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Michael L. George is founder and President of The George Group, the largest Lean Six Sigma consulting practice in the United States. He wrote the successful and influential Lean Six Sigma, also published by McGraw-Hill.

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"How do I apply Lean Six Sigma in my service organization?"

This is a question many executives and managers are asking. With all the emphasis on using Lean Six Sigma in manufacturing environments, the need for a clear methodology for implementing these major quality improvement initiatives in service functions has been mainly overlooked--until now.

Lean Six Sigma for Service provides a service-based approach, explaining how companies of all types can cost-effectively translate manufacturing-oriented Lean Six Sigma tools into the service delivery process. Six Sigma expert Michael George reveals how easy it is to apply relatively simple statistical and Lean tools that will reduce costs and achieve greater speed in service processes.

It's no secret that service functions have a harder time applying Lean and Six Sigma principles. The manufacturing roots of these initiatives have made it unclear how to apply these tools to services; this book effortlessly makes that translation. Here, for the first time, you'll read about how classic Lean tools such as "Pull systems" and "setup reduction" are being used in procurement, call centers, surgical suites, government offices, R&D, and much more. You'll see why services are full of waste--and ripe for the benefits of Lean Six Sigma.

This book provides real-world examples from situations where the critical determinants of quality and speed are the flow of information and the interaction between people. The numerous case studies demonstrate how Lean Six Sigma can be used in service organizations just as effectively as in manufacturing--and with even faster results. You'll discover how to:

• Integrate Lean and Six Sigma and apply them side by side
• Become a customer-centered organization
• Gain control over process complexity
• Improve response time on signature services
• Apply value-based management to project selection
• Clean up your workspace
• Develop supplier relationships

For guidance in deploying Lean Six Sigma in service organizations, reducing lead times, streamlining processes, and holding down costs, Lean Six Sigma for Services is the most complete, authoritative guide you can own.

"Lockheed Martin recognized that our business support processes have as much opportunity for improvement as our design and build areas. By applying Lean process speed and Six Sigma quality tools to marketing, legal, contract administration, procurement, etc. we have created a competitive advantage... The lessons learned and practical case studies contained in Lean Six Sigma for Service provide a road map which can create great value for customers, employees and shareholders."--Mike Joyce, Vice President, Lockheed Martin Operational Excellence

Deploy Lean Six Sigma in your service organization

Would you like to:

• Reduce your company's service costs by 30 to 60 percent?
• Improve service delivery time by 50 percent?
• Expand capacity by 20 percent--without adding staff?

If you answered yes--and who wouldn't--then this is the book for you. Lean Six Sigma for Services reveals how to bring the miracle of Lean Six Sigma improvement out of manufacturing and into service functions. Michael George describes the basic elements of successful deployment, including insights from corporate leaders who have already "walked the talk" to accelerate your own journey.

Filled with case studies detailing dramatic service improvements in organizations from Lockheed Martin to Stanford University Hospital, this bottom-line book provides executives and managers with the knowledge necessary to blend Lean and Six Sigma to optimize services. You'll see how Lean Six Sigma can cut costs by reducing complexity; how to utilize its tools to provide better quality service; and how you can use shareholder value to drive project selection--without needing an MBA.

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Lean Six Sigma for Service

McGraw-Hill

Contents

Chapter One

"The lack of initial Six Sigma emphasis in the non-manufacturing areas was a mistake that cost Motorola at least $5 billion over a four year period."

—Bob Galvin, former CEO of Motorola

Service operations now comprise more than 80% of the GDP in the United States and are rapidly growing around the world. Even within manufacturing companies, it's common to have only 20% of product prices driven by direct manufacturing labor—the other 80% comes from costs that are designed into the product or costs associated with support and design functions (finance, human resources, product development, purchasing, engineering, etc.).

Moreover, in service applications, the costs related to work that adds no value in your customers' eyes ("non-value-add") is higher than in manufacturing, in both percentage and absolute dollars. The revenue growth potential of improving the speed and quality of service often overshadows the cost reduction opportunities. For example, as you'll see in the case studies later in this book, work that adds no value in your customers' eyes typically comprises 50% of total service costs. This represents enormous "white collar" potential for achieving significant speed, quality, and cost improvements, all of which can give organizations a major strategic advantage over their competition.

Here are some typical organizations that needed Lean Six Sigma in their services and business processes:

Like many of its counterparts in the banking industry, Bank One had been reincarnated several times throughout the 1990s. Mergers and acquisitions meant that heroic efforts were needed every day just to get the basic business work accomplished. In an industry as competitive as finance, this condition couldn't last long—and they had a long way to go to get the process under control, let alone achieve any kind of competitive advantage.

In 1999, Lockheed Martin (LM) set a goal of eliminating $3.7 billion in costs. At the time, LM was a relatively young organization, having been formed by a series of mergers and consolidations in the aerospace industry in 1995. Its workforce was a conglomeration of almost 20 separate companies, cultures, and processes, with a core manufacturing operation surrounded by a much larger "service" component (procurement, administration, design/engineering, etc.). How could they bring everyone together to achieve such a challenging goal?

At Stanford Hospital and Clinics (SHC), the future was clear: Patient volume was dropping because SHC kept losing contracts due to high costs. Physicians and management alike recognized that if they didn't do something soon, they would continue to lose current patients and be unable to attract new ones. It's one thing to want to provide high-quality patient care, but the pragmatists operated under this slogan: "No margin, no mission."

When Graham Richard, an entrepreneur and businessman, was elected as Mayor of Fort Wayne, Indiana, he had a simple vision: "I want Fort Wayne to be a safe city. I want it to have quality jobs. I want it to have excellent service and attract new businesses." He knew the city couldn't keep doing "bureaucracy as usual" if it was to implement this vision. But was there an alternative that would work in government?

Though these organizations come from a range of sectors, they represent significant service opportunities for applying Lean Six Sigma. Their goals and objectives may be different, their needs range from providing medical care to patients to providing logistical support for manufacturing, but they are all in the vanguard of a new movement. They realized the most effective way to achieve their objectives was by integrating Lean and Six Sigma principles and methods to improve service operations.

• Bank One's use of these principles and methods started with an initiative in their National Enterprise Operations called Focus 2.0. Launched in February 2002, it began with a series of carefully selected, strategically important projects. As a result of their efforts, the NEO group has the opportunity to generate millions of dollars in revenue per year due to improvements in one operation and saved thousands of dollars in cost avoidance and waste reduction in others.

• Lockheed Martin developed a clear goal: "We want Lean processes with 6s capability." They can cite a long list of service processes from procurement to design that now take a fraction of the time and cost they took before. In fact, over 1000 projects have been completed in the past few years in service areas alone. Their debt is down, revenues are healthy, they are going to exceed their cost-reduction target, and there are a record number of orders backlogged. They were able to offer their newest missile (with all the customer-required capabilities) at half the cost and one-third the cycle time of its predecessors due to significant and widespread use of Lean Six Sigma, not by using cheaper materials or cutting corners! They won the Joint Strike Fighter contract, which has an estimated value of over $100 billion. "There are a lot of reasons that contribute to these kinds of results," says Mike Joyce, a vice president at Lockheed Martin, "but a fundamental contributor is LM21 (Lockheed Martin 21st Century), our organizational effectiveness initiative that's based on Lean Six Sigma."

At the 4000-person Lockheed Martin Naval Electronics and Surveillance Systems plant, 75% of the Black Belt projects have been in non-traditional manufacturing or white collar areas, generating $5 million in savings in its second year alone.

• In just four years, Stanford Hospital and Clinics' application of Six Sigma concepts (data, customers, quality) and Lean thinking (process flow, the preventable costs of unnecessary complexity) put them in a position to deliver higher quality patient care with lower costs—and regain market share from local competitors. Here's an example of their results: mortality from coronary artery bypass graft surgery dropped by 48% at the same time costs in the cardiac unit dropped by 40%. Overall, material costs throughout the hospital are now running $25 million below previous levels per year.

• Fort Wayne Mayor Graham Richard has authorized the launch of numerous projects citywide that draw on Lean and Six Sigma principles and methods. Many city departments have seen improvements in some aspect of its citizen services (clearer communication, faster response times to queries or complaints), a significant drop in costs, or better use of city resources. A change in construction permits, for example, has dropped the response time from almost two months to less than two weeks, and removed the kind of hassles that dissuaded many companies from wanting to do business with the city. (See Case Study # 3 in Chp 12 for details.) Improvements in garbage collection have reduced costs nearly $200,000 a year for the subcontractor while providing better services.

Each of these organizations recognized several fundamental truths: (1) getting fast can actually improve quality, (2) improving quality can actually make you faster, and (3) reducing complexity improves speed and quality. However, this cycle doesn't happen unless you apply...