As we look for ways to improve laboratory operations, JoAnn Hegarty, Phil Emard, and Mark Jamrog—three experienced and well-traveled advocates who have made it their business to spread the word about the benefits of Lean thinking—offer tips. In addition, we take a look at two health care systems that have successfully incorporated Six Sigma tool sets to improve patient care and cut costs.

Lean Management
With a goal of improving productivity and job security, Mark Jamrog helps companies apply the fundamental principles of Lean manufacturing. As president/CEO of SMC Group LLC, he consults with companies from all industrial sectors, including hospitals and diagnostic labs, in the United States and Canada.

In Jamrog’s view, laboratories most often excel at the primary operation, which is acquiring, testing, and analyzing specimens. But he believes that systemic problems in five critical areas are responsible for the majority of problems. These include process engineering, industrial engineering, materials management, performance measurement, and lab staff development. All are reflected in waste for both production and nonproduction environments. Solving the systemic problem is completely independent of the product and industry, he says.
“It doesn’t matter what the product is, the fundamentals and principles are the same,” Jamrog says. Because an essential Lean management tenet is the need to keep a product progressing through a process, smart laboratories strive to keep their specimen tubes moving, avoiding periods when a specimen sits around waiting for the next step in the process. This storage time represents waste that generates unnecessary cost, increases response times, and ultimately threatens job security.

Improving a Lab’s Competitive Position
Too often, Jamrog hears stories about this management attitude toward the hospital lab: “You cost too much, so we’ll outsource to an outside lab.” The challenge for the lab and hospital is to adopt principles of Lean management and remedy the systemic problems inside the hospital so they are able to compete with outside labs.

Jamrog sees several key challenges to improving a lab’s competitive position. These include rigorously searching for the low-point equilibrium for capital, labor, and materials by being creative [and avoiding the trap of automation], doing the best you can with what you have, and properly training the next round of leaders.

“Standardize, standardize, standardize wherever possible,” he says. Because the vast majority of lab activities are repeating processes, standardizing can eliminate unnecessary costs and set the stage for increased wages and benefits, while helping the acquisition of the next round of appropriate technology that enables the lab business to grow.

Finally, Jamrog encourages his clients to remember that the lab’s mission is to make costs go down, not up. With sophisticated solutions come sophisticated problems. Bringing in expensive new technology will not make up for sloppy lab processes and lack of efficiency. “I say stop the abuse. If you abuse what you [already] have, there’s no reason to believe that you won’t abuse what you get,” Jamrog says.

Attention to the ABCs
Cutting cost is only half the equation, however. Just as critical is the impact of overhead burden applied to lab costs. To overcome these challenges, lab managers should increase their knowledge of traditional cost allocation models and current ones such as activity-based costing (ABC).

In the traditional model, the lab receives a portion of overhead that has nothing to do with its operations, so cost is artificially inflated. In the ABC model, according to Jamrog, overhead costs are applied only when it can be proven that the costs are associated with lab operations. Under the ABC model, the published cost more accurately reflects the actual cost. Of course, some allocation of overhead cost through traditional models is unavoidable—including legal and accounts-payable functions.

A good way to get started is with the use of Lean operational assessment of lab operations. Such assessments involve objective evaluation of equipment layout to enhance product flow, standardization of operations, performance-measurement systems, and inventory-management methods.

For Jamrog, the successful transition to a Lean system requires a coordinated effort on the part of the entire laboratory team. “When properly executed, Lean can be self-funding and it can generate a major portion of the required future funding,” he says.

Another View
Founded 6 years ago, Medford, Ore-based consulting firm OpEx Inc helps clients implement proven principles of operational excellence, including Lean management, supply-chain management, Six Sigma, and project and process management.

 Phil Emard

OpEx President Phil Emard says his company has been introducing Lean principles since 1995 and working in-depth in the clinical lab environment for the past 4 years. “I believe we were the first group to apply Lean concepts in the laboratory environment,” he says. Prior to his work with OpEx, Emard spent 10 years with Boeing, where one of his jobs was managing Boeing’s Lean Implementation Office.

OpEx developed its own 15-step Lean Deployment Process with analysis tools. “We consistently see reductions in turnaround time of 60% to 80%, productivity savings of 30% to 40%, and reductions of space and inventory averaging from 30% to 50%,” Emard says.

Emard’s training in Lean management took place both in Japan and North America. He was schooled by retired Toyota engineers who were mentored personally by Taiichi Ohno, a Lean pioneer.

According to Emard, Lean concepts can be applied to any process where material or information changes fit, form, or function to meet a customer need. This is true in the lab, where a patient specimen is collected, separated, and tested, and information is fed back to the care provider.

“We see similar results for labs in the operating room, emergency department, or on a factory floor,” he says. “In other words, Lean is a tool that enables users to build their processes around what a customer values, and eliminate waste or nonvalue-added activity.”

Asked about automation, Emard recalled popular thinking from several years ago when manufacturing companies were going toward “lights-out factories.” The thinking was that completely automated factories could operate with the lights out because no one needed to be there. That was a huge mistake, Emard says. Fixed operating costs went up, not down, because of the high cost of the machines and service contracts, while flexibility to change was drastically impaired. “Most of the companies that embraced this philosophy are no longer in business or are no longer providing these products,” he says. “To date, my experience with laboratory-automation systems is similar.”

When Automation Does Not Work
Emard worked at one laboratory where he and his colleagues were able to demonstrate that test turnaround times were actually longer using automation. As a result, med techs and those responsible for specimen processing made it a habit to avoid using automation systems for stat and emergency-department (ED) samples.

Next, the touted labor savings from automation turned out to be only 17 seconds per sample. So for every

3 million specimens, those 17 seconds calculates out to 6.8 full-time-equivalent employees. “Not bad, right? Wrong,” Emard says. “The time saved was in specimen processing—one of the lowest pay grades and easiest to replace, and not among the hard-to-find med techs.”

Another factor was cost. The equipment cost well more than $1 million. The service contract with extras exceeded $300,000 per year. “What that means is the cost of the service contract alone all but eliminated the productivity savings,” Emard says. Also, the lab was now married to the equipment. If another machine provider came out with a new testing platform with superior performance, the automation system may not accommodate it or it might take months—even years—to retrofit the automation to handle the new testing platform.

Interestingly, by the time the lab director realized the real impact, he was in a real bind. He had staked his career and reputation on securing funding for the automation. Then, just 1 year later, he had a reality check. Turnaround time went up, flexibility went down, and total operating cost increased.

“I am not against automation—far from it,” Emard says. “I’m an engineer by training and in the past have designed machines to automate processes.” He offers some basic principles to help guide choices in automation and avoid mistakes:

• Do not automate waste; eliminate it. If a system is automating transportation, sorting, or storage, it probably is not the automation you want.
• Move toward one-piece flow. Large multipurpose automation does not do this.
• Because complexity breeds confusion, the best solutions are simple and elegant.
• Beware of the hidden laboratory. These costs include repairs, service contracts, upgrades, and modifications. Do not just replace a specimen processor with a service technician.
• Before you buy, assess the true impact on the lab staff and the value-delivery system. A few thousand dollars spent on an evaluation by a true independent third party who understands Lean ensures you will make the best decision without being swayed by the gee-whiz gadgetry or sales pitch.

It is a misconception that Lean is about making people work harder and faster, Emard says. Most often, it is the opposite. “Lean strives to have employees working at a smooth, comfortable pace without interruption for the entire day,” he says. “This is the only way to achieve the best results.”

However, Emard warns, “There is very little low hanging fruit. If there were, management teams would have already picked it. Lean is a systematic, methodical system that changes the way you work,” he says.

Emard expects Lean principles to continue gains and to undergo refinements. “In 10 years, Lean will be the standard in health care,” Emard says.

Just Scratching The Lab Surface
JoAnn Hegarty, who began her career as a medical technologist in transfusion services, is now marketing director for ValuMetrix® Services, a division of Ortho-Clinical Diagnostics. She estimates that only 1% of the nation’s clinical laboratories have made serious strides to incorporate Lean principles into their operations. “The foundation of Lean is eliminating waste and delivering value to the customer more efficiently,” Hegarty says. “Lean is a starting point for comprehensive operational improvements, and every lab has to first look at its customer requirements and expectations.”

Because of its complex delivery system as well as an inward focus, health care has been late to adopt now widely accepted Lean methods, Hegarty says. But because of the data-driven, process-oriented environment—and the very mathematical mind-set of those doing the testing—the clinical lab is particularly well-suited to take advantage of Lean principles, she says. “I think there’s growing awareness that labs can really benefit from the culture, philosophy, and tools that make up Lean.”

Hegarty believes that any Lean approach is 10% technical and 90% cultural. She finds that many senior lab people, who are skilled in and understand their existing process, can evolve into enthusiastic supporters once they get exposed to Lean techniques. “At its heart, Lean is an extremely cooperative system that respects the contributions of the individual,” she says.

The decision to invest in lab automation—which is a form of transportation in Lean terms—should come only after a lab conducts a comprehensive audit of its processes. Factors to consider should include operator analysis, product analysis, capacity, volume, customer expectations, available lab space, and current physical layout, she says.

A Balanced Approach
“Automation can be a good thing, but you have to balance what it costs with what it replaces,” Hegarty says. “In some cases, ‘sneaker power’ may still be the best solution for specimen transportation.” She encounters several misconceptions when she speaks with prospective clients. Hegarty cautions labs against trusting their problems to solutions based on what she calls “Lean lite.”

“The approach we take at ValuMetrix Services typically extends from 12 to 16 weeks,” she says. ”A single week of short-term fix-ups that ignores a commitment and provisions for continuous improvement—or Lean lite—doesn’t work. Team training in tools and organizational support is critical to ensuring acceptance of Lean thinking inside the lab culture.”

 A Look at Six Sigma
Six Sigma is a set of performance-improvement tools that relies on data to base smart decisions that can improve both financial and operational efficiency. First applied in the manufacturing sector, the approach has spread to thousands of US companies and is gaining popularity within health care. Sharp HealthCare, a San Diego-based nonprofit integrated health system, has partnered with General Electric Healthcare for its Six Sigma training. The principles upon which Six Sigma are based—use of statistical analysis as a means for judging the stability and efficiency of a process—are nearly 100 years old. Six Sigma also has its roots based on total quality management, which goes back decades.

Patricia Atkins, RN, is director of Six Sigma at Sharp HealthCare. She spent 10 years as a clinical nurse specialist before joining Sharp in 1992. In 2003, she received her Six Sigma Black Belt after certification from the American Society of Quality. Lean and Six Sigma are complementary tools organizations can use to standardize their processes, reduce waste, and improve patient care, Atkins says. “What we are really doing is driving change. In order to manage change effectively, we need to accurately diagnose the problem, open the performance-improvement toolbox, and choose the right set of tools to help manage the change,” Atkins says. “Sometimes, the right tool set is Six Sigma, and sometimes it is Lean.”

Atkins says that while Lean and Six Sigma are often considered distinct entities, Sharp faces so much variability in cycle times that it could not embark on a Six Sigma project without first defining and standardizing its processes. That’s what Lean helps Sharp achieve. “With Six Sigma, we are aiming for perfection” Atkins says. “Too often in health care, we settle for 90% when we should be aiming at 100%. My passion about Six Sigma is that we can use it to save lives. It’s the hardest thing I’ve ever done, and it’s worth it.”

Now, Sharp is on its second wave of Six Sigma projects. The first included a ‘Kaizen Event’ at a Sharp Memorial Hospital laboratory. A Kaizen Event is a Lean tool that focuses on improving work flow, eliminating waste, and enhancing work environments. “Kaizen” is a Japanese term for continuous improvement. Such events start with several weeks of planning, followed by an intense (3–5-day) burst of activity to “try-storm” and implement improvements. The staff spent an intense week laying the foundation for Five S: sorting, simplifying, systematic change, standardizing, and sustaining. The result: more one-piece flow (less batching) tasks and streamlined tasking, including the removal of a wall that helped free 220 square feet of space, Atkins says.

As Sharp embarks on its latest Six Sigma projects, the company continues to fully evaluate the success and impact of the first initiative. “We require 6 months sustainment before we acknowledge improvement and savings,” she says. “We’ll know the hard results in May 2006, but we have a projected $2.8 million in savings for projects companywide.”

The strength of Sharp’s Six Sigma commitment can be attributed to the support from the very start that was given by the highest administrative and financial levels of the company. “Our CEO (Mike Murphy), along with our executive steering committee, has championed Six Sigma here,” Atkins says. “Too often, others choose to not align performance improvement with the top executive level. That can tend to isolate the initiative from top administration and key decision-makers.”

Sharp used Lean tools to streamline the process its nurses go through in delivering medications to hospital patients. The company redesigned its entire process, bringing standardization so that nurses can administer medications free of interruptions from coworkers. The result is that medication errors decreased because nurses were able to complete the process more efficiently.

Patient admissions and discharges are other areas where Sharp has applied Six Sigma tools. Six Sigma team members dissected the entire process to identify inefficiencies and redundancies. By standardizing tasks and reducing the process, patients now leave the facility sooner—without sacrificing quality of care.

Saving Millions
HealthPartners Quality and Laboratory Site Director Frances Gills, a Six Sigma Black Belt, is responsible for overseeing the quality program in four hospitals and medical centers in the Bon Secours Richmond sector. She says that even apart from Lean techniques, Six Sigma has value in bringing to the surface certain process improvements. “Efforts that need statistical analysis to prove the hypothesis should use Six Sigma,” Gills says. “Six Sigma efforts can yield significant cost and labor benefits by improving the process by reducing variation.”

Health care, in general, depends on many processes that must be improved, Gills says. “With the high cost of operations; and questions regarding quality, productivity, regulations, and increased competition; health care is the perfect industry for Lean and Six Sigma,” Gills says.

While the cost savings for the Richmond section are unavailable at this time, Gills says that savings for the Bon Secours system has reached into the millions of dollars. “Our efforts went into place in 2003, and since then there have been many Black and Green Belts trained and certified,” she says. “With these trained individuals, hundreds of clinical, service, and quality-improvement issues have already been addressed.”

Gills expects Six Sigma to continue to gain popularity in the health care industry. “I think that Six Sigma will become ingrained in our culture as a process-improvement tool that will be used in all of health care,” she says.

Nicholas Borgert is a contributing writer for Clinical Lab Products.