Cost management & lean six sigma.

Author:Patel, Praful

Lean Six Sigma is a continuous improvement process aimed at maximizing value for the customer. Praful Patel explains how Lean Six Sigma can be an effective cost management tool to improve capability.

In today's environment of fiscal austerity, it is imperative that government activities maximize cost benefits and improve capability at all levels. The cost management toolset consists of processes such as Lean Six Sigma (LSS), Value Engineering, Value Stream Mapping, Theory Of Constraints and 5S (Sort, Systematize, Shine, Standardize, Self-discipline), and various other continuous improvement processes. These continuous improvement (CI) processes are cost management tools that help maximize value to the customer, and are widely used in private and public sectors. Most of these CI tools have been used very effectively in manufacturing and service industry for the last several years to reduce life cycle cost. The key essence of cost management is to maximize value for the customer. Value to the customer is defined as capability divided by cost. In other words; to improve customer value for a given level of capability, cost has to be reduced.

Today, our focus is on Lean Six Sigma. We will discuss Lean and Six Sigma processes, how they are integrated to form LSS, and how LSS can be an effective cost management tool to increase value to the customer by reducing cost and achieving a shorter product development cycle. This frees up resources for greater improvements in capability.


Lean thinking is a dynamic, knowledge-driven, customer-focused, and structured employee thought process with the objective of continuous improvement and delivering measurable results. This thought process strives to eliminate waste and create value to the organization and customer. Lean principles can be applied to all key organization business processes:

* Management process, which governs the operation of a system. Examples include corporate governance and strategic management.

* Operational process, which constitutes the core business and creates the organization value stream. Examples include contracting, manufacturing, and engineering.

* Support process, which supports the management and operational processes. Examples include accounting, recruiting, and IT help desks.

Lean manufacturing can be traced back to the automobile industry with Henry Ford's innovative assembly process for the Model T, but its awareness grew significantly after being used at Toyota Motor Corporation in the early 1980s. More recently in the United States, James Womack of the Massachusetts Institute of Technology, has been a leader on developing lean thinking, researching lean tools, and developing training for employees.

Lean thinking seeks to identify and address non-value adding activities in any process, while leaving process steps that add value to the customer. The seven types of waste are overproduction, waiting, transport, inventory, rework, motion and defect. A key objective of any management strategy is elimination of waste. The objective of waste elimination needs to be flowed through the aligned business framework and into leadership goals and the organization's annual budget development process. These well-defined objectives can be measured and tracked through balanced score card techniques. The key for implementing Lean is competitive benchmarking, widely used in industry to develop organization objectives in support of meeting internal budgets. Benchmark can be a measurement of either functional or schedule outcome that can be transformed to cost.

The Value Stream Mapping process is an organized technique for developing the current state of the process, assigning value to each process step, and achieving a clear understanding of resources used in each step. This Value Stream Map can then serve as a starting point for lean thinking. An empowered team can develop an action...

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