Lean and Six Sigma are two common methodologies in Continuous Improvement (CI). However, neither has a precise definition of what it is. Many disagree on the definitions or even the value of these methodologies, and I won’t join the debate here. What I care about is the underlying principles used by these methodologies – whatever the substance that is useful, independent of the label.
The questions about “what is Lean” and “what is Six Sigma” inevitably come up when you train and coach people in CI methodologies. Without delving into the principles, my answer goes something like this:
- Lean is about delivering value to the customer, fast and with minimum waste.
- Six Sigma is about understanding and reducing variation.
None of them is satisfactory. But practically these messages are effective in stressing the necessary concepts they need to develop, i.e. value and variation — a prerequisite for CI. These answers are certainly insufficient and not meant to be. It’s hard to understand the true meaning of life or happiness when we are 5 years old. Likewise, it takes a lifetime of experience to understand the true meaning and principles of CI and apply them well.
While the concept of value versus waste is intuitive, most people don’t interpret their daily observations in terms of variation. Because of the (over-)emphasis of statistical tools in Six Sigma by many consultants, many organizations prefer Lean to Six Sigma (see my earlier blog “How is your Lean developing” for potential pitfalls in replying on simple Lean tools). The lack of appreciation of the concept of variation will eventually constrain the organization’s ability to improve.
There are many applications of the concept of variation in understanding and improving a process. Most applications don’t require sophisticated knowledge in statistics or probability theory. One example is management of supply and demand.
Let’s say that you plan your resources and capacity to meet a target demand level. The demand can be from internal or external customers, and can be for products, services, materials, or projects. For simplicity, let’s assume that it’s a fixed capacity without any variation, e.g. no unplanned downtime or sick leaves.
If you plan enough resources for the total or average demand but the demand varies greatly (upper left of the figure), you will meet the demand exactly only occasionally. Most of the time, you will either not have enough capacity (creating backlogs or bottlenecks) and miss some opportunities or have too much capacity and lose the unused resources forever.
If it is too costly to miss the opportunities, some organizations are forced to raise the capacity (upper right of the figure). Many optimize the resources to strike a balance between lost capacity and missed opportunities. What I have observed is that organizations go back and forth between maximizing opportunities and reducing waste. One improvement project is sponsored (by one function) to reduce the risk of the missed opportunities with a solution that shows a high return-on-investment in the added resources. As a result, the excess capacity is common, leading to another project (probably by another function) to reduce waste and maximize resource utilization. The next demand surge will lead to another round of improvement projects.
Many people don’t realize that the real long-term improvement has to address the issue of demand variation. For example, if we understand the sources of demand variation and therefore develop solutions to limit it, both missed opportunities and lost capacity will be reduced (bottom half of the figure). A much lower capacity is needed to satisfy the same overall but less variable demand.
Capacity variation has similar effects.
What is more interesting is that most processes are made of a series of interdependent supply-demand stages, each of which propagates or accumulates the effect of variation. We can use this understanding of variation to explain many phenomena in our lives, e.g. process bottlenecks, traffic jams, project delays, supply overage, excess inventory, etc. The Theory of Constraints popularized by Eliyahu Goldratt in his book The Goal is also based on the same ideas of process interdependence and variation.
No matter what CI methodologies you use, I hope you agree that understanding and reducing variation is always a key to improvement.