One of the most common problems arising on any lean transformation journey is “plateauing” – the initiative loses momentum after a flurry of important waste-reducing activities. Unfortunately, this stagnation eventually results in the erosion of most gains and the collapse of the entire implementation process. I recently posed the question, “Why do so many lean initiatives fail?” to Bob Sproull, author of the book The Ultimate Improvement Cycle: Maximizing Profits through the Integration of Lean, Six Sigma, and the Theory of Constraints. He sent me a valuable response, so I decided to post it here:
“During the years, I have analyzed failed and successful initiatives and have come to this conclusion. Continuous Improvement (CI) initiatives fail because of three primary reasons:
- They lack focus and fail to take advantage of key leverage points that exists within all businesses.
- The typical improvement project takes too long and fails to generate meaningful return on investment (ROI).
- Not enough thought goes into the selection of projects.
About 10 years ago, I changed my entire approach to CI, in that I stopped trying to "Lean out" the entire enterprise and began focusing on a company's leverage points. I integrated Lean, Six Sigma and the Theory of Constraints (TOC) and I now use Throughput Accounting (TA) instead of tradition Cost Accounting (CA) to measure success.
In case you aren't familiar with TA, it uses three simple financial metrics as follows:
- Throughput (T) - New revenue minus totally variable costs (i.e. raw materials, sales commissions, etc. or those costs that are incurred as a function of sales).
- Inventory (I) - Money invested in things a company intends to sell.
- Operating Expense (OE) - Money spent on turning I into T.
Both Inventory and Operating Expense have functional lower limits and when exceeded can actually debilitate an organization. Throughput, on the other hand, theoretically has no upper limit, so by constantly improving T, profits improve dramatically.
So how does this work? If you recall Goldratt’s five focusing steps:
- Identify the system constraint.
- Decide how to exploit the constraint.
- Subordinate everything else to the constraint.
- If necessary, elevate the constraint.
- Return to step 1, but beware of inertia.
I use TOC to identify the operation that is limiting T (the constraint or leverage point) and then apply Lean and Six Sigma to only the constraint to reduce waste, improve flow and reduce variation. At the same time, I subordinate all other parts of the process to the constraint. As soon as the constraint is “broken” a new one appears immediately, so I move the improvement resources to it. The cyclic nature of this methodology assures that I am always working on the right things or those things that result in maximum ROI.
Since I began doing this, the ROI on my CI initiatives has sky rocketed and the rate of return or the time to see improvements has improved dramatically. Significant ROI improvements, when properly applied, occur in weeks versus months when compared to Lean or Six Sigma or Lean Sigma initiatives. I no longer select projects in advance -- Instead, I let the constraint tell me where to focus my improvement efforts."