Six Sigma Observations

      Principles for developing efficiency in the workshop. November 3, 2004

Question
A fellow applied for work here who was a foreman at another woodworking shop. It seems that the company he was working for was undertaking initiatives to become a LEAN manufacturer. The company had brought in some outside consultants to get the crew up to speed on the LEAN concepts. These consultants spent some extra days with the foreman and other key personnel. This fellow had been doing woodworking for 17 years and was convinced that he didn't want any part of this new concept. He didn't trust it. He didn't think it was necessary.

I told him that my company was trying to become a LEAN manufacturer. I commented to the fellow that he'd been doing this for 17 years and twice in the last 30 days he'd heard a cabinet shop owner talk about LEAN. I asked him if he thought this was going to go away.

This fellow came to mind during the recent posts regarding Six Sigma. In my neighborhood, there is a company called PACCAR that builds Kenworth and Peterbilt trucks. PACCAR uses Six Sigma as their manufacturing paradigm. The local business journal ran an article about this company recently. They noted that during a time period when other truck manufacturers were going out of business, PACCAR's stock value doubled. Three sentences later they made the observation that workers at Paccar never have to spend time looking for tools. Modern Woodworking Magazine does a great job introducing you to some success stories. This would be a good place to start.

Forum Responses
(Business Forum)
From contributor P:
Help me out - before I try to wade through the dogma of LEAN/Six Sigma, how does this one fit in with the other flavors of the month?



From contributor B:
There is nothing wrong with wanting to run your business in a LEAN efficient manner.

As outlined previously, such would be anti-free market. What would that be?



From the original questioner:
Check out some of the Modern Woodworking magazines from summer and fall of last year. They had an article about a company called Woodland Furniture. According to the article: what used to take these people 4 to 6 weeks to accomplish now takes 3 to 4 days.


From contributor S:
The biggest problem I have with this is that most desk jockeys and bean counters have this perception that all trades are the same. That every manufacturer, no matter if they produce cabinets or cars, can work under the same system.

The truth is that anything built from memory, like an engine for instance, where the worker is handed a bunch of parts and tools to assemble, is nothing like building something from scratch.

If I remember my biology teachers correctly, we use different sides of the brain to accomplish different tasks. To build a piece of furniture you use your artistic part on the left. For building by memory, you use your right side.

Once you force a person who is required to be artistic to think with the other side of the brain, you take away the one tool in your shop that is the most valuable. That is the ability of your crew to have abstract or problem solving ability.

Now, if you are aiming to just assemble the same line of products every day, then the same system that works for a truck building company can work for you. If you build custom, you will be brain clamping your workers and you will have very basic human behavior problems in your shop.

Assemblers and artists don't think the same way or even with the same part of the brain. How can one system work for both?



From the original questioner:
The initial premise of my post was the observation that a world class manufacturer achieves greatness by focusing on things as simple as being able to find a tool. My hunch is that this would work for right brain people and left brain people.


From contributor A:
Six Sigma is basically a method of reviewing how things are done (i.e. time studies, data tracking, etc.) then making an improvement to that process and measuring the results. Some companies (i.e. very large and publicly held) have value to the shareholder, as that company is trying to make improvement. It has a significant cost and most initiatives stop before they become effective. I have worked for Honeywell and Johnson Controls and they all go through this stuff.

In my opinion, the concept is good; the trouble is in the cost benefit. Usually Six Sigma hires consultants (i.e. $300+/hr, yes, much more than cabinet shop workers make) and also take the top guy out of production to focus on measurement, improvement and reporting (i.e. best guy is now a paper pusher and hates collecting data). The reality is the company needs to be large to absorb the investment and implement the changes.

I think one of the best ways is to talk with peer shops about Lean, etc. and you will likely get some good insight from outside your competitive market. Maybe take your top guys out to lunch or dinner and explain to them the big picture and how you would like to include them in a profit sharing program so everyone will benefit from the bright ideas. I think this is the best way. Consultants will charge a huge amount and most normal people don't change unless motivated.

Good luck, and I'm all for improving the industry. I will know the industry is changing when these things happen:

1) Woodworkers shower, shave and clean their glasses before getting their photo on the cover of Fine Woodworking magazine.

2) Woodworkers have business cards that include an e-mail address they check daily like their mail box.



From contributor P:
The points that they are talking about in that article seem very similar to the theory of constraints.


From contributor S:
This is the first time I have heard of Six Sigma and I'm attempting to understand it.

I think we have all been fed into a similar grinder some place or time. It boils down to the same thing - cut cost; increase productivity. It's like saying "eat less, exercise more." How many people have lost weight hearing that?

I just remembered a joke. The boss has everybody from the workshop in the boardroom. Boss: Now hear this, men, we are going to have meetings every day till we figure out why nothing is getting finished in the workshop.



From contributor J:
Couple of observations from someone who has an MBA (and working on the PHD):

1) Six Sigma is a wonderful process. But SS will not define the art which is part of the woodworking experience.

2) For someone who is starting a process analysis - stop! Do it yourself first. There is a business concept that states the following - 20% of your effort produces 80% of your gain. It's called the Patero Principle.

Apply it by doing the following. Sit down and look at your job orders and determine the profit margins that each job type generates for your business. Concentrate on the jobs that do not contribute to a profit or deliver the lowest profit.

Sit down with your production crew and show them that that one or two jobs are marginally profitable. Suggest to them we need to come up with a better way to make the product - then shut up! The best solutions usually come out of those closest to the problem. If the solutions look rational, implement them, then track the results for those jobs. If after the improvement, the job is still not profitable, drop it from your product line - it is not contributing to the business.

If you are successful, you will note that other related jobs will gain from the same improvements without additional action.

Now repeat the process. Some other job is now the unprofitable nail to hit. Repeat, repeat, repeat.

3) MBWA. Jack Welch, Chairman of GE, had the habit of just walking around. It's called Management By Walking Around. More applicable in a larger outfit, but a manager can observe how the shop is running by just observing. It beats production reports 10fold.

4) Velocity Analysis. If you have the Patero method nearly completed, look at the speed with which jobs and materials move through the shop. Applying the Patero method, look at the process with the longest time interval. Can you eliminate the step? New tooling? Better training? Finished? Implement the solution that shortens the process. Move to the next process. Repeat, repeat, repeat.

After you have run through these steps, look back and see what has been accomplished. If the results look good, you have become your best consultant. If you believe there is more to gain, consider bringing on a SS or LEAN team. But by all means, do your own homework first. It will be the most profitable.

To close, the definition of a consultant is someone who borrows your watch, looks at it and then tells you the time. Look at the watch first before you call in the consultants.



From contributor P:
I would have to disagree with the Patero method you are referring to a little. This is a mature industry and so the market goes up and down with the economy. If you diversify, you can stay afloat by being in other sectors of the market even if they are not the most profitable areas of your business. Trying to get into these sectors, after the most profitable one you were in dries up, takes too long.

Thanks for a better understanding of the Six Sigma concept.



From contributor J:
Your observation is noted. However, there is a difference between market penetration as you mention and preliminary job cost analysis. Patero attempts to improve the job level effort to the enterprise in incremental steps. Patero is seldom used in the marketing arena. Marketing is not a job oriented process.

As to implementing Patero rapidly... It can be done if the firm has a grip on its current job costs. Low producers can be rapidly identified. If a firm is running a particular job several times a day, identification to implementation or elimination can be completed in 3-4 days. Since process improvements can impact multiple jobs from a single change, it is quite possible to have eliminated 30-50% of non-profitable effort within a month.

Every business has a marginal rate of return required to stay afloat. A healthy business would have a stable or increasing return rate. If by moving your marketing thrust to stay afloat you are also lowering your marginal rate, your end result is a slow slide into closing your doors if you do not adjust your internal costs as well.

Other than a few high tech industries (eg biotech, not computers - that's mature too) most every company in the US is in a mature market. Every one of them is feeling the pressures from imports and lower overseas labor costs. About the best I can note is that the US steel industry has adjusted to specialty products. The niche players now produce more steel than the old line makers and consequently, steel production in the US has been on the way up for the last 5 years even as steel imports increase from overseas.



From contributor P:
Most of the posters on these forums are small cabinet shops and donít have a line of products. I think we tend to be a service and a product. We are interested in what works. And what you say makes sense, however looking from my perspective if you concentrate on the most profitable jobs and narrow your focus to niches, you are more vulnerable when that niche slows down. You can say this is a marketing problem, but we make more money from store fixtures than we ever will from commercial work or residential work or restaurants and if I follow what you say, then I would only do fixtures and shut the business down when that market slows below the breakeven point. The guys I see on these forums that are consistently the most successful are diversified and for sure with an eye on the bottom line.

I get the feeling that the Patero method can easily turn into a once in a while kind of project when the boss is motivated to do it. My method is to use graphs updated weekly to monitor the vital signs of the business. This keeps me Looking (mbwa/Sam Walton) all the time and at the pertinent situations, not just what I happen to see. Not to play one upmanship - I just think this concept needs to be policy, not just a project.

I remember reading about the steel mills in the book ďPassion for ExcellenceĒ or one of the other flavors of the month. If I remember right, the mini mills were able to produce a ton of steel in 5 hours, whereas the Japanese were producing a ton in 7 hours and the conventional mills were taking about 10 hours. Are you saying that the mini mills are now producing more steel than the conventional mills that disappeared in the 70ís, by focusing on niches?



It's not the Patero Rule - it's the Pareto Principle, named after the Italian economist, Vilfredo Pareto who first wrote his findings in 1895, which is now commonly referred to as the 80/20 rule.

You can now continue with your flagrant erudition.



From contributor J:
To a certain extent we might be bantering about a difference in terminology. In the SS world, a job is a step that produces the final product. I get the impression you consider the job what I would call the commission. Am I right?

It would be a real accomplishment to do a SS process analysis on a firm of less than 50 employees. The costs of performing the analysis with outside consultants would consume some firms' quarterly profit. Not many firms of that size would accept the loss.

That is why I suggested Patero. It is simple in concept and easy to grasp. Execution is moderately difficult. Nor does it require some outside consultant.

Would I take on commissions that are not contributing to marginal returns? I might, but there are a lot of variables. For example if I was a moderate sized firm and owned a multi head borer for 32mm work, but don't have enough work yet to amortize the full cost, I might subcontract work at cost to get my volume up.

But the 1-5 man cabinet shop does not have the luxury. Working capital is slim. Every dollar earned needs to contribute to marginal returns so as to increase the working capital pool.

If Patero shows a line of commissions is unprofitable and your improvements do not lower the internal costs, does your market permit some increase in price in the market?

Contributor P, I have to ask - who are you working for, you or your customers? If you are taking commissions that only recover your costs, then you are working for the customer and not yourself. And yes, it is tough to give up offers that have been in demand and keeping the shop busy.

Diversity of product line is always a good thing, regardless of size. But I usually attempt to keep the diversity down to those items that match the tooling that is in house. It's what works for me.



From contributor P:
Yes, it is a commission. Matching services to capabilities, the market here in So Calif won't allow anything else.

What Iím saying is that if you only concentrate on the most profitable work, it can come back to bite you. We did just that with small chain retailers and got bit as that market took a hit at 9/11. I donít disagree on eliminating inefficiencies on those services - that is a given, as long as it is on an ongoing basis.

You have to find out what is needed and wanted and produce it. And you have to constantly monitor what is needed and wanted and change to accommodate what is needed and wanted. This is a two way street - what is needed and wanted by the customer and what is needed and wanted by you. But for the sake of long-term viability, you donít want to make the mistake of putting too much of your attention on the shop efficiencies and forgetting that the market changes fast and that you should put a lot of your attention there. E.g. when mortgage rates change, a lot of shops that are doing residential are going to disappear. Or if you make only Formica counter tops and stone and granite are the thing, then you best learn how to do that. Or if you move your shop and you get involved in the grand vision of the new shop and forget to monitor the production and your cash flow disappears. And between the two, marketing trumps production every time. I think us cabinetmakers are a rather introverted bunch and suck up these things like six sigma and all the other flavors of the month, but if that takes your eye off the ball of the above, then to that degree it becomes specious. And specious thinking has probably killed more businesses then anything else.



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