Working for a large multinational corporation has given me insight into, and sympathy for, the hearts and minds of department and cost center leaders. Each year they are required by company leadership to find millions of dollars using Six Sigma productivity initiatives – a subtle way of saying “savings.” Some people volunteer, but many are volunteered for the initiatives, without guidance or direction; this challenge either creates panic and complacency. Either way, these intrepid individuals strike out to save millions of dollars.
Different departments will rush to their senior managers claiming that they have found a way to save millions of dollars by changing internal processes. Adoration and praise are heaped upon the companies’ white knights.
Unfortunately, productivity measures sometimes end up in direct conflict with one another. Depending on the business structure each group may be told to proceed, even though their initiatives are contrary to the overall health of the company.
Conflicting Project Approvals
A product supply manager determines that producing in only a limited number of locations would cut warehousing, inventory and outside storage costs in half (saving approximately $155M). Excellent! But, wait. . . The director of transportation has determined that multiple production locations would save $200M. Even better! Now we’ll save $355M!
We can’t have production in limited locations to save inventory and warehousing costs, however, while also having production at all locations to reduce transportation costs! These conflicting analyses led me to volunteer to be the gatekeeper for all Six Sigma projects related to production supply/logistics.
I convinced the senior management team to create a single process improvement/Six Sigma body. The role of this group was to evaluate each project in relation to the total company – a truly holistic view. I became the (unenviable) financial gatekeeper, ensuring that the analysis provided by the various managers was accurate and would not simply shuffle the costs to another cost center; I did this by reviewing the net savings to the entire company.
Initially, the holistic results or net savings, when compared to the original Six Sigma projects, were reduced from millions of dollars in savings down to thousands. In some cases the projects were totally scrapped.
I introduced two new tools to the company. The first was a mechanism to determine which projects should be attempted and in which order. I took each project and separated it into three components: 1) determining the ease or difficulty of implementation, 2) available human capital (Was there sufficient time to work on the project?) and 3) the net financial impact. (See table below.) The project with the highest score was the first Six Sigma project we tackled, then the project with the next highest score, and so on. This helped keep the company focused on the most significant projects in the pipeline. In a perfect world, the next year we would keep going down the list to the next projects until eventually all of the projects were completed.
After poking, prodding, vetting and rewriting, the prioritization tool was approved. The tool worked better than expected; it was used to identify and rank the programs that should be prioritized. By happy coincidence, three by-products of this tool were identified: 1) it identified individuals who were selected to be on multiple projects when it was impossible for them to participate on all of the projects, 2) project managers had to use realistic date/time assumptions – not a generic “TBD” and 3) finance was required to provide input on the projects, reducing the chance of project leaders using imaginary or unrealistic numbers to make their projects looks more appealing.
The following chart is an example of this Six Sigma tool.
Ease of Implementation
Time to Implement
Total Project Rank
Valuable but not essential
Low value and not essential
I also decided to implement a visual Six Sigma tollgate. This tollgate process required the project’s Champion, sponsor and key resources to provide an update on their project twice a month. I used simple colors: green, yellow and red. If the project was green, the project was on course; yellow meant to keep a close eye on the project; and red indicated that the project was falling behind or needed to be revamped.
For example, if the project was projected to save $4M in a calendar year, but as of August the project had only saved $1M then it would be virtually impossible to capture the remaining $3M in the last quarter of the year. At this point, the project was marked red and the forecast for the project was lowered, the financial forecast was adjusted and additional resources could be deployed to the project.
On the Same Page
Between the implementation of the tollgate and the prioritization tool, the company was able to eliminate several million dollars of erroneous and duplicate cost savings. This holistic view allowed the business to compare its actual operational results with that of a realistic baseline in order to determine operational and financial performance. Based upon these metrics the company has identified some problem areas, but with its focus on Six Sigma, those weaknesses will soon be eliminated, leaving only opportunities and a burning desire to become market leader.