Halliburton pushes Lean Six Sigma to its supply base
By William Atkinson -- Purchasing, 3/12/2009 2:00:00 AM
A lot of companies begin looking at Lean, Six Sigma and other efficiency improvement strategies when business tightens, as a way to reduce excess costs. But Halliburton took the opposite approach and implemented Lean Six Sigma as a way to improve its customer service in the face of growing demand.
Houston-based Oilfield services provider Halliburton has experienced significant demand growth over the last few years. While this is good news for Halliburton, it also poses some challenges—most notably, the need to improve efficiency to meet ever-increasing customer needs and capitalize on the growing demand.
One supply chain strategy Halliburton implemented to help respond to that demand is its Creativity over Capital strategy, which is really a euphemism for Lean Six Sigma, explains Len Cooper, senior vice president of supply chain at Halliburton. When Halliburton began to implement Lean Six Sigma in 2004, it was experiencing extraordinary growth in the oil and gas sector, essentially doubling the size of its business. "As a result, one of the things we wanted to focus on was speed of delivery, especially cycle time reduction."
As a first step, Halliburton's supply chain team began to conduct value stream mapping (a Lean tool) and evaluating productive time vs. non-productive time, and examining where it could reduce non-productive time. That, in turn, would shorten the overall delivery cycle of its products and services.
Almost immediately the company's manufacturing cycle times were reduced, which drove higher asset utilization out of their equipment. In fact, between 2004 and 2008, Halliburton was able to triple the output from its manufacturing plants without any meaningful increase in the total capital footprint for those plants.
"If we had not gone through the Lean process, we would have had to make substantial investments to support that type of output growth," states Cooper. "The Lean process alleviated the need for that incremental capital investment."
Good news, right? Yes, but increasing manufacturing speed brings with it a new challenge—supplier responsiveness. Fortunately, Cooper's prior experience with at General Electric had prepared him for this challenge. "When you make a significant amount of improvement internally, such as speeding processes up, you begin to experience demand barriers as you get closer to the edges of the internal supply chain," he explains. This then begins to present challenges for suppliers, which often are no longer capable of keeping up with the ever-increasing demands and expectations for speed and responsiveness.
To meet this challenge, Halliburton began engaging its suppliers in Lean Six Sigma strategies in 2006. "We actually began to offer them our assistance and expertise, and invest resources, to catalyze them to adopt the same approaches we use internally," says Cooper.
 For more strategic sourcing case studies: See Purchasing.com's How They Buy archive. |
As Cooper explains, the rationale for pushing the Lean principles to the suppliers was simple: "We would rather have our best suppliers grow with us, especially in these times, rather than go out and find more suppliers in order to gain access to additional capacity. We wanted to share our Creativity Over Capital ideas and experiences and benefits with them." In the short term, this would begin to align the interests of Halliburton and its suppliers. In the long term, it would help make them better suppliers.
In some cases, there was initial reluctance among suppliers to the idea of having a customer (Halliburton) provide strategies. "Some suppliers' perception was that a customer was trying to come in and tell them how to run the businesses," says Cooper. In fact, some of these suppliers ultimately did not agree to accept the help, preferring to use their own programs. With other suppliers, though, Halliburton was insistent that they invest in this model and adopt these ideas. To build cooperation for the initiatives with these suppliers, as well as to encourage other suppliers (those who were not required to participate) to voluntarily cooperate, Halliburton utilized a number of strategies.
"First, we explained what we wanted to do, why we wanted to do it, what the objectives were, and what the benefits would be for us and them," Cooper states. Secondly, Halliburton focused mostly on Lean strategies with suppliers, and less so on Six Sigma because, as Cooper explains, "Lean focuses on speed and throughput, which is easier for suppliers to apply and is in fact a goal for our suppliers." Six Sigma, he notes, is a more technical, data-driven, analytical approach.
The third strategy for bringing suppliers along was showing them some of the data related to Halliburton's own experience with Lean Six Sigma. This made many of them more receptive, because they could see how it could reduce their own capital investment footprint.
And finally, Halliburton sent some of its own people out to its key supplier plants to guide them in starting their own Lean Six Sigma programs. As a result of the company's initiatives, the success rate for supplier involvement was high. "We now have some suppliers with very robust Lean Six Sigma programs that are equally successful to ours," he reports.
Because of the teamwork with suppliers, Halliburton's manufacturing centers are now able to depend on supplier performance to feed those operations, and supplier performance has increased. "Had we not had success with suppliers, we would not have been able to meet the demands from our manufacturing centers and ultimately our external customers," explains Cooper.
And from here, Halliburton plans to bring its Lean Six Sigma strategies to the other side of its supply chain: customers. Or as Cooper refers to it, "bringing Lean Six Sigma to the wellhead," which is where the company actually provides it services to customers.
Now Playing: 