BA 850
Sustainability Driven Innovation

Operational Efficiency


Operational Efficiency

Lean: Sustainability's Blue-Collar Brother

In understanding operational efficiency for many of the world's corporations, two systems of thought tend to predominate: the Toyota Production System (TPS, more broadly known as "Lean") and Six Sigma.

Although Lean and Six Sigma are systems used to create, hone, and, over time, optimize virtually any process or system, it is important to note that a central concern of each is the elimination of waste. While sustainability may deal with the longer-term ramifications of overuse and waste, as well as other wide-ranging implications, this expression of sustainability on the plant floor is as elegant and brutally efficient in intent as it is in execution: Waste costs measurable amounts of money. Period. There is no nuanced interpretation, no delicate interpretive dance of language to be had here, which is perhaps why the application of these systems are so popular with CFOs and operations management alike.

Underscoring some of their shared underpinnings, Lean and Six Sigma share essentially the same definitions of waste:

8 wastes of lean 6 sigma: inventory talent waiting motion defects transportation overprocessing overproduction. See text description below
Click here to expand a text description
Definitions of the 8 wastes in the Lean Six Sigma are described as the following:
  • Inventory is the excess products and materials not being processed.
  • Talent is understanding people's talents, skills, and knowledge.
  • Waiting is the time wasted waiting for the next step in a process.
  • Motion describes the unnecessary movements by people (e.g., walking).
  • Defects are the efforts caused by rework, scrap and incorrect information.
  • Transportation is the unnecessary movements of products and materials.
  • Overprocessing makes more work or higher quality than is required by the customer.
  • Overproduction is production that is more than needed or before it is needed.

In consideration of what is a shared prescription of two of the dominant efficiency systems in the world, let's consider the sustainable underpinnings of the eight wastes and the types of aspects related to each waste:

Type of Sustainability Aspects Related to Eight Wastes
Lean Waste Examples of Related Sustainability Aspects
Inventory Waste
  • Oversizing of warehouse and production areas, increased energy usage (Planet)
  • Unnecessary frustration of moving excess inventory to reach needed bays (People)
  • Inefficient use of capital and resources (Profit)
Talent Waste
  • Decreased employee satisfaction and engagement (People)
  • Inefficient use of one of the organization's most valuable assets (Profit)
Waiting Waste
  • Energy waste from idled or below-capacity use of machinery and buildings (Planet)
  • Energy waste from idled or below-capacity use of machinery and buildings (Planet)
  • Increased labor cost; Inefficient use of capital and resources (Profit)
Motion Waste
  • Excess motion likely means unnecessary energy and fuel consumption for machinery (i.e., conveyors, forklifts, etc.) (Planet)
  • Potential for increased injuries; Excess "round trips" on site likely unrewarding; Increased physical requirements for the same job; Position may no longer be appropriate for older or less-conditioned employees (People)
  • Increased labor cost; Increased injuries; Increased cost of energy; Decreased machine life (Profit)
Defects Waste
  • Increase in disposed packaging and product; Increase of in-line waste; Additional materials/processes/energy needed to rework (Planet)
  • Increased frustration and decreased morale in employees (People)
  • Decreased profitability from writeoffs and increased waste (Profit)
Transportation Waste
  • Increased Scope 3 energy use and emissions; Increased use of related chemicals and solvents (Planet)
  • Need for transport support potentially reducing opportunities in other positions (People)
  • Decreased profitability (Profit)
Overprocessing Waste
  • Unnecessary use of resources, energy, or materials which are not adding value (Planet)
  • Unnecessary work and potential for injury; Decreased morale in doing "busywork" (People)
  • Decreased profitability (Profit)
Overproduction Waste
  • Excessive energy use and emissions; Wasteful use of materials (Planet)
  • Unpredictable shift loads; Potential for temporary disruptions or layoffs; Decreased morale (People)
  • Decreased profitability; Increased overhead (Profit)

Especially in regard to sustainability's efficiency imperatives, we may find that the Lean/Six Sigma waste principles as practiced today are far more advanced and prescriptive than any GRI report or sustainability management system when it comes to the overall consideration of all types of waste. Where GRI may be far more focused on the defined wastes and setting indicators, Lean/Six Sigma takes a more holistic view in opening the facility to see the less obvious, but equally erosive, wastes.

Furthermore, and of key interest for our efforts in creating sustainability-driven innovation, is that the last 30 years of heavy worldwide adoption of these management systems presents us with ample numbers of cognitive "hooks and anchors" from which we may build a platform. For anything from beginning a sustainability initiative internally to creating a B2B offering, the philosophies of sustainability may already be deeply embedded in the organization already: they call them Lean/Six Sigma.

As we will cover in coming Lessons, our goal then is not to unnecessarily create new ideas (which is difficult, and frankly, expensive), but to build on and extend the thoughts, feelings, and frames that already exist in the in the minds of customers.

Caterpillar's Use of Six Sigma in Supply Chain Sustainability

Caterpillar is arguably one of the foremost adherents to this efficiency thinking, applying Six Sigma at very high levels throughout not only its organization, but the organizations within its supply chain. In a sense, this push functioned as a very proactive effort on the part of Caterpillar to drive efficiency and waste reduction in its suppliers and to allow its suppliers to work together to find ways to become more efficient. A few highlights from a Gillett, Fink, and Bevington piece in Strategic Finance about Caterpillar's use of Six Sigma:

In addition to its own use of 6 Sigma, the company has taught its suppliers and dealers about the benefits of using the technique to refine the entire sales model. Caterpillar has introduced 850 suppliers worldwide to 6 Sigma, which has created more than 1,000 supplier Black Belts to help run the projects. One supplier that said it was interested in the Caterpillar 6 Sigma methodology allowed Cat to consult and transform the business. When implementing 6 Sigma, Caterpillar used facts and data to show the results the supplier could expect, so it didn’t take long for the supplier to totally buy in to the methodology.

Dealers have also taken on the 6 Sigma commitment. More than 165 dealerships have produced more than 1,000 Black Belts to help with projects. Dealers find it amazing that they can share their projects with one another on a Caterpillar website that depicts best practices among the dealers. Even though each dealership is run as a separate business, 6 Sigma has helped give all of them a common feel across the world. Not only are dealerships learning about projects that need to be done in their business, but they’re following the steps of the process and learning which projects to do first. Just as Caterpillar embraced the methodology, dealers have also accepted the idea of making 6 Sigma a top-down methodology that pushes the training and concept down to the workers at the lowest level.

While Caterpillar's Six Sigma push started in 2001, a full four years before it would issue even its first sustainability report, the links between the two efforts are readily evident: In both the CAT approach to Six Sigma efficiency and its sustainability efforts, the drive for waste reduction and efficiency is coming from a very directed and structured approach, one which has its roots in operations.

The intermingling between Six Sigma, operations, production, and sustainability at Caterpillar becomes even more evident when examining the Critical Success Factors statement of its Sustainability Vision, Mission, Strategy:

Critical Success Factors

Culture. Create a culture of sustainability in all our business units and in all our daily work.

Progress: We promote our employees’ awareness and understanding of sustainability. We continue to foster a corporate culture of transparency, disclosure and engagement.

Operations. Champion our sustainability principles and contribute to 2020 aspirational sustainable development goals.

Progress: The Caterpillar Production System provides the recipe for efficiency and excellence in our facilities. We actively encourage employees to conserve resources and be more efficient. Operating in a more efficient and sustainable manner will reduce impacts on people and the environment, and help us and our customers save money.

Business Opportunities. Identify and pursue business growth opportunities created by sustainable development.

Progress: We are actively embedding sustainability throughout our Caterpillar brand portfolio, our new product development process and our technologies. Our business leaders continue to drive growth in sales of products, services and solutions that help customers meet their sustainability challenges. We utilize 6 Sigma methodologies to focus our work and drive measurable benefits.

For one of the world's foremost manufacturers, it would appear a significant portion of Six Sigma enables its sustainability goals, and vice versa. In these types of operations, operating from a place of infused, organization-wide sustainability, it can be very difficult, if not impossible, to determine where "sustainability" ends and "operations" begins.

Five word summary - Sustainability on the plant floor