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Six sigma and cost saving


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Six sigma and cost saving

  1. 1. Six Sigma and Cost Saving By: - Rohit Pinto
  2. 2. Agenda• Quality• 6 sigma basics• Where does cost come in?
  3. 3. Quality – What is it?• Quality is perceptual, conditional and subjective. Different people see it differently• Quality is the first and one of the most important things regarding different objects and other stuff.• Quality is how good a product is.
  4. 4. What does the dictionary say?• The standard of something as measured against other things of a similar kind• Degree of excellence• Key attributes in a person/object
  5. 5. My Definition The degree of adherence of the keyattributes of a product/ service to a chosen Standard.
  6. 6. So how can we measure it? You cannot manage what you cannot measure - Anon Define key Set a measurable Set the limits of attributes for each what is acceptable Measure each of characteristic of and what is not the products(What are the key produced against characteristics of the product (Will my customer the measurable my product/ (What standard accept the that’s been set service) do I follow?) product?)
  7. 7. Quality Management – Assuring the Control of Quality Product Oriented Quality Control (Don’t let the defective products out)Quality Management Process oriented Quality Assurance (Don’t let the products be defective)
  8. 8. The QM Cycle Act PlanCheck Do
  9. 9. SIX SIGMA
  10. 10. What is Six Sigma?• A goal of near perfection in meeting customer requirements• A sweeping culture change effort to position a company for greater customersatisfaction, profitability and competitiveness• A comprehensive and flexible system for achieving, sustaining and maximizingbusiness success; uniquely driven by close understanding of customer needs,disciplined use of facts, data, and statistical analysis, and diligent attention tomanaging, improving and reinventing business processes (Source:The Six Sigma Way by Pande, Neuman and Cavanagh) It’s a business strategy!!
  11. 11. History of Six Sigma 19861980Motorola launches a Six Sigma is bornnew 4 point strategy thanks to Bill Smith• Global Competitiveness• Participative Management 1984• Quality Improvements• Motorola Training and Motorola Education Center Manufacturing Institute was launched, but they still lacked a common 1979 Metric for sharing and Our quality stinks!! – Art comparing initiatives Sundry, Communications Manager, Motorola
  12. 12. Technically Speaking• If one has six standard deviations between the process mean and the nearest specification limit, practically no items will fail to meet specifications
  13. 13. In Terms of Number of DefectsSigma Level DPMO Defect Percentage Yield1 6,91,462 69% 31%2 3,08,538 31% 69%3 66,807 6.7% 93.3%4 6,210 0.62% 99.38%5 233 0.023% 99.977%6 3.4 0.00034% 99.999666%7 0.019 0.0000019% 99.9999981%
  14. 14. Is 99% Quality Good Enough?• 22,000 checks will be deducted from the wrong bank accounts in the next 60 minutes.• 20,000 incorrect drug prescriptions will be written in the next 12 months.• 12 babies will be given to the wrong parents each day.
  15. 15. But is Six Sigma Realistic? · ·Defects Per Million Opportunities (DPMO) 100K ···· Restaurant Bills Doctor Prescription Writing 10K 41 Payroll Processing ·· Average Order Write-up · Journal Vouchers Company Wire Transfers 1K 31 Air Line Baggage Handling · Purchased Material Lot Reject Rate 100 21 (233 ppm) 10 11 Best in Class Domestic Airline 1 Flight Fatality Rate 1 (3.4 ppm) 2 3 3 4 4 5 5 6 6 7 (0.43 ppm) 7 SIGMA
  16. 16. Six Sigma Improvement Methods DMAIC vs. DMADV Define Measure Analyze Continuous Improvement Reengineering Improve Design Control Validate
  17. 17. Six Sigma DMAIC Process Control Define: Define who your customers are, and what their requirements are for your products and services – TheirImprove expectations. Define your team goals, project boundaries, what you will focus on and what you won’t. Define the Define process you are striving to improve by mapping the process.Analyze Measure
  18. 18. Six Sigma DMAIC Process Measure: Eliminate guesswork and assumptions about what customers need Control and expect and how well processes are working. Collect data from many sources to determine speed in responding toImprove customer requests, defect types and how frequently they occur, client feedback on how processes fit their needs, how clients Define rate us over time, etc. The data collection may suggest Charter revision.Analyze Measure
  19. 19. Six Sigma DMAIC Process Analyze: Grounded in the context of the Control customer and competitive environment, analyze is used to organize data and look for process problems and opportunities.Improve This step helps to identify gaps between current and goal performance, prioritize opportunities to improve, identify sources Define of variation and root causes of problems in the process.Analyze Measure
  20. 20. Six Sigma DMAIC Process Control Improve: Generate both obvious andImprove creative solutions to fix and prevent problems. Finding creative solutions by correcting root causes requires Define innovation, technology and discipline.Analyze Measure
  21. 21. Six Sigma DMAIC Process Control: Ensure that the process Control improvements, once implemented, will “hold the gains” rather than revert to the same problems again. VariousImprove control tools such as statistical process control can be used. Other tools such as procedure documentation helps Define institutionalize the improvement.Analyze Measure
  22. 22. Six Sigma DMADV Process Design: Develop detailed design Validate for new process. Determine and evaluate enabling elements. Create control and testing plan forDesign new design. Use tools such as simulation, benchmarking, DOE, Quality Function Deployment Define (QFD), FMECA analysis, and cost/benefit analysis.Analyze Measure
  23. 23. Six Sigma DMADV Process Validate Validate: Test detailed design with a pilot implementation. IfDesign successful, develop and execute a full-scale implementation. Tools in this step include: planning Define tools, flowcharts/other process management techniques, andAnalyze work documentation. Measure
  24. 24. Okay, so we used 6 Sigma, and lets say, our Quality improved But what about our costs?!!
  25. 25. Quiz TimeAnswer True or FalseHigher quality costs more.
  26. 26. Cost of Defects?!Cost Area ExamplesFactory Accounts •Materials Scrapped •Labour burden on product scrapped •Labour, Material and burden to repair product •Extra operations added because of presence of defectives • Burden arising from excess production capacity necessitated by defectives •Excess inspection costs Investigation of causes of defectsSales Costs •Discount on seconds •Customer complaints •Charges to quality guarantee account •Costs due to delaysIntangible Costs •Delays and stoppages caused by defectives •Customer good will •Loss in morale due to friction between departments
  27. 27. The Traditional View Cost of Production1201008060 Cost of Production4020 0 100% Defective 100% Good
  28. 28. Cost of Defects1401201008060 Cost of Production Cost of Defects4020 0 100% 100% Good Defective
  29. 29. Cost of Quality14012010080 Cost of Production60 Cost of Defects Total Cost of Quality4020 0 100% Defective 100% Good
  30. 30. Does it really work?• “Operating margins of 3M went from 17% in 2001 to 23% in 2005 all due to the six sigma drive by McNerney”• “GE produces annual benefits of over $2.5 billion across the organization from Six Sigma.”• “Motorola reduced manufacturing costs by $1.4 billion from 1987-1994.”• “Six Sigma reportedly saved Motorola $15 billion over the last 11 years.”
  31. 31. A word of Caution• Generally 6 Sigma takes between 1 to 3 years of investment before it shows results 4 3.5 3 2.5 2 Cumulative Investment 1.5 Cumulative Savings 1 0.5 0 1996 1997 1998 1999 Source: GE Annual Reports
  32. 32. A word of caution• There are as many failures as there are successes – Untrained/ improperly trained “Master Black Belts” – Urgency to show results leads to improper implementation – Training is not sustained hence new employees are not aware