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Insights for Implementing Lean and Six Sigma and Other Productivity Platforms Global Benchmarking Council Survey Best Practices, LLC www.best-in-class.com

Research Objective Best Practices, LLC administered this survey and compiled the results on behalf of the Global Benchmarking Council. Study Objective Key Topic Areas • Comparing Experiences with Productivity Tools • Choosing & Integrating Productivity Tools • Implementing Lean & Six Sigma Productivity Improvements • Focusing Lean Sigma for Optimal Gains The purpose of this benchmarking exchange is to identify lessons learned and valuable insights regarding the implementation and management of lean and six sigma and other productivity approaches.

Benchmark Class The following companies comprise the benchmark class. • Ford Motor Company • G&H Technology, Inc • GE • GE Consumer Finance • Goodrich Corporation • Haemonetics (UK) Ltd • Handi Quilter Company • Heartland Health • Hewlett Packard • Honeywell • Hubbell Electrical Products • IMC Phosphates • Irwin Financial Corporation • ITT • J.M. Huber Corporation • Johnson Controls, Inc • Johnson&Johnson • JP Morgan Chase • Kodak Electronic Shanghai Co. Ltd • Korry Electronics • Kuwait Oil Company • Lear Corporation • LEGO Systems • Mayflower Vehicle Systems • Medtronic • Mercedes Homes • Motorola, Inc • NCR • Norcold, Inc • Northrop Grumman • Ortho-Clinical Diagnostics • Perkin Elmer • Pfizer • Raytheon • Rockwell Automation • Saint-Gobain Performance Plastics • Satyam Computer Services Ltd • Siemens • Sigue Corporation • Sony Electronics • State of Ohio Auditors Office • Stratos Broadband Networks • Sunstar Investment (H.K.) Ltd • Tata Engineering • Teccor Electronics • TeleTech • Telkom SA • The Home Depot • Transcom Worldwide • Transitions Optical • US Army • Verizon • Western Union • Williams • YKK (U.S.A.) Inc The benchmark class included the following companies. • Agilent Technologies • Allergan, Inc • Avaya • Bank of America • Baxter Healthcare • Bechtel • Belden • Bell Helicopter • Boeing Commercial Airplane • Bombardier Transportation • British Telecom • Candle Corporation • City of Whittlesea • Comair Rotron • Conocophillips • Consolidated Container Company • Dana Heavy Axle • Danfoss A/S • Dell • Deluxe • Dow Corning Ltd • DSM Pharmaceuticals, Inc • DuPont • Eastman Kodak Company • Eaton Corporation • Entergy Corporation • FCI Electronics • First Data Corporation • Fletcher Building Ltd

Key Findings The following key findings emerged from the survey data. • Lean sigma and six sigma are chosen by the majority of the benchmark class as the most often used productivity approaches. • All of the productivity approaches are best geared to reducing costs and cycle time and improving supply chain. Productivity approaches are viewed as less beneficial to improving human resources, sales and marketing. • Lean sigma receives the most number of votes as a critical approach to all areas. • More than half (55%) of the benchmark class expect to achieve between 1-7% of savings/revenue enhancement through lean or six sigma. Across the benchmark class, companies’ average targeted 2003 savings/revenue goal is $71 million. • One quarter of the benchmark class report that black belts must contribute from projects to meet 2003 performance goals. Of this quarter, 32% contribute up to $500,000; 86% contribute up to $5 million. • 88% of the benefit of productivity approaches is accrued to operations, followed by manufacturing (49%). IT, followed by sales, finance, support services, human resources and marketing receive less benefit.

Benchmark Class Characteristics • II. Choosing & Integrating Productivity Tools • III. Implementing Lean & Six Sigma Productivity Improvements • IV. Focusing Lean Sigma for Optimal Gains

Industry Breakdown Manufacturing companies represent one-third of the benchmark class. Transportation, health care, communications and financial services also figure prominently. Utilities IT Chemical/ 2% Petroleum 2% 4% Government 4% Manufacturing Other 37% 4% Financial Services 10% Communications 11% Transportation 13% Health Care 13%

FTEs By Industry Across industry, transportation and manufacturing cite the highest average of FTEs, while other industries such as communications and financial services have about half that average. Why aren’t more industries outside of manufacturing and transportation engaging more employees in productivity initiatives? How many employees work within the operating unit on which your responses are based? 3,602=Average for segment 10,947=Average for segment 55% of respondents 45% of respondents 14,000 11,698 12,000 10,000 8,624 # of FTE 8,000 5,039 4,513 6,000 2,769 4,000 2,583 2,600 1,443 2,000 1,185 0 IT Utilities Health Care Government Manufacturing Transportation Financial Services Communications Chemical/Petroleum Industries

Productivity Approach More than half of the benchmark class uses lean or six sigma to improve productivity. Sixteen percent of companies cite “other” methods—often home-grown approaches combining several elements of quality approaches. In what ways do “home-grown” approaches work or not work? What approaches might appeal to industries other than manufacturing and transportation? Which productivity improvement approach best describes that employed by your organization? Cycle Time Reduction 6% Lean Lean Sigma 11% 38% *Other approaches include: • Black Belt methodologies (process streamlining) • DFSS • PDCA • Lean with Kaizen • Basic TQM and Baldrige • Process management & reengineering • Combination of all or some Other* 16% Six Sigma 29%

Standard Inputs Into Productivity Approaches Surveyed companies value customer input into improvement initiatives. 85% of companies apply a standard method to ensure customer perspectives are reflected in projects. Do you have a standardized method to embed the following perspectives into your improvement processes? Ensure customer perspectives are reflected in projects YES 85% Ensure world-class performance benchmarks are reflected in projects Standard Inputs YES 48% Ensure competitor performance benchmarks are reflected in projects YES 44% 0% 20% 40% 60% 80% 100% % of companies

Company-wide 53% Business Unit Only 47% Maturity and Scope Two-thirds of the benchmark class began their productivity initiatives since 2000. These initiatives tend to be split in scope—53% focus on the company and 47% fall within a business unit only. What are the pros and cons of a centralized versus decentralized approach? What year did your unit start its improvement journey, and what is the typical scope of its implementation? 23% 2000 18% 1999 16% 2001 13% 2003 2002 13% Before 1998 12% 1998 5% 0% 5% 10% 15% 20% 25% % ofcompanies

Productivity Approach: Six Sigma More than 90% of respondents report that six sigma is either useful or best suited to reducing costs and cycle time. Only 15% of respondents view it as best suited to HR improvements. What have been your experiences with six sigma? What have been its strengths and weaknesses? How can it be improved? BEST SUITED TOOL USEFUL TOOL 96% Cost Reduction 68% 28% 93% Cycle Time Reduction 55% 38% Supply Chain Improvements 38% 51% Finance Improvements 33% 53% New Product Improvements 43% 39% HR Improvements 15% 63% Sales Improvements 18% 51% Marketing Improvements 18% 48% 0% 20% 40% 60% 80% 100% % of companies

Productivity Approach: Lean/Simplification Eighty-eight percent of the benchmark class consider lean/simplification a useful or best suited tool for cost and cycle time reduction. How can the lessons learned from lean, particularly in the manufacturing sector, benefit other industries? BEST SUITED TOOL USEFUL TOOL 88% 20% Cycle Time Reduction 68% 53% 36% 88% Cost Reduction Supply Chain Improvements 45% 38% Finance Improvements 48% 20% New Product Improvements 24% 44% 13% HR Improvements 52% Sales Improvements 13% 39% Marketing Improvements 16% 35% 0% 20% 40% 60% 80% 100% % of companies

Productivity Approach: Cycle Time Reduction Cycle time reduction is considered useful to over half of all improvement areas. Why don’t other functions find that cycle time reduction is best suited to reduce costs and improve supply chain? BEST SUITED TOOL USEFUL TOOL 49% 36% Cost Reduction 33% 45% Supply Chain Improvements New Product Improvements 21% 46% 14% Finance Improvements 46% Sales Improvements 5% 52% Marketing Improvements 14% 43% HR Improvements 9% 45% 0% 20% 40% 60% 80% 100% % of companies Note: The clear majority of respondents report that cycle time reduction is best suited for cycle time reduction.

Productivity Approach: Lean Sigma Lean sigma is viewed as well-suited to all goals. Well over half the benchmark class considers it best suited for cost and cycle reduction and supply chain. Over a quarter consider it best suited to improving sales, new products and financial processes. What has been your experience/knowledge of lean sigma? How different is it from lean or six sigma approaches? USEFUL TOOL BEST SUITED TOOL Cycle Time Reduction 71% 17% 67% 21% Cost Reduction 55% 32% Supply Chain Improvements 32% 46% Finance Improvements 36% 39% New Product Improvements 22% 47% HR Improvements 25% 40% Sales Improvements 22% 40% Marketing Improvements 0% 20% 40% 60% 80% 100% % of companies

Productivity Approach: Reengineering Reengineering receives the fewest votes compared to other productivity approaches as a “best suited” approach across improvements goals. However, close to half of the benchmark class consistently view reengineering as “useful” across goals. As with all other approaches, reengineering is seen as least useful to marketing, sales and human resources. How is reengineering best implemented? BEST SUITED TOOL USEFUL TOOL 31% 47% Cost Reduction 29% 48% Cycle Time Reduction Supply Chain Improvements 21% 53% Finance Improvements 33% 38% New Product Improvements 25% 41% 17% 48% HR Improvements Sales Improvements 16% 45% Marketing Improvements 15% 40% 0% 20% 40% 60% 80% 100% % of companies

Targeted 2003 Saving/Revenue Goal IT and finance have the loftiest goals for their productivity efforts, with between $270-$407 million in expected annual savings/revenue. How can more industries such as health care with a great potential for savings benefit from productivity approaches?Why is the target for financial services so high? What is your operating unit’s targeted 2003 six sigma, lean, etc. value contribution? $311 m = Average for segment 12% of respondents $34 m = Average for segment $407 m $450,000,000 $400,000,000 $270 m $350,000,000 88% of respondents $300,000,000 $Savings/Revenue $250,000,000 $200,000,000 $150,000,000 $49 m $100,000,000 $45 m $31 m $50,000,000 $17 m $15 m $13 m $25,000,000 0 IT Government Health Care Manufacturing Transportation Communications Chemical/Petroleum Financial Services Industries

Productivity Ratios The majority of companies save up to 7% of their unit’s revenue target through lean or six sigma or both. Few companies (7%) are able to achieve greater than 10%. What is the best estimate of your 2003 productivity improvement-to-sales ratio? Over 10 Percent 8-10 Percent 1-2 Percent 7% 35% 18% 55% of respondents at or under 7% of target 20% 3-4 Percent 20% 5-7 Percent

Ratios of Black to Green Belts Almost 75% of responding companies staff their six sigma initiatives with from one to ten green belts per black belt. What numbers of green belts (entry level training) and black belts (expert project managers training) are engaged in your six sigma or lean performance improvement process? 35 29 75% of respondents 30 25 21 20 # of companies 15 10 6 4 5 2 0 1 to 1-5 1 to 6-10 1 to 11-15 1 to 16-20 1 to >20 Ratio of black to green belt

Savings Contributions Target One quarter of responding companies have specific targets against which their black belts must deliver contributions from their projects to meet performance targets. How do companies without annual contributions by black belts measuring their results? What might be the reason that more industries aren’t reporting annual contributions as a means of performance measurement? 64% of companies with an annual contribution are in the manufacturing industry. Transportation is the second largest industry group with annual contributions. Do you have an annual aggregate financial value contribution target that your black belts must contribute from their projects to meet overall performance targets? Yes 24% No 76%

Black Belt Contribution Of those companies that have a contribution target for their black belts (25%), 86% have targets less than $5 million annually. What do you feel is a reasonable contribution from black belts to reach objectives? What are the estimated values of the annual contributions that black belts must make to meet 2003 performance targets? 35% 30% 32% 27% 27% 25% % of companies 20% 15% 14% 10% 5% 0% $100K-500K $>500K-1M >$1M- 4.99 M  $5M Range of $ Contributions

Black Belt Productivity Close to 60% of companies report having black belts oversee between one to three projects annually to achieve their annual contributions, followed by another quarter of the benchmark class completing four to five. What is the average number of projects overseen by a black belt per year to achieve the annual value contribution required? 57% 60% 50% 40% % of Companies 30% 25% 20% 10% 9% 10% 0% One to Three Four to Five Six to Ten Over Ten # of Projects

Average Cycle Time Per Project Close to 40% of companies report completing their improvement projects within between four to six months. Six to nine months is the next most common cycle time. How do you think that quality projects can be accomplished faster? Which of the following best describes the average cycle time of your unit’s six sigma, lean or other improvement projects? 39% 40% 35% 30% 30% % of Companies 25% 16% 20% 15% 10% 10% 4% 5% 0% Six to Nine Months One Month or Less One to Three Months Four to Six Months Ten Months or More Project Duration

Percentage of Benefit Per Function Companies find that 88% of productivity efforts benefit operations, followed by manufacturing and “other,” such as collections and administration. What are the implications for industries with a heavy emphasis on sales and marketing like the pharmaceutical industry? What percentage of your unit’s six sigma, lean or other improvement projects benefit the following functions? 88% Operations Manufacturing 49% 20% Other* Supply Chain 16% Engineering 15% Customer Service 15% 13% R&D/New Product Development IT 12% Sales 10% 8% Financial Services 8% Support Services 7% Marketing 5% HR * Legal, Collections, Administration, Health care 0% 20% 40% 60% 80% 100% % of Companies

Self-Rating of Effectiveness By Function Benchmarked companies feel that they are most effective applying lean and six sigma efforts to manufacturing. Overall, over half of responding companies find that they are effective across all areas, except marketing where 44% of companies feel effective. What is your effectiveness in applying six sigma, lean or other improvement approaches to the following opportunity areas?* HIGHLY EFFECTIVE EFFECTIVE 62% 23% Manufacturing 34% 46% Supply Chain Engineering 39% 34% Customer Service 32% 40% Service Support 26% 41% Financial Services 20% 46% 20% R&D 43% 22% IT 40% 13% 44% HR 41% 10% Sales 33% Marketing 11% 0% 20% 40% 60% 80% 100% * Note: Operations was not a category for this scale. % of Companies

Capability Summary This presentation is the result of primary research. Executives at top companies turn to Best Practices, LLC for actionable and insightful solutions based on the world-class operations of other leading organizations. Let our researchers uncover the next great insights for your operation through our Internet surveys. Best Practices, LLC 6350 Quadrangle Drive, Suite 200 Chapel Hill, NC 27517 919-403-0251 best@best-in-class.com www.best-in-class.com

Global Benchmarking Council Survey Best Practices, LLC best-in-class