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Microsoft Word - Applications

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  • 1. Six Sigma Running Head: SIX SIGMA Applications and Examples of Six Sigma Systems Joe Yanci University of Mary Washington
  • 2. Six Sigma i Executive Summary Six Sigma is a quality management method that is used to decrease variation in a process to cut defect opportunities for occurrence to a level of 3.4 per million (Jacobs & Chase, 2008). The Six Sigma process was originally developed by Motorola in the late 1980s to improve manufacturing processes, and in the three years following the initial implementation Motorola realized over $2.2 billion in savings from improvements (Antony, 2004). Since its maturity in the early 21st century, Six Sigma has been effectively applied in myriad industries by following Six Sigma best practices – the most important of which are the buy-in of upper level management and integration of the method into corporate culture. There have been successful implementations in healthcare, services, and software development. A small Magnetic Resonance Imaging (MRI) practice used Six Sigma to increase its patient throughput and increase revenue by over $100k (J. Yanci, personal communication, October 31, 2008). A U.S. based utility company reduced service costs by $1.7M (Antony, 2006). Software companies applying Six Sigma have seen an average of $180k in savings per project (Antony & Fergusson, 2004). Six Sigma has been practiced in small, medium, and large corporations – basic principles are adaptable to financial constraints, and a full roll-out is not necessary to obtain significant results. M.K. Grace, a medium-sized chemical company, saw a higher percentage yield from the resources it invested in Six Sigma than Motorola, a large manufacturing powerhouse that devoted over $170 million to the process (Antony, 2006). However, Six Sigma is not applicable in all situations and there are alternative quality assurance techniques that can be as successful. Senior management must commit to the process and know their operations, projects and workforce before being able to responsibly assign resources to a Six Sigma implementation.
  • 3. Six Sigma ii Table of Contents Executive Summary ......................................................................................................................... i Table of Contents ............................................................................................................................ ii Table of Figures ............................................................................................................................. iii Background ..................................................................................................................................... 1 Scope ............................................................................................................................................... 3 Statement of Limitations ................................................................................................................. 3 Findings........................................................................................................................................... 3 Six Sigma Best Practices ................................................................................................................ 3 Six Sigma in Small/Medium Enterprises (SMEs) .......................................................................... 5 Six Sigma in Software Development .............................................................................................. 6 Six Sigma in Service Industries ...................................................................................................... 7 Six Sigma in Healthcare.................................................................................................................. 9 To Implement or not to Implement ............................................................................................... 10 Conclusions ................................................................................................................................... 12 References ..................................................................................................................................... 13 Appendix A: DMAIC Process ...................................................................................................... 15
  • 4. Six Sigma iii Table of Figures Figure 1: DMAIC Process ............................................................................................................ 15
  • 5. Six Sigma 1 Background In the 1980s, researchers found that American-made products had significantly more inherent defects than those made in Japan. In response to this unacceptable state, the Department of Commerce established the Malcolm Baldridge National Quality Award in 1987 in an attempt to stimulate Total Quality Management (TQM) in U.S. industry (Jacobs & Chase, 2008). In response to high warranty claims and the call for quality, Mikel Harry at Motorola developed the Six Sigma method (Antony, 2006). Motorola was awarded the Baldridge Award in 1988 for reducing quality related costs by $2.2 billion using the new method (Antony J. , 2006). The goal of Six Sigma is to reduce variation within an upper and lower bound limit to within six standard deviations by implementing strict tracking, statistical tools and techniques (Antony J. , 2006). The result of a successful Six Sigma implementation is the achievement of Six Sigma Quality, or only 3.4 defects per million opportunities (DPMO) (Jacobs & Chase, 2008). A DPMO of 3.4 is equivalent to 99.99966 percent. To achieve this lofty goal, Six Sigma advocates uncompromising devotion to a cycle of five steps: Define, Measure, Analyze, Improve, and Control (DMAIC) (Jacobs & Chase, 2008). This cycle is shown in Appendix A, Figure 1: The DMAIC Process. During Define, a suitable project is selected, customer priorities are recorded, and critical-to-quality (CTQ) characteristics are identified based on the customer’s feedback. In Measurement, the metric used to define quality is identified and processes that affect CTQ characteristics are measured for defect rates. In Analyze, the cause of defects is investigated and deviation-creating variables are recorded. Throughout Improve, results of analysis are used to improve internal processes that create defects. The last step in the cycle is Control, where
  • 6. Six Sigma 2 implemented improvements are upheld and maintenance tools or triggers are enacted to ensure that CTQ variables are at their optimal levels (Jacobs & Chase, 2008). Six Sigma methods utilize various analytic tools to track defect statistics. These tools include flow charts, run charts, pareto charts, checksheets, cause and effect diagrams, opportunity flow diagrams, and process control diagrams. What sets the use of these tools in Six Sigma apart from their regular exercise is that in Six Sigma they are implemented as part of a corporate wide management system (Jacobs & Chase, 2008). In the Six Sigma management system, employees are trained to different levels of expertise. Champions are executive level managers, trained in the essentials and are focused on the strategic implementation of Six Sigma. Master black belts are fully-trained leaders and instructors who advise the Champions in Six Sigma specifics. Black belts have attended four weeks of Six Sigma training and are the leaders of improvement teams. Green belts are small project managers who have received two weeks of training and are familiar with the basics of Six Sigma. Yellow and White belts are commonly project team members familiar with the process. It is generally acknowledged that Six Sigma cannot be implemented from the bottom up – without the buy-in from top managers and the training of Champions, no number of White belts can successfully implement Six Sigma (Henderson & Evans, 2000). This resource intensive training regimen has typically caused Six Sigma to be implemented at primarily large companies. When successfully using Six Sigma, the entire management chain tracks pertinent quality statistics. This task is not relegated to floor managers and production engineers. Six Sigma is not a management fad, but a company’s core philosophy (Henderson & Evans, 2000). Far reaching successes in companies such as Motorola, General Electric, Texas Instruments, Honeywell and
  • 7. Six Sigma 3 Sony have made Six Sigma one of the most popular and effective TQM methods in use in manufacturing today (Antony, 2006). Scope This document pools together research from a variety of acknowledged experts on Six Sigma and examines the recent expansion of Six Sigma implementation beyond manufacturing, in industries such as software development, healthcare, and services. It also discusses acknowledged pros and cons of the process, best practices, and where Six Sigma should be applied to achieve the most equitable returns. Statement of Limitations The author neither endorses nor rejects the Six Sigma process. This document does not introduce new research findings. Referenced studies are based primarily on U.S. based industry and findings in this document may not apply to industries worldwide. Findings Six Sigma Best Practices According to David Fitzpatrick of Deloitte Consulting, fewer than 10% of the companies that implement Six Sigma are “going to significantly affect the balance sheet and the share price in any meaningful period of time” (as cited in Coronado & Antony, 2002). Meanwhile, GE has seen savings of over $2 billion in a single year due to Six Sigma. The delta between success and disappointment is a series of best practices; not adhering to these techniques risks anything from abject failure to less than optimal results. These best practices, also known as Critical Success Factors (CSF), have been arrived at through trial and tribulation at companies such as Motorola, AlliedSignal, Sony, and Citibank. CSFs are identified as upper management involvement and commitment, cultural acceptance of Six Sigma, communication, organizational infrastructure,
  • 8. Six Sigma 4 training and the linking of Six Sigma to business strategy, the customer, human resources, and suppliers. If any of these CSFs are neglected during the application of Six Sigma, the potential for a failed Six Sigma implementation and a waste of resources escalates (Coronado & Antony, 2002). The support of upper management is often touted as the most important of the CSFs. Accord is essential because executives have the most ability to mold strategy and company culture to either revolve around Six Sigma or alienate it. The best way to involve these executives is to ensure that they are trained, at a minimum as Six Sigma Champions. That way they can effectively communicate in terms of Six Sigma with other employees – black belts, green belts, yellow belts and white belts – in strategic management positions throughout the company. Once the executives buy into the idea, company culture must change to incorporate Six Sigma into one of its core competencies and not just be made into another bureaucratic process. One of the best ways to do this is through communication, another CSF. Open communication encourages questioning of the way things are and leads to the identification of problem processes or products. Communication is encouraged when the organization is properly structured to allow it. Citibank accomplished this through cross-functional teams, one of which successfully identified a call center defect and reduced its occurrence by 73 percent (Coronado & Antony, 2002). When these CSFs are incorporated into a Six Sigma implementation, the effectiveness of the method drastically increases. Six Sigma has recently been shown to be not just a tool for improving manufacturing quality, but of a broad value to other industries as well.
  • 9. Six Sigma 5 Six Sigma in Small/Medium Enterprises (SMEs) Six Sigma has typically been used in large manufacturing companies able to provide large scale resources to the implementation. Motorola spent $170 million in employee training before reaping the benefits (Antony, 2006). GE, another noted Six Sigma leader, required a minimum of thirteen days of Six Sigma training for every employee (Henderson & Evans, 2000). Due to these extensive outlays in manufacturing giants, Six Sigma is often dismissed in Small to Medium Enterprises (SME) as too costly (Kumar, Antony, Madu, Montgomery, & Park, 2007). Despite the stigma, Six Sigma has recently gained ground in the SME market. Dr. Ronald Snee, a Six Sigma consultant, states that SMEs can expect to improve profit margins from “two to four percentage points” by adhering to general Six Sigma philosophies (as cited in Antony, 2008). W.R. Grace, a medium-sized chemical and construction company, managed a greater percentage reduction in costs by using Six Sigma than did General Electric, a manufacturing giant that put all of its employees through a minimum of thirteen days of training (Antony 2006). Six Sigma has been shown to be applicable to SMEs; however, the implementations must be approached intelligently (Antony, 2008). It is not necessary to immediately ramp up all personnel on Six Sigma. It is recommended that SMEs carefully identify significant short-term projects and key personnel assigned to those tasks for training. The slow and incremental introduction of Six Sigma to the entire business requires a smaller outlay in resources. In addition, temporary consultants can supplement organic staff for a brief time without the overhead of recurring cost. Expensive full bore implementations of Six Sigma are not necessary at SMEs to reap rewards of the process – a simple dedication to quality and the basic tenets is enough to improve a process (Antony, 2008).
  • 10. Six Sigma 6 SME implementation of Six Sigma remains fairly rare, but is increasing in frequency. Recent changes in pricing structure for Six Sigma training material have made it more accessible to companies with smaller training budgets. Acknowledged successes are increasing, and expanded implementation in the SME arena is expected (Antony, 2008). Six Sigma in Software Development Software products are notoriously full of defects. Most large software development companies consider a large scale software suite to be ready for sale when only 90% of the defects, or ‘bugs,’ have been removed from the systems, resulting in Costs of Poor Quality (COPQ) of 25% (Antony & Fergusson, 2004). The onus is then put on the customer to identify defects and demand solutions in the form of patches, upgrades, or service packs. The problem with this production model is that it is expensive – post release defect fixes are frequently 100 times more costly than if they had been mended prior to sale (Boehm & Basili, 2001). This business model requires extensive customer support outlays, and the satisfaction and trust in the client base suffers. The software industry would see significant decrease in costs if defects could be minimized, making it a prime candidate for Six Sigma implementations. However, Six Sigma was fashioned for improvements in manufacturing, not software development, which differs in many ways. Software production does not culminate in an unchanging, physical product. In manufacturing, client needs are clearly known prior to production – in software, requirements are a constantly evolving process. Finally, manufacturing focuses on identical reproduction of the same design. In software, it is the design process where the defects occur (Antony & Fergusson, 2004). To determine how Six Sigma principles were being applied in the industry, Antony and Fergusson (2004) conducted a pilot study of 100 software development leaders. Resultant
  • 11. Six Sigma 7 surveys showed that applying Six Sigma principles saved an average of $180k per project (Antony & Fergusson, 2004). Respondents attributed success to changing their Software Development Lifecycle (SDLC) processes. Most SDLCs include a quality control and testing phase at the end of the process. Software companies that implemented Six Sigma integrated quality control into every phase of their SDLC process. Respondents also determined that the most important factors for Six Sigma success in software development were leadership commitment, organizational culture change, linkage of Six Sigma to business goals, and the integration of customers into the Six Sigma model (Antony & Fergusson, 2004). However, even the best companies at implementing Six Sigma, such as IBM and NEC, only managed to remove about 95% of defects in their products before release, or 6,210 defects per million (Antony & Fergusson, 2004). They attributed nearly all remaining defects to the requirements gathering step in their SDLC process (Antony & Fergusson, 2004). While current implementations of Six Sigma in the software industry fall short of the Six Sigma Quality of 3.4 per million, adopters have shown drops of up to 5% or more in opportunities for defects (Antony & Fergusson, 2004). Despite differences between software development and manufacturing Six Sigma is a viable method of quality control in this industry. Six Sigma in Service Industries Service industries are rife with inefficient, repetitive processes that are not performing at their optimal level. According to Jiju Antony (2006), Professor at the Caledonian Business School, “service processes like payroll processing, billing, invoicing, shipping, order entry, response to service requests, baggage handling, etc. are performing at…97.7 per cent.” At first blush, this sounds quite good; however, that is 23,000 DOPM. Each of those is an opportunity to
  • 12. Six Sigma 8 lose a customer to a competitor. In May 2008, the average airfare for a flight between the top 50 destination cities in the U.S. was $284 (Seaney, 2008). Assuming the opportunity for 23,000 lost bags and therefore lost customers, that is $6,532,000 in potential lost revenue. Especially in the U.S., with an increasingly service oriented economy, 97.7 percent is not enough. Despite the perception that Six Sigma is for manufacturing processes only, it can and has been used to improve performance in services. It is applicable to this industry because service work processes are interconnected, those processes are variable because of customer interaction, and most service processes can be statistically tracked. Problems crop up at key interaction points with customers, such as the number of rings before an agent responds to a customer, time taken to restore a service, or the delay injected in an interaction by poor speaking skills of a customer representative. Implementation of Six Sigma in service industries has been used to improve management decision, customer relations, and internal operations efficiency (Antony, 2006). The primary challenge in relating Six Sigma to services is to determine which projects or processes are most stable, measurable, and improvable. As customer demands are highly variable, project improvement plans should not extend further than six months. Customer fulfillment is not be used as an accurate measurement of process improvement, as satisfaction surveys are typically skewed to the negative – unhappy customers comment more often than happy ones. More reliable metrics are processing periods, delivery times to respond to customer complaints, customer hold times, and accuracy of information provided to a customer (Antony, 2006). Six Sigma is especially useful in a call center environment. Customers are often aggravated by long hold times – this can be measured by quantity of customer hang-ups prior to
  • 13. Six Sigma 9 service. To decrease these opportunities for defects, Six Sigma was implemented by a call center company. Customer service calls were monitored to determine how much airtime was used for customer service representatives to talk to customers and how much was dead air. Questions were changed to prompt more straightforward yes or no answers. This reduced customer waiting time by nearly 50 percent and resulted in significantly fewer hang-ups (Adsit, 2008). Using the Six Sigma DMAIC methods to improve processes, the same number of customer service representatives serviced twice the number of customers without increasing wait time (Adsit, 2008). Elsewhere, Citibank used Six Sigma to decrease credit processing time by 50 percent (Antony, 2006). At another financial services company administrative costs were reduced by $74k a year (Antony, 2006). A utility company saved $1.7M by improving their service delivery process (Antony, 2006). Regardless, many service companies are still skeptics of Six Sigma’s applicability to their business. As the service industry becomes increasingly competitive, Six Sigma is anticipated to become the norm instead of a relative rarity. Six Sigma in Healthcare While similar to general service industry implementations, healthcare processes in particular can be even less controllable. The majority of the processes in this industry are driven by humans - sick and scared humans. This variability is not as prevalent in other industries and makes Six Sigma appear even less appealing. However, hospitals and other healthcare companies have recently found success at implementing Six Sigma by focusing on direct care delivery, administrative support, and financial administration. Although initially reluctant, many health care providers have had success with Six Sigma, including Blue Cross Blue Shield and the Mount Carmel Medical Center (Sehwail & DeYong, 2003).
  • 14. Six Sigma 10 Another healthcare provider, a medium medical practice specializing in radiology and MRI scans, improved their patient throughput by using Six Sigma. They did this by defining their objectives as growing revenue through the expansion of patient throughput. They measured their key drivers, which were identified as exams per day, exam time, time between exams, and the backlog in patients who were waiting to receive a scan. The company hired an external consultancy to analyze the key relationships and noticed that exam type, MRI contrast usage, and time of the week had significant effects on their driver variables. The practice then improved their processes by implementing standard operating procedures and continued measuring their key drivers to control their processes. One of the most notable additions to their examination process was the addition of a question the MRI techs were to ask their patients, “Are you claustrophobic?” This question significantly decreased the likelihood that an MRI would need to be stopped prior to completion and saved patients from unnecessary stress. By taking into account the human element in their process, and combining it with other improvements, the practice decreased DPMO by nearly 25 percent. According to James Yanci, the Six Sigma consultant to the medical group, an additional patient was able to be seen per day and revenue increased by over $100k per year (J. Yanci, personal communication, October 31, 2008). To Implement or not to Implement While Six Sigma has been shown in recent years to be applicable to companies of varying sizes in many industries, Six Sigma should not automatically be viewed as the pinnacle in quality improvement simply due to market penetration. For all of the successful implementations, there are also failures. Lockheed Martin tried and failed – now belted employees are simply referred to as program managers instead of ‘belts’ to escape the ridicule of
  • 15. Six Sigma 11 their failed implementation. IBM attempted similar Six Sigma initiatives before abandoning them (Senapati, 2004). In low resource environments and harsh economic times, there are other quality methods that are less costly to implement. The Deming Process, TQM, and Baldridge methods all instill Six Sigma principles. Quality improvement can be achieved without a high price tag and, arguably, with similar results (Senapati, 2004). Six Sigma has other significant cons beyond what are often high costs. Six Sigma does not intrinsically use feedback to determine which processes are the most important to their customers’ satisfaction. This decision is left up to internal managers and engineers who may improve ten unimportant processes to near perfection, while a single important process flounders. Stamatis argues that Six Sigma is merely an “appraisal tool that does nothing for presentation,” and that it does nothing to address inherent design flaws in a product (as cited in Ette, Pierce, Cannon, & Daripaly, 2002). Due to these cons, sometimes Six Sigma alone is not the best solution. Software and IT companies are starting to integrate Six Sigma with the Capability Maturity Model (CMM) and Information Technology Infrastructure Library (ITIL) processes to receive higher returns on their investments. Six Sigma is often used alongside lean principles in manufacturing, and combined with ISO9001:2000 and the European Foundation for Quality Management (EFQM) Excellence Model (Antony, 2008). Six Sigma is a useful method with both merits and detractions that has gained significant niche usage in various industries. However, Six Sigma should not be applied everywhere, especially not before consideration of alternatives, or without dedication to Six Sigma best practices (Kumar, Antony, Madu, Montgomery, & Park, October 2007).
  • 16. Six Sigma 12 Conclusions Despite original development for manufacturing process improvement, in recent years Six Sigma has seen increasing adaptation for application in other industries. For any hope of success it is essential that management back the decision to implement Six Sigma, that applicable metrics be used, and that Six Sigma be integrated into company culture. At the same time, it must be acknowledged that Six Sigma is not a magical elixir for inefficiency. Management must know its operations, projects, and workforce before committing resources to Six Sigma.
  • 17. Six Sigma 13 References Adsit, D. (2008). Cutting-Edge Methods Help Target Real Call Center Waste. iSixSigma. Retrieved on November 15, 2008 from http://www.isixsigma.com/library/content/c070611a.asp Antony, J. (2008, March). Can Six Sigma be effectively implemented in SMEs? International Journal of Productivity and Performance Management, 57 (5) , 420-423. Retrieved on October 31, 2008, from Emerald database. Antony, J. (2006). Six Sigma for service processes. Business Process Management Journal, 12 (2) , 234-248. Retrieved on October 31, 2008 from Emerald database. Antony, J., & Fergusson, C. (2004). Six Sigma in the software industry: Results from a pilot study. Managerial Auditing Journal 19 (8) , 1025-1032. Retrieved on October 31, 2008, from Emerald database. Coronado, R., & Antony, J. (2002). Critical success factors for the successful implementation of Six Sigma projects in organisations. The TQM Magazine, 14 (2) , 92-99. Retrieved on October 31, 2008, from Emerald database. Ette, H., Pierce, R., Cannon, G., & Daripaly, P. (2002). Six Sigma: Concepts, tools and applications. Industrial Management & Data Systems, 105 (4) , 491-505. Retrieved on October 31, 2008 from Emerald database. Henderson, K., & Evans, J. (2000). Successful implementation for Six Sigma: Benchmarking General Electric Company. Benchmarking: An International Journal, 7 (4) , 260-281. Retrieved on October 31, 2008, from Emerald database. Jacobs, R., & Chase, R. (2008). Operations and supply management: The core. Boston: McGraw-Hill Irwin.
  • 18. Six Sigma 14 Kumar, M., Antony, J., Madu, C., Montgomery, D., & Park, S. (2007, October). Common myths of Six Sigma demystified. International Journal of Productivity and Performance and Performance Management 25 (8) , 878 - 895. Retrieved on October 31, 2008 from Emerald database. Seaney, R. (2008, May). Sneak peek: Fuel prices effect on airline ticket prices. FareCompare.com. Retrieved on November 15, 2008, from http://rickseaney.com/2008/05/06/sneak-peak-fuel-prices-effect-on-airline-ticket-prices/ Sehwail, L., & DeYong, C. (2003). Six Sigma in health care. . International Journal of Health Care Quality Assurance 16 (4) , i - v. Retrieved on October 31, 2008, from Emerald database. Senapati, N. (2004, February). Six Sigma: Myths and realities. International Journal of Quality & Reliability Management 21 (6), 683-690. Retrieved on November 15, 2008, from Emerald database
  • 19. Six Sigma 15 Appendix A: DMAIC Process Figure 1: DMAIC Process Adapted from Jacobs, R., & Chase, R. (2008)

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