Achieve Business Growth with At-the-Customer For-the-Customer Lean Six Sigma Projects
There is a tragic misconception about Lean Six Sigma and process improvement initiatives. There are some who believe that the primary purpose of Lean Six Sigma is to reduce operational costs by reducing the headcount in an operation. This concept is so flawed that it is inconceivable to me that any valid practitioner could adopt such a mentality. Nonetheless I have begun hearing it more and more from the mouths of those touting certification as Black Belts.
One of the core tenets of Lean Six Sigma is that quality should not suffer to reduce operational steps and costs. The human interaction element is core to the quality of any service operation. By creating or fostering the notion that Lean Six Sigma primarily targets headcount reduction for cost savings only builds negative morale and perceptions about the methodology. This negative perception results in limited acceptance, support and adoption of the methodology.
Larry Bossidy, a former Honeywell Chairman of the Board, was quoted as saying the following about growth: "You've got to have growth to live. The idea that you can cost-reduce to prosperity has been proven to be absolutely incorrect."
Effectively running Lean Six Sigma practices should work in conjunction with the sales or client management teams to sell the capacity that successfully completed projects create. This capacity can be sold internally from the operation to sales. This new capacity can now be sold at any price point as this capacity is sold at a 100 percent profit margin.
The General Electric ACFC Approach
ACFC (At-the-Customer For-the-Customer) is a term originated at General Electric. Unlike traditional DMAIC projects that focus on an organization’s internal processes, the ACFC focuses primarily inside a customer’s environment. The project is based on improving a business process that affects both the supplier and receiver. The bulk of the project benefit may flow to the customer or partner and not the vendor. This then establishes or enhances the vendor-client relationship to grow into a business partnership. The ultimate strategy for the Lean Six Sigma project benefit is to be re-directed into new or additional business from the vendor. At worst the project maintains revenue that could have been completely lost. An ACFC project can be a great tool to move your organization from a delivery vendor to a business partner.
The Six Sigma for Growth approach begins with discovering business and revenue growth opportunities. Once these opportunities are identified they should be ranked and refined to prioritize the selection of growth projects. This discovery works as a funnel to identify project opportunities and convert them into service opportunities. This approach is derived from the work of Peter Drucker and others whose focus areas on innovation are useful to identifying growth opportunities.
It is vital that this discovery step is conducted systematically. This discovery augments the effort in opportunity identification and project selection. Many companies that have deployed Lean Six Sigma practices still are challenged in feeding the project funnel with good quality project opportunities.
Here is a case study on a specific ACFC Lean Six Sigma project that was identified as a growth opportunity and converted into a service opportunity. It went on to deliver high initial benefit to the customer and long term annualized revenue to the supplier.
ACFC for Growth Case Study:
Business Problem: Major account acquired a $1M document management tool to empower divisional group’s development, tracking and storage of operational forms. The cost and cycle time for the creation of each division’s application exceeded acceptable limits for the divisional units. Current production took 25 days and cost $25k each. The client desired a production cycle of two days at $2,500 each.
The client ceased ordering application front ends and threatened to pull out of the entire deployment. Such action would result in significant legal action, revenue and productivity losses.
Project Goal: Reduce development time and cost by 90 percent for each deployment.
Project Initiation: The operations management prepared to release the workforce that had been secured to support this document management production cycle. The client’s request volume reduction resulted in excess staff. Sales and the practice management collaborated to resolve the problem with the operations team. Sales proposed to the customer that if the operation could reduce the production cycle from 25 days and $25k to two days and $2k would they sign up for a minimum number of orders. The client agreed. The volume agreed to was sufficient to exceed the existing revenue and profit objectives for the operation team.
Project Outcome: Sponsorship from the vendor’s process owner and the vendor’s process owner launched a cycle time reduction project led by the vendor’s Lean Six Sigma Black Belt. The results of the project exceeded the objective. Because of the increased volume of orders the existing team was maintained to handle the workload.
Project Benefits:The client saved $600k; the vendor secured over $160k in new revenue and avoided $210k in termination costs. Additionally the vendor now had a replicable low cost, high speed delivery system.
This accomplishment was achieved with the cooperative efforts of the sales, practice, operations and client.
In Sum: Lean Six Sigma Can Be Used as a Tool for Growth
All companies that remain in business will be faced with the traditional operational challenges of managing costs and increasing revenues. Lean Six Sigma is a tool that can help not only reduce costs, but also increase revenue and simultaneously increase quality. This can all be accomplished by utilizing rigorous discovery efforts and coordination between the customer product/service delivery teams to identify opportunities with customers. The objective is to provide a service that they do not currently receive and are willing to pay for. By improving or creating processes to deliver these desired services Lean Six Sigma can be used as a solid tool for growth.