Chapter 1. Why Use Lean Six Sigma to Reduce Cost?

With Michael L. George and Mike Tamilio

Several years ago, a hydraulic hose company that was a Tier 1 supplier of hoses and fittings to the automotive industry found itself barely profitable, generating a negative 2 percent economic profit. A telltale sign: customer order lead time was 14 days when the industry average was 7 days. Yet its leadership, not attuned to the relationship between process velocity and cost, didn't realize that speed was a main driver of the company's poor financial performance. In addition to long lead times, the company also suffered from poor quality, and frequently shipped defective brake and steering parts to its primary customers.

In less than two years, the company had made a remarkable turnaround (see Table 1.1).

How were such remarkable results enabled? Through a focus on cost reduction? Partly, but the strategic alignment was around enterprise speed— reducing waste across and between functional units, which brought with it cost reduction and true competitive advantage.

For example, one client was a leading manufacturer of heavy duty trucks. Unlike other customers of this Tier 1 supplier, the truck manufacturer created a high proliferation of end items (mostly low-volume runners) required for its wide variety of truck models. When we helped the hose company complete some complexity analytics (similar to those described in Chapter 10), we discovered that process improvement was not its highest opportunity ...

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