Lean Six Sigma - Acceleration Leading to Higher Costs

Lean Six Sigma has garnered a reputation for improving production cycles, leading to lower cost-per-item improvements. It creates a more efficient environment for worker effectiveness, removes operational risk through active measures, reduces storage requirements, and insists upon lean supply practices.

Another thing Lean Six Sigma permits is the completion of a goal set at an accelerated pace. Tasks are completed early. Goods and services are procured, personnel and machinery are employed, and outcomes are achieved. But how can doing things more efficiently increase costs?

This is a special case and does not apply to all circumstances. The case in point is a large program that spans years or decades. This short lesson employs a fictional research firm, Light*Speed*Function (L*S*F) as its example.

L*S*F conducts research and creates prototypes for light speed technology. The corporation employs 200 scientists and technicians at a compound located in Texas, USA and is chartered to, "Conduct scientific research toward understanding of the conditions required for light speed (and beyond) travel for unmanned and manned spacecraft, the development of technologies required to achieve these conditions, and the creation of reproducible prototypes to incorporate into and support the functioning of those spacecraft, and market the technologies to government and industry."

Lofty goals.

The program manager, Dr. Brainalot, has conducted a high-level design including reducing the distance between points in space, forcing the spacecraft across the reduced distance to the target location in space, tracking initial location, recording progress, determining spacial orientation, informing the control system, and establishing crew piloting in manned L*S*F spacecraft.

For this, an anonymous government or private entity has guaranteed an annual budget of 13 Billion US Dollars, with annual adjustments for inflation.

After several years of mediocre progress, Dr. Brainalot commissions a Lean Six Sigma team to improve processes throughout the organization. Just under eleven months pass, and the team's improvements have been incorporated into L*S*F's business model, standard operating procedures, ISO 1000 practice framework, and the rest of their corporate culture.

There is a minor breakthrough. A sub-widget, Project 1-A-i-a of the space shortening device, has been developed in half the expected time but at the full cost estimated. Team 1-A-i-a tee-shirts are issued and Brainalot throws a wrap party. This is where the trouble begins.

Team 1-A-i-b pulls most of Team 1-A-i-a, but Farley is laid off and Haley (a widget specialist) is hired. 1-A-i-b has the same budget as 1-A-i-a, but work and spending have begun early. When Team 1-A-i-b finishes in half the time as well, expenditure for the overall project has doubled.

There is a funding shortfall.

Projects take less time to complete. The next project can begin that much earlier. Timelines are compressed. Without offsetting cost reductions within each project and project part, the overall program ends up costing more (but producing more) than the program prior to Lean Six Sigma optimization.