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THE NEED TO INTEGRATE TOC, LEAN, SIX SIGMA AND PROCESS MANAGEMENT

Eduardo C. Moura, Qualiplus Consulting Alan Barnard, Goldratt Research Labs January 2010

Introduction
Over the past few years, one can see a trend where organizations are deciding to integrate different methodologies and improvement tools, with the purpose of reaching better results than would be possible through their isolated application. For example, the combination of Six Sigma and Lean is already quite popular, after publication of the work by L. Rubrich et al. (2001) and M.L. George (2002). The effectiveness of combining these two methods is in part evidenced by the many publications and consulting services being offered on that subject today. At the time this article was written, there were more than one hundred books published on Lean Six Sigma. In May 2006, an article was published Dr Pirasteh and Kimberley Farah titled Continuous Improvement Trio: The Top elements of TOC, Lean and Six Sigma makes beautiful music together on the research that was conducted over a two year period at a Global Electronics Contract Manufacturer (Sanmina SCI) with 21 plants to compare the impact of using Lean and Six Sigma in isolation vs. using Theory of Constraints to focus the Lean and Six Sigma initiatives. The results were quite staggering. The 4 plants using only Lean contributed 4% of the total audited benefits from all the 101 projects, the 11 plants on only Six Sigma contributed 7% of the total audited benefits while the 6 plants on TLS (Theory of Constraints Lean Six Sigma) contributed 89% of the total audited benefits a multiplier of 15x that of plants using only Lean or Six Sigma. In fact, Dr. Eli Goldratt (2006), the creator of Theory of Constraints (TOC), has himself for many years recognized the synergy between TOC and improvement methods such as Lean or TPS (Toyota Production System) and Six Sigma, to the extent that he recommends that organizations wishing

to put in place a Culture and Process of Ongoing Improvement should use TOC as the focusing mechanism for the other improvement methods. The purpose of this article is to provide a holistic and practical approach for integrating the use of proven process improvement methods, starting from a systemic point of view. The global, integrated approach described here starts from the acknowledgement of two facts: Analyzing, improving and managing any business system is too complex a task to be handled with just intuition or past experience. A holistic and logical way is needed, and that in turn requires the use of methodologies that are based upon a systems viewpoint and logical analysis, as opposed to the typical reaction to the many negative symptoms that pop up everywhere in the business system and the subsequent quest for local improvements in the areas where those symptoms are detected. Second, no particular improvement approach is totally sufficient to correct all the problems imposed by the market dynamics and internal challenges. If one restricts the improvement efforts to this or that approach, only partial quantitative results will be gained, and they will probably be only temporary. Therefore, if substantial and sustainable quantum leaps are desired, it is necessary to integrate the best contributions from different methodologies.

The main components of the integration


To date, the most widely used and proven approaches for improving the performance business systems are: TOC (Theory of Constraints), Lean Production (also known as TPS Toyota Production System) and Six Sigma. To those three, the authors add

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a less known and discussed but just as important element: BMTP (Business Management through Processes). Why choose exactly those methods, among so many others? Because any action for globally improving the business system can only be materialized through a coordinated intervention in the chain of work processes, and each one of those four approaches brings up a unique contribution in such a direction, that no other method known to the authors can do: Theory of Constraints (TOC) focuses on the identification and effective treatment of the single system constraint that limits an increase in the Throughput at any given time, and does through the implementation of a focused Process of On-Going Improvement (POOGI), which orchestrates the exploitation and elevation of the system constraint, combined with subordination of all parts. No other organizational improvement methodology does that with such a laser-precision focus and effectiveness, with an ever-growing set of systemic solutions developed along 25 years, since the publication of The Goal. Lean focuses on reducing the time-to-cash, i.e., the total time from customer order to receiving cash (Ohno, 1984) and does that by mobilizing people to eliminate wastes which disrupt the flow of activities that create value to the end customer. No other methodology has such an approach, moreover supported by a wide range of waste elimination tools that have been proven and perfected throughout more than 60 years, since it started at Toyota in the 1940s. Six Sigma focuses on variability reduction of those product or service performance parameters that are critical to end customer

satisfaction. No other method inherits the philosophy, concepts and tools learned from the Quality movement along more than 80 years, since the inceptive work of Walter Shewhart in the 1920s, and continuing with W.E. Deming, J.M. Juran, G. Taguchi and K. Ishikawa, to name just the main Quality gurus. BMTP (Business Management Through Processes - E.C. Moura 2002, 2006) not to be confused with BPM (Business Process Management, which is based on the use of Information Technology to model and improve business processes) has as its central focus on the integrated standardization of the entire chain of business processes, starting from a systemic model which avoids the evils of departmentalized administration or even falling into the trap of creating process islands. Since BMTP is certainly the least known of the four approaches, a brief overview is appropriate here, although a detailed description is beyond the scope of this article. BMTP is based on the original ideas of CrossFunctional Management by Dr. Kaoru Ishikawa (1985) one of the quality gurus and recognized leader of the quality movement in Japan as well as the contribution of H. James Harrington (1987) and Steven Hronec (1993). Evolving since 1994 through applications in several industries and services organizations, BMTP recognizes that a major weakness the majority of business units around the world still have is not caused by any internal or external circumstantial event, but rather by a chronic organizational design problem: the Management by Departments paradigm (a policy constraint), through which the cross-functional,

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value-creation activities flow are subordinated to the functional or departmental structure. Such subordination will unavoidably lead to the sub-optimization of the entire business unit performance: undefined interfaces between areas during the workflow, unclear or mismatched authorities and responsibilities, deficient communication, lots of rework, and huge efforts dedicated later to costly firefighting activities, everywhere in the organization. Such a conclusion has been reached by systemic cause-and-effect analysis performed in the last decade on more than 50 different companies, in distinct businesses, with different sizes, family-owned or open capital, in different countries, but all of them built and making business within the same modus operandi: the departmental structure oriented to the fulfillment of (usually conflicting) departmental goals. Starting from a crystal-clear definition of the companys values, mission, longterm vision, necessary conditions and global business indicators, BMTPs main implementation steps are: o 1) Identify and structure all stakeholders needs, o 2) Identify all business processes by grouping together related, repetitive business activities, o 3) Identify and define which improvements and innovations are needed in order to realign the processes to the satisfaction of the stakeholders needs, o 4) Create the business macroflow (the chain of primary, support and management processes), and

o 5) Design and implement the integrated standardization of the business macroflow, connecting every business processes in an uninterrupted flow of information and materials, throughout the whole business unit. Just like preached Ishikawa in the 1960s, BMTP does not get into the trap of eliminating the functional structure (like did M. Hammers Process Reengineering in the past), but rather ties and subordinates the functional areas to the crossfunctional process flow, from customer and back to customer. Currently, neither TOC, Lean nor Six Sigma question the overall structure and operation of business units per se, which BMTP does. BMTPs major contribution to better performance is to create a dynamic work structure with optimum response to the implementation of any strategic movement or improvement initiative, including those generated by TOC, Lean and Six Sigma. Besides, one of the main reasons why the improvements gained by TOC, Lean and Six Sigma are not sustainable in time is the lack of standardization: a substantial part of the business know-how generated in each improvement project is essentially kept in the minds of the implementation leaders and teams, but not as part of the business routine. With BMTP, such valuable know-how is systematically standardized and incorporated into vital business processes like Strategic Planning and Deployment, Daily Management, Improvement Projects Management and Voice of the Customer, to name a few.

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Those different focuses of TOC, Lean, Six Sigma and BMTP are not conflicting. D. Nave (2002) had already shown the common points between TOC, Six Sigma and Lean. In fact, one do not have to convert ourselves into blind defenders of this or that guru and his ideas, like a member of a closed religious society. Much to the contrary, one must recognize that those different approaches are complementary and absolutely essential. When harmoniously integrated, they promote a powerful synergetic effect to increase competitiveness. The wise administrator recognizes his right to use the tool which works best in each situation; and the knowledgeable consultant does not try to push the only tool he masters; rather, he should be constantly researching and increasing his toolkit. But how can those four methodological approaches complement each other? Let us look at some typical situations: Starting from the current reality of the company, TOC identifies and prioritizes the vital few changes needed to better exploit or elevate the system constraint. For example, if the System Constraint is in the market (more capacity than demand), TOC will help identify the changes needed to get existing customers to be willing to pay more or buy more (better exploiting a market constraint) or the changes needed to grow the market potential through adding new products/services or entering new markets without significant risk or investment (elevating the market constraint). The few vital changes identified by TOC will help to focus and prioritize continuous improvement projects that use Six Sigma, Lean or BMTP to prevent the risk of local optima or poor synchronization. BMTP creates a dynamic process structure that allows effective deployment of the strategic projects

and plans pointed out by TOC, for instance. And as we standardize and improve that process structure, we can incorporate the best contributions of the other methodologies into the standard way things are done. A few examples: the Thinking Process (a set of TOC logical tools to identify and address core problems and conflicts that block better exploiting or elevating system constraints) can be adopted to enhance a companys strategic planning and deployment process; the Six Sigmas DMAIC method can be chosen to standardize the management process of certain improvement projects; one can use Lean concepts and tools such as work cells and visual control to simplify and speed up virtually every process we are standardizing and integrating with BMTP. The Lean System involves the entire workforce with simple and powerful continuous improvement tools, creating a participative environment and an efficiency-oriented culture. Besides reaping the specific Lean benefits, this new organizational environment sets up the ideal scenario for a successful implementation of Six Sigma projects, for example. And, finally, Six Sigma, besides its specific improvement projects, has powerful analytical tools that can provide stability to certain processes within a value stream we may be dealing with in Lean or TOC projects.

Table 1 provides more details about the synergy between the four methodologies.

Other necessary elements for successful integration


However, even such a powerful set of integrated improvement methodologies might still not be sufficient, as the information available on those methods typically provides only the necessary know-how for improvement. The systemic

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knowledge that promotes high impact improvements requires two other extremely important elements: know-why and know-what: Know-what is knowing exactly in which vital few aspects or parts of the organization it must excel at (now and in the future) to ensure continuous improvement and achieve sustainable growth. Such know-what insight(s) should focus and align all improvement efforts to these vital few aspects of the business. Besides the analysis, planning and action on any specific improvement focus, there are seven generic aspects (whats) that organizations should strive to excel at, and which are summarized in the many National Quality Award criteria around the world, usually taking USAs Malcolm Baldrige (2009) or European awards as a reference: 1) Leadership, 2) Strategic Planning, 3) Customer Focus, 4) Measurements, Analysis and Knowledge Management, 5) Workforce Focus, 6) Process Management and 7) Business Results. Know-why are the fundamental principles and assumptions that guide our decisions and actions. In the management of organizations, the know-why are the basic values, the long-term vision, the business mission, the necessary conditions to accomplish the mission, and the global business performance indicators. Altogether, they form the organizational ideology. A fact frequently ignored by many companies that start to implement TOC, Lean, Six Sigma and BMTP is that each of those systemic improvement methodologies is built upon a common set of basic principles, and frequently they require a significant change in the organizations ideology. That is, a company cannot hope to ensure long-term success applying those methods and tools if its beliefs or behaviors are not compatible

or even are in direct conflict with the underlying principles of TOC, BMTP, Lean and Six Sigma. Such incompatibility is much likely the fundamental reason why so many organizations fail in the implementation of those improvement methods. For example: successful Lean implementation assumes that the organization lives (not just preaches) the principles of having long-term vision, encouraging ongoing experimentation and continuous improvement and truly respecting its employees. Suppose that after some brief and technically oriented Lean training, a short-term, cost-minded organization starts to implement Lean in one of its key value streams, with the typical result that productivity has doubled, and now half of the involved employees are idle. The immediate reaction in such a company would be to take advantage of that cost saving opportunity and lay off the excess people. That would probably kill further Lean initiatives, since the remaining employees will not put much effort when called to contribute to the next improvement projects. A second example: instead of really putting into practice the Quality/Six Sigma principle of customer satisfaction first, many companies reduce the objective of Six Sigma projects to cost reduction only (some even set a minimum standard cost saving for each and every improvement project). After a few project waves where the low-hanging fruits of cost reduction opportunities are exhausted, Six Sigma enters into discredit, and slowly dies. A last example: a business unit dramatically increases its sales and throughput by the application of a given TOC solution, but unaware of the TOCs POOGI principle, it seats comfortable on the achieved success, without fully capitalizing their competitive advantage or, worse,

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without taking the necessary actions to sustain the improvement in the long term. Therefore, successful know-how application requires precise know-what identification and illuminated know-why realization Organizations that can correctly identify the necessary know-what (knowing where to focus and what to change/what not to change), empower their employees with the necessary know-how (relevant powerful improvement methods to enable the necessary changes) and validate and communicate the underlying know-why (the assumptions and principles on which these insights are based), will find that the achievement of astonishing and sustainable results are practically unavoidable!

How to start?
Figure 2 indicates a sound path to assure significant advances in integrating the four systemic approaches. Every organization should start its improvement efforts by first formalizing its fundamental principles and establishing a clear sense of direction. That is, top management should start leading the companys journey by defining or revising the organization ideology: basic values, long term view, mission, necessary conditions to accomplish the mission and the set of global business performance indicators. When all of those fundamental definitions are clear, the next step is to identify the high impact improvement themes. A solid approach to do that is to apply the TOCs Logical Thinking Process and summarize all the findings and change decisions in a customized Strategy & Tactic Tree for the organization. The S&T Tree is Goldratts latest and greatest tool that clearly displays and communicates all the necessary and sufficient changes at each level and within each part (know-what and know-how) as well as the assumptions on which these changes were based (knowwhy). Another approach (usually performed in the subsequent POOGI process, after the key business and structural organizational improvements have been put into place with TOC holistic implementation and/or BMTP) is to use the findings of a Six Sigmas VOC (Voice of the Customer) process in order to identify and prioritize the satisfaction parameters for a given market segment, as well as the corresponding product improvements and innovations. The objective of each of those analytical methods is to identify and prioritize the necessary and sufficient changes, and the sequence of implementation to better exploit or elevate a system constraint of the organization. According to the nature of each of the necessary changes, and having understood its impact from a global point

The general model


Figure 1 displays a conceptual model for the integrated approach proposed here, which we might call 360 Excellence (E360 for short), since it approaches business excellence from several, vital and complementary angles. We may define E360 as the harmonious integration of four powerful approaches (TOC, BMTP, Lean and Six Sigma) with the purpose to radically improve the results of any business system, built upon the organizational ideology and incorporating the Excellence Criteria as a generic reference frame. The typical results to expect from such an approach are: In the short term: better quality and productivity, shorter response times and more profitability. In the midterm: a dynamic chain of business processes, consistently generating the above benefits to an increasing community of satisfied customers. In the long term: transformed organizational culture.

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of view, it will become much clearer and easier to choose the most appropriate methodology for each improvement initiative (a particular TOC solution, Lean implementation on a certain value stream, Six Sigma improvement projects, new product development or other improvement/innovation efforts). By doing that, a company can assure high impact results and rapidly make significant leaps towards the desired future.

An application case
Aglomerados Cotopaxi S.A. (ACOSA) is the leading manufacturer of fiberwood boards in Ecuador since 1978, exporting its products to several countries. In 2004, ACOSA had already implemented several quality initiatives, including ISO 9000, with limited results, so the company found necessary to look for more advanced and systemic improvement methods, so we chose to implement the E360 model. The first step was to construct a Current Reality Tree in order to clearly identify the main improvement focuses (business constraints) over which the company should concentrate its resources. That helped to define the first wave of Six Sigma improvement projects, with the purpose of improving our plants production capacity. At that time we also revised ACOSA ideology (know-why), so that a clear vision was established, and we also identified the need to implement BMTP in order to break with the chronic lack of coordination and communication between areas and also to simplify our Integrated Management System which at that time was very bureaucratic and cumbersome. One of the four Six Sigma improvement projects in the first wave was particularly successful, since it allowed to break the companys constraint through the optimization of a board coating machine parameters. The subsequent cycle time reduction broke a technical paradigm that had lasted for 25 years, and we got record levels of productivity (and sales). Since the original constraint was broken, new constraints

appeared in other processes, which were tackled by a second wave of Six Sigma improvement projects, with very positive results, since it was possible to increase production capacity even further, without any investment. In the following year, a new Current Reality Tree revealed the need to get a deeper understanding of our customers needs, so a VOC (Voice of the Customer) research was conducted, whose results clearly identified the need to reduce production lead-time, thus providing faster responses to the market. So a third wave of improvement projects was decided, using Lean methods and tools in order to improve our production logistics, with a radical change from production-toforecast to inventory replenishment according to the pull from customers. Lead time dropped significantly, as well as inventory levels, with improved product availability. Currently we have BMTP fully implemented, and that is the foundation for every improvement initiative we develop in ACOSA. We have standardized the use of TOCs Thinking Process for identifying our companys constraints and corresponding strategic plans. The success stories are numerous and quite consistent, as witnessed by increased customer satisfaction year after year. In terms of economical impact, already in the first year applying those systemic improvement methods we have reaped a 7:1 return on investment, and a gross margin increase of 40%. In summary, the E360 model has accelerated our organizational growth by means of high impact improvement projects, with tangible results for all of our stakeholders. (Byron Solano, Organizational Development Manager, Aglomerados Cotopaxi S.A.)

Conclusion
An integrated approach has been proposed to synergistically combine the best contributions of TOC, BMTP, Lean and Six Sigma, which are, respectively: identify and treat the core organizational problems blocking better exploitation or

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elevation of the organization growth constraint, systemically integrate and standardize the business process chain, eliminate all types of waste and drastically reduce key process variation. Founded upon sound values and clear mission, and guided by true leadership on key business aspects, any organization can benefit from the systemic integration of those powerful methodologies.

References
L. Rubrich, M. Watson, A. Larson (2001): Blending Lean and Six Sigma Workbooks, WCM Associates. D. Nave (2002): "How to compare Six Sigma, Lean, and the Theory of Constraints", Quality Progress magazine, March 2002. M. L. George (2002): Lean Six Sigma: Combining Six Sigma Quality with Lean Production Speed, McGraw Hill. E.M. Goldratt, A. Goldratt (2006): TOC Insights into Operations, Goldratts Marketing Group. E. C. Moura (2002): Business Management by Processes An Executive Briefing, Qualiplus Consulting. E. C. Moura (2006): Integrated Business Process Standardization Training Manual (in Portuguese and Spanish), Qualiplus Consulting. K. Ishikawa (1985): What is Total Quality Control?: The Japanese Way, Prentice Hall. H. James Harrington (1987): The Improvement Process, ASIN B001CC5Q9K. S. Hronec (1993), Vital Signs, AMACOM. 2009-2010 Criteria for Performance Excellence, US National QualityAward, http://www.baldrige.nist.gov/Criteria.htm

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EXCELLENCE CRITERIA ORGANIZATIONAL IDEOLOGY Figure 1

RESULTS ANALYSIS

IMPROVEMENT PROJECTS

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OPPORTUNITIES DEFINITION

IDENTIFY v HIGH-IMPACT THEMES

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Figure 2

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TABLE 1 - MAIN SYNERGISTIC INTERACTIONS BETWEEN THE FOUR SYSTEMIC APPROACHES TOC is helped: Lean is helped: TOC's TP or S&T provide priority (focus) to Lean implementation projects. TOC concepts and tools facilitate better management of flow bottlenecks. TOC's Critical Chain improves complex Lean projects management. Six Sigma is helped: Provides priority (focus) to Six Sigma improvement/innovation projects. TOC's logical trees (esp. CRT and Cloud) can be used to innovative solution of technical or managerial problems. TOC's Critical Chain improves complex SS projects management. TOC's Throughput Accounting (TA) provides better evaluation of the financial impact of SS improvement projects. BMTP is helped: TOC's TA provides guidance for defining better financial performance indicators and decision making. TOC's Critical Chain provides effective management of BMTP implementation project. TOC Solutions are standardized into business processes, making them much more effective.

TOC helps:

Lean concepts and tools facilitate the implementation of TOC Solutions, by providing more Lean visual control, less dependency of helps: computer systems in the daily operation and wider people involvement. Six Sigma's central value of customer satisfaction provides balance and reinforces long-term vision to TOC's emphasis on financial performance Six (throughput). Sigma Six Sigma statistical tools help helps: better analysis, configuration and timely adjustment of material/product inventories and time buffers. Six Sigma focus on variability reduction helps Lean to achieve more stable and reliable processes, through the study and optimization of process variables.

Lean concepts and tools help the Six Sigma's focuses of less process variation and increased customer satisfaction, by attacking wastes and thus providing more stable processes and quicker response times.

Lean concepts and tools greatly help to achieve simple, effective and visual process standardization. The daily work of Kaizen teams provides continuous process improvement and standardization. Six Sigma structure of Black Belts and Green Belts provide highly qualified teams for attacking critical, complex organizational improvement projects.

BMTP builds an integrated and responsive organizational chain that greatly improves the efficiency of system constraint exploitation and elevation projects. The fact that BMTP standardizes BMTP the information/materials flow helps: and connection between processes and departments greatly facilitates subordination, which is so critical for constraint exploitation and elevation. BMTP breaks the "silo mentality" so detrimental to TOC's systems thinking philosophy.

BMTP helps Lean by approaching the subject of process standardization and continuous improvement from a company-wide, integrated perspective. The know-how and improvements from Kaizen efforts are systematically captured and incorporated into business processes.

The leadership structure, the identification, selection and management of SS innovation/ improvement projects is formally designed and standardized into the business processes, which provides sustainability of the Six Sigma initiative.

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