork to loop back several times…waiting in queues in a virtual or actual in-box every time it goes through again. Transportation in service processes almost always manifests itself as materials constantly being collected or delivered, or the actual or virtual chasing of information ("Who has that expense figure? Marcy? Okay, I'll ask Marcy…. Marcy says Hector has it…"). At one end of the spectrum, eliminating excess transportation can involve combining steps to eliminate loops. Cutting the hand-offs in half generally cuts the queue time in half. At the other end is the option to rearrange the workspace to match the flow of the process.

Waste No. 3: Motion

Needless movement of people - While "transportation" refers to the movement of the work, "motion" involves movement of workers. Both are much harder to see in service environments than in manufacturing. Motion may show up as people constantly switching between different computer domains or drives, or simply having to perform too many keystrokes to accomplish a computerized task. Solutions can involve everything from rearranging people's desks, to purchasing ergonomic furniture and equipment, to using software that performs tasks offline so information is waiting for the staff rather than vice versa.

Waste No. 4: Inventory

Any work-in-process that is in excess of what is required to produce for the customer - The evils of inventory were first recognized in manufacturing because that is where the inventory itself is most visible. It is hard to ignore a room full of half-completed assemblies – a very visible reminder of thousands of dollars the company could be putting to better use.

Inventory in service areas is just as big a problem, but more insidious because it is not as readily apparent. Look for physical piles of forms (in in-boxes, for example), a list of pending requests in a computerized email program, callers on hold, people standing in line at a branch, and the like. This excess inventory is often the result of overproduction. (See Waste No. 7) The goal, from a Lean standpoint, is to have on hand only what is needed immediately or in the short-term. (To find solutions to inventory problems, read up on Lean practices such as pull systems and triaging.)

Waste No. 5: Waiting

Any delay between when one process step/activity ends and the next step/activity begins - One of the biggest evils in today's marketplace is to make customers wait for delivery of a product or service – because chances are a competitor will be able to get it to them quicker. Anything in a process that makes a work item wait to be processed should be eliminated. Because so much of the work in a service process is invisible to the naked eye, process-mapping techniques (flow charting, value-stream mapping) are essential for identifying delays in a process.

Waste No. 6: Defects

Any aspect of the service that does not conform to customer needs - Producing work that customers are not going to pay for – or that makes them seek out other companies to do business with – is one of the more obvious forms of waste. Six Sigma practices have long been structured around minimizing the possibility of producing defects. In services, that translates to preventing the possibility of missing information, thus improving the chance of making deadlines.

One clue to studying defects is to recognize that their impact is usually felt far downstream from where they occurred. A customer service staff, for example, is likely to receive the complaint calls from customers upset about something that happened in an entirely different part of the process. The defect has to be traced back to where it happened – where the incorrect information was put into the computer system, for example – in order to find a solution that will last.

Waste No. 7: Overproduction

Production of service outputs or products beyond what is needed for immediate use - In one of Lockheed Martin's procurement centers, buyers purchased items for 14 or more different facilities. The way the computer system was initially set up, it was incredibly cumbersome for the buyers to switch from one facility to another. So they naturally processed all the requests from one center before moving on to the next, even if there were urgent or priority requests in queue from other facilities. As a result, non-priority requests from one center would be processed before priority requests from another facility. This batch processing and delivering a service before it is needed by the customer is a type of overproduction common in services. The solution to overproduction is to examine the process and see why the staff does not work in a way that reflects actual customer needs, then make changes accordingly. (At Lockheed Martin, the solution was to change the computer system so buyers could see priority requests from all facilities simultaneously.)

The better Six Sigma practitioners in financial services are at recognizing these forms of waste, the more effective improvement efforts will be.

About the Author: Bill Kastle is a vice president at George Group and has helped guide Lean Six Sigma initiatives at major corporations. He is co-author of the book What Is Lean Six Sigma? (McGraw-Hill, 2003). He has conducted executive training at Fortune 500 companies such as Alcan, Geico, Xerox, ITT Industries and DuPont-Merck. For more than 15 years, he has helped teams at all levels apply Lean and Six Sigma tools to respond to their customer needs. Mr. Kastle can be reached at bkastle@georgegroup.com.

Value Stream or Detailed Process Mapping

More Value: Value Stream or Detailed Process Mapping?

By J. DeLayne Stroud

Imagine a company starting a journey of change without factoring in where it is starting (baseline), and where it wants to go (making changes). No successful company or Six Sigma practitioner would begin such a journey without that information and a map.

When a novice Black Belt began his Six Sigma journey, he asked his first Master Black Belt mentor which process mapping tool provided more value – detailed process or value stream? He was surprised at the mentor's answer, "It depends." Now, having used both mapping tools, he understands why. Project goals, resource availability and deadlines are some contributing factors in deciding which tool fits best. Project experience also helps determine which one to leverage.

For those who are just starting their Six Sigma journey and are wondering which process map to use, it is important to first understand the differences between the two.

In general terms, value stream mapping identifies waste within and between processes, while detailed process mapping identifies both the big Y (from the voice of the customer) and the y's (process outputs), and identifies and classifies x's (process inputs).

Value stream mapping takes a high-level look at a company's flow of goods or services from customer to customer. It usually contains seven to 10 steps. Practitioners can drill down to find the true bottleneck in a company's processes. Key metrics captured are cycle times, defect rates, wait times, headcount, inventory levels, changeover times, etc.

In comparison, detailed process mapping provides a more detailed look with a much deeper dive into a process. One captures the inputs and outputs of every step in a process and classifies each as critical, noise, standard operating procedure or controllable. The key to using this tool is controlling inputs and monitoring outputs. Detailed process mapping also helps document decision points within a process.

What Are Value Streams?

While most people are familiar with the concepts of detailed and high-level process maps, many need clarification on value stream maps. Value stream mapping helps companies avoid randomly making improvements by allowing them to identify and prioritize areas of improvement up front as well as to set measurable goals for improvement activities. This is accomplished through three stages:

• Create a current state map showing how the company serves its customers today.
• Create a future-state map showing the reduction of waste and the effects of the changes.
• Develop and implement a plan to reach the future state.

According to the iSixSigma dictionary, "A value stream is all the steps (both value-added and non-value-added) in a process that the customer is willing to pay for in order to bring a product or service through the main flows essential to producing that product or service." One of the key elements of value stream mapping is that it can provide a baseline of defined processes.

The critical phrase in this definition is, "the customer is willing to pay for." If a company's customer walked through its process, how would that customer react? Every process the customers sees involves work that adds value in their eyes. Unfortunately, every process the customers sees also involves work for which they are not willing to pay – waste. While no one can eliminate all waste, using value stream mapping to identify waste helps determine a plan for eliminating it.

However, before a company can identify its value stream, it needs to determine:

• The value in the process that the customer is willing to pay for.
• The steps required to deliver the product or service to the customer.
• What is significant in each.

There are steps that create value and those that do not. Some non-value-added steps, perhaps because of regulations, policies and current technologies, cannot be eliminated, or at least cannot be eliminated immediately. However, a Six Sigma project team will most likely find many non-value-added steps, or "low-hanging fruit," that can be eliminated immediately, benefiting a company's bottom line.

Three Steps in Understanding the Value Stream

Before a current-state value stream map can be created, a project team must identify and understand the value stream. Following is a three-step method for identifying value streams:

1. Create a list of products and group them in families. Some companies offer varied products and services. For example, an investment company offers different investment opportunities, such as mutual funds, 401Ks, stocks, etc. A finance company offers different types of loans, including first mortgages, home equity, car loans and small business loans. It is relatively easy to group products into families by constructing a simple table, like the one below. The goal is not only to identify all product families, but also to identify what process steps each product utilizes. This will be a living, breathing table, so a project team should be prepared to make further revisions as it dives deeper into its analyses.

Table: Grouping Products or Services Into Families
Product/Service	Process Step 1	Process Step 2	Process Step 3	Process Steps 4, 5, 6...
A		x	x
B	x	x
C	x	x	x
D, E, F...

2. Determine which product or service is considered primary. While a product/service may utilize different processes, a company needs to concentrate on one process at a time, focusing on processes critical to company goals. In many instances, a company's improvement plans may be filled with process improvement projects with no clear link to its overall goals or vision. With limited resources available, efforts need to be concentrated only on those projects that really need to be done. Selecting which product family to analyze will depend on the individual business situation. Examples of products/services to analyze include those that:

• Stem from company goals/vision.
• Utilize the most process steps.
• Are known to have high defect rates.
• Represent the voice of the customer and offer the highest customer rate of return.
• Are high volume in dollars and/or units.

3. Document the steps of the process – initial walk-through. Use a SIPOC diagram (suppliers, inputs, process, output, customers) to document the process steps. Begin with the customers and work backward. A project team will gain more insight by working in reverse order. During the walk-through, think about the customer. How does the customer receive the product or service? What triggers the product or service to be delivered to the customer? What are the inputs? From where are these inputs supplied? Once the walk-through is completed, there should be enough initial data to understand the value stream, and begin creating a current-state value stream map with a more detailed depiction of the value stream.

'Which Process Map Should I Use?'

Why not take advantage of both models by using detailed process mapping and adding value stream mapping data into it. While each type of map is used to identify different variables, there is more value in combining components of value stream with detailed process mapping. Detailed process mapping has all the process components the value stream map does, and it can be broken down in much greater detail. Due to the time involved in constructing detailed process maps, one could include detailed process mapping after value stream mapping has located the bottleneck.

Value stream mapping requires both current- and future-state process maps. However, future-state maps are often less well-defined in services or administrative organizations. These organizations typically require a strategic perspective, like what the new service delivery model looks like. Value stream mapping typically focuses on a single product family, but choosing only one product family may not be appropriate in a service organization – especially if the customer can choose between different channels. For example, in banking, the customer may choose channels such as online, email or telephone banking. Focusing on a single product family may not provide the insight needed to identify all available improvement opportunities. In such cases, the value stream mapping methodology can be combined with other tools such as a bottleneck analysis.

Bottom line, value stream mapping is a powerful tool that helps identify the vital few Lean and Six Sigma projects that will yield the most value to the process tagged for improvement. And its approach of current- and future-state maps allows Six Sigma practitioners to know where they are starting from, where they are going and how they will get there. When a company reaches tomorrow, it will be much more rewarding if it knows the route it followed.

About the Author: J. DeLayne Stroud is a Six Sigma Black Belt project manager with DeLeeuw Associates, a division of Conversion Services International. He retired from Bank of America in 2005 with more than 20 years of experience as an executive in project and change management in the banking industry. He has led multiple Design for Six Sigma and Lean initiatives. During his career, Mr. Stroud was a senior project manager in some of the largest mergers and change initiatives in the history of the financial services industry, including former banks such as General Bancshares, Boatmen's Bank, Centerre Bank, Barnett Bank and BankAmerica. He can be reached at jstroud@deleeuwinc.com.

VSM

Value Stream Map Without All the Data Still Offers Gains

By Craig Ladner

A complete value stream map (VSM) is like a flowchart on steroids. There is the usual action boxes with arrows showing the flow of work, but a lot of other information, too – material and information flow, operating parameters, process and lead times, inventory, a timeline depicting value-added time relative to overall lead time, and so on.

A value stream map can look daunting, especially for anyone who has not worked much with flowcharts and does not have all the needed data. But as one major national bank discovered, there is still a lot to be gained from starting a value stream map, even if there is not enough data to do the perfect map the first time through.

The Challenge: Slash Cycle Time on Mailings

The bank in question mails thousands of credit card offers each month. The process was on a 65-day cycle, meaning if the mailing was in early February, the process would have to be started in December. Bank management wanted to cut that time in half, and go even shorter if possible. Here is why:

• The bank's credit card offers had a 1- to 2-percent acceptance rate.
• The average balance transferred to the cards (in the targeted demographic segment) was about $1,000.
• The lowest interest rate the bank charged was 12 percent (and some cards went as high as 21 percent).

Given these factors, for every 100,000 offers mailed, the bank could expect to gain minimally $1,000,000 in credit card loans (1,000 acceptances multiplied by $1,000 transfers). That equals about $10,000 in interest per month. This nationwide bank often mailed out many hundreds of thousands of offers. Doubling the number of mailings in a year could well mean a million dollars or more in additional interest charges.

Another minor factor was that addresses tend to get outdated quickly. So the faster the bank could process offers to the lists it purchased, the fewer bad addresses they would have to deal with.

The Procedure: Determine Value and Time

The bank had never studied, mapped or measured this process before, so doing a complete value stream map was out of the question. But just doing some preliminary analysis was well worth the effort.

One of the most important elements of a value stream map is quantifying times. A fully developed VSM has time data for each step – how long it takes a work item to make it through one step, how long it waits in queue before moving to the next step, etc. Initially, the bank had no data at all on actual time needed to complete various steps in the process, and it determined that gathering detailed data would be impossible since there were no mechanisms for tracking time per step.

But with a minimal effort, a consultant working on the project with them was able to divide the process into four phases and get reliable estimates for the length of those phases. The "prototype VSM" is shown in Figure 1.

Figure 1: Basic Value Stream Map

With this basic information in place, the bank could then examine the work that happens in each step and ask three key questions:

• Does this work add value?
• What determines how long this step takes?
• Is there any way to do it faster? (Or, can some work currently done manually be automated? Or, can some work in this step be combined with work from another step?)

What Was Discovered: Big Delays, Lots of Waste

The bank's analysis of the VSM was that the pace of the process was determined in large part by an outdated mailing schedule that spelled out exactly what would be happening on each day of a two-month cycle. Unfortunately, it was built around artificial timelines, not actual process capability. So, for example, if a mailing list was ready to be merged on Day 20, but the schedule said that merging was to occur on Day 25, the list would sit around in the databank for five days.

Cumulatively, delays caused by this artificially determined mailing schedule accounted for almost half of the two-month processing time. Simply moving to a system in which triggers alerted one step that work from a previous step was ready to go saved almost 30 days in the cycle time.

The analysis also exposed a lot of work that was not value added from a customer's perspective. For example, the bank obtained mailing lists from a number of sources, which would arrive in a variety of electronic formats. The lists were formatted into a common software for processing. However, before the data processors moved the lists into the common software, they would convert each original list to a format they were most comfortable manipulating, then move it into the common software.

A third main contributor to delays was the "large-batch" mentality built into the original system. The people who generated the offer letters through a mail merge process liked to work in monthly batches as large as 1.5 million letters. The system was capable of handling about 300,000 records per day. So if a particular list had only 50,000 or 100,000 names, they would wait until more lists came in and do the entire month at one time. Running 1.5 million records in one batch caused numerous delays downstream.

The Result: Cycle Time Down by 60 Percent

Four months after the project began, lead time for this mass mailing process was down from 65 days to 27 days. A year later, it reached 12 days.

The lesson is that an organization should not let the complexity of some value stream maps prevent it from taking the first steps in doing a value and time analysis. As the bank learned, there was so much waste in its original process that broad measures of time and a little probing into what was truly value added allowed it to quickly cut lead time by more than 60 percent. If a company has never looked at how time is spent in a particular process or done a value-added analysis, the odds are very good that the same kind of benefits are out there waiting to be reaped.

About the Author: Craig Ladner is a Lean expert and senior consultant with George Group. He has more than 20 years of experience generating productivity improvements through the application of Lean methods in a number of industries, and has worked extensively at senior levels to develop and deploy customer-focused operational strategies. Mr. Ladner has an MBA from Houston Baptist University. He can be reached at cladner@georgegroup.com.