Optimization vs. Local Suboptimization

[Michael T]

Greetings all....

I thought I might start off this topic with a conundrum that I ran into today.

I just received the September 2001 edition of Quality Digest, in which Thomas Pyzdek, in his article "Six Sigma: Quality's Evolution?", tabulates the differences between Six Sigma vs. Quality. One of the differences listed under the Six Sigma column, he states, "Goals flow down from customers and senior leadership's strategic objectives. Goals and metrics are review at the entrerprise level to assure that local suboptimization does not occur."

Now, according to Dr. Deming, "The obligation of any component is to contribute its best to the system, not to maximize its own production, profit, or sales nor any other competitive measure. Some components may operate at a loss to themselves in order to optimize the whole system, including the components that take a loss." {The New Economics, page 100}.

My take on this is that Dr. Deming is correct in his ascertion, and I'll illustrate with an example:

Process "A" manufactures widgets that feed into Process "B" which transforms those widgets into thingama-jigs. The output capacity of Process "A" is 1000 widgets per hour. The output capacity of Process "B" is 750 thingama-jigs per hour. The capacity of Process "B" cannot be increased without significant capital expenditure. Market research has indicated that there is sufficient demand for thingama-jigs to warrent that expenditure, but the capacity of Process "B" can only be increased to 900 thingama-jigs per hour.

The money is spent on new equipment and Process "B" is now increased to 900 thingama-jigs per hour. Now if Process "A" is optimized, every hour there are 100 excess widgets sitting on the shop floor waiting to be moved into Process "B". At the end of an 8 hour shift, there will be 800 widgets in "work in process" inventory, or at the end of the week, there will be 4,000 widgets in "work in process" inventory. The cost of the widgets is now a "sunk cost" which ties up money which might be used elsewhere.

So, what benefit is derived from assuring that local suboptimization of Process "A" is not occuring?

Any thoughts, comments, critiques?

Cheers!!!

Mike

[Kevin Mader]

The benefit of not suboptimizing Process A is that you do not build unwanted inventory, create flow, and work efficiently. Unwanted inventory is waste that the Customer does not want to pay for, but does when organizations ignore this lesson.

Brian Joiner uses a clever example of a team of rowers. If each were to do his individual best (maximize effort), the boat would splash around and go nowhere. However, if each rower were to work in harmony, the scull would effortlessly glide across the river (optimization of a system). Some would obviously not work as hard as others, but the net result of everyones efforts would be more than any one persons achievement (synergy).

Dr. Deming's example of a Cafeteria running for a loss to the benefit of the organization is a classic example of how one component might sacrifice itself for the whole.

Regards,


Kevin

[Michael T]

Hi Kevin,

I completely agree.... perhaps I worded my question poorly. I am wondering why a firm would want to "assure that local suboptimization does not occur". It seems to me that Tom Pyzdek is espousing optimization of all processes and subprocesses regardless of the impact on throughput, downline process capability and inventory levels. This just doesn't seem logical to me.

Any thoughts?

Cheers!!

Mike

[Kevin Mader]

Hello Michael,

I like the Senge quote by the way.

As I am sure you are aware, Tom is a Statistician and has written a book or two on SPC before jumping on the Six Sigma bandwagon. As I have not read any of his books, my comments may be way off base, but here they are just the same.

As a proponent to SPC, he may be promoting the use of process controls without regard to suboptimization. In addition, the Six Sigma wave is primarily focused the pieces rather than the whole. Suboptimization appears to be the key to financial results. Regardless of what later Six Sigma authors have written, the comments directly from Mikel Harry clearly show that short term success through suboptimization is the factor to better profits and dividends. He is right if you don't look beyond the immediate results. However, he is dead wrong about creating constancy of purpose.

Mikel Harry views the Shareholder and the Organization preceeding the Customer. As such, the recipe for success in his program is suboptimization. Later authors have tried to close the gap in his program by adding emphasis to the Customer Satisfaction angle. Some have even tried to blend Dr. Deming's SoPK with Six Sigma. I'm not sure where Tom stands on this point, but I was abit disappointed when he jumped on the SS wagon.

Goldratt offers his three key business measures, amongst them he lists Inventory and Throughput. While I disagree with him on many aspects, I believe that these two measures are important to any organization. As such, they need to be measured and improved but as Goldratt states, they must be done in regard to the other two measures (he includes Operating Expenses). Although his view is a limited System View (mostly relationships), his point is valid. Optimization of the pieces leads to suboptimization of the whole. If Tom Pyzdek is suggesting the opposite, I fear he is also dead wrong.

Regards,

Kevin

[Michael T]

Originally posted by Kevin Mader
Hello Michael,

I like the Senge quote by the way.

Thanks Kevin - I'm a big fan of Senge - The Fifth Discipline is one of my all time favorites.

Unfortunately, I believe you are correct with regards to 6S being focused primarily on the pieces rather than the whole. In addition (from what I've read), it focuses on a dollar figure too. I find that disturbing since some critical changes necessary for customer satisfaction, process improvement, etc., may not have a big $$$ return and would be turned down as a 6S project. I think that aspect also fails to recognize the potential loss that can be incurred should a project not be undertaken. But then, how can that be measured? If it can't be measured, 6S doesn't want to deal with it.

Goldratt is good at focusing on processes (as well as telling a compelling story), but falls short when incorporating the quality aspect of process improvement, etc. I've only had time to read The Goal, so am not familiar with his other works.

Thanks for your input!!

Cheers!!!

Mike

[Kevin Mader]

Hello Michael.

Your observations of Six Sigma are very similar to my own. How do you measure a satified customer? How about a dissatisfied one? As I am sure you are aware of Lloyd S. Nelson's comment, "Most of the important figures are unknown and unknowable."

In addition, Dr. Deming stated in a letter to Dr. Joiner (foreword): "...It is wrong to suppose that if you can't measure it, you can't manage it. Most of the heavy losses caused by management today cannot be measured, yet they must be managed. Thus, management may spend $20,000 to train six people in a skill. This $20,000 is an investment. Its magnitude is known, $20,000. The future benefit (return on investment), however, will never be known, cannot be measured. Management's action is based on theory, prediction that the investment will pay off handsomely...", page ix, Fourth Generation Management.

Those organizations using only 'hard numbers' to determine projects are missing most of the important factors to doing business.

Regards,

Kevin

[Michael T]

Hi Kevin,

While I didn't intend this thread to be 6S bashing, and there are quite a few good things about 6S, the thing I find most distressing (as I've stated previously) is the use of dollar figures to determine whether the project is worth doing.

You are absolutely right, solely relying on hard numbers to make business decisions is dangerous. There are just too many factors that cannot be quantified (customer dissatisfaction is just one of them) to base business decisions solely on numbers. Unfortunately, colleges & universities are still teaching that type of management, existing upper management is using these types of criteria to determine who gets promoted (who is the rising star), etc. And still -- no one is paying attention to Mr. or Ms. Customer. Sure, a great many businesses say they do, but how many of them truly practice what they preach. For example, I attend a monthly "Network" meeting hosted by one of the community colleges that discusses things like Tools & Methods of Quality, etc. I recently brought up the topic of using QFD and applying it to help satisfy some of the Customer Focus issues in the new ISO 9000:2000 standard. Only 2 or 3 people (these people are quality managers, VP's, etc.) had even heard of QFD. So, the end of this month I'm giving a workshop on an introduction to QFD... we'll see how it goes...

Sorry for the beginnings of a rant...

Cheers!!

Mike

[Kevin Mader]

Mike,

Perhaps this should be in a thread of its own, but I fear that it would only create a critical and negative discussion. I will place it here for open and constructive debate, especially along the lines of this threads topic, optimization vs. suboptimization.

Looking at Dr. Deming’s System of Profound Knowledge, we know it is comprised of four key components: Appreciation of a System, Theory of Knowledge, Theory of Variation, and Theory of Psychology. These are guiding principles. They work together and are equally important. Honoring one without consideration to the other is suboptimization. I have my favorites for sure, but I believe this to be true.

Now Dr. Harry’s Six Sigma program operates differently. It has many of the same Quality tools, but what are the guiding principles? A philosophy must have underlying guiding principles to in fact be – a philosophy. Yet, I never see them discussed in the many papers, posts, and articles written on Six Sigma that I have read. Perhaps it is in one of Dr. Harry’s books (I have not read any books on Six Sigma although I have browsed many Tables of Contents). Still, I find it curious that I can find no evidence of any underlying guiding principles. This is why I cannot endorse Six Sigma as a philosophy as many claim it to be. By their definitions, they are right, I suppose. By mine though, they are wrong. Six Sigma is devoid of Profound Knowledge even if it shares many of the Quality tools found in other programs I feel have merit. Tools are not philosophies.

My filters are tuned to the SoPK, so perhaps my viewpoint is heavily skewed. When considering aspects of Six Sigma using these filters, I find it to be immoral. The fact that the program is ‘results-oriented’ instead of being ‘process-oriented’ despite its heavy dependence on Statistical Process Control. The fact that it uses rewards, incentives, and other Extrinsic motivators (if such a thing exists) in place of intrinsic motivation, pride and joy in work. The fact that it is short-term goal oriented that best have a payoff worthy of a CFOs approval (defect reduction for the Customer is an ancillary benefit, IMHO). The fact that it places the needs of the ‘Organization’ and the ‘Shareholder’ (a supplier) above the needs of the Customer. For me, this is pure rubbish and compelling evidence why Six Sigma only promotes the Western Management Philosophy and prolongs this dieing paradigm. It will only worsen the state we are in!!

I think it is fair to state the obvious oversights of the Six Sigma program. While some might see this as bashing, I would argue that it is a matter of perspective. Hearing that you have adopted a plan that is based on questionable practices would upset anyone. Imagine all those who have given Performance Appraisals to their subordinates for decades hearing today that “Performance Appraisals are destructive”. It is difficult to admit that we were wrong for so long, almost unfathomable. Those who do not challenge their assumptions will often fall victim to them.

Some plans are better than others. There are good points to most any plan. What are they in Six Sigma? Are they unique to Six Sigma, or were they part of some other plan sometime earlier? While Six Sigma may have many good points, my issues with the program deal on the human level. What level of Psychology does Six Sigma practice? The carrot and the stick approach to suboptimization, I’m afraid.

Well, enough of my rant.

Back to the group…

Kevin