us es green lean six sigma 120608(1)

Green Lean Six Sigma:Using Lean to help drive results in the wholly sustainable enterprise

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Consumers, regulators, and shareholders are all clamoring for sustainability. With the public’s growing environmental awareness, consumers are actively seeking “greener” options. Regulators and legislators are changing the landscape for environmental reporting, compliance, and transparency. Shareholders and investors have made environmental and social performance a top consideration. At the same time, many environmentalists claim that cutting greenhouse gases, reducing waste, increasing recycling, and broadly shrinking a company’s “impact footprint” will reduce costs. Faced with the promise of reduced risk, increased sales, and lower costs, who wouldn’t jump on board?

Yet, as a growing number of companies work to become more environmentally sustainable, it’s become more apparent that such transformation is challenging. Deloitte’s experience working with clients has demonstrated that Lean Six Sigma can be a major part of the sustainability answer. Lean Six Sigma is predicated on removing waste – materials, resources, manpower, energy, or time. Removing waste is central to sustainability. Therefore, it stands to reason that Lean Six Sigma can be an effective method in developing a road map for going green and can also help companies boost economic and environmental performance while they move down the path to sustainability.

For companies that have an established Lean Six Sigma culture, the approach provides a well-understood and trusted way to explore, prioritize, and plan opportunities for value creation through enterprise sustainability. For companies that have not yet developed a Lean Six Sigma approach, the methodology offers a well-established framework for exploring sustainability initiatives and the necessary rigor to support development of the business case, priority-setting, and implementation planning and execution. For these organizations, the imperative to be more sustainable may be a meaningful opportunity to tackle the training necessary to build a Lean Six Sigma capability.

As used in this document, “Deloitte” means Deloitte & Touche LLP, Deloitte Tax LLP, Deloitte Consulting LLP, and Deloitte Financial Advisory Services LLP, which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.


The need is clear

Even the best-intentioned companies have found real challenge in executing sustainability efforts. It can be very difficult to decide which initiatives deserve the highest priority, and tangible benefits are hard to calculate. As a recent article in Business Week states, “Many major [green] initiatives simply aren’t money-savers. They come with daunting price tags that undercut the conviction that environmental salvation can be had on the cheap.”1

This highlights the potential conflict between sustainability goals and more traditional objectives of profitability and efficiency. Yet, many companies that have not embarked on green initiatives are experiencing public cynicism, stakeholder actions, and the looming risks of government regulations such as carbon cap and trade.

In fact, there is an emerging body of research that suggests a market premium for companies that are effective in executing and reporting environmental and social improvements. Analysis indicates that the economic value may be generally correlated with emerging scores on corporate responsibility indices, such as Innovest’s 100 Most Sustainable Companies in the World, CRO’s 100 Best Corporate Citizens, and the Dow Jones Sustainability Index.

Even so, the areas of environmental sustainability and corporate responsibility are still fairly new as value drivers. While they are rapidly emerging and growing in importance, many companies are still in the early stages of adopting a measured approach to sustainability practices.

� Ben Elgin, “Little Green Lies,” Business Week, October 29, 2007

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Bringing green and Lean Six Sigma together

Beyond the obvious link between Lean Six Sigma and sustainability, there are other deeper connections. For example, companies with a Lean Six Sigma infrastructure often have well-established governance processes to help surface, prioritize, and charter the right projects. By broadening the mandate of Lean Six Sigma programs, companies can meet one of the most daunting challenges of making a company more sustainable: priority-setting in a business-driven context.

Green-minded companies face two kinds of priority-setting issues. The first is how to decide which sustainability projects to pursue first. Lean Six Sigma gives companies the measurement, analysis, improvement, and control tools required to sort out which projects will contribute most to environmental improvement and at what cost.

The second, and related, question is, What are the trade-offs of going forward with a particular project? How do you weigh a project that costs money but improves the environmental footprint against one that does little for the environment but cuts costs?

Broadening the focus of Lean Six Sigma means that the sequencing of potential projects may change as environmental and social values are factored into the business case. For example, a company might consider improving the efficiency of its lighting systems before replacing or upgrading an invoicing system. Substituting incandescent bulbs with fluorescent ones may not save as much money as improving the efficiency of the invoicing process, but weighed against corporate values, the company might find the lighting project’s overall benefits are greater than the software project because of the long-term reductions of greenhouse gases, lower operating costs, and the potential immediate benefits in terms of public perception and customer satisfaction.

Energy Management with Lean Six Sigma

Lean Six Sigma’s DMAIC methodology, as defined below, can be applied to green projects such as energy management much as it can be applied to traditional quality and operational improvement projects involving inventory reduction, production efficiency, or improvements in quality. What would a Lean Six Sigma project to reduce energy consumption look like?

• Define – At the onset, it’s important to clarify the project objectives, scope, and resources. Through the project charter, the team would define the energy areas that are in scope such as which geographic areas, departments, or buildings. For example, a government-regulated manufacturing company may choose to first address its energy management in non-regulated areas first before dealing with the regulated areas. The definition is critical because ownership of energy-related costs and activities is generally less visible and less defined in most companies today.

• Measure – Baseline the current energy consumption and understand any cyclical usages of energy. During Deloitte’s recent internal baseline project, it was critical to understand what energy consumption was included in the utility bills or covered in office rent. Through this exercise, the team also learned the percentage that heating, ventilation and air conditioning (HVAC) contributes to energy use versus lighting and equipment usage. Many companies find it challenging to capture basic energy use and cost data, as systems and processes to measure and report are not as mature as in other areas such as finance.

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At the same time, many projects that are already attractive from a financial perspective may have a green benefit as well. For example, consider a shop floor project aimed at reducing work-in-process inventory. By traditional metrics, a company would count improvements achieved through Lean Six Sigma efforts as cost reduction or cash flow (working capital) improvement through inventory reduction. However, if the company were to evaluate the project from a sustainability perspective, it could add the solid waste effect of the effort, along with carbon and energy footprint associated with that raw material inventory reduction, to the economic and operational benefits.

Furthermore, carbon-equivalent emissions have a dollar value in the marketplace today, especially with the emergence of carbon-offset programs and potential cap-and-trade legislation. When companies build into the business case of their Lean Six Sigma projects a quantifiable reduction of carbon emissions, they may be able to contribute more effectively to their own carbon reduction or offset through Lean Six Sigma initiatives.

• Analyze – Identify the key drivers and root causes of energy consumption. Using Lean Six Sigma cause and effect diagrams, “five whys,” and other analysis tools can help illuminate the root causes of energy waste. This detailed analysis will also help identify improvement opportunities. For example, Deloitte’s detailed analysis of office energy usage identified a number of key drivers and root causes of excess energy usage, such as poorly insulated windows and exterior walls, an inefficient HVAC system, and HVAC usage and lighting during the evenings and weekends. The analysis often highlights areas of exposure that require a rethinking of other “taken for granted” activities; for example, how leases are structured or how energy fits into equipment procurement.

• Improve – Develop potential solutions to address the root causes of the identified energy consumption activities. The analysis helps the team prioritize improvement efforts by highlighting the solutions that could provide the greatest benefit with the fewest resources right away. A few solutions to reduce Deloitte’s office energy consumption include installing occupancy sensors to turn lights off in offices when not needed and reprogramming thermostats to avoid unnecessary HVAC usage. Important change management and communications considerations come into play since issues such as comfort, lighting levels, etc. are very personal in nature.

• Control – Install measurements and controls to maintain the energy savings, and implement a process to enable identification of continuous improvement opportunities. To maintain improvements, the team should establish high-level energy consumption measures that cascade down to lower levels and hold people accountable to the metric performance.

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Identifying the hidden green benefits

Environmental costs are often hidden and, therefore, not always addressed because they typically fall into the realm of allocated overhead costs. While raw materials and labor expenses are often linked directly to products or processes, costs for electricity, real estate, HVAC, water, and paper – among other environmental expenses – accumulate in overhead accounts. Lean tools, such as Value Stream Mapping, can help identify these hidden costs by illuminating the waste in a process. Lean Six Sigma projects, in turn, can help reduce waste and deliver both environmental and financial benefits that might not have been captured or, if captured as part of another project, might not have been recognized.

Before After

Figure 1: Capturing Hidden Green Benefits

How Value Stream Mapping helps pinpoint areas of waste and possible opportunities for both environmental and financial improvement.

In d u stria l D e sig n e r

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D e ve lo p m e nt E n g in e e r - R& D

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Turning Lean Six Sigma green

Three factors can help companies broaden Lean Six Sigma so it can be used to improve environmental performance.

Governance. Organizations that employ continuous improvement programs and infrastructure typically have in place a governing body and a governance process to identify and prioritize projects and allocate resources needed for those projects. The need for identification and prioritization of projects is paramount when pursuing an environmental sustainability program, as well, and effective governance can help put a company’s limited resources to appropriate use in tackling sustainability opportunities.

Effective governance includes having mechanisms in place that help identify and surface sustainability opportunities, or projects, both from bottom up and from the top down. From the bottom up, it can be as simple as having a website or email address that enables everyone across the organization to submit ideas and suggestions for improvement.

From the top down, there are a few approaches companies can consider to identify and prioritize projects. It is important to develop environmental performance measures – for instance, energy consumption, paper consumption, and greenhouse gas emissions – to help leaders understand the “health” and performance of their organization against the key drivers of environmental performance. Ideally, these measures should cascade down to departmental or functional levels, and perhaps even down to the individual level. The more targeted the measures, the easier it should be to identify specific improvement opportunities.

Another top-down approach is a sustainability assessment framework or sustainability maturity model. Such frameworks can provide a rapid method for diagnosing and benchmarking current-state performance across the key areas of environmental performance. Further, such an analysis would surface areas in need of the greatest improvement.

Figure 2: Views of Sustainability Through an Assessment Model

A sustainability assessment model should provide both a general and detailed view of an organization’s current and desired future state of sustainability.

CATEGORY ASSESSMENT

Sustainability Assessment Model

Summary Output

Global Impact Footprint Categery Area Stage of Maturity

Global Footprint (Current) ILLUSTRATIVE ONLYGlobal Footprint (Future)

SustainableWorkplace

SustainableWorkplace

Energy Sources

1 2 3

Human Resource Policies

Labor Rights

Safety and Ergonomics

Recruiting

Diversity

Workplace Culture

Career Pathing

Training and SkillDevelopment

Energy Efficiency

Green Buildings

Workplace Design

Virtual Workplace

Waste Management and Materials UsagePhysical LocationFootprint

Technology Infrastructure

Sustainable Productsand Services

Sustainable Functionsand Processes

SustainableGovernance

SustainableWorkforce

SustainableWorkforce

(Current vs. Future State)AREA ASSESSMENT

(Current vs. Future State)

ILLUSTRATIVE ONLY

1

2

3

4

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Metrics. Integral to the governance process, appropriate metrics and measures are a powerful tool to identify and drive value from sustainability programs. One of the first steps in the Define phase of a Lean Six Sigma project is to identify the customer(s) and Critical-to-Quality factors (CTQs) that will serve as the focal point(s) for the project. The CTQs are referred to as project “Ys” (as in Y=f(x)).

Companies that are effective at applying Lean Six Sigma have developed many means of cascading metrics from the top of the company with the purpose of aligning improvement efforts with company priorities. The example illustrated in Figure 3 shows how one metric is cascaded down three levels.

Many companies with mature continuous improvement programs have gone through metrics definition and cascading exercises for the company as a whole. They have a good understanding of the leading and lagging indicators that drive the few highest level metrics. These indicators often appear on scorecards, and when an indicator is not

performing as expecting, it can trigger a Lean Six Sigma project to investigate the root cause and develop solutions to proactively address the problem.

Similarly, companies can also determine which sustainability measures are the most important to the business at the highest level and drill down to understand the leading and lagging indicators that are most closely correlated.

For example, a company may determine that “energy consumption” is a key high-level metric. Lighting efficiency might be a leading indicator of energy consumption, and electricity use – as measured in kilowatt hours (kWh) – might be a lagging indicator. The company might measure lighting efficiency by the percentage of its offices that have been upgraded to high-efficiency fluorescent lighting, with specific targets established by month. Likewise, it might establish monthly targets for kWh usage, and below-par performance could trigger a Lean Six Sigma improvement effort.

Figure 3: The Effects of Metric Cascading

Big Y CascadingWater

ConsumptionY1

ElectricityUsage (Kwh)

Lighting Efficiency (% of offices upgraded)

EnergyConsumption

Y3

Waste andRecycling

Y4

TravelY5

Big Ys

Little Ys 1st TierCascade

2nd TierCascade

3rd TierCascade

PaperConsumption

Y2


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Perhaps most important among the sustainability measures is the establishment of a formal greenhouse gas (GHG) baseline. Setting this current-state baseline is important before embarking on sustainability improvements because it enables the management, measurement, and celebration of future improvements in environmental performance. It is also one of the more challenging measures as the science behind GHG calculation is still emerging, and the data required to develop the baseline is not readily available in most companies. Combined with the increased scrutiny and skepticism associated with market concerns about “greenwashing,”2 the GHG baseline may require more attention.

Training. Because of the challenges of sustainability and going green, it is often difficult to list the many ways employees can be more sustainable and the various tools and concepts that are available to assist along the way. Lean Six Sigma offers a structured and robust training framework for improving quality and reducing waste.

Lean Six Sigma Yellow, Green, and Black Belt training programs could incorporate a few additional tools and concepts to educate employees on the increasing importance of sustainability to business performance. Concepts might include awareness and understanding of greenhouse gases, greenhouse gas baseline and reporting, sustainability maturity models and assessment frameworks, sustainability metrics, energy consumption, paper consumption, and waste and recycling.

Because Lean Six Sigma already contains a robust mechanism for governance, metrics, and training, companies should find that extending them to encompass sustainability is much like applying Lean Six Sigma to other areas of the enterprise, such as back-office services and marketing. It’s not hard to imagine a time when environmental sustainability becomes important enough in the Lean Six Sigma world to warrant another level of training and performance – something akin to a “Master Black Belt with Green Stripe.”

Green Sourcing and Supplier Integration with Lean Six Sigma

Supplier integration is a Lean Six Sigma continuous improvement concept that requires companies to maintain fewer, better-managed suppliers that share in the results of their collaborative efforts. This may take the form of shared goals and metrics, shared resources, and collaborative improvement efforts. It may hold some promise when applied to sustainability programs.

Deloitte is incorporating this focus with its technology suppliers. Actions include an increasing focus on end-of-life issues with older technologies – making sure that older systems are disposed of in ways that are less environmentally invasive and result in more recycled parts. Also, new-equipment purchases and leases are made with a strong effort to acquire products that have sustainability built in – those that use recycled materials and will be more energy efficient during their lifecycle.

Wal-Mart is another example of a company that, through its selling power, is influencing many suppliers and supply chain partners to become more sustainable. According to a survey jointly conducted by Deloitte and the Grocery Manufacturers Association, over 40 percent of the consumer goods companies surveyed are collaborating with Wal-Mart on sustainable packaging improvement programs.3

According to the survey: “Breakthrough thinking will be needed to adapt existing operational strategies and develop new supply chains that achieve sustainability goals while optimizing cost and service levels. It will involve making additional collaborations upstream and downstream in the value chain with both existing and ‘indirect’ partners.”

2 TerraChoice, http://www.terrachoice.com/Home/Six%20Sins%20of%20Greenwashing � Deloitte and GMP/FPA, “Sustainability: Balancing Opportunity and Risks in the Consumer Products Industry,” 2007.


Gain support of C-suite executives. Sustainability efforts often derail without visible and sustained support from top leadership.

Establish a baseline and metrics. Understanding and measuring the current-state environmental performance is critical. Having a baseline in place can help companies identify opportunities for improvements, measure those improvements, and celebrate those successes in the future.

Include green in the governance. Once the baseline and metrics are established, rely on the governing processes to monitor sustainability performance, surface improvement opportunities and prioritize projects.

Include green in the training. Lean and green are natural allies. Incorporating sustainability tools and concepts into existing Lean Six Sigma Yellow, Green, and Black Belt programs can arm employees with the awareness and tools necessary to identify and tackle sustainability issues.

Six Focus Areas for Eliminating Waste

Common to many companies are the following six forms of waste and their environmental impact:

Overproduction• More raw materials and energy consumed in making

unnecessary products• Extra products may spoil or become obsolete, requiring disposal• Extra hazardous materials used result in extra emissions, waste

disposal, and worker exposure

Inventory• More packaging to store work-in-process (WIP)• Waste from deterioration or damage to stored WIP• More materials needed to replace damaged WIP• More energy used to heat, cool, and light inventory space

Transportation and motion• More energy use for transport• Emissions from transport• More space required for WIP movement, increasing lighting,

heating, and cooling demand and energy consumption• More packaging required to protect components during

movement• Damage and spills during transport• Transportation of hazardous materials requires special shipping

and packaging to prevent risk during accidents

Defects• Raw materials and energy consumed in making defective

products• Defective components require recycling or disposal• More space required for rework and repair, increasing energy

use for heating, cooling, and lighting

Over-processing• More parts and raw materials consumed per unit of production• Unnecessary processing increases wastes, energy use, and

emissions

Waiting• Potential material spoilage or component damage causing

waste• Wasted energy from heating, cooling, and lighting during

production downtime

Source: US Environmental Protection Agency

Next steps

To begin using Lean Six Sigma to improve environmental performance, companies should:

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Conclusion

The sustainability imperative is growing, but along with it comes the recognition that improving sustainability is more difficult than some companies hoped – and many environmentalists would admit. However, by broadening Lean Six Sigma to include sustainability goals, companies can leverage a powerful and well-established performance improvement methodology to jump-start new sustainability programs or substantially boost existing ones. In this way, companies may well be able to marry together the critical goals of being good corporate citizens while improving their bottom line.

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About this publication

This publication contains general information only and is based on the experiences of Deloitte & Touche LLP, Deloitte Tax LLP, Deloitte Consulting LLP, and Deloitte Financial Advisory Services LLP practitioners. Deloitte & Touche LLP, Deloitte Tax LLP, Deloitte Consulting LLP, and Deloitte Financial Advisory Services LLP are not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte & Touche LLP, Deloitte Tax LLP, Deloitte Consulting LLP, and Deloitte Financial Advisory Services LLP, their affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2008 Deloitte Development LLC. All rights reserved.

Contacts

Chris ParkDeloitte Consulting [email protected]

David LinichDeloitte Consulting [email protected]

us es green lean six sigma 120608(1)

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