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Six Sigma: Process Improvement
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- 2. Six SigmaBasics Benefits of Six Sigma and Why it is Utilized Pioneers of the Science Methodologies/How to Apply it General Electric Conclusion Q & A
- 3. Six Sigmadeveloped from TQM and similar quality initiatives Evolved to be about business management, value creation and improvement for the customer and the shareholder
- 4. “A highly disciplinedprocess that helps us focus on developing and delivering near- perfect products and services” 3.4 Defects per million opportunities (DPMO) and CTQ’s ◦ 1 Sigma = 690,000 DPMO =31% efficiency 2 Sigma = 308,000 DPMO = 69.2% efficiency 3 Sigma = 66,800 DPMO = 93.32% efficiency 4 Sigma = 6,210 DPMO = 99.279% efficiency 5 Sigma = 230 DPMO = 99.977% efficiency 6 Sigma = 3.4 DPMO = 99.9996% efficiency
- 5. (1) # ofDefective units = DPU (Defects per unit) # of units input (2) % of defects (DPU) = DPO (Probability of defective units) # of “opportunities” for defect (3) 1- DPO (Opportunity level for “non-defected unit”) (4) DPO x 1,000,000 = DPMO (5) Reference σ chart Example: Produce 100 units with 5 defects in total; there are 20 CTQ’s defined by the customer. What is the Sigma level of the company? (1) 5 Defects =.05 DPU 100 units (2) .05 DPU = .0025 DPO 20 CTQ’s (3) 1- .0025 = .9975 (4) .0025 x 1,000,000 = 2,500 DMPO (5) 2,555 DPMO = 4.30σ ; therefore ≈ 4.3 σ
- 6. Process Variances ◦Inadequate training ◦ Unreliable vendors ◦ Insufficient process capabilities/ barriers to achieving CTQ’s Goals: ◦ Eliminate variation in processes ◦ Enhance productivity ◦ Eliminate wastes ◦ $ value increase of bottom line “Any customer can have a car painted any colour that he wants so long as it is black” -Henry Ford
- 7. 1979 ArtSundry of Motorola “The real problem with Motorola is that our quality stinks!” - Art Sundry Higher quality products are less expensive ◦ Less re-work ◦ Fewer re-funds ◦ Lower EE costs Sought a proactive approach through Prevention not Detection (Reactive) “Stealing” market share through quality ◦ The Bandit Pager
- 8. 1986- Invested$25 million in training ◦ $250 million ROI in 1st year 1992- 70% of EE’s participated training Reduced errors by 80% ◦ $4 Billion in savings ◦ $16 Billion by 2000 1988 – Baldrige National Quality Award
- 9. Hidden defects= High costs (20% -30% every $1 of sales) ◦ Increase Profitability ◦ Improve market share ◦ Meet overall strategic business goals ◦ Ensure long-term viability of company ◦ Fix “low hanging fruit = significant impacts to bottom line “Every company that has followed our Six Sigma methodology has achieved breakthrough profitability.” -Mikel Harry and Richard Schroeder
- 10. #1 Reason…ImproveProfitability Quickly ◦ Earn 8% more in the prices established ◦ 3x more profitable than those with inferior levels of quality ◦ 10x improvement from previous level of profitability Being Better is Cheaper ◦ 1 Sigma level increase each year ◦ 20% profit margin improvement • 12-18% increase in capacity • 12% reduction in EE’s and costs associated with them • 10-30% capital reduction
- 11. “The best executiveis the one who has sense enough to pick good men to do what he wants done, and self-restraint enough to keep from meddling with them while they do it.” -Theodore Roosevelt ◦ Discover ◦ Decide ◦ Organize ◦ Initialize ◦ Deploy ◦ Sustain Customer Green Belts Black Belts Master Black Belts Champions Executive Leadership Initial Stages of Six Sigma
- 12. The methodologybehind the Six Sigma Science is the DMAIC model for process improvement ◦ Define opportunity ◦ Measure performance ◦ Analyze opportunity ◦ Improve performance ◦ Control performance
- 13. Define theproblem ◦ Prioritize issues based on: Impact to the organization Profitability Strategic direction ◦ Set Goals Should be realistic ◦ Determine deliverables and set dates ◦ Define metrics to be used ◦ ID your team “If you don’t know where you are going you will end up somewhere else” - Yogi Berra DMAIC
- 14. Measure performance ◦Establish baseline data ◦ Taking a snapshot of current process from all angles ◦ Develop a Value Stream Map (VSM) ◦ Audit data for validity “What does not get counted does not count” - Charles Handy
- 15. Analyze opportunities ◦Systematically look at data collected ◦ Use data to understand the “root causes” ◦ Quantify performance gap ◦ ID opportunities for Improvement
- 16. Improve performance ◦The fun part! – begin to implement projects and see results Implemented on pilot level Champions head projects Executed by black belts/master black belts ◦ ROI becomes visible!
- 17. Control performance ◦Don’t rest; continuous improvement (Kiazen!) Take new baseline measurements Capitalize on opportunities to enhance process further ◦ Monitor new process Develop metrics and control charts ◦ Documentation of training for new process Develop a system to properly train EE’s in new process ◦ Summarize results and make recommendations
- 19. Between 1981and 1998 the market value of GE increased from $12 billion to $280 billion dollars Ranked 4th on the Fortune 500 ◦ Nearly $157,000 million in revenues ◦ $11,025 million in Profits Can attribute much of this success to 6σ General Electric
- 20. “GE Quality2000” ◦ (1) Retain businesses determined to retain a competitive edge in; eliminate businesses that don’t ◦ (2) Strive for Six Sigma by the year 2000 ◦ (3) Invest in Training 1996 - $200 million to train 200 master black belts and 800 black belts 1997 Additional $250 million in training 4,000 black belts/master black belts and 60,000 green belts out of a 222,000 workforce. Certifications became mandatory if EE’s wanted to progress vertically GE Quality 2000
- 21. Results: ◦ 1997-$200m invested in training $300mi increase in operating income ◦ 1998- Total of $500m invested in Six Sigma up to this point $750m in savings Saved over $¾ billion in cost savings by 1998 through its Six Sigma initiatives (=1/3 of net income at the time ◦ 1999 – $1.5 billion in savings ◦ Operating margin increase from 14.8% (1996) to 18.9% (2000) General Electric
- 22. Basics ofSix Sigma Benefits of Six Sigma and why it is utilized Motorola and their role in process improvements Methodologies and applying Six Sigma GE and their Six Sigma Experience Any company that is: •Open to and prepared for change? • Ready to take a scientific approach to increase profits quickly •Willing to commit the time and resources necessary to realize great rewards…. That company is ready for
Editor's Notes
- #4 Six Sigma is a program developed from a combination of quality initiatives such as TQM, Lean manufacturing and the Kiazen approach to quality in order to create the “ultimate” process improvement method. It is a Scientific method that takes a step by step approach to process improvements, creating benefits for both the CUSTOMER and the SHAREHOLDER that can be measured in direct costs savings and increased market share.
- #5 Six Sigma is “A highly disciplined process that helps a business develop and deliver near-perfect products and services” to customers. It is the scientific approach to process improvement that systematically uncovers variances, utilizing a thorough step by step method to achieving near perfect process performance. Six Sigma is achieved once a process manages to produce no more than 3.4 defects per every 1 million opportunities (DPMO) This equates to 99.9996% process efficiency and is extremely difficult to achieve. However, an increase in a Sigma level will yield positive results and once 6 Sigma is achieved the benefits far outweigh any costs incurred to achieve them. Just to clarify: An opportunity is defined as the number of times a defect can occur that will negatively affect the value of a single unit of product/service and how the. This defect can take place at any point in the process from the time it enters the supply chain to the time it is received by the customer. An opportunity does not represent each individual unit as a whole. (1 car does not equal 1 opportunity) It essentially means that any step adding value to a product in which an error can occur is an opportunity for a defect to occur. . Critical to Quality Characteristics, or CTQs are those characteristics that positively or negatively impact the quality of a product or service. They are defined by the customer, and it is the responsibility of the business to listen to what these are and meet customer expectations with regard to them. For example if there is a small air bubble in the paint on a new car it will not likely capable of significantly detracting from the cars overall value . Therefore this would not be considered a defect. However, a transmission that does not work correctly will significantly impact a critical function of the vehicle and as a result diminish its overall value. Therefore, A functioning transmission is considered to be a Critical To Quality characteristic. So just so you can get a better idea of what Six Sigma might look, think about how well a carpet is cleaned: The average company experiences process performance at a level somewhere between 3 / 4 Sigma. At first glance having between 93% and 99% process efficiency would appear to be pretty good. But consider this….if a 1500 sq foot area of carpet is cleaned to a 3.4 - 4 Sigma level, about 4sq ft will remain dirty. Whereas, if it is cleaned to a Six Sigma level then only about a pinhead worth of dirt will remain.
- #6 After # 3 go back to previous slide and note that this number means we should have a sigma level between 4 and 5 sigma.
- #7 Process variances measure the degree to which a process deviates from perfection Variation leads to defects, and defects lead to unhappy customers and lower profitability And Variances exists in all processes They can occur for a number of reasons including: Inadequate training of EE’s in a process Unstable/unusable parts and materials from suppliers or Insufficient process capability, and inability to meet process specifications of Critical to Quality characteristics as identified by the customer The greater the variability in a process the greater the number of defects. A single defect is never a 1:1 ratio with regard to additional costs. For every one defect there are a multitude of costs associated with correcting the error including: equipment setup, warranty expenses, re-work, wasted materials and of course the most valuable commodity of all TIME. EE’s are not cheap and you want to be paying them for new value added work not to correct errors. Henry Ford was a pioneer in reducing variance. With the proper training employees could quickly produce large quantities of inventory with far less error because each task was clearly defined for the individual worker. As a result costs were lower an Ford could reduce its prices to consumers. Although this was more of a “Lean manufacturing” improvement than a Six Sigma one, it showed just how important the elimination of variance is when producing products or services. Therefore the purpose of Six Sigma is to eliminate variation in a processes, enhance productivity, eliminate wastes that occur, and eliminate the costs associated with them..
- #8 One morning at a management meeting the Vice President of Motorola Art Sundry sits down with his managers and says “the real problem with Motorola is that our quality stinks!” The company was experiencing a great deal of early life defects in their products that failed quickly once in the hands of the customers. During the production stage many of the units were being tested as many as 5 times before they were shipped and testing is a non-value added process that becomes highly expensive very quickly. Operating processes focused around detection and re-work leave a company at 4 Sigma at best. Because the overall quality of Motorola’s products was so low, the company sought to figure out how they could shift from detecting defects and scrambling to correct errors to preventing them from occurring in the first place at all. The foundation for the Six Sigma philosophy states that Higher quality products or services are LESS expensive to produce than lower quality products…. As logical as this sound many organizations are opposed to developing better processes due to higher initial costs. People are naturally adverse to changes, particularly drastic ones like spending large sums of money on process changes….and 2) The initial high costs mislead companies into thinking that process changes will always be more expensive than simply maintaining existing processes. The reality is that money spent on re-work, re-funds, materials waste and hidden costs are the result of poor quality products and these account for the bulk of production or service costs AND if PREVENTED, the savings realized would far outweigh the initial costs of this money can be returned DIRECTLY to the bottom line. One thing Motorola did a great job of as they worked to improve their processes was to look outside of their own industry at other companies with similar processes. They used process ideas from many different companies and combined them to create the “perfect process and product”, appropriately named the Bandit Pager. THE BANDIT PAGER was: Built right – Life Expectancy of 150 years! So reliable virtually eliminated any costs associated with testing because Motorola did not need to test a product that is virtually defect free No money was ever spent on re-work because if for some outlandish reason a pager was defective (though highly unlikely) they would simply replace the unit at minimal cost.
- #9 In 1986 Motorola invested an initial $25 million in training to implement the new Six Sigma program. One year after the program was initiated, the company saved $250 million (not a bad ROI for one year). Experience a five-fold growth in sales, with profits climbing nearly 20% per year. By 1992 70,000 out of 100,000 employees had participated in Six Sigma training Motorola reduced errors in manufacturing by 80 percent, resulting in a savings of $4 billion To date cumulative business impact from Six Sigma efforts is estimated at US$ 16 billion. The first recipient of the Baldridge National Quality Award in 1988 The Baldrige Award is given by the President of the United States to businesses that are judged to be outstanding in seven areas: leadership; strategic planning; customer and market focus; measurement, analysis, and knowledge management; human resource focus; process management; and results.
- #10 As I have mentioned already poor process controls yield high production costs In a 3.4-4 Sigma performance company approx. 20-30% of every sales dollar goes directly into the COST of producing a product or service…..yet many companies wrongly estimate their costs to be only 5%! With these companies must increase their prices to counteract these costs or risk losing their ability to grow or even maintain profit margins and market share. For example at a 3.5 Sigma level GE was wasting $5 Billion each year in costs associated with poor quality and process It becomes difficult to quantify true costs of products or services when quality measurements are measured through: 1. Cost of failure in the hands of the customer 2. Internal failure from re-work (hidden costs like products moving up and down the production stream for re-work undetected), downtime, and waste. 3. Appraisal (Testing, audits, inspection etc.) By using Six Sigma companies will have the opportunity to: Increase Profitability Improve market share Meet overall strategic business goals Ensure long-term viability of the business Ultimately by FIX the “LOW HANGING FRUIT” issues and see IMMEDIATE and SIGNIFIGANT impacts to the bottom line.
- #11 SO WHY USE SIX SIGMA!?? #1 Reason is to improve profitability QUICKLY Six Sigma is based on a 12 month time period while other methodologies (e.g. ABC costing, Kiazen, TQM, etc.) can take a minimum of 3 years before yielding noticeable bottom line results Businesses that achieve significant quality improvements earn 8% more than competitors in the prices they can establish for their products or services A Businesses that achieves a superior-quality position are three 3x more profitable than those with inferior levels of quality Those Businesses that improve quality gain 4% in market share each year Each significant positive shift in process capability equates to 10x improvement in PROFITABILITY With Six Sigma BEING BETTER IS CHEAPER! If there is a full commitment throughout the ENTIRE organization (TOP down and BOTTOM up), on average companies can expect to see: 1 Sigma level increase each year 20% profit margin improvement 12-18% increase in capacity 12% reduction in required EE’s and costs associated with them 10-30% capital reduction
- #12 There are 6 initial steps that must be taken when first considering 6 sigma and a HIERARCHY that the program is built upon. Discover the need for Six Sigma and explore its potential impact on your company Asking new questions Working side by side with those closest to a process to better explore the benefits that implementing a program like Six Sigma can yield. Decide through Executive leadership and define the purpose and scope of Six Sigma The Executive leaders are the basis of any Six Sigma initiative and therefore must be willing to fully commit the necessary resources to ensure a projects success Organize by establishing targets, set timelines, and train deployment champions Initialize by creating deployment plans for metric that will be used, communications, human resources, begin Black Belt training Deploy by fully training train project Champions and Black Belts Sustain through Training Six Sigma Green belts and process improvement Team Leaders. Here is a further breakdown of how leadership is structured in a Six Sigma organization: Executive Leadership- Guides, fully supports and leads the company throughout the Six Sigma Initiative (the captain of the ship) Champions- Executive champions or senior champions select master black belts below them who will address specific business needs across the organization and improve key functions within these business sectors. Master Black Belts - Selected by champions to act as in house experts for disseminating six sigma knowledge and strategies throughout different parts of the organization. Training is extensive and they are responsible for creating lasing changes in an organization by getting employees to think in terms of six sigma. Black belts- Apply strategies and knowledge to specific projects and figuring out details for “how to get it a project done” Green Belts – are made up of employees throughout the organization closest to the processes being improved that physically execute a six sigma projects. Less training than black belts but are the primary tool in implementation of a project throughout an organization. Trusting in those who are closest to a processes to improve upon it provides EE empowerment
- #14 The first step in the scientific approach of Six Sigma is to Define the problem or problems that can create an opportunity for business improvements Prioritize process issues based on their impacts to the organization, their profitability, and the strategic direction they lead compared to those of the organization From here it becomes possible to better identify the “low hanging fruit” that can be quickly addressed and yield the most significant financial impacts Select projects based on this criteria and how well they align with the organizations values and goals. Next, it is necessary to define project goals moving forward. These goals should be timely and realistic Determine appropriate deliverables and when they should be completed. Make sure that these are also realistic Determine metrics that will be used in the future to gauge process performance and improvements And finally, identity you team that will be heading the project
- #15 The measure phase is used to take “snapshots” of the current state of a process from all angles. Establish baseline data to evaluate where a process currently stands Develop a Value Stream Map (VSM) to view the process and its inputs/outputs in detail Utilize this to better understand what inputs are producing beneficial or detrimental outputs in a process. Review the data and audit its validity to ensure that it will be useful in understanding process performance Be wary of outliers that can cause a “shift in the average” performance of a process like human error when evaluating process performance in the future Back to carpet example I mentioned earlier…..if the person cleaning the carpet is overly tired one day then soiled area that was previously the size of a recliner chair will now be about 100 sq ft (size of another bedroom)….the person performing at a six sigma level will now leave an area about the size of a chair base unclean rather than a pinhead.
- #16 The analyze phase consists of: Systematically analyzing the data collected in a step by step fashion Digging further into the “root causes” of a process deficiency and better determine what the underlying cause behind this deficiency might be Quantify the performance gap of where a company actually is vs. where it should be in relation to goals that have been set Make the performance gap known to EE’s so that the common goal is understood and everyone can strive towards achieving it together ID opportunities for additional improvement
- #17 The Improve phase is the “Reward phase” for all of the hard work carried out thus far Solutions are identified and implemented in “pilot runs” to determine their effectiveness Headed by Champions and executed by black-belts and master black belts Implemented on a larger scale if they prove successful Begin to see ROI for all of the time and money put into the project up to this point Save if you need this Process improvement of Statutory Filings as Dave Doherty briefly mentioned during one of our speaker sessions: Invested time to define the problem by talking with people and ultimately developing solutions to improve the . Process was streamlined and time it took to file was reduced from 6 months to only taking 4 months Yielded financial benefits through the time that was saved EE’S were happier and more motivated
- #18 The goal of the control phase is to make sure that the benefits realized for everything invested up to this point are retained and carried forward. Don’t rest once goals are reach; Develop new baseline measurements and strive for more keeping in mind continuous improvement from this point on (KIAZEN!) When additional opportunities for improvement arise; capitalize on them Processes should be continually monitored to ensure that positive results are still being recognized Use metrics and control charts to do this at regular intervals and continue to remind employees of project goals **Documentation and training of new process is vital. Develop a system to properly train all EE’s in the new process and keep them up-to-date on the new standard operating procedures that exists Summarize project results and make recommendations for future plans.
- #20 In 1981 GE discovered that they were operating somewhere between 3 and 4 Sigma and had a market value of $12 billion. Of this an astounding $7-10 Billion dollars were estimated to be scrap, re-work and error correction. GE Quality 2000 was ultimately implemented at the end of 1995 to early 1996 in which Jack Welch made it the goal of GE to reach Six Sigma performance levels by the year 2000. By 1998, GE managed to increase its market value to $280 billion. (Pause) Now proudly ranked 4th by Fortune as of 2010, GE generated nearly $157,000 million in revenues and $11,025 million in profit during its last fiscal year…. This success can be largely attributed to Jack Welch’s 6 Sigma initiative that continues to re-vamp and improve company-wide processes and margins since its first began in 1996.
- #21 “GE Quality 2000” GE began GE Quality 200 with the following 3 goals in mind: (1) Retain businesses determined to hold competitive edge in; eliminate businesses that don’t (2) Strive for 6 Sigma processes by the year 2000 (3) Invest in Training and fully commit resources to the program. Confident that any money invested would provide the company returns there were looking for GE began to invest in training its employees in the art of Six Sigma. So what was the initial investment made by GE in their Six Sigma initiative: 1996 - $200 million to train 200 master black belts and 800 black belts 1997- Additional $250 million in training 4,000 black belts/master black belts and 60,000 green belts out of a 222,000 workforce. Certifications became mandatory if EE’s wanted to progress vertically
- #22 1997 GE’s $200m investment in Six Sigma training performed in exactly the way Six Sigma was intended….yielding positive short term financial impacts. GE realized its first $ 300m increase to operating income in just the first year of implementing Six Sigma within its business functions 1998 GE had invested a total of $500m in Six Sigma that yielded benefits of over US$ 750m in savings 1999 GE had $1.5billion as a result of its tireless commitment to Six Sigma and improved its operating margin from 14.8% (1996) to 18.9% (2000) STOP: As part of the Six Sigma process GE began by identifying CTQs that would be essential to meeting customer needs. One CTQ that GE identified as being extremely important from a service perspective was that timeliness and accuracy of service was essential. In listening to the Voice of the Custoemr (VOC) GE Mortgage Capital Insurance company applied a flex billing system to customers needs. The result: market share retention and competitive growth as portrayed in $60 million insurance policy purchased by a single customer.
- #23 The ingredients of chocolate pudding and chocolate soufflé are exactly the same, the only difference is the steps that are taken when mixing them all together….and that is what makes all the difference in business.