Velocity and Cycle Efficiency

Lean Six Sigma

Fundamental Skills &
Knowledge
Understanding Velocity
(PLT)
Analysing with Cycle Efficiency
(PCE)

LSS e-Learning
Curriculum under License from
Lean Six Sigma Australasia

91558NSW Vocational Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamental Skills and Knowledge

Key Objectives

Show an objective way of achieving the goals of the Lean Thinking Concept

Present the difference between a traditional process and a Lean process

Demonstrate the prime relationship between Process Lead Time, Work-InProcess (WIP), and Throughput (Exit Rate)

Define the relationship between a Time Trap, Constraint, the Exit Rate and the
customer Order Rate

Understand the concept of Process Cycle Efficiency as a measure of customer

value

Recognise how variation impacts lead time stability

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Lean Six Sigma

Lean Thinking Concept Map

Use Kaizen techniques with Lean tools for specific solutions

5S, Rapid Change-over, NVA elimination, Work control, balance & flow, pull systems

Queue

Process

Buffer

Key Definitions

The following definitions will be used throughout the curriculum to describe

the velocity, efficiency, throughput, and capacity of a process:

Process Lead Time (PLT) The time from release of a product into a

Work-In-Process (WIP) Product that is within the boundaries of the

Exit Rate (Throughput) The output of a process over a defined period

process until its completion

process at any given time
of time

In addition, the following terms are used frequently to quantitatively

describe the output of a process:

Capacity The maximum amount of product (output) a process can deliver

Time Trap The operation or step that inserts the largest amount of time

Constraint Any process step, including the time trap that is unable to

(produce) over a continuous period of time.

delay into a process. There can be only one time trap at a time in a process.
produce at the exit rate required to meet customer demand.

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Exercise:

Factors Affecting Process Lead Time

Input

Step
1

Step
2

Step
3

Step
4

Output

Lead Time

What factors do you think could effect lead time in your processes?

SETUP TIME or CHANGEOVER TIME

Example:
Why Lots of WIP Covers Up Waste

Setup time is an example of waste: it adds no value from

the customers perspective

If you have a long setup time between runs of different

products, you must build each in large batches to meet
demand.

Building in large batches means that you build ahead of

actual demand, this results in large Work In Process

Conclusion: waste is covered up by WIP, and the same is

true for scrap, rework, downtime etc.

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

WIP Causes Additional Waste

Cost of stockroom and warehousing space.

Scrap and rework raises the cost-of-quality linearly with

WIP

Large WIP causes long lead times (to be discussed) that

cause late delivery and unhappy customers

Planning systems are made more complex in order to deal

with long lead times

Capital equipment capacity must be larger to produce at

higher rates due to lost time during setup, downtime and
rework
All of these expenses are hidden in overhead cost

An Allegory of
Traditional Processes
Process

OUTPUT

Lead Time

Work-In-Process

INPUT

Transport
Time

Operation
Time

Rework

Setup
Time

A traditional process, represented by our boat, appears to run

smoothly on high tide, due to too much WIP or the water, forcing long
lead times because the boats Captain (process owner) has little concern
of where the time delays the rocks are.

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

The Aggressive Just-In-Time JIT

Improvement Methodology
OUTPUT

Transport
Time

Operation
Time

Rework

Lead Time

Work-In-Process

INPUT

Setup
Time

WIP (the water), being a waste is drained so low so quickly that the process
(the boat) hits the process delays (the rocks) before it can be avoided

Although this forces immediate and final corrective action, it disrupts the
smooth operation of the process in real time while doing so.

Lean Six Sigma Improvement Methodology

INPUT

OUTPUT

Lead Time

Work-In-Process

Process

Transport
Time

Operation
Time

Rework

Setup
Time

Process delays (rocks) are reduced through the focused use of the Lean Six
Sigma tools and techniques

Focus on the worst step (time trap) until it is no longer the worst, then the
next worst, and so on until WIP (the water) is reduced and lead time stable

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Using basic Lean Analytics

Little's Law

The most fundamental relationship for any process is

known as Littles Law:

Process Lead Time

Work in Process
Exit Rate (Throughput)

Can be used to right-size inventory or numbers of

people, paperwork, projects, queues etc in any process!

This is affectionately compared to the fundamental law of

physics:

F = MA (Force = Mass x Acceleration)

Newtons Second Law of motion

An example

Hotel Check-out

Think about the lines at a Hotel Checkout mid-week

Lead Time =
Lead Time =

5
1

people

person/minute

5 minutes

and then think about them on Friday morning

Lead Time =
Lead Time =

WIP
Exit Rate

WIP
Exit Rate

12
1

people

person/minute

12 minutes

Conclusion: Fixed Capacity (Exit Rate) + Increased People (WIP) =

Slower Lead Times (PLT)!

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Example:

Calculating PLT
What is the Process Lead Time for the process shown?

PLT = ???
Exit Rate =
20 units/day

WIP = Sum of all Inventory within Physical work area = 100 units

Our Example PLT is:

PLT = WIP/Exit Rate
PLT = 100 units/20 units per day
PLT = 5 days or 40 hrs

Exercise:

Uncovering The Hidden Rocks

OUTPUT

Lead Time

Work-In-Process

INPUT

What other hidden rocks are in your environment?:

High Rework

Waiting for Materials

Cant Find Things (High WIP)

Think about TIMWOOD? Can you identify more?

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Visualizing Improvements
Today

Process Lead Time

FAST
Tomorrow

Order Interval
Cycle Time Interval
(Batch size)

STABLE
Throughput (Capacity)
Today

FLEXIBLE

Today
Tomorrow

Key Relationship Principle:

Process Lead Time Throughput

Recall that PLT = WIP/Exit Rate: A reduction in Lead time does not directly yield an increase in throughput

An increase in throughput (exits) is only obtained by decreasing the process time of the Time Trap
workstation

1.

2.

6 sec/
piece

6 sec/
piece

4 sec/
piece

4 sec/
piece

Present State
WIP = 6 units
Time Trap = 10 seconds
Throughput = 6 units/minute (1 unit every 10 sec)
PLT = 6 units/6 units per min = 1 minute

10 sec/
piece

WIP Reduction
WIP = 3 units
Time Trap = 10 seconds
Throughput = 6 units/min (no improvement)
PLT = 3 units/6 units per min = 30 seconds

10 sec/
piece

(50% decrease)

3.

6 sec/
piece

6 sec/
piece

8 sec/
piece

a.

b.

c.

Capacity Increase
WIP = 3 units
Time Trap = 8 seconds
Throughput = 7.5 units/min
PLT = 3 units/7.5 units per min = 24
sec

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Lead Time, Throughput,

and Capacity

Decreasing Lead Time can indirectly influence Throughput by:

Increasing Direct and Indirect Labor Productivity

Obsolescence due to Order Changes

Dropped and Broken parts
Catch bad parts quicker

Increase in Safety (decrease in accidents)

Less searching, moving, working around parts and large batches of parts

Decrease Scrapped, Reworked, and Lost Parts

Less clutter to move around in and fall over

Capacity is increased by increasing the Throughput Process, and

this can only be done by working on the Time Trap operation:

Reducing the task time of the time trap operation

Many times reducing WIP (i.e., lead time), will facilitate an improvement in
the task time of the Time Trap operation through the indirect benefits
listed above

The Value of Lead Time

in a Project Environment
Traditional Approach: Start all
projects at once. Have each of 4
resources split their time evenly
between 2 projects of 30 man days of work each:

Lean Approach: Minimize those

same projects in process: this time
use the 4 resources by teaming 2
people on the two highest priority
projects until they are complete:

Resources Spread:

Resources Focused:

Results accrue as projects complete

Projects

Projects

Results Accrue at the end

$$$s
Returned

4
3
2

$$$s
Returned

4
3
2

1
0

10

20

30

40

Months

10

20

30

40

Months

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

The Value of Lead Time:

Why Lean Time Improvements

Lean
Improvements

Long Lead Time

Low Flexibility
Unstable or not predictable

Lead Time
Flexibility

Short Lead Time

High Flexibility
Stable or Predictable

Faster feedback on process performance (increased learning

cycles)

Improved first pass yield (results in improved productivity)

Improved process stability (results in improved throughput)

Uncovers process deficiencies (forces problem resolution)

Less work-in-process (reduced risk)

Improved customer satisfaction (flexibility and responsiveness)

The Value of Predictable Lead Time:

What Is Our Goal?

The goal of Lean Six Sigma improvement projects is to reduce

variability in, and improve the speed of, a process.

Controlling and reducing Lead Time, and Lead Time Variability,

will generate faster feedback cycles on improvement projects
(increase process velocity and thus cycles of learning).

In addition, controlling and reducing lead time (and lead time

variability) is a key driver to:

Reducing working capital (through reduction in WIP and Finished

Goods inventories)

Making way for productivity and capacity improvements

Remember reducing lead time shows us where the rocks are!

10

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Lean Six Sigma

Fundamental Skills &
Knowledge
Velocity (PLT)
Cycle Efficiency (PCE)

LSS e-Learning
Curriculum under License from
Lean Six Sigma Australasia

91558NSW Vocational Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamental Skills and Knowledge

More Key Definitions

The following definitions are used throughout the curriculum to

describe the relationship between the velocity and efficiency of a
process:

Customer Value Add Time (CVA Time) The amount of time

that value is actually applied to a product while it is in process

Process Cycle Efficiency (PCE) The efficiency of a process

based upon the amount of value added to the product against the
time the product spends in the process

Any process with low cycle efficiency will have great opportunities for
cost reduction most manufacturing, business, product development,
and other processes run at cycle efficiencies of less than 10%. The
result of this is excess inventories (WIP) generating hidden costs in
overhead, rework, scrap, invested capital...and critically unhappy
customers.

11

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Process Cycle Efficiency (PCE)

PCE is a measure of the relative efficiency in a process.

It represents the percentage of time spent adding value to
the product to the total time the product spends in the
process. It is calculated using:

Process Cycle Efficiency

Value Add Time

Process Lead Time

PCE is the performance indicator for any given process.

Three Categories of Process Value

Customer Value Add

(CVA) Questions

Business Non-Value Add

(BNVA/BVA) Questions

Does the task add form,

feature, or function to the
product or service?
Does the task enable a
competitive advantage
(reduced price, faster delivery,
fewer defects)?
Would the customer be willing
to pay extra or prefer us over
the competition if he or she
knew we were doing this task?
Typical CVA Activities:

Molding
Order picking

Stamping/Fabricating
Assembling
Painting

Does this task reduce owner

financial risk?
Does this task support financial
reporting requirements?

If the customer knew we were

doing this, would they request
that we eliminate the activity
so we could lower our prices?

Would the process of

producing/selling the product
break down if this task were
removed?
Is this task required by law or
regulation?

Does the task fit into either of

the other two categories?
Can I eliminate or reduce this
activity?
Typical NVA Activities:

Typical BNVA Activities:

Order Entry/Processing
Purchasing
Product Sustaining/ Development

Sales/Marketing

Regulatory reporting
Internal Financial Reporting

CVA

Non-Value Add
(NVA) Questions

Transporting/Moving

Inventory/Stocking/Storing
All Rework Loops

Inspecting
Counting

Handling
Signoffs

Waiting

Customer Required Inspection

BNVA

12

NVA

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Process Cycle Efficiency (PCE)

World Class Cycle Efficiency Benchmarks
Low End PCE
(Typical PCE)

High End PCE

(World-Class PCE)

Machining

1%

20%

Fabrication

10%

25%

15%

35%

30%

80%

10%

50%

5%

25%

Application

Assembly
(Batch Transfer)

Continuous Process/
Assembly
(Continuous /One Piece Flow)

Business Processes
(Transactional)

Business Processes
(Creative/Cognitive)

Based on research with over 100 companies, based upon Customer Value Add times

Example:

Calculating PCE
What is the Process Cycle Efficiency for the process below?

PLT = 5 days
Exit Rate =
20 units/day
VA =0.4 hrs

VA =0.4 hrs

VA =0.7 hrs

WIP = Sum of all Inventory within Physical work area = 100 units

Our Example PCE is:

PCE
PCE
PCE

= VA Time/PLT
= 1.5 hrs/40 hours
= 3.75%

13

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Refresher:

PLT and PCE

Process
Input

Work In Process
and Value Add Time

Exit Rate

Process Lead Time

PLT = WIP/Exit Rate

PCE = VA Time/PLT

Work-In-Process (WIP) = Things in Process Inventory, Receivables,

Documents, etc.

Exit Rate = The output of a process, expressed in units/time (equal to the rate of
the time trap operation)

Process Lead Time (PLT) = The time from release of a product into a process
until its completion

Value Add Time (VA Time) = The amount of time that value is actually being
added to a product (the time that the customer is willing to pay for)

Process Cycle Efficiency (PCE) = The relative efficiency of the process

Key Learning

How to affect the goals of Fast, Stable and Flexible process in

the Lean Thinking Concept Map

The difference between a traditional process and a Lean process

Introduce Littles Law and its components;

Process Lead Time (PLT),
Work-In-Process (WIP) and

Throughput (Exit Rate)

The relationships between Time Traps, Constraints, the Exit Rate and
the customer Order Rate

Process Cycle Efficiency as a measure of customer value and a

performance indicator

Variation or lack of stability impacts lead time performance

14

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

Example 1
The Value of Lead Time Analysis

Youre planning a high season employment needs for a package

distribution center. The company is adamant about maintaining its
reputation of excellent customer service. You estimate that there
are 1 million packages each day that need to be processed. There
are currently 100 employees working at the distribution center.

Assuming the current work force can process 25,000 packages per
hour, how long will it take before the last package leaves the center?

If all of the packages need to be processed in no more than 8 hours,

how many additional employees need to be hired?

Process
WIP
Inputs

(Work In Process)

Exits

Lead Time

Example 2
The Value of Lead Time Analysis

A online business issues approximately 1500 POs per 40 hour

work week to its suppliers. Through good data collection, it is
determined that the average value add time for a PO is 30
minutes.

Assuming the online business has world-class business

processes:

What is the lead time for any given PO to be issued?

How many POs would we expect to be in process at any given

time?
Process
WIP
Inputs

(Work In Process)

Exits

Process Lead Time

15

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals

Velocity and Cycle Efficiency

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LSS e-Learning
Curriculum under License from
Lean Six Sigma Australasia

91558NSW Vocational Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamental Skills and Knowledge

16

91558NSW Graduate Certificate in Lean Six Sigma

Unit 7001A Apply Lean Six Sigma Fundamentals