One Contractor’s Use of Lean Six Sigma to Address Challenges

After operating Charles Perry Construction, Inc. (CPC) and PPI Construction Management, Inc. (PPI) as two separate contractors, principals Breck Weingart, John Carlson, Domenic Scorpio and Brain Leslie made the decision to unite the companies under one name – Charles Perry Partners, Inc. (CPPI). Through the years these companies have completed projects associated with multiple industries, including universities, biotechnology/innovation, government, and healthcare, among others. Serving clients throughout Florida, featured projects include the Ben Hill Griffin Stadium and Skybox Expansion at the University of Florida, the State of Florida Regional Services Center for the Florida Department of Management Services, and multiple hospitals associated with the Hospital Corporate of America (HCA).

Bringing the two companies together under one made sense, as it would allow the newly formed contractor (CPPI) to improve upon and continue toward the ultimate goal of providing client-focused services by allowing a more effective use of resources, including personnel. The merger introduced challenges, such as the complexity of maintaining and consolidating multiple accounting systems for existing projects that are in the name of CPC and PPI. With the merging of personnel, who operated under two different sets of policies and procedures, responsibilities needed to be addressed and duties needed to be reallocated.  The administrative side of setting up a new company on top of existing job duties is time consuming, and was beginning to impact employee morale.  The accounting department was working overtime, almost every weekend for several months, trying to stay caught up.

The challenges associated with joining two companies, which have duplicate processes, in culmination with the challenges presented by the current economic impact on the construction industry, caused the principals to begin investigating options to relieve the stresses. Domenic Scorpio, CPPI President and Principal, commented, “I have read up on a lot of industry tech magazines so I know the Lean concept is not a new one. I knew it was used to remove inefficiencies in processes. I had not heard it applied directly to accounting, however, until I met with James Moore and Company.”

The Introduction

The Lean/Six Sigma concept was introduced by James Moore and Company to a few individuals with CPPI. Roger Swanger, audit partner with James Moore and Company, introduced it briefly to Breck Weingart and Domenic Scorpio, while Katie Davis, audit manager with the firm, addressed it with CPPI’s Director of Accounting during CPPI’s year-end audit. Following completion of the annual audit, Roger, Michael Sibley, a partner with James Moore and Company certified in Lean/Six Sigma, and Katie, who is also certified in Lean/Six Sigma, met with the CPPI’s principals to further address Lean/Six Sigma’s role in improving their processes.

Initially, the principals’ focus was to reduce CPPI’s financial closing and reporting process from 45 to 60 days on a quarterly basis to 15 days monthly. The principals agreed this process needed to be addressed because improving it would allow the principals and management to receive real-time financial reports, so they could make more informed decisions that impact the bottom line of the company. After addressing the details associated with this project, however, the decision was made to first focus on the cash disbursement process because it played such a significant impact on the timing of the reporting and closing process.

By first addressing the cash disbursement process, the project would result in multiple benefits to CPPI, including: improved timeliness of payment to subcontractors and vendors; minimal errors in documentation provided to the accounting department by project management; reduced stress on accounting staff by level loading responsibilities; improved relationships and communication with customers, subcontractors and suppliers and more timely, meaningful internal financial reporting.

Knowing change was on the horizon, the principals were concerned about a few items. Scorpio was primarily concerned with setting realistic milestones and expectations associated with specific tasks, as well as achieving the buy-in of those directly involved. Adopting a new process meant accepting change. Implementing change in any sized organization can be difficult. Domenic Scorpio commented, “It is painful for a company to want to reevaluate what they have been doing for a long time. For companies that have been slowly evolving it is hard to put on brakes and adopt a new philosophy. You are reinventing yourself. That is what you are doing.”

The Project

James Moore and Company assembled a team, which included 12 employees with CPPI, to tackle this project. Led by Michael Sibley and Katie Davis, who are both certified in Lean/Six Sigma facilitation, the team met several days over a two-month period to review the processes. Each team member had a role defined by specific responsibilities:

• Champion – The voice of the company, represented by two CPPI principals. They participated in only the meetings that denoted their role in the processes.
• Leader – Having the most to gain from the project, this individual, represented by CPPI’s Director of Accounting, set the schedule, selected the cross-functional team members, and made assignments.
• Cross-Functional Members – This group included CPPI’s entire accounting department and a vice president, director, and a senior project manager; each representing various operational divisions. They had specific knowledge of the processes, which was critical to the project’s success. The items they introduced were evaluated and prioritized by the facilitators.
• Facilitators – Michael and Katie were responsible for providing training and assistance.

The goals for the project included:

• Streamlining the processes through employing consistency and communication
• Reducing defects in information received by building quality into the process early on
• Coordination between the operations and accounting departments for a better understanding of needs
• Better communication with subcontractors and vendors for timely receipt of documents required to make payment
• Real-time reporting of financial information to decision makers

The Results

Following the application of techniques and procedures associated with Lean/Six Sigma, Michael Sibley and Katie Davis were able to guide the team toward developing solutions associated with each process by spending time analyzing the current processes before implementing changes.

Domenic Scorpio noted it was easy to identify the low-hanging fruit, but it was the result of Michael Sibley’s and Katie Davis’ facilitation that CPPI was able to identify other areas critical for improvement. Many solutions were identified during the project that will be implemented by CPPI over the next year.

Members of the team are working to develop and implement training programs for all personnel involved in the processes, including reference guides for project managers to use when coding accounting documents. Communicating expectations and building accountability will help all involved understand the importance of their role in each process. Replacing the project management software with one that integrates directly with the accounting system will give more time to certain personnel in the accounting department who spent significant amounts of time with duplicate data entry. This free time will enable the company to reassign individual responsibilities within the accounting department to level load duties and reduce overtime.

The Lean/Six Sigma solutions drafted for CPPI were (a) specific to the process chosen and (b) unique to the contractor’s culture. Although contractors may follow similar processes to accomplish tasks and projects, each ultimately drives individual personal preference and specific needs in to their process. In order to be successful each Lean/Six Sigma process includes these elements:

• Top/Down Support – Although the concepts presented by Lean/Six Sigma are focused on improving processes, if the improved process is met with resistance, failure is certain. For CPPI, Domenic Scorpio noted that for implementation “to be successful you need to have team members commit to participation. Otherwise, it dilutes buy-in.” The leaders of an organization largely influence their company’s culture. If they do not believe improvement is needed (or possible) they should not expect employees will change.
• Employee Engagement – A system must be in place to ensure employees remain engaged in the process in order for it to be adopted. This must be built in to every Lean/Six Sigma process. This system could be a part of the employee’s annual review or it may be tied directly to their compensation structure, for example. CPPI chose to bring Michael and Katie back in for bi-monthly accountability meetings.
• Project Focus – When considering the scope of the project determine whether those involved in each step of the process should be members of the team. For example, when analyzing CPPI’s cash disbursement process, project manager participation was critical, especially when the discussions turned to (a) addressing management of subcontractors alongside data entry of subcontract information and (b) timeliness and proper coding of payment applications.
• Customers Define Value – When individuals think of the term “customers” they often think of those they serve outside of their company. In reality a “customer” is an end user. This term includes a company’s internal customers – their employees. Lean/Six Sigma focuses on the fact that 100% internal customer satisfaction will help achieve external customer satisfaction. Teams need to listen to the “Voice of the Customer” when developing the process. With CPPI, it was helpful for the principals to communicate to the accounting department the reports they rely on for corporate analysis and why they rely on them. This understanding provided clarity and inherent motivation for the accounting department to provide the reports needed in a timely manner. This also allowed the accounting department to prioritize duties and eliminate reporting that was not considered as important or valuable.
• Patience Is Key – Once seeing the benefits created by the improved processes, many teams want to try to achieve new goals without implementing the change needed to achieve those goals. Michael Sibley and Katie Davis stressed the fact that while some solutions can be implemented within a short time frame others will take several months. At CPPI, the accounting department became so excited about meeting the new goals that they attempted to reach the ultimate goal without first implementing some of the solutions that impacted that goal. During one of the team meetings, Michael and Katie noticed that some of the team members from the accounting department were getting frustrated that they were not able to achieve the set goals. Michael and Katie reminded the team of the importance of patience and created a timeline for them to follow in implementing the steps in the appropriate order to ultimately meet the end goal.

Domenic Scorpio noted, “It was eye opening for the principals and the project management members of the team to learn what really happens in accounting. They became advocates of the process and messengers to the rest of the company on the benefits of going through the facilitation.”

Looking Forward

Contractors now operate in a very competitive industry that is not expected to change in the near future. The combination of a soft U.S. economy, a struggling real estate market, and continued turmoil in the financial markets continues to stress the construction market. Many real estate owners do not have a need for new construction or are unable to obtain financing, resulting in fewer projects. In response, many contractors are merging, shrinking their operations, and learning how to do more with less.  Lean/Six Sigma can offer significant operational benefits and efficiencies to contractors experiencing any or all of these changes.

Especially during a down turn in the economy, any efficiency gained in a construction process will contribute to the success of a job, which will, in turn, help the contractor’s bottom line. When the economy is down, cash flow is uncertain and overhead is frequently reduced. A reduction in overhead generally includes a reduction in personnel available to complete a process, thereby making the process less efficient. Lean/Six Sigma helps to expedite processes, by doing more with less. According to Domenic Scorpio, “It makes others, such as subcontractors, more loyal to you and work hard for you. For future work it can give you the edge in a down economy.”

By conducting periodic, purposeful re-assessment of processes, contractors can maintain their edge. In addition to the processes addressed above, contractors can specifically apply Lean/Six Sigma to processes associated with buying out projects, coordination of project scheduling with owners and subcontractors, strategic timing and location of deliveries, cost-effective usage of equipment, and management of job site laborers. Lean/Six Sigma addresses processes that result in tangible products or more efficient services. Intricately understanding each of your company’s processes allows you to become bolder in addressing commitments to customers because scheduling, completion dates, etc. are more predictable. Lean/Six Sigma is helping contractors develop a culture that seeks continuous improvement, which is helping them stay ahead of the competition.

Lean is a concept that has been around for centuries. Early theories trace as far back as the late 1700s with Eli Whitney’s perfection of a musket manufacturing process for a contract with the U.S. Army. Throughout the next 100 years the theory evolved in the manufacturing industry, where Lean was used to improve large scale processes. One of the more famous processes is the one developed by Henry Ford to manufacture his Ford Model T automobile. Ford and a man by the name of Charles Sorensen took all of the elements of the manufacturing system – machines, tools, products, people – and organized them in a continuous process. Some attempted to copy Ford’s methods, but failed because they did not understand the basic fundamentals of the Lean process he had employed.

Some define Lean as “doing more with less.” Others comment they are “increasing efficiencies.” Lean’s focus is on (a) making a process more efficient, (b) gaining capacity and (c) speeding up a process. The key principles of Lean require that individuals begin with the end in mind. These principles include:

1. Focusing on the customer (because customers define value)
2. Identifying the work that provides value (versus non-value)
3. Managing and improving process flow
4. Removing waste
5. Involving and equipping individuals involved in the process with the tools they need
6. Undertaking improvement activity in a systematic way
7. Developing a corporate culture of continuous improvement

While Lean equates to speed, Six Sigma equates to quality. Developed by Motorola in the 1980s and made popular by Jack Welch with General Electric in the mid-90s, Six Sigma is a business management tool focused on developing a near flawless process. The term Six Sigma originated from terminology associated with statistical modeling. In a perfect environment (i.e., one without the chance for error) if Six Sigma were to be applied to its fullest potential it would allow for only 3.4 defects per million opportunities. Six Sigma removes variation in a process while allowing for flexibility to use professional judgment. The Six Sigma model focuses on five key elements:

1. Define – Begin with the end in mind. Set goals, scope, objectives, timeline, etc.
2. Measure – Understand the current state of the process. This involves obtaining the opinions of the experts, developing a value-stream map, identifying output/input relationship, and prioritizing. The objective if measuring is to focus on the key changes needed.
3. Analyze – Tearing the process apart to determine where there is waste, inefficiencies, poor quality, and bottlenecks. This element involves getting to the root cause of the problem so the most useful steps in the improvement process can be determined.
4. Improve – Make changes. Test ideas. Document processes and procedures to create the “future state.” This element avoids adding resources and, instead, focuses on continued process improvement.
5. Control – Getting the buy-in needed to sustain the new process. Individuals may fall back in to old process simply because these processes are what they are used to doing. This element involves validating those doing the work, as they are understand and are conducting the objective property.

By applying Lean without Six Sigma a process is fast, but you may be speeding up the rate at which errors go through the system. By applying Six Sigma without Lean the product developed may be near flawless, but the process to create the product will be slower. Combined these terms make Lean/Six Sigma, which is simply defined as a way to do things better.

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