PART - I

LEAN SIX SIGMA BLACK BELT NOTES

DEFINE PHASE
 DEFINE PHASE

1.1THE BASICS OF SIX SIGMA

1.1.1 MEANING OF SIX SIGMA

Six Sigma is a framework to make an organization more competitive by focusing on being effective
and efficient. It is a systematic problem-solving approach that is centered around defects limitation
and variation reduction which leads to process improvement.

Six sigma is a continuous improvement process, with focus on:

• Change empowerment
• Seamless training of resources
• Consistent top management support

Six sigma refers to the methodology and practice of focusing on developing and delivering
products/services that perform at high standards. It is a Quality philosophy and a management
technique. Six sigma is a not a standard or a certification or another metric like percentage.

Six Sigma’s Basic Premises

The basic purpose of six sigma is to delight the customers; this can be achieved by delivering the
quality product. Hence it is fundamentally focuses on variation reduction and waste elimination that
ultimately lead to increased efficiency.

Variation is the range of difference between the statistical mean and all data points that are used to
calculate the mean. In other words, the extent which process performance varies around the mean.

Waste or defect is a measurable product characteristic that does not meet a customer requirement
(defective products). In other words, any process performance outside of defined specification.

Six sigma methodologies used to identify and eliminate the root cause of defects or minimizing the
process variation (using statistical or process analysis methods) and also the costs that are
associated with it.
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Using a manufacturing example, let’s say XYZ factory that produces widgets. The widgets are all
supposed to be a certain size, shape, and weight. Randomly sampled output discovers that out of
every 1,000 widgets fifty are flawed (e.g. wrong size, shape, or weight). To correct this factory, use
Six-Sigma to determine what’s causing the variation/ defects and work to reduce them to a six-sigma
level.

Six Sigma’s Approach to Problem Solving

Six Sigma was originally coined by Bill Smith. He was an American engineer and also known as
father of Six sigma. It was first implemented in Motorola in the year 1986 as a general approach to
measuring quality in business performance terms. Further, it becomes popular management
approach at GE with Jack Welch in early 1990s’.

General Electric reported tangible benefits of $2.5 billion per year due to Six Sigma initiatives and
made it an organization wide strategy. Now it has evolved be a project driven approach to process
improvement that follows the five-step process also called DMAIC cycle.

What is a Six Sigma Level?

Six Sigma derives from the normal or bell curve in statistics, where each interval indicates one sigma
or one standard deviation. Moreover Sigma is a statistical term that refers to the standard deviation
of a process about its mean. In a normally distributed process, 99.73% of measurement will fall
within ±3σ and 99.99932% will fall within ±4.5σ. For a process, the sigma capability is a metric that
indicates how well that process is performing. Hence higher the sigma value, better the process.
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The 68-95-99.7 rule also known as empirical rule used to remember the percentage of values that
lie within a band around mean in a normal distribution with a width of two, four and six standard
deviation respectively. In the above example the defect rate is 50/1000. Where as 6σ quality is 3.4
/ 1,000,000.

A six sigma capable process will have Cp = 2.0, Cpk = 1.5 and DPMO = 3.4

Where Does the 6 and Sigma come from?

Sigma denoted by symbol σ (a Greek alphabet) represents standard deviation of a population.

Primarily it characterizes the dispersion of a set of data values with respect to mean. It refers to the
mathematical concept of standard deviation.

In a normally distributed process if mean ±3σ range of output is between USL and LSL then around
99.997% area of the points of the output will be non-defective. In other words, one can say the
process is in six sigma level. The 6 refers to the ability to fit the good outputs of the process to fit
within 6 standard deviations (or sigmas). Another way to say it is that only 3.4 defects occur per
every million opportunities fall outside the control limits.
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The Primary Goals are to Improve

Six Sigma is a data-driven methodology it contains statistical tools and techniques to define the
problem and evaluate each step of a process. Six Sigma provides ways to improve efficiencies in
a business structure and also improves the quality of the organization processes and increases
the bottom-line profit.

• How effective the process meeting or exceeding customer’s needs and requirements.
• How efficiently the process operates.

Three Key Elements of Six Sigma

Unlike other quality improvement philosophies, Six Sigma is comprised of three key elements:

• Customer: Customer is the key for business and they are the top priority in Six sigma.
Customers defines the Quality and also expect on-time delivery, high performance, service
and many more. However, meeting customer requirement is not sufficient in this competitive
world, needs to delight them.

• Process: Defining the process and corresponding metrics is the key aspect in six sigma.
Since customer is key for any business, Quality needs to be looked from customer
perspective. This will help to identify the gaps in processes and work to improve them.

• Employee: Without leadership commitment it is difficult to implement Six sigma in any

organization. Organization must involve all employees with well-defined roles and clear
objectives in a six-sigma program. Furthermore, organization needs to provide required
resources (like people, training, budget) etc.

Philosophy & Methodology

Six Sigma is a result-oriented, continuous improvement process that includes active involvement
from senior management. Continuous improvement activities in an organization ensure to identify
and solve the problems as and when they occur. Most of the modern quality improvement models
such as sampling techniques, control charts, process capability and DOE, etc. have been Influenced
by the theory of continuous improvement.
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Why Use Six Sigma?

Organizations face new challenges everyday like raising cost, customer issues, increase in defect
rate etc. Most importantly global competition made it imperative to provide near perfect quality at
low cost to keep customer delighted and make organization viable in the market place. Following
are the key benefits from Six Sigma implementation

• Creates robust products and services

• Ensures customer satisfaction
• Reduces process variation and also eliminate waste
• Eliminates the root causes of problems and defects in a process
• Reduces rework by getting it right the first time
• Addresses key organization business requirements
• Competitive advantage

Six Sigma Methodologies

Six sigma provides better value to customers, employees and all the stake holders in an
organization. Additionally, it is a business initiative which improves quality, productivity and reduces
cost.

DMAIC

One of the chief tools in Six Sigma is the use of the DMAIC methodology. Particularly, DMAIC is a
logical framework that helps you think through and plan improvements to a process in pursuit of
achieving a Six Sigma level of excellence. In other words it is a data driven quality strategy for
improving the process.

There are five phases that are used in the DMAIC method. They are as follow:

• Define: Define the problem and also project goals that needs to be addressed.
• Measure: Measure the baseline performance and validate the practical problem by collecting
data
• Analyse: Analyse the data to determine the root causes of the problems and opportunity for
improvement
• Improve :Improve the process and test the statistical solution.
• Control: Start using a new process for production. Implement, control and ensure the
sustainability. Finally, measure the new process based on customer reactions.
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DMADV
DMADV is one aspect of Design for Six Sigma (DFSS). In fact this was evolved from the continuous
quality improvement and Six Sigma approach to reduce variation. However, it is typically used to
create new processes and new products or services.

• Define: Determine the project need and also identify the goals
• Measure: Asses customer needs and prioritize requirements
• Analyze: Analyze data, generate various designs and also select concepts
• Design: Optimize design components and completes the design
• Verify: Validate and quantify the design performance.

1.1.2 GENERAL HISTORY OF SIX SIGMA

Six Sigma was originally developed by Motorola – first by Bill Smith, then Mikel Harry as a general
approach to measuring quality in business performance terms. Over the years, especially in the
1990s continuous improvement tools and methods were developed by Deming, Juran, Shewhart,
Ishikawa, Shingo and Taguchi. Now it has evolved be a project driven approach to process
improvement that follows the five-step process known as the DMAIC cycle. This process has been
used by the world’s best companies to save and make billions of dollars.

1.1.3 DELIVERABLES OF LEAN SIX SIGMA PROJECT

DMAIC is Six Sigma’s signature framework for process improvement. It provides a structured way
of improving a process.

Key Attributes

A DMAIC improvement process:

• Is data-driven.
• Is followed in a strict sequence.
• Uses all five steps.

The Five DMAIC Stages

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The five stages we use are:

• Define: Collate what we already know about the existing process.

• Measure: Collect further data about the existing process.
• Analyze: Identify the core problems that we’ll address.
• Improve: Plan, test, and implement solutions.
• Control: Set up supports to ensure that successful solutions are sustainable.

History of DMAIC

Michel Harry & Bill Smith created “MAIC” – the methodology that evolved to become DMAIC. Harry
includes the following strategy elements in the traditional approach to Six Sigma:

• (R) Recognize the true state of your business

• (S) Standardize the systems that prove to be best-in-class
• (I) Integrate best-in-class systems into the strategic planning framework.

Define Phase

In the Define phase, you collate a lot of information that you already have available. You’ll:

• Understand the project, including its purpose and scope.

• Map the current process.
• Determine whether the process is a good candidate for DMAIC.
• Detail customer expectations.
• Estimate timelines and costs.

Should you use DMAIC?

Some projects aren’t suitable for this process. For example:

• It’s already very clear what the problem is, and how to solve it.
• There’s no or little available data on the process to be improved.
• Managers and leaders do not support improvements to this process.
• The process does not directly impact key performance indicators.
• Measuring process improvements would be difficult or impossible.

Measure Phase

Your next phase involves a lot of measurements. You need to have baseline figures so that you can
accurately assess progress in later phases.

During this phase, you will:

• Identify the data that you need to collect.

• Decide what measurements to use.
• Figure out what methods to use to collect your measurements.
• Determine the level of variation that you’ll be dealing with.
• Collect the data as per previous points.
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Analyze Phase

In the Analyze phase, you work with the data that you collected in the Measure phase. You’ll:

• Identify defect causes.

• Analyze these to pinpoint the root cause.

Improve Phase

You’ve identified the root cause of your issue in the Analyze phase. Now you need to come up with
a solution. You’ll:

• Pull in people who perform or oversee the process.

• Brainstorm potential solutions.
• Determine criteria for selecting a solution.
• Weigh potential solutions against the criteria.
• Pick a solution.
• Test the chosen solution.
• Measure the results and compare them to the Measure phase data.

Control Phase

Once you’re happy that the chosen solution will improve the process, it’s time to implement the
Control phase. This is where you actually implement said solution, but there are some other tasks
too:

• Document the solution.

• Collect data about how the solution is working in production.
• Put supports in place to ensure that the solution is permanent, not temporary.
• Set up a plan to deal with any issues that might arise.
• Plan handover to the operations personnel.

DMAIC Tollgate Reviews

You’ll typically review progress regularly with your sponsors. This kind of review, especially when
ending one phase and moving on to the next, is called a Tollgate review.

What are DMAIC Tollgate Reviews?

DMAIC Tollgate reviews, also called milestone meetings or phase gates, are one of the most
important skills a practicing six sigma professional needs for success. Tollgates are an analogy to
places on the highway where you need to slow down and pay a toll before proceeding. In Six Sigma
practice, there’s no need for a project team to pay a toll, but it’s rather a mechanism to review
progress with sponsors and stakeholders and ensure the project is on course. A natural way to do
this would be at the end of each phase of a DMAIC project.

When do DMAIC Tollgate Reviews Happen?

DMAIC Tollgate Reviews usually occur at the end of each phase of a Six Sigma Project although it
is possible to have multiple reviews per phase if stipulated in the communication plan. Here we
communicate progress to stakeholders and demonstrate that the project is proceeding in a
thoughtful and meaningful way.
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Note: These meetings are referred to as phase-gate reviews. A wise Six Sigma practioner is aware
of the common pitfalls of phase-gate reviews and ensures that their tollgates don’t fall into these
errors.

Who Participates in DMAIC Tollgate Reviews?

Managers, sponsors, champions, master black belts, and other stakeholders participate in the
tollgate review as the ultimate traffic light. In other words, they say whether the project is green to
go for the next phase in DMAIC or they stop you at red if more time is required to work out kinks. In
some circumstances, management can discontinue the six sigma project if target goals are not met.
Therefore, it is crucial that your tollgate presentation is clear and answers critical questions your
audience may have.

Project Team’s Guide in Preparing for a DMAIC Tollgate Presentation

The project team are the people on the Six Sigma team who are doing the work. A Six Sigma project
may be lead by a Green Belt, a Black Belt, or a Master Black Belt.

Your goals for a DMAIC Tollgate Review are as follows:

• Inform your sponsors and stakeholders on progress.

• Answer any questions that arise.
• Seek help from sponsors and stakeholders (eg removing obstacles, additional resources,
access, etc)
• Receive permission to proceed to the next phase and continue the project.

Tips for an effective presentation

First, know your audience and the format they prefer for presentations. Some sponsors prefer the
“peel-the-onion” approach. In other words, start with a general overview of the project such as the
problem statement, then dig into the specific points of your presentation. Other sponsors want the
most important details up front to make more room for follow up questions. When in doubt of which
presentation style to take, talk to your project sponsor. A pro tip to have highly successful tollgates
is to align expectations with the project sponsor in advance. Not only will this streamline the
milestone meetings, but it will improve your chances of passing each tollgate off the bat. Second,
pinpoint the deliverables that need to be shared for the tollgate review. Ask yourself, “did enough
activities occur during this DMAIC phase?”

Questions like this are important because it confirms whether or not all promised deliverables
occurred. Generally speaking, every tollgate may include:

• Project Charter
• Performance based goal statement
• High level process map such as a SIPOC diagram
• Financial measures (eg Cost Benefit Analysis, Cost of Quality)
• Critical to Quality measures.
• Graphs and data related to current phase

Lastly, have visuals prepared for your audience. This can come in the form of handouts, a
PowerPoint, graphs, or other diagrams. Your presentation will be best received if document aids are
sent in advance.
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Sponsors’ Guide to Presiding Over Tollgate Reviews

Six Sigma Sponsors are accountable for the progress made in Six Sigma Projects. Therefore,
tollgate reviews are key to ensure project goals remain on target. It is the sponsor’s responsibility
during a tollgate meeting is to provide guidance, insights, and suggestions.”

Next, focus on one milestone at a time. For example, if the project is wrapping up the DEFINE
phase, only focus on activities that pertain to DEFINE. Or if you are in the MEASURE phase, avoid
back tracking to DEFINE phase deliverables because all actions related to the DEFINE phase
should already be complete. This will allow meetings to progress in an orderly fashion.

Another detail to remember is that it is okay for sponsors to coach project owners during milestone
reviews, but it should never be the focus of the meeting. It is normal for Six Sigma Belts to seek the
sponsor’s guidance during and throughout the project. Most coaching should occur in meetings
outside of the milestone review.

Lastly, the project sponsor should outline expectations of phase outputs that the project owner can
use to build their presentation BEFORE the start of the DMAIC Phase. Doing so will help project
owners stay on target through the entire six sigma project.

Things to Remember

If a DMAIC tollgate review ends with management choosing to forego a project, that is perfectly fine.
For example, you may feel that there are lots of defects in a project during the Define phase.
However, the Measure phase may prove that there are far less issues then originally thought. In this
instance, it is better for management to recommend projects with better returns on investment than
continue on the present project. Sometimes management will recommend a change of scope in
order to focus on the most vital aspects of the project. Keep an open mind to their counsel.

1.1.4 THE PROBLEM-SOLVING STRATEGY [Y = F(X)]

Causal theory, in Six Sigma terms, means that you create output (y) from an input (x) and a function
(f). It’s made up of three components:

• y: What you get out of a process. In a manufacturing context, this is a physical product.
• x: What you put into a process. In the same manufacturing context, this is a material or part.
• f: What you do to turn x into y. In manufacturing, this is a machining or assembly procedure.

y = f(x)
Output = method * input

Using Causal Theory in Six Sigma

When you have a problem with your output (y), causal theory tells you that there are two possible
culprits:

• f: Your procedure for creating that output.

• x: The materials or input you’re adding to that procedure.
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Using Causal Theory with Multi-Step Processes

Very few processes will be simple enough that you can pinpoint either your procedure or material
as the issue and voila, solved! So you’ll often need to break down the causal theory equation:

ytotal = y1 + y2 + y3 + ... + yn

Your total output from a process is the sum of the output from each sub-process within it. This means
that if you have trouble with your output from a complex process, a good starting point is to break
down that process into sub-processes. Then, look at the output from each sub-process. Where does
the problem creep in ? Once you find the problem sub-process, you can move to figuring out whether
your input or procedure is the cause.

Correlation and Causation

It’s important to note that sometimes you’ll run into confusion between correlation and causation.
You need to understand the difference, and know how to distinguish them.

Correlation: A relationship between two events. They occurred at much the same time, in the same
population, or in the same circumstances. For example, spilling a glass of milk and dropping an egg.
They might occur at the same time, and they might have the same cause – clumsiness or a fright.
But one would rarely cause the other to happen.

Causation: A causative relationship between two events; one caused the other to happen. For
example, dropping an egg could cause it to land on the floor. These will also happen at almost the
same time, by human observation. But unlike the milk-and-egg example, one – dropping an egg –
can be shown to directly cause the other – it landing on the floor.

Separate correlation and causation by identifying variables in your procedure (f) or input (x) and,
where possible, change only one variable at a time. When you find that changing a makes a
difference to the output but changing b doesn’t, you’ve found that a has a causative effect.

Applying Causal Theory to DMAIC

In a practical sense, here’s how you can use causal theory in your DMAIC cycles:

• Define: Look at your outputs (y) and clearly distinguish the issue that you’re facing. For
example, the end size of a product is not within acceptable levels of consistency.
• Measure: Measure your inputs (x) and outputs (y). For example, take measurements of
product parts at each stage in the process, and check material strength, density and
composition.
• Analyze: Prioritize your outputs (y). Which ones are most contributing to the issue? Test
whether issues in your highest-priority sub-processes are caused by the input (x) or the
procedures (f). For example, vary material qualities in some tests and the manufacturing sub-
procedure in others.
• Improve: Implement strategies to improve your input (x) or procedures (f) for high-priority
sub-processes. Do these alleviate the problem? For example, if substandard materials have
caused a lot of the variation, switch suppliers and temporarily check quality rigorously. Then
check that the change in materials has improved the end product.
• Control: Put measures in place to monitor future input (x) and procedures (f). For example,
run a weekly spot-check on new inventory of materials.
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Using an Input Map with Causal Theory

You can use an input map to show the inputs (x) and outputs (y) of each procedure (f) in your
process. We’ll use a simple process that’s familiar to most of us – a morning breakfast routine. You
can use a spreadsheet or a mind-map type diagram to give you a visual representation of your
mapping.

1. List your procedures

Look at your process and determine the discrete procedures in place. For example, in a morning
breakfast routine, you might have:

• Make a mug of coffee

• Make toast with jam
• Read news on tablet
• Have breakfast
• Wash breakfast dishes.

Each procedure will be in the middle of its own input map.

Inputs Procedure Outputs

Make a mug of coffee

Make toast with jam

Read news on tablet

Have breakfast

Wash breakfast dishes

2. Find your inputs for each procedure

What do you need to complete the procedure? Think about everything that the operator needs to
use. For example, ‘make a mug of coffee’ in our breakfast routine might require:

• Coffee machine
• Electricity supply
• Coffee pod
• Mug
• Sugar
• Milk or creamer
• Spoon
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Inputs Procedure Outputs

Coffee machine

Electricity supply

Coffee pod

Mug Make a mug of coffee

Sugar

Milk or creamer

Spoon

Toaster

Electricity supply

Butter
Make toast with jam
Jam

Knife

Plate

Tablet with charged battery

News service Read news on tablet

Spectacles

Coffee in mug

Toast on plate
Have breakfast
Appetite

Teeth

Hot water

Dishwashing liquid

Dirty plate
Wash breakfast dishes
Used mug

Dirty spoon

Dish cloth
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3. Record your outputs for each procedure

Your outputs are what you get out of each procedure. You have two choices here:

• List every single output from the procedure

• List only the output that you’re interested in.

For this example, we’ll only list the output that feeds into other procedures, and the end product.

Inputs Procedure Outputs

Coffee machine Mug of hot coffee, to taste

Electricity supply

Coffee pod

Mug Make a mug of coffee

Sugar

Milk or creamer

Spoon

Toaster Toast with jam on a plate

Electricity supply

Butter
Make toast with jam
Jam

Knife

Plate

Tablet with charged battery Entertainment

News service Read news on tablet

Spectacles

Coffee in mug Dirty dishes

Toast on plate Full stomach

Have breakfast
Appetite Feeling of wakefulness

Teeth

Hot water Clean plate

Dishwashing liquid Clean mug

Dirty plate Clean spoon

Wash breakfast dishes
Used mug

Dirty spoon

Dishcloth
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4. Link inputs to your output of interest

Next, follow the trail backwards from your problem output to input that might be affecting it.

For example, say I’m finding it hard to stay awake at work this morning. Weird – I had breakfast,
which always includes coffee. I can follow my input back from the output and highlight the trail.

Inputs Procedure Outputs

Coffee machine Mug of hot coffee, to taste

Electricity supply

Coffee pod

Mug Make a mug of coffee

Sugar

Milk or creamer

Spoon

Toaster Toast with jam on a plate

Electricity supply

Butter
Make toast with jam
Jam

Knife

Plate

Tablet with charged battery Entertainment

News service Read news on tablet

Spectacles

Coffee in mug Dirty dishes

Toast on plate Full stomach

Have breakfast
Appetite Feeling of wakefulness

Teeth

Hot water Clean plate

Dishwashing liquid Clean mug

Dirty plate Clean spoon

Wash breakfast dishes
Used mug

Dirty spoon

Dishcloth
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Primary procedure

First, I check my main output. Is my stomach full? Yes. So I must have had breakfast. My memory
of this morning agrees. Yes, I had breakfast; toast and coffee. That procedure (f) isn’t the problem.

Primary input

Second, I look at the input (x) for my breakfast procedure. The relevant item is the mug of coffee. If
there isn’t a problem with f, causal theory tells me, there must be a problem with x.

Secondary procedure

Third, I look at the making coffee procedure. I remember making and drinking my coffee without
issues, so the procedure (f) would seem to be fine. What about the inputs (x)?

Secondary inputs

Fourth, I look at the coffee procedure inputs. If I made the coffee without issues and it was hot when
I drank it, that would tend to rule out issues with the coffee machine or electricity. If I didn’t notice
any issues with the taste, that would probably rule out problems with the milk or sugar inputs. I can’t
imagine any scenario where the choice of mug or spoon would affect my wakefulness later on, so I
rule out those inputs for now. What about the coffee pods? They seem the most likely candidate left.

Further investigation

Fifth, I check the coffee pod input in depth. I find the open box of pods – and ta-da! They’re labelled
as decaf. I check the rubbish bin to confirm; the pod from this morning is lying on top, and it’s clearly
marked as decaf. I’ve found the source of the problem: one of my inputs (coffee pod) was incorrect.
This caused a flow-on issue with the output (mug of coffee) from a sub-process, which was the input
in the Have breakfast procedure. This incorrect input (mug of decaf coffee) caused an issue with
the output of the whole process (feeling of wakefulness).

Conclusion

While the above example is a bit farcical, it does give you a simple example of how using causal
theory and an input map can help you to track issues in output back to their causes.

Things to remember

Keep these points in mind:

• A problem with your output (y) has two potential sources: your input (x) and your procedure
(f).
• These two potential sources are not exclusive. You could have an issue with both your input
(x) and your procedure (f).
• Most processes are complex enough that you’ll need to break them down into multiple sub-
processes, each with their own input and procedure.
• Prioritize your problem outputs. In other words: focus on the larger problems first. You can
fine-tune later.
• Problems in a sub-process can be replicated and enlarged as its output moves through
subsequent sub-processes. Ensure that you drill down to the ultimate source of the issue.
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1.1.5 CUSTOMER IDENTIFICATION AND VOICE OF CUSTOMER

What are Customers ?

Customer identification is a crucial step of Voice Of Customer (VOC) process. A customer is a

person or company who purchases product or services. Customers are the most important part of
a six sigma project. Six sigma is entirely built around the concept of a customer. Customers define
quality and thus the expectations (ex: Quality, delivery, service, technical skills etc) for how
processes perform.

Customers can be broadly categorized as:

• Business to customer (B2C) for example where person buys groceries from a store.
• Business to business (B2B) for example hardware shop uses the service of accounting
firm for tax returns.
• Customer to business (C2B) for example where an individual sells his vegetables to store.
• Customer to customer (C2C) where customer sells goods to each other, for example in
online e-commerce portal one consumer sells his product to other consumer.

Identifying and Reaching out to Customers

The guideline of Six Sigma details the ways to identify the key customer categories for the business.
It is crucial step of VOC process as the end user can easily tailor products and services accordingly
and thus helps the company to become a customer-focused company and acquire customers easily
whilst retaining existing customers.

Organization captures the needs and expectations of the customer i.e voice of customer (VOC), and
organization process consists of various steps to convert inputs to output (product or service) that
would be deliver to the customer. It is essential to identify and understand the customer
requirements so the products or services can be designed according to these requirements.

Customers may be classified as internal customers and external customers

Internal Customers

An internal customer is anyone within the business system who is affected by the product or the
service while it is being developed. The internal customer is usually employees of an organization
and forgotten as management focuses more towards the external customer. Production, marketing,
sales, design, sales, maintenance, planning department should think themselves as service
providers. Internal customer activities affect the next process in the system and also it affects the
quality of the end product. Many research shows that employee engagement activities within the
organization have the direct impact on customer satisfaction. When employees are motivated,
provided proper tools, resources and innovation culture in place then they will have enthusiasm to
go an extra mile to satisfy the customer.
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Internal communication for customer satisfaction can be improved through the following ways :

• Periodic newsletters consists of basic business information and corporate

• Display project update, memos etc
• Discuss project issues and new business opportunities in team meetings
• Celebrate innovation or quality awards received from customers
• Communicate goals, customer feedback etc.,

Internal and External Customers

External customer

External customers are not employee of the company but are impacted by it and usually consist of
end users and intermediate customers. Customers may define or sets the requirements of the
product or service; they may be external customers, end users, regulatory agencies, governments
etc. An external customer provides the major part of company revenues.

Organizations to understand the needs and expectations of external customer to well design the
product and services. Customers will weigh the value of product based on the cost, quality,
availability and features. Hence it is important to know the Voice Of Customer (VOC). Following are
the different methods to collect customer information

• Customer surveys
• Focus group
• Customer complaints
• Face to face interviews
• Score card
• Market research

Organizations to review the information gathered from the Voice Of Customer (VOC) and identify
the customer needs and new trends in the market. The trends will help the organizations to come
up with innovation solutions to retain the customers. Customers seem to be more satisfied when
suppliers collect feedback and implement the changes suggested by them rather not receiving the
feedback request from supplier.
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Intermediate customers: Intermediate customers purchase the product or service from an

organization then modify, repackage, re-assemble and sell those product or services to end users.
Ex: Wholesalers, distributors, agents etc.,

Intermediate Customer and End User

End Users: one of the categories of external customer, who purchase the product or sought the
service for their own purpose, they are the actual end user of the product example: people who
buy the mobile phone from the store, a guest in the hotel.

How to Segment Customers

Customer segmentation provides insight into the landscape of the market revealing customer
characteristics that can be used to group customers into segments that have something in common
this process is also known as clustering. Customers are also categorized on basis of demography
(like age groups, geographical location) and industry types as well. Typical segmentation includes

• Geography – region, county size, city

• Demographic – age, sex, family size, income, occupation, race
• Buyer behaviour – heavy user, aware of need, status, loyalty
• Volume – grouping based on usage of the product (heavy, medium, light)
• Marketing-factor – brand loyal customers
• Product space – customer perception comparison

Customer Segmentation

External customers can be divide into as business customers or the consumer customer. Business
customers can include for-profit and not-for-profit companies. The consumer customer consists of
a large number of customers with small purchases as against business customers
 20

Customer Retention

Customer retention refers to the activities and actions organizations take to reduce the number of
detections. Successful customer retention efforts indicate how an organization or brand understands
and meets its customers’ needs. Customer retention reflects the state of mind that customers have
about an organization and its products or services when their expectations have been met or
exceeded. This state reflects the lifetime of the product or service experience.

While most of the organizations traditionally spends more money on acquisition because they view
it as quick and effective way to increase the revenue, but customer retention is seven times cost
effective than the actual customer acquisition.

Benefits of customer retention are as follows

• Reduces acquisition cost

• Increases client base
• Increases turnover
• Makes relationships profitable
• Creates more word-of-mouth publicity

Customer Service

Customer service is the act of taking care of the customer’s needs by providing and delivering
professional high quality service and assistance before, during and after purchase of product or
service. Top management to periodically monitor the customer service activities in the organization
and they need to listen the customer, provide training, monitor the response metrics and
communicate the improvement activities in the area of customer service.

Advantage of customer service as follows

• Existing customers are more likely to buy based on the services provided by the organization
• Improves customer retention
• Great customer service results in reduction of complaints
• Improves the company brand value
• Improves the employee turnover
• Opens the opportunity for new business or partnerships
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Customer Loyalty

Customer loyalty indicates the extent to which customers are engaging to a company’s products or
services and how strong is their tendency to select one brand over the competition. Loyal customers
are arguably the most important factor in achieving the business success. Success from customer
loyalty creates repeat business and more opportunity. The major strategies in increasing customer
loyalty are keeping it personal and always following up.

Loyal customers spends more than the new customers as they very well know about the product
and service, and also they will refer to others and recommends about the product and service. As
per the research 40% of US online shopping revenue comes from repeat loyal customers, who
generally make up just 8% of site visitors.

Six Sigma Project Impact on Customers

Example: ABC manufacturing company sells mobile phones online as well as via distributors.
Customer service department tracks number of customer complaints received from the distributors
and also online customers on monthly basis. Hence General Manger of the plant asked Quality
manager to initiate the six sigma project to reduce the customer complaints and warranty claims
which is 10% of the revenue.
 22

Following are the impacts on various stakeholders in the value chain

An effective six sigma project improves the internal customer satisfaction (generally employees of
an organization), reduces process waste, design changes, improves business growth and sales. It
will also improve external customer and end user satisfaction; increases repeat customers and also
customer loyalty. Furthermore it will improves the sales and growth of an organization.
 23

VOICE OF CUSTOMER

Many companies think they know what their clients want. Very few take the time to investigate and
confirm. In the Six Sigma DMAIC process we don’t want to guess, we want to be certain. To do so
we reach out to our customers, clients, partners and suppliers to make certain we are hearing what
is really important to them.

Why is Voice of Client Important?

In short, soliciting voice of client is important because without customers you have no company. The
best way to get higher customer satisfaction is to ensure you are delivering what they want when
they engage you. The better you deliver against customer requirements the higher the customer
satisfaction. Very satisfied customers are loyal and may even help to promote your products and
services. Many people fall into the trap of assuming based on their experience what their customer.
To truly understand, you have to ask and clarify continually. Your customers’ wants and needs are
ever changing. If you do not know what your customer wants, how can you possibly know if you are
delivering what is expected of you.

Why Solicit Voice of Customer ?

We want to solicit voice of client so we can follow the principles of continuous improvement. For
example, you would want to get better at the post-purchase experience so your company can
increase sales by shunting customers into the loyalty loop rather than the less stable active research
loop.

How do we get Voice of Client?

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Data collection is covered later on in the Measure phase of DMAIC. However, what we want to
obtain is the expectations of the customers, as they state it in their own words.

Some examples might be:

• High quality
• Great service
• Quick delivery
• Flexible options
• Durable goods

Proactive vs Reactive Voice of Customer Data Collection

Voice of Customer data collection can be thought of in 2 ways; Proactive and Reactive.

Proactive

It’s always better to be proactive rather than reactive in life. Same principal applies to gathering
Voice of Client. In the proactive model you are reaching out to people before there is a problem or
the task is complete. Here are a few ideas :-

• “Go to the Gemba” – get out on the floor and watch what is happening in real life.
• Use mock ups and beta versions to test with volunteers before getting in to production.
• Send out surveys to a potential customer base.
• Interview clients and partners on how they see your processes working. Just ask their
opinions. “What would you say if we offered X?” “How does this approach sound to you?”
• Model office. Running simulations is a great way of getting advance data.

Reactive

Just because proactive is favoured over reactive doesn’t mean there is no value in reactive sources.
In some cases gathering reactive data may be very easy. Your organization likely has great stores
of reactive data. Here are examples;

• On-line feedback – You may have comments on your website or letters to the editor. There
are review sites and social media comments. If you created an iPhone app, iTunes keeps a
rich array of user feedback. Restaurants can leverage Yelp. Service providers can use
Angie’s List. Many, many options here.
• Customer service logs – if people are returning a produce or calling in for support you can
easily quantify and stratify that data to find the most common issues.
• You can always send a survey right after performing a service or making a sale.
• Net Promoter Scores – this is a great concept.

Now that we have Voice of Customer, we can move on to translating that data into specific Critical
to Client measures so we can take action on improving them. Remember that the Voice of the
Customer is the customer’s specification limits.
 25

Six Sigma Black Belt Certification Voice of Client Questions:

Question: Which of the following is most important in evaluating and understanding design intent?

(A) Identifying the functional requirement

(B) Brainstorming failure modes
(C) Conducting computer simulations
(D) Developing FMEA

Answer: (A) Identifying the functional requirement has to be the first stop because it orients you to
what the design was attempting to solve. Options B and D concern risk and c is related to predictive
analysis.

Question: The most important aspect of functional requirements is that they:

(A) describe a single, measurable performance

(B) describe how a product or service should operate
(C) be traceable to the voice of the customer
(D) provide upper and lower performance limits

Answer: (C) be traceable to the voice of the customer. Functional requirements must be traced to
the voice of the customer or else there is no point in having them. Not all requirements are directly
measurable ruling out options a and d. The functional requirements will provide insight to what the
performance limits should be but will rarely explicitly state them.

1.1.6 SIX SIGMA ROLES AND RESPONSIBILITIES

Successful Six Sigma teams need people with a range of skills. You need a leader, people who
understand and can apply Six Sigma principles, and people who will carry out the ‘grunt work’.

Typically speaking, a Six Sigma team will include at least the following members:

• Black Belt: This is the expert who has a deep understanding of Six Sigma principles. They
can organize and plan out a project.
• Green Belt: These people understand Six Sigma principles. They can support a Black Belt
in applying them to a project.
• Supporting staff: Might be a Yellow Belt, or be willing to learn on the job about Six Sigma
principles and practices.

Six Sigma Team Member Roles

There are a lot of potential roles in a Six Sigma team. Some of these are essential, full-time roles.
Others will come and go at various stages in a project, as needed.

• Team Leader: Responsible for getting the team to go. Sometimes a facilitator. Sometimes
the project manager.
• Facilitator: Usually a Black Belt or Master Black Belt. Coaches the team in Six Sigma
practices.
• Scribe: Records the team activities.
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• Sponsor: Business leader who sponsors the Six Sigma project. Will tend to set project
objectives and obtain resources for the team. Often a liaison between the team and senior
management.
• Champion: Executive who sponsors a specific Six Sigma project. Ensures that resources
are available. Resolves any cross-functional team issues. (Sometimes this is the same as
the sponsor. Different companies use different titles.)
• Six Sigma Leader: Executive who’s responsible for Six Sigma culture in the company.
• Process Owner: Person responsible for the business process targeted by a Six Sigma
project.
• Team member: Person who will work on a project. Usually has specific skills that are
relevant.
• Gatekeeper: Audits the deliverables. Checks them against requirements.
• Management: Provides resources and motivation.

Six Sigma Roles and Responsibilities shows up on each certification exam. Here’s a quick study
guide that can help you ace those portions

Types of Six Sigma Team

There are many different types of Six Sigma teams. The type of team you need will depend on the
sort of project you need to complete. Some teams will straddle more than one of the definitions
below. For example, a lot of Six Sigma teams are both cellular and self-directed.

• Ad hoc: Pulled together for a single, short-term project. Team member skills align closely
with project needs.
• Cellular: A permanent core of team members with broad skill sets.
• Self-directed: Operates with minimal input from management. Typically decides practices
and activities for itself. Often seen in Agile methodologies like Lean.
• Cross-functional: Members from a number of different departments. Usually with very
different skills and knowledge sets.
• Parallel teams: Two teams working with the same objective. Alternatively, one team backing
up another.

Sponsor

Sponsor: Is usually a high-level or senior business leader or executive who sponsors the Six Sigma
engagement. Responsible for articulating the problem statement, defining the team’s objectives and
validating the business case in the project charter. Sponsors are the liaison between the team and
senior management and thus responsible for securing subject matter experts and non-Six Sigma
resources critical to the success of the project. Is looked to for decisions at critical times at the
project. The sponsor’s approval is required at DMAIC tollgates.
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Champion

Champion: Middle or senior executive who sponsors and/or promote continuous improvement
initiatives throughout their organization. Secures training and mentorship for Black Belt
candidates and makes sure that resources are available for projects. Resolves any cross-functional
team issues that may occur. Trained in the basics of Six Sigma. Sometimes filled by former Black
Belts or Master Black Belts. Occasionally the Champion may also Sponsor projects or programs.

Process Owner

Process Owner: Professional, often a senior business leader, responsible for the business process
that is the target of a Six Sigma project. Sometimes the process owner may be the sponsor of the
initiative.

Green Belt

Six Sigma Green Belt: A professional with introductory Six Sigma training partially allocated to an
initiative. May be a team member on a Black Belt project or lead a smaller project.
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Black Belt

Six Sigma Black Belt

100% allocated professional trained in DMAIC and other problem-solving methodologies. Has
project management, statistical and process analysis skill sets. Trained in both the science of and
soft skills needed in bringing about change. Responsibilities often include training green belts and
other black belt candidates, and leading Six Sigma projects. Black Belts may also serve as internal
consultants helping multiple teams at once. Job duties sometimes include training other employees
in tools, techniques, and processes.

Master Black Belt

Six Sigma Master Black Belt

100% allocated professional with tremendous experience as a Black Belt leading teams and
completing projects. Six Sigma Master Black Belts often mentor aspiring black belts and consult and
remove obstacles from Black Belt teams. Has responsibility to champions for keeping portfolio of
initiatives on track.

Six Sigma Team Dynamics and Mechanics

Team dynamics and mechanics are an important consideration. Some questions that every team
will have to answer are:

• Communication: How will we communicate between ourselves? How about to people

outside the team?
• Meetings: What sort of meetings will we have? How often? Who will be invited to each type
of meeting?
• Decisions: Who will be making decisions about the project? How will they be made?
• Facilitation: How will we work out issues between team members? How will we handle inter
team issues? Who will be responsible for identifying process problems?
• Task distribution: Who decides who does what?
• Training: Who’ll be handling team training needs? Who will identify which member needs
what training?
• Motivation: How will the team stay motivated? What will keep the team inspired? Where will
we find a boost when needed?
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Some teams will need to sort out these answers for themselves. Others will have most of them
answered by company policies or existing frameworks.

High and Low Performing Six Sigma Teams

There are some key indicators of team performance. We see them over and over again in Six Sigma
teams that are performing well – and those that aren’t. Let’s look at a few:

• Interdependency: There are two parts to this. Working together on tasks; and making use
of each other’s specialty skills to finish tasks more quickly.
• Mechanics: Team mechanics need to be clearly defined. Then, they need to be followed.
• Communication: Passing data is hugely important in any project. The team needs to know
who to inform about each development. And, for that matter, who is responsible for it.
• Conflict: Resolving disagreements between members in a healthy way.
• Support: Having the support of managers is key. They can provide needed resources and
encouragement.

So to summarize, poorly performing teams tend to:

• Have members acting independently of each other.

• Lack defined team mechanics. Or, fail to follow those that are laid out.
• Struggle to communicate with each other. Conversely, don’t talk well to other teams.
• Fail to resolve conflict by following procedures.
• Not have support from management for their practices and decisions.

Whereas highly performing teams tend to:

• Work together, using each others’ skills.

• Have well defined team mechanics. Also follow them.
• Communicate well between members and teams.
• Follow conflict resolution procedures to solve issues.
• Have all the resources they need.

Choosing Six Sigma Team Members

The type of people that you choose will largely depend on the type of team and project. However,
there are a few key attributes that are common to all:

• Listening: Will take time to understand what other team members are saying.
• Critical thinking: Can distinguish between fact and opinion. Will consider information
objectively.
• Team player: It might seem obvious, but the best team members work well with others.
However, they can also act independently. They’re willing to join in meetings and perform
rote tasks.

Questions:

Question: The process of having a six sigma team develop a problem statement helps the team :-

(A) agree on key dates associated with completing major project phases
(B) achieve consensus and ownership of the process
(C) determine solutions
(D) determine how often it should meet
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Question: Typically, which of the following activities is done earliest in the formation of a project
team ?

(A) Select the team

(B) Identify the objective
(C) Identify the sponsor
(D) Allocate the resources

1.2 THE FUNDAMENTALS OF SIX SIGMA

1.2.1 Defining a process

A process is series of steps or actions that lead to a desired result or output or it is a set of common
tasks that creates a product, service or plan that will satisfy a customer or group of customers.

Process Map

The process map is a tool that graphically shows the inputs, actions and outputs of a process in a
clear, step-by-step map of the process. The purpose of process mapping is to help team members
and others within the process to understand the process.

What is Process Mapping?

Process mapping is the graphical representation with illustrative descriptions of how things get done.
It helps the participants to visualize the details of the process closely and guides decision making.
One can identify the major areas of strengths and weaknesses in the existing process, such that the
contribution of individual steps in the process. Further, it helps to reduce the cycle times and defects
in the process and enhances its productivity.

The major components of a process map include the inputs, outputs and the steps in the process.
A good process map should illustrate the flow of the work and the interaction with the organization.
It should make use of common language (symbols) that are easily understood by everyone. An ideal
process map should contain proper detail with respect to multiple paths, decisions and rework loops.
 31

Why do businesses need process maps?

Process mapping provides the visual glimpse of different processes of the business. It provides the
necessary information and helps to determine the Who, What, Where, Why, When and How aspects
of the process and problem, and even guides towards possible solutions. Some of the reasons for
the need of a process map are:

• Pictures guide better than words. The use of graphs, charts, tables and images guides better
than a big compiled report with lot of data fixation issues in it.
• Process maps facilitate improvements in the process, since it becomes easy to pin point the
specific areas that need changes, like bottlenecks, delays, capacity constraints etc. in the
light of efficiency and effectiveness of the process.
• Decision making becomes fast as it deals with the ‘show me’ aspect and not the ‘tell me’
aspect of the process and the problem areas.
• The improvements made in the process can easily be tracked using process maps since it
becomes possible to audit and understand different areas in the process as well as the
organization.
• Visual illustration for training would be much more effective than any oral tools. The visual
examples register faster in human brains and helps them understand the things better and
fast.
• In the need of change, when the organization moves on making the changes without
understanding the current working process, it is likely to commit more mistakes or deploy its
resources in creating more troubles. Process maps provide a detailed outlook of the current
process and guides the effective management of change.
• Process maps serves as a measurement tool for a process, that is very much necessary to
manage and finally improve it.

Types of process maps

There are two major types of process maps- that are process flowchart and deployment flowchart.

Process flowchart:

A process flowchart is a simple process map that provides the visual representation of the sequence
of activities along with their points of decisions. These flowcharts provide the basic details of the
process, which can later be augmented by adding the roles of different staffs. A sample process
flow chart is as shown below :-
 32

Deployment flowchart:

These process maps provide the interactions between different departments and the roles
performed by different people in the organization. Also termed as ‘swim- lane’ charts, these process
maps have vertical lines showing the movement of process from person to person. A sample
deployment chart is as shown below :-

Why Bother with a Process Map?

Several great reasons.

1) Process Maps Help You Uncover Waste. Mapping your process gives you a visual tool where
you can uncover waste. It shows who does what, when, and where.

2) Process Maps Help You Deliver to Expectations. Because there is a process in place, hence
there are expectations out of this process.

How to Start Process Mapping

Before beginning the process mapping, you must have clearly established boundaries to make sure
the scope of the flowchart that will be created will be manageable. The boundaries must be
established first so the team knows what tasks, activities and decisions should be included in the
flowchart.

Steps to follow

Business managers can develop an effective process map that facilitates continuous improvement
in the business processes by following some simple steps. The steps for developing the process
map are identified as under:

Step 1: Select the process

Firstly, the managers must identify the reason for creating the process map. Is it that the process is
not performing up to its mark? Or firm wish to plan a new service? Or the goal is to augment the
value derived from the process?
 33

Secondly, the beginning should be identified, that is the events that create the demand for the
process map and trigger behind the process.

Thirdly, the end needs to be uniquely defined, that is what parameters or conditions will finally satisfy
the demand.

Lastly, the business managers must develop a document containing information about details of the
specific process, business problem, shareholders expectation, business objectives and scope of the
process.

Step 2: Identify the scope of the process steps

The business managers must observe the entire process and collect data and information. The
observed process and collected data must then be properly documented. It is also essential to
identify all the parameters that are involved in the process like the machinery, suppliers, etc. it is
also vital to identify and verify the inputs involved and outputs of the process. This can be done
through effective brainstorming, industry standards, work instructions and experience of the
operators and managers.

Step 3: Plan and schedule resources

Identify the systems that are involved in the process. It is necessary that the mindset of the
managers should be shifted from functional to process- oriented while designing the process map
and this can be done by focusing on the roles and not the jobs. Based on the systems and roles,
proper scheduling of the people involved, task involved and estimated time needs to be done.

Step 4: Select Mapping techniques

The next step is to select the mapping technique, like process flowchart or deployment flowchart.
Next would be to plan the process interviews with individuals as well as focused groups. It is also
advised to review any previous documented process map to understand previous mapping efforts,
organizational charts and job descriptions.

Step 5: Conducting interviews

Now it is time to conduct the interviews! Plan and conduct the interviews in the sequence of roles
established in the process map. Explain the purpose, objective and scope of the interviews as well
as the process maps to the participants in order to reap effective results. while conducting the
interviews, it is vital to identify and establish the input tasks, roles, output tasks, decisions, task
performed and linkage to other processes. During this step, every task and decision are uniquely
identified.

Step 6: As-Is process

Describe the activities that help to transform inputs to outputs. It is time to map the actual process
without considering the ideal ‘should be process’ or as per ‘standard operating procedures (SOP)’.
Some of the points that need to be considered are the major activities of the process, decisions and
source of approvals of one step before moving to the next one, areas where multiple methods occur,
causes of bottlenecks, extra works and wastes and factors that obstruct process members from
performing effectively and efficiently. Carefully list and match all the steps of the process with their
respective roles. Assign correct flowchart symbols and review process map for proper flow.
 34

Step 7: Analyze, evaluate and Sign- off

Review the process steps thoroughly to learn any redundancies, delays, unnecessary steps,
ambiguous roles, cycle time, activity lapse, repeated activity flows, bottlenecks and rework loops.
Next is to evaluate the performance of the process. One can make use of the tools to measure the
same using Pareto Charts, Cause and Effect diagram, process behavior charts and process
modeling and simulation. Finally, complete the process improvement plan and after a final review
by all the stakeholders, it should be signed off.

Where can you go wrong?

Process mapping, no doubt, are highly useful tools that facilitate improvements in processes. But it
does not mean that they should be applied everywhere and anywhere. The managers of the
organization should be cautious while using process maps. A number of areas have been identified
where process maps may go wrong, and these problems are generally related to the use of the
method of process maps, and the planning and execution of process mapping. Some of the common
mistakes with respect to process mapping are illustrated as under:

Mistake 1: Application of process maps on inadequate process types

Business processes are generally categorized as transactional, transformational and decision

making. Transactional business process refers to the process where a number of inputs interact
with each other so as to produce specific outcomes. Some of the instances of transactional business
process involve sales activities and call center support functions. Transformational business
processes refers to the change in inputs such that the change in original shapes of the inputs of
their physical or virtual form in order to produce the outputs. Manufacturing process and
developments in systems are typical examples of transformational processes. Finally, decision
making business processes refers to those processes whereby the various input parties interact
with the objective to reach any decision. Often decision-making processes are inventory
management, ricing decisions etc.

Managers sometimes do not differentiate among these business processes before applying the
process mapping. Process mapping are most successful in case of transactional and
transformational business processes, and not on decision making processes with open ends. This
is because process mapping yields best results when the outputs can be specifically defined,
objective in nature and the variations in the process are traceable. However, in case of decision
making process processes, needs lot of information gathering, processing and analysis and these
processes tend to be intangible and abstract in nature. Hence, the managers must avoid the
application of process maps on high end, open ended decision making business processes.

Mistake 2: Unclear focus of process mapping

Another mistake that the managers generally commit is in identifying the causes of the problem.
There may be a possibility that the real cause of the problem lies outside the scope of the process.
In such cases, the process mapping does not reap effective results. For instance- in a hotel industry
when the problem identified was related to room service. After mapping the room service process,
no real trouble was identified. Later on, it was found that the real issue was not related to service
delivery but housekeeping staff over- engaged the lifts in transporting laundry that caused the delay
in room service.

Hence, identify correct focus of the issue along with the possible causes. Moreover, it is also
necessary to identify the focus areas with respect to secondary or primary processes.
 35

Mistake 3: Obsession to design ‘perfect’ process map

Sometimes, the business managers become so obsessed with designing perfect process maps
such that they lose the focus and goal of developing the process map. In the event of doing so, the
business managers visualize and explain the process in such a way that no deficiencies are really
located and all individual processes join together and sense logical. Hence, the purpose of creating
the process map is totally defeated.

What is Sub-process

A sub-process is a compound activity included within a process. In other words, it is a subset of

another main process. The sub-process basic purpose is to subdivide the complex processes into
small units to reduce the complexity and easy to understand.

The sub-process’s basic advantage is to simplify the main process and easy to understand at a
high-level. Often, an independent sub-process can be reused in a large process as it does not
depend on a particular main process and can be used without alteration.

Things to remember to develop better process mapping:

By following some set of guidelines, the practitioners and business managers can develop effective
process mapping. Some of the things that one must remember are:

• Improvement objectives must be clear and continuous

• Use the process mapping only where appropriate
• Employ process architecture to develop process maps
• Study the impact of organizational structures
• Clearly identify multiple responsibilities and tasks

Difference between Process mapping and Value stream mapping (VSM)

Process mapping is a tool that graphically shows the inputs, actions, and outputs of a process in a
clear, step-by-step map of process. Process mapping specifies the tasks within the function, and
also shows the interaction between functions or departments. It helps the participants to visualize
the details of the process closely and guides decision making.
 36

Value stream mapping provides a visual representation of the flow of materials and information
throughout the organization.. It visually shows the important parameters like cycle time, lead time,
inventory or waiting time, % complete and accurate, number of operators. It helps to identify,
demonstrate, reduce waste, and finally create effective flow through all manufacturing or business
processes. Three important steps of VSM:

• Create as-is current state process how an organization delivers products and services to the
customers
• Identify wastes in the process and draw the proposed improved state map using lean
principles
• Develop and implement action plans to achieve the proposed improved future state

Depends on the business requirement, process mapping or value stream mapping can be used in
the organization. Use VSM to determine how much time the product spends on each step and
waste in the process. While, process mapping is to visualize a series of steps and determine the
decision-making within the process.
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Moment of Truth

Every single interaction we have with the customer will leave a lasting impression. A Moment of
truth is a critical touchpoint that can define the customer relationship with the organization.
In other words, it is a moment when a customer interacts with an organization or their product and
forms an opinion or impression of that organization and the product, good or bad.

Simply, these are the critical points when the customer either breakaway or loves your product.
Hence, identifying moments of truth points is very important for an organization, as it influencing the
customer impression of products or services.

How to identify moment of truth

For the existing product or services, draw the entire process using process mapping and identify the
moment of truth points in each stage with most process knowledgeable individuals in your
organization.

Example: Below is the example of moment of truth touchpoints in each stage of watching a movie
in a movie theatre.
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Questions to ask while making a Process Map

• Name of the process. This impacts scope of the map.

• Identify the starting and stopping points of the process.
o When making a process map the first thing you must do is clearly define the
boundaries of the process
• List the outputs:
o Brainstorm all outputs – critical or not.
o Everything leads to the outputs. (Suppliers, inputs, & process)
• List who gets each output. Match to Define Tollgate #2 (Identify the client’s needs and
requirements)?
• List the suppliers that provide the inputs to the process.
• List of all of the inputs. (whether or not they are deemed critical)
• Map 5–7 high-level, consecutive steps in the process as it is today.

Process Maps & Root Cause Analysis

Note that Process Maps are NOT a good way to identify & display potential root causes. While it is
a good step, it is too broad. Try a 5 Why’s drilldown, a Fishbone diagram, or an affinity diagram.

Question: When a Belt is developing a Macro Process Map to define a complex process he will
frequently include activities across various department to capture all the appropriate activity. He will
use _____________ to show which department is responsible for which steps in the process.

A: Subscripts

B: Superscripts

C: Swim Lanes

D: Fence Posts

Answer: Swim Lanes.

Question: A six sigma team has been formed to improve an existing process. Which of the following
tools should the team use first to gain a clear understanding of the current process?

(A) Flowchart
(B) Pareto chart
(C) Process FMEA
(D) Latin square DOE

Answer: (A) a Flowchart is an easy way to map your current process. A Pareto chart can help you
visualize data, but it won’t tell you how the process works. A process FMEA is great for analyzing
the risks with a process but you have to have a good idea of how your process works already. A
DOE or Design of Experiment is a good way to test a hypothesis.

Question: Which of the following tools can be used to identify waste or non-value-added
activities?
(A) Force field analysis
(B) Pareto analysis
(C) Scatter diagram
(D) Process map
 39

Answer: (D) A Process Map can help you identify waste. A force field analysis is for problem
resolution. A Pareto analysis is a way of identifying the greatest set of contributors for the data set.
And use scatter diagram when you want to compare 2 data sets against each other to determine
if there is a relationship.

Process Map and Flow Chart Symbols Overview

Start/ Stop:

The start and stop point in the process is denoted by this symbol, and is often known as terminator.

Process Step:

One of the most commonly used symbol in a process map, a process step denotes a task or activity
of the process.

Decision:

It denotes the points where decisions are needed in the process, or generally the phases where
there are two options like yes/ no or pass/ fail.

Delays:

The delays in the process are denoted by symbol D.

Flow Line Connectors:

The movement in the process is shown using the flow line connectors that shows the direction in
which the process flows.
 40

Storage:

The storage and filling variables are shown using an inverse triangle

Connectors:

In order to draw many flow lines crossing each other and making the process map messy,
connectors are used to show that one point connects with another. Connectors provide easy
reference in the process map.

Out- going off page connector:

It serves as a connector to connect the process on the other page

Sub-routine:

It represents a formally predefined process.

Document:

It represents the process steps that produce a document

Data:

The data with respect to the inputs and outputs are shown using this diagram.
 41

Manual Input:

This symbol indicates the need for the operator or user to manually feed the required information in
the process.

Question: A Belt utilized a diamond symbol in a Process Map she created for the process that was
subject to her LSS project. By use of the diamond symbol she was showing a(n) _______________
point in the process.

(A) Ending
(B) Beginning
(C) Decision
(D) Repair station

Answer. Decision

Question: Which of the following shapes is used to present a termination point in a flowchart?

(A) Rectangle
(B) Diamond
(C) Arrow
(D) Oval

Answer. Oval.

What is a SIPOC?

A SIPOC is a high-level process mapping tool to help visualize a process and its influences. In other
words, it is a useful tool that depicts how a process serves the customer and summarizes inputs
and outputs of a process in a visual format.

The acronym for SIPOC stands for Supplier, Input, Process, Output, and customer. However, the
construction of SIPOC always involves identifying the process, output of the process, then
identifying the customer receiving the outputs followed by identifying the inputs and then suppliers
of the inputs. So, often it is called POCIS diagram.
 42

When Do You Use It?

Creating SIPOC is very beneficial in continuous improvement projects like Six Sigma. Moreover,
Internal inputs and processes are usually accessible for a DMAIC team to access in the define
phase. Hence, SIPOC is often used in the Define phase of DMAIC. Additionally, SIPOC is very
useful when part of the process is unclear. SIPOC helps teams, top management, and also other
stakeholders resolve process-related issues and plan appropriate strategies for improvements.

Why Use a SIPOC?

SIPOC is one of the primary factors for process improvement. Moreover, the diagram helps the
team, and the sponsor agrees on the project boundary and scope. And also it will help to determine
the variation in Key process input variables (KVIPs) and Key process output variables (KPOVs)
while KPOVs and KPIVs can have a high impact on manufacturability, serviceability, reliability, and
product efficiency.

How to create a SIPOC?

SIPOC is a table that documents the process, output, customer, input, and supplier in a table format
with the help of the following steps

• Identify the process: Identify the process for which SIPOC to be created. Identify the
process as a team.
• Define the process steps: Process is a defined sequence of activities, usually adds
value to inputs to produce outputs for the customers. High-level process flow covers a
maximum of 7 steps, otherwise, it is hard to follow. Additionally, use an Affinity Diagram to
reduce larger processes to a few key steps.
• List down the Outputs: Outputs are the products, services, and/or information that are
valuable to the customers. This includes anything ranging from product, materials, or services
delivers to the customer.
• Identify the Customers: Customers are the users of the outputs produced by the
process. Moreover, customers are not always outside of the organization; they may be
internal stakeholders as well.
• Determine the Inputs required for the process: Inputs define the material, service
and/or information that are used by the process to produce the outputs. An input plays a vital
role, as the variation in inputs impacts the output.
• Identify the Suppliers: Suppliers provide inputs to the process. Not only external
suppliers also cover internal suppliers.
• Validate the diagram: once it completes, share with all relevant stakeholders and
validate it before moving to the process improvement stage.
 43

Benefits

• Helps to define the new process

• It provides a project overview for all the stakeholders
• Provides a high-level project overview to the top management
• Problem-solving initiative
• Provides input and output information for key processes
• Ensures all the stakeholders on the same page

SIPOC Template

This is how a SIPOC template looks like

Example SIPOC in a DMAIC Project

Example: ABC chocolate factory in Houston working on process improvement activities using Six
Sigma. During the Define phase, team developing SIPOC to know how a chocolate manufacturing
process serves the customer and summarizes inputs and outputs of a process in a visual format.

• Identify the process: Chocolate manufacturing process

• Define the process steps: Following are the high-level process.
o Input goods inspection
o Meltdown chocolate blocks in warmers
o Add ingredients into the chocolate paste
o Temperature verification
o Chocolate line production and packing
• List down the Outputs: Following are the outputs at various stages
o Approved batches of chocolate blocks and Ingredients
o Chocolate paste
o Chocolate chips
o Acceptable chocolate chips
o Packaged chocolate chips
• Identify the Customers: Wholesalers and Retailers.
• Determine the Inputs required for the process: Following are the inputs required at various
stages of operations
o Potato chips and raw chocolate blocks
o Coating ingredients
o Blocks
 44

o Chocolate Paste & Ingredients

o Chocolate Chips
o Properly tempered chocolate chips
• Identify the Suppliers: Following are the suppliers – Draino Inc and Coco Ingredients Inc
provides inputs for the manufacturing unit.
• Validate diagram: Finally, Validate it with relevant stakeholders within the organization.

1.2.2 CRITICAL TO QUALITY CHARACTERISTICS (CTQs)

A Critical to Quality Tree (CTQ Tree) reflects what the consumers of your process cite as
absolutely essential to success. This helps clarify what is considered a defect in the process. It also
helps to distinguish what your client’s needs vs what their requirements are. Use a CTQ tree when
you want to investigate your customer base by moving from general needs to more specific ones.

CTQ Tree Steps

1. Identify who your clients are.

2. Solicit Voice of Client.
3. Translate that data into Critical to Client measures. Set ranges and tolerances for the CTCs.
4. Determine how well your organization’s process needs to do internally in order to meet those
measures.
5. Set parameters for your internal processes that deliver to those measures- those are your
Critical to Quality measures CTQs.

In the measure phase you can use the CTQ tree to distill the outputs that were brainstormed while
making a Process Map when creating the data collection plan.
 45

3 Components of a CTQ Tree

The first step to create a CTQ Tree involves listing the customer’s needs. Data in this area is typically
attained through interaction with the customer. Six Sigma calls for breaking down these needs into
three component areas.

Need – What customer need are you fulfilling with your product or service?

Drivers – What elements or characteristics will your customers mostly likely consider when judging
the quality of your product or service?

Requirements – What process or product requirements are needed to make those drivers meet
customer standards?

Steps to Create a CTQ Tree

Now that you understand the three components of the CTQ Tree, there are certain steps to take to
fill those areas with useful information. Most CTQ Trees are developed by project teams created
explicitly for this task.

• Determine the Need – It may be helpful to ask customers directly, or consult with customer
service representatives or salespeople who frequently interact with customers
• Determine at least three drivers – These are the elements that drive quality for customers
who have the need you want to satisfy. Keep in mind that these are elements that must be
present to satisfy customers.
• Create the requirements – These are the standards that must be met to meet customers’
expectations for each driver.

Once requirements are developed, an organization can then take steps to make the changes or
improvements needed.

Examples of CTQ Trees

Here are two examples of how a CTQ tree could work.

Cupcake Shop

Here’s an example of how you would breakdown the critical requirements for a cupcake shop (much
of this applies to any kind of restaurant).

Need

Quality cupcakes and good service.

Drivers

1. Variety of products
2. Speed of service
3. Quality of ingredients
 46

Requirements

For Variety of Toppings

1. At least a dozen different cupcake toppings

2. In addition to usual toppings, also include seasonal decoration options
3. Identify non-cupcake products to offer, such as cocoa or coffee

For Speed of Service

1. All customers waited on within a minute of entering shop

2. All orders fulfilled within five minutes
3. Delivery option offered for customers within certain kms of the shop

For Quality Ingredients

1. All ingredients listed on menu

2. Calories for each item listed
3. All ingredients used are locally sourced where possible

Niche Website

Here’s another example, using the idea of starting a niche website for audiences interested in the
local music scene.

Needs

Information on local music scene

Drivers

1. Timely information on local shows

2. In depth articles on the local music scene
3. Critical reviews

Requirements
For Timely Information on Local Shows

1. A section of the site (perhaps the home page) dedicated to listing times and dates of shows well
in advance
2. A section that allows users to browse by local venue, with new shows added as they are
scheduled
3. Links to sites where customers can buy tickets

For In Depth Information on Local Music Scene

1. Profiles of the biggest local bands

2. Profiles of the biggest local venues
3. Ongoing articles on festivals and concerts near your city
 47

For Critical Reviews

1. Reviews of music released by local bands

2. Reviews of local shows
3. Reviews of local venues, including food, drink, parking convenience, sound, etc.

Using a CTQ Tree allows you to break down a business into the most critical features that meet
what your customers really want. For business owners and managers, it’s a critical addition to your
Six Sigma toolbox.

PICTORIAL EXAMPLE of CTQ

Question: Which of the following tools is used to translate broad requirements into specific
requirements?

(A) A quality control plan

(B) The theory of constraints (TOC)
(C) A critical to quality (CTQ) tree
(D) A process flowchart

Answer: A critical to quality tree. This is a definition question. A critical to quality tree takes the voice
of the client and translates it into what your organization specifically has to do in order to meet those
needs.

A process flowchart maps a process. A quality control plan is a way to mitigate defects, ensure good
quality, and avoid the costs incurred by poor quality. The theory of constraints states that your
process is limited by its weakest link.
 48

1.2.3 COST OF POOR QUALITY (COPQ)

Cost of Poor Quality (COPQ) is the cost or price a company pays when all of its products are not
perfect. In other words, COPQ would go away completely if the products are made perfectly and
without any need to rework them whatsoever. So, in simple words, COPQ is a possible loss and we
are looking up to companies to avoid this possible loss to them.

COPQ is

The summation of three different costs

• Costs of non-conformities
• Cost of inefficient processes
• Cost of lost opportunities for sales

You would find a lot of companies referring to the same concept as Economics of Quality and that
is absolutely fine. It is just a difference in the way how the concept is termed and used.

COPQ as used in companies

Companies prefer categorizing COPQ in four different categories and until date, this is the best way
how COPQ could be broken down

• Internal Failure Cost

• External Failure Cost
• Prevention Cost
• Appraisal Cost

Internal Failure Cost

These costs are due to deficiencies discovered before delivery of the product, with the product not
being able to meet stated and perceived needs of the customer. These costs also include process
inefficiencies and process losses (See rework) even if the customer needs are met.

• Failure to meet customer needs --- Examples are Downgrading, scrap and rework
• Inefficient processes --- Unplanned downtime, variability of product characteristics,
Difference from benchmarked products

External Failure Cost

These costs are associated with deficiencies found after product is delivered to the customer. This
cost will also factor in costs due to missed sales. How? For example, you shipped 100 pens to the
customer and the customer reports 10 pens defective. Chances are --- He wouldn’t pay for these 10
pens. Assume price per pen is $5. Means $50 lost due missed sales and this is nothing but an
external failure cost for the company!

• Failure to meet customer needs --- Warranty

• Cost due lost sales --- Customer Defectives
 49

Appraisal Cost

These are costs associated/incurred to meet the degree of conformance or determine the degree of
conformance to customer requirements. You normally associate appraisal costs with inspections,
audits, and evaluation of stocks. In collecting appraisal costs, what is decisive is the kind of work
done and not the department name (the work may be done by chemists in the laboratory, by sorters
in Operations, by testers in Inspection, or by an external firm engaged for the purpose of testing).
Also note that industries use a variety of terms for “appraisal,” e.g., checking, balancing,
reconciliation, review.

Prevention Cost

Prevention costs are incurred to keep the Appraisal and Failure Costs to a bare minimum. Goes to
show that appraisal and failure costs are often treated as direct indicators of how inefficient the
process could be, in terms of passing defects on! Obviously, no business would like to pass defects
to the customer and that’s why Prevention costs kick in. The compilation of prevention costs is
initially important because it highlights the small investment made in prevention activities and
suggests the potential for an increase in prevention costs with the aim of reducing failure costs.

Experience also suggests, however, that continuing measurement of prevention costs can usually
be excluded in order to (1) focus on the major opportunity, i.e., failure costs, and (2) avoid the time
spent discussing what should be counted as prevention costs. This part of the section focuses on
the question “How much is it costing our organization by not doing a good job on quality?” Thus we
will use the term “cost of poor quality.” Most (but not all) of the total of the four categories is the cost
of poor quality (clearly, prevention costs are not a cost of poor quality.) Strictly defined, the cost of
poor quality is the sum of internal and external failure costs categories. But this assumes that
those elements of appraisal costs—e.g., 100 percent sorting inspection or review—necessitated by
inadequate processes are classified under internal failures. This emphasis on the cost of poor
quality is related to a later focus in the section, i.e., quality improvement, rather than just quality cost
measurement.

An example

A table shown below has COPQ calculated for a nuts-and-bolts manufacturing company

Cost of quality failures - losses Amount Percent

Defective stock $3,276 0.42%
Repairs to product $73,200 9.45%
Collect Scrap $2,800 0.36%
Waste Scrap $1,87,300 24.18%
Consumer adjustments $4,08,201 52.69%
Downgrading products NC
Policy adjustment NC
Total $6,74,777 87.11%
Cost of appraisal
Incoming inspection $23,700 3.06%
Spot check inspection $66,910 8.64%
$90,610 11.70%
Cost of Prevention
Plant quality Control Engineering $9,276 1.20%
Total $9,276 1.20%
Grand COPQ $7,74,663 100.00%
 50

Okay, so the grand COPQ as on date is about $800,000, and as we can see, Failure costs contribute
the most to the Cost of Quality (About 53%). Now, the prevention costs, which normally should be
a bit high to offset the failure costs, are seen at a low of about 1.2%. More focus is needed on part
of the company to install preventive mechanisms so that the failure costs are reduced.

Key COPQ Analysis

Failure costs are way too high and prevention costs are way too low. The company needs to invest
more in preventive activities, which is thought of as an effective way to reduce Failure costs. The
key categories are the failure cost elements because these provide the major opportunity for
reduction in costs and for removal of the causes of customer dissatisfaction. These costs should be
attacked first. Appraisal costs are also an area for reduction, especially if the causes of the failures
are identified and removed so as to reduce the need for appraisal.

Hidden Costs

It is the worst nightmare for any OPEX guy or a Project Manager. While the COPQ categorization
of different costs is elaborate enough to cover all the costs associated with poor quality products,
hidden costs are something that doesn’t figure in any list. Some, and not all, of the hidden cost titles
are summarized below

• Cost of redesign poor quality products

• Cost of changing the process due to non-adherence to customer requirements
• Cost of Software changes
• Cost of downtime
• Extra indirect charges included (Space charges)
• Cost of errors in support processes and not really the core processes

COPQ interpretations

• The failure costs: These equal zero when the product is 100 per cent good, and rise to infinity
when the product is 100 per cent defective. The target thus for the business is to maintain
their defective goods at a minimum level, which would mean that the failure costs, a
summation of internal and external failure costs, are always at a minimum.

That being said, reducing failure costs would always mean investing more on the prevention costs.
Is the organization ready for it?

• Appraisal and Prevention Costs: These costs would be the lowest when 100% goods are
defective (Note how they work exact the opposite of Failure costs), and would be the highest
for all the products to be perfect. Makes logical sense, doesn’t it? If your process has a very
low percentage of prevention costs, it means you have not installed enough preventive
mechanisms, and it obviously means, the chances of a defect to go through is really high.
Same logic applies to appraisal costs as well!

COPQ – A summary

• COPQ or COQ, Cost of Quality, is not the cost of producing Good quality products, which
may be the first confusion for a lot of people when they hear about this term. It is actually the
price incurred by the company in making poor quality products.
 51

• COPQ is broadly categorized into three costs – 1) Due non-conformities, 2) Due lost sales
and 3) Due inefficient processes. When companies refer to these costs, they’d stick with
these categories or look at four categories --- Internal Failure Cost, External Failure Cost,
Appraisal Cost and Prevention Cost.

• Internal Failure Costs are costs incurred in pre-delivery non-conformities or poor processes.
External Failure Costs are costs incurred in post-delivery non-conformities or lost sales.

• Every company should decidedly try to reduce the failure costs, which more often than not,
makes up for a huge amount in the end COPQ figure. High prevention costs may not really
worry the company a lot especially if the failure costs are low, but a call on the prevention
costs would be taken by the top leadership of the company.

At the end of the day, the COPQ number is merely a reflection of the quality of your processes and
quality of your products and should be treated that way!

1.2.4 PARETO DIAGRAM/ CHART (80:20) ANALYSIS

Pareto chart is also called a Pareto diagram and Pareto analysis. It is named for the Italian
economist Vilfredo Pareto, who described Pareto principle, according to which roughly 80% of the
outcomes come from 20% of the conditions, for many events. This assumption is used in
calculations of business profit or population of any country. Hence, it is a part of probability and
statistics.

What is Pareto Chart?

A Pareto chart is a bar graph or the combination of bar and line graphs. The purpose of using this
chart is to represent a set of data in a bar graph chart. The individual values are represented by the
length of the bars and the line shows the combined total. The values are expressed from the longest
bar to the shortest bar in the graph. These charts are also created using the excel sheets. Basically,
these graphs give statistical information on a bulk of information for each category. Hence, it is a
part of Mathematical statistics.

Pareto Chart Analysis and Interpretation

Let us learn how to make use of the Pareto chart for various applications.

• Firstly, determine the classifications you will use to arrange the items in the bar graph.
• Choose an appropriate measurement such as frequency, quantity, cost and time.
• Decide the time period for the Pareto chart for which the bar graph will be drawn, For
example, for a week, a month or a year.
• Assemble the new data and already existing data as per the category and period of time.
• Do the total of the measurements for all the categories.
• Choose the proper scale for the measurements you have assembled. The total you made in
the above step will be the maximum value.
• Now for each category construct the bars along with labelling it. The longest bar should be placed at the
leftmost place and shortest at the rightmost.
 52

Applications of Pareto Chart

Pareto charts are the best chart to do the analysis of the bulk of data. In business industries, these
charts are used very often. Let us see some of its more applications.

• For the analysis of the revenue growth of the organisation with respect to the time period.
• To choose for any specific data and work on it, in a broad set of data available.
• To explain to other people the set of data you have.
• For the analysation of population growth in a city or country or all over the world every year.
• To check the global problems and focus on resolving the major one.
• To check the major complaints coming from the public and resolve them on priority.

Pareto Chart Example

Let us take an example, where we need to prepare a chart of feedback analysis for XYZ
restaurant, as per the reviews and ratings received from the customers. Here the customers are
given a checklist of four points based on which they have to rate the restaurant out of 10. The four
points are:

•
o
1. Taste of the Food
2. Quality of the food
3. Price
4. Presentation

Now, let us draw the Pareto chart for the Feedback of XYZ restaurant as per the data received.

Thus, Pareto chart considers the percentage of frequency (or measure) and cumulative percentage of
measures to draw a line along with bars. Also, the cumulative percentage adds up to 100.

Frequently Asked Questions – FAQs

What is a Pareto chart used for ?

A Pareto chart is a fundamental quality tool that assists us in identifying the most prevalent defects,
complaints, or any other factor we can count and characterise or classify.
How do you make a Pareto chart ?
In excel one can make a Pareto chart easily in two steps. First, select the data (generally a column
containing text of categories and another with numbers. A Pareto chart then groups the same
categories and sums the corresponding numbers. Then, select Insert statistic chart > histogram >
choose Pareto. This will give you the Pareto chart for the given data.
 53
What is the 80/20 rule of Pareto charts ?
The 80/20 rule of Pareto charts states that 80% of the results are determined by 20% of the causes.
Thus, Pareto Chart suggests to identify the 20% defect types that are the reason for 80% of the
defects.
How do you create a Pareto chart in statistics ?
In statistics, for any given data Pareto chart can be drawn with the help of below steps :
Arrange the given data in decreasing order of measures (in other words “frequency”).
Calculate the sum of measures Determine the percentage and cumulative percentage for each
cause (category of data). List the items on the horizontal axis of a graph from highest to lowest
Label the left vertical axis with the numbers (i.e., frequency), then label the right vertical axis with
the cumulative percentages (the cumulative total should equal 100) Draw in the bars for each item
Draw a line graph of the cumulative percentages
How does Pareto chart work ?
The primary objective of the Pareto chart is to highlight the most important among a typically large
set of factors. In quality control, it often depicts the most frequent causes of defects, the highest
occurring type of defect, or the most frequent reasons for customer complaints, and so on.

1.2.5 BASICS OF SIX SIGMA METRICS

There are many process performance metrics that we can use to measure the current and future
value of our processes.

Before we look at the metrics, though, let’s review some of the terms that we’ll be using. It’s important
that you understand these terms as they’re used in Six Sigma.

Terminology

• Defect: An end result (often a product) that doesn’t fall within a pre-defined acceptable range
of values. For a physical product, these values might be strength and/or size measurements.
For a service, these values might be KPIs like turnaround time. In a general sense, think of
a defect as a failure to meet customer expectations of quality.
• Opportunity: A chance to add value for a customer. This applies to any situation in which
your company can improve the perceived value of a product or service. For example, if you’re
manufacturing a product to customer specifications, your opportunities might be:
o Matching customer’s physical requirements
o Meeting deadlines
o Providing a free courier service straight to the customer.
• Unit: A tangible result to a customer: a single service or product. For example, a customer’s
phone call to your service department is a unit.
• Yield: The yield is the percentage of opportunities that were successfully met. Another way
to look at yield is the percentage of processes that were defect-free.
Yield = (Opportunities - Defects) / Opportunities

Opportunity vs Unit

It’s easy to get opportunities and units mixed up. The simplest way to differentiate them is to think
about customer needs and requirements. The item they need is the unit. The specifications for that
item (color, size, materials, time to delivery) are the opportunities.
 54

You might have several opportunities per unit. For example, think about a customer calling a service
line to get help with a piece of software. The unit, in this case, is the phone call. The opportunities
could be:

• Answering the phone call within an acceptable time range.

• Having the phone call directed to an appropriate person.
• Being able to help the customer with their problem.
• Leaving the customer with a positive experience.

Defects per Opportunity (DPO)

DPO stands for Defects per opportunity. This is a simple ratio. Take the number of defects you have
in your process (usually found by sampling) and divide it by however many opportunities there are.
Then express the ratio as a percentage.

DPO = Defects / Opportunities

Complex processes and items often have many opportunities to add value. Hence, you might
have several defects per process or item.

For example: a fast-food drive-through order. The customer has a lot of criteria on which they’ll judge
the experience as a whole:

• Staff attitude
• Speed of service
• Accuracy (do the received items match the order?)
• Presentation
• Taste of the food
• Freshness/heat of the food.

Each of these criteria is an opportunity to add value for the customer. A failure in any of these criteria
detracts value and counts as a defect. If the customer has to wait ten minutes (defect in speed of
service), receives the wrong burger (defect in accuracy), and their burger is luke-warm (defect in
freshness/heat), three defects have each detracted value from the end result.

Potential gotcha: Make sure that you’re using defects and opportunities for the same population.
For example, if you’re counting defects in a sample of 500 products, the number of opportunities
must also apply only to that sample of 500 products.

Worked example of Defects Per Opportunity

Let’s say Joe’s Burgers serves 1,000 customers a day. The company has identified its opportunity
types as:

• Accuracy
• Speed
• Freshness
• Taste.

For example, in a single day, 50 customers had the wrong order, 75 felt they waited too long, 25
said their order was cold, and 50 more said their burgers just tasted bad. Some of that feedback
might have overlapped; customers might have received the wrong order and waited too long for it.
That doesn’t matter for this metric, because each order has multiple opportunities attached to it.
 55

To calculate the number of opportunities, multiply the number of orders (1000) by the number of
opportunity types (4) to get 4000.

DPO = number of defects / number of opportunities = 200/4000 = 0.05 = 5%

Defects per Unit (DPU)

Defects per unit is a similar calculation to DPO, but instead of looking at opportunities, we’re looking
at units.

Let’s look at the Joe’s Burgers example again, but this time from a DPU viewpoint.

Worked example of Defects Per Unit

Let’s say Joe’s Burgers serves 1,000 customers a day. In a single day, 50 customers had the wrong
order, 75 felt they waited too long, 25 said their order was cold, and 50 more said their burgers just
tasted bad.

Some of that feedback might have overlapped; customers might have received the wrong order and
waited too long for it. That doesn’t matter for this metric. We’re just looking for a basic ratio.

(Note: it would matter if we were talking about defective units per 1000, for example.)

The number of units is the number of orders (1000).

DPU = number of defects / number of units

DPU = 200/1000 = 0.2
DPU = 20%

Defects per Million Opportunities (DPMO)

DPMO is based on DPO, but in real-world manufacturing type numbers. This is an important metric,
because it’s used in Six Sigma to measure the performance of a process. For example, Joe’s
Burgers would use DPMO to figure out how successful their current serving process is, and how it
compares to other serving processes they might have tried.

Defects per Million Opportunities is typically extrapolated from a sample. In the worked examples
above, we looked at Joe’s Burgers using a single day’s orders as a sample – 1000 units. If you’ve
already worked out DPO for a sample, you can calculate DPMO by simply multiplying the decimal
result (not the percentage) by one million.

DPMO = DPO * 1000000

Alternatively, you can use this equation:

DPMO = (Defects / Opportunities) * 1000000

Or:

DPMO = (Defects / (sample size * opportunities per unit)) * 1000000

 56

Worked example of Defects Per Million Opportunities

Joe’s Burgers serves 1,000 customers in a day. The company has identified its opportunity types
as:

• Accuracy
• Speed
• Freshness
• Taste.

In a single day, 50 customers had the wrong order, 75 felt they waited too long, 25 said their order
was cold, and 50 more said their burgers just tasted bad.

Number of defects: 50 + 75 + 25 + 50 = 200

Sample size: 1000
Opportunities per unit: 4
DPMO = (Defects / (sample size * opportunities per unit)) *
1000000
DPMO = (200/(1000 * 4)) * 1000000
DPMO = 50000

How to Calculate 6 Sigma level based on DPMO

There are two basic ways that you can determine the Six Sigma level from your DPMO figure:

• Look at an appendix table.

• Use the equation.

Six Sigma Level Equation

Use this equation to calculate your process’s Six Sigma Level based on its DPMO:

Level = 0.8406 + √(29.37 – (2.221 * ln(DPMO)))

 57

Note: If you’re wondering where the numbers 0.8406, 29.37 and 2.221 come from, they are
constants that help us calculate the DMPO or level simply.

Process Sigma = 0.8406 + SQRT (29.37 – 2.221 * (ln (DPMO))).

Worked example of calculating Six Sigma Level

Let’s start with the DPMO figure from Joe’s Burgers: 50000.

Firstly, if you haven’t come across ln before, it means that you need to find the natural logarithm of
the number – in this case, the DPMO. Use a scientific calculator. In this case, the natural logarithm
of 50000 to 4 decimal places is 10.8198.

Secondly, we need to plug that into the equation:

Level = 0.8406 + √(29.37 – (2.221 * ln(50000)))

Level = 0.8406 + √(29.37 – (2.221 * 10.8198))
Level = 0.8406 + √(29.37 - 24.0307)
Level = 0.8406 + √(29.37 - 24.0307)
Level = 0.8406 + √5.3392
Level = 0.8406 + 2.3106
Level = 3.1513

First-Time Yield (FTY)

First-time yield is the most common way to calculate the process yield. It is the number of defect-
free units coming out of a process, compared to the number of units manufactured. In other words,
it is the probability of a defect-free output from a process.

FTY does not capture how many defects are reworked in each stage. In other words, It doesn’t
include units that need to be reworked in the defect-free units. It will not detect the effect of hidden
factors. Simply, FTY is the number of good parts produced divided by the total number of parts going
into the process.

How to calculate FTY for a process

1. Calculate the first-time yield for each step in the process, based on the number of defect-free
units going into each step (typically each step will have fewer units than the preceding step).
2. Multiply the FTYs together to get the total first-pass-yield.

FTYt = FTY1 * FTY2 * FTY3 * ... * FTYn

Where:

• FTYt is the total First Time Yield for the process.

• n is the number of steps in the process.
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Worked example of calculating FTY

Example: In a manufacturing plant, 100 parts are entered into the first process, 2 are scrapped, and
98 defect-free parts go to the next stage. 98 parts enter the second process, 5 are scrapped, and
93 defect-free parts go to the next stage. 93 parts enter into the third process, 10 scrapped and 83
defect-free parts are going to the next stage. Find the First-time yield.

• First process: 100 parts enter into process; 2 scrapped, So output 98 parts; FTY1 = (100 – 2)/100 =98/100=
0.98
• Second process: 98 parts enter into process; 5 scrapped, So output 93 parts; FTY2 = (98 – 5)/98 =93/98=
0.9489
• Third process: 93 parts enter into process; 10 scrapped, So output 83 parts; FTY3 = (93 – 10)/93 =83/93=
0.8924

Total First Time Yield = 0.98*0.9489*0.8924= 0.829 ~ 83% yield

FTY also can calculate the final number of defect-free parts divided by the number of parts in the
start of the process = 83/100 = 83%

Rolled Throughput Yield (RTY)

Rolled Throughput Yield is a great way of seeing how healthy a process is. RTY provides a
probability that a unit will be generated by a process with no defects. In other words, it’s the
probability that a multi-step process will produce a defect-free unit.

Rolled Throughput Yield is more powerful as it is sensitive to defects, which means instead of
being based on the yield on units, it uses the number of defects at each step (even the defective
part is corrected, but still it will count in the calculation of RTY). It is valuable to the organizations
as most of them consider only the successful/passed units although inherent muda are present.
RTY considers total defects in the entire process.
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Before calculating RTY, you need to complete two important steps:

• Map the process so that you know how many steps it has.
• Take samples at each stage of the process and test for defects, so that you have data for
the calculation.

Example

A sequence of 3 operations has first pass yield (right first time) rates as follows:

• 1st step: 93%

• 2nd step: 87%
• 3rd step: 92%.

In other words, the first step in a process has a 93% chance of completing correctly. The 2nd has
only an 87% chance. And the third process step has a 92% chance.

The first pass yield rate for the whole process is the chance of each step multiplied.

RTY = 93% * 87% * 92% = 74%

Each step by itself had a good chance of being acceptable. But when you take a look at the entire
system, you see that the cumulative errors take a toll. In the above example, any item that the
process produced only had a 74% chance of passing through without error or rework.

Worked example of calculating Rolled Throughput Yield

Example: In a manufacturing plant, 100 parts are entered into the first process, 2 are scrapped, and
5 are reworked to get the 98 parts to the next stage. 98 parts enter into the second process where
5 are scrapped and 10 reworked to obtain 93 parts. 93 parts enter into third process, where 10
scrapped and 5 reworked to get 83 parts. Find the Rolled throughput yield.

• First process: 100 parts enter into process; 2 scrapped and 5 reworked, So output 98 parts;
RTY1 = (100 – (2+5))/100 =93/100= 0.93
• Second process: 98 parts enter into process; 5 scrapped and 10 reworked, So output 93
parts; RTY2 = (98 – (5+10))/98 =83/98= 0.89
• Third process: 93 parts enter into process; 10 scrapped and 5 reworked, So output 83 parts;
RTY3 = (93 – (10+5))/93 =78/93= 0.84
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So, the Total Rolled Throughput Yield = 0.93*0.89*0.84= 0.695 ~ 70% yield

Calculating DPU from Rolled Throughput Yield

In addition to the Defects Per Unit calculations above, you can use a process’s RTY to calculate its
Defects Per Unit. Use this equation :

DPU = -ln (RTY)

Reminder: ln is the natural log.

Worked example of calculating DPU from RTY

From the above manufacturing example, RTY is approximately 69.5%. Then to get the DPU, we
plug that into the equation:

DPU = -ln(0.695)
DPU = 0.3638

Using Process Performance Metrics

Once you understand the process performance metrics available, and how to use them, then the
next step is to decide which metrics to actually use.

Primary vs Secondary Process Performance Metrics

Primary and secondary metrics aren’t static. Each organization will have its own priorities when it
comes to process performance metrics, leading to different lists of primary and secondary metrics.
These lists will even change from time to time, as an organization’s focus and business objectives
change.

Generally speaking, then, primary process performance metrics are the ones that your organization
decides to focus on most. The rest are secondary process performance metrics.

Questions to Ask When Designing Your Process Performance Metrics Program

The following information was emailed to me and attributed to Will Poats of the CEB.

Accounting and Reporting teams are always looking to include the most relevant metrics in their
management reports, so they should avoid the three following missteps when incorporating metrics:
wrong metric selection, lack of process ownership, and ineffective reporting practices.
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Below are 13 questions you can ask yourself and your team members when designing or
strengthening your metrics program.

1. Have we chosen no more than 12 to 15 metrics for decision making among those suggested
by the corporate finance leadership team and business partners?
2. Do we agree on the definition for each metric, the reason for tracking it, and the target we are
aiming for?
3. Can we link each metric back to a business or corporate goal?
4. Have we tested the metrics with our stakeholders to ensure they understand the definition
and have a clear sense of how they will use the metric to make decisions?
5. Check whether we incorporated both qualitative and quantitative metrics into our decision-
making framework?
6. Do we know which drill-down options are most useful for each metric?
7. Also, do we know which styles of metrics presentation each stakeholder prefers?
8. Have we run each metric during a trial period to establish a baseline?
9. Check whether we agreed on refresh triggers or cycles for each metric to prevent them from
becoming obsolete?
10. Do we have a metric that can predict future problems?
11. Have business partners feel comfortable alerting Finance when metrics need to change and
adapt to the new environment?
12. Do we eliminate old metrics when new ones become more representative?
13. Finally, Do we update our business partners on metrics we will no longer be tracking when
the dashboard changes?

Question: Which of the following performance measures is most appropriate for evaluating the
tangible effects of a six sigma project? (Taken from ASQ sample Black Belt exam.)

a) Cycle time

b) Team member absentee rate

C) Employee morale

D) Unsolicited compliments from customers

Answer: Cycle Time. Six sigma projects usually revolve around improving a process to the benefit
of the client (and the corporate bottom line!) Cycle time can be found by analyzing a process. Also,
making improvements to that process can make for a faster cycle time. You could use six sigma
techniques in projects aiming to decrease absentee rates, increase employee morale, or gaining
more unsolicited compliments, but the best answer is cycle time.

[/membership]

Question: Which of the following is the correct formula for DPMO?

(A) D/TOP
(B) DPO X 1,000,000
(C) D X U XOP
(D) DPU/DPO

Answer: DPO X 1,000,000. DPO stands for Defects per opportunity. Just take that number and
multiply by one million to determine DPMO – Defects per Million Opportunities.
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Question: Which of the following measures is used to show the ratio of defects to units?
(A) DPU
(B) DPO
(C) DPMO
(D) PPM

Answer: (A) DPU stands for Defects per Unit. DPO is defects per opportunity, DPMO is defects per
million opportunities, and PPM is parts per million.

1.3 SELECTING LEAN SIX SIGMA PROJECTS

1.3.1 Building a business Case or Project Charter

The project charter is a set of a documents that, serves as a working document for the team and as
a reference for the rest of the company, and acts as a guiding hand for the Plan-Do-Study-Act
cycle Use it as a guide to managing the project, meeting deliverables, etc. It can also be a good
method of problem identification as it clearly documents the scope and business impact of the
problem the Six Sigma team is attempting to solve. The project charter should also clearly state
what the intended goals are and how success will be measured. Remember, a project charter is a
living document. You will update this throughout the course of the project.

The Elements of a Good Project Charter

• Problem Statement Start your project charter here with a clear problem statement. It
describes the problem you are trying to solve or the opportunity you are trying to capitalize upon in
an objective manner without commentary or opinion.

• Details of what this project is solving in specific, measurable, and quantifiable terms.
• How long has the problem existed ?
• Describes the impact of the problem to the company.
• What will happen if we DO NOT take action?
• What’s the gap between now and future?

The problem statement describes the the gap between the current state and the desired state.

• DO NOT: Suggest cause, solution, or assign blame. Jumping to a solution is a bad idea.
There will be a time for root cause analysis in the analyze phase. Keep an open mind at this
point of the define phase.
• A micro problem statement is a granular statement of the problem defined in the charter.
• Use SMART
• Specific Measurable Actionable Relevant Timely / Specific, Measurable, Actionable,
Relevant, Time-Bound.
• The more you follow SMART, the more it will resonate with your sponsors and stakeholders.
• Useful in defining your timelines and defining your problem and objectives.

Benefits, Goals and Objectives

Now continue with the goal statement. Here we want to take the Problem Statement and translate
it into objectives (things that need to be completed to consider the project a success) and understand
the benefits of what the project will deliver.
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• Anticipated benefits.
• Answer to the ‘why’.
• Think of how you would pitch this project to sponsors. If they spend their budget financing
this project, what do they get out of it? Why should your company allocate scarce, precious
resources of time, manpower, and budget to this effort.
• What is the anticipated return?
• Once you have performed a Critical to Quality tree it would be a good idea to add it to your
appendix and list the Critical to Quality items here.

Business case

The next step is to take what you’ve listed in the problem statement and the objectives and clearly
and concisely lay out a case for management to select this project. Remember, even though you
may have a great need for this project it still has to compete against projects in a larger portfolio at
the department, division, or even corporate level for scarce resources. Since no company has
unlimited resources, you want to give management a compelling case for spending resources on
this project.

• Convert the problem and objectives to a statement of business value.

• Short & to the point.
• In non-specific and non-quantifiable terms:

▪ What does the project do?

▪ What is the strategic impact?
▪ Why is this worth doing?
▪ What happens if we don’t do it?

• Describes what the project does to impact the strategic imperatives of the company.

▪ If there is no tie to strategy, there shouldn’t be a project! These ties also serve as
motivation for the Six Sigma team to get the job done!

▪ Linking to business strategy is critical. (Note: Jim Collin’s books are excellent for this
purpose.)

• Identify the project needs - This differs from the client’s wants.

Project scope

• The boundaries
• Who else is impacted?
• Set by champion
• Battles scope creep
• Is NOT a timeline, but COULD be a time frame.
• DO NOT just restate the issue
• This is just what your project is and what your project is NOT.
• Think of this as your contract. Your project will do X, Y, and Z. It will NOT to A, B, or C.
• Remember that no organization has infinite appetite for cost, schedule, or scope. And there
is always a chance to do a follow up project to address items you don’t on your first one.
Identifying and naming project scope usually involves trade-offs to focus on the most critical
needs of the organization.
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Milestones

• What key deliverables are being delivered when – and what value will be conferred?
• Possible prioritization and scaling of benefits.
• List the tollgate meetings.
• Review with your sponsors to set realistic expectations.
• If a schedule is required, use project management tools to reverse engineer the tasks and
activities needed to complete all of the objectives and ensure that you have the appropriate time
to accomplish everything necessary.

Assumptions & Dependencies

• What do we know about this problem?

• What must we believe or hold true if we are to think this project will be a success?
• What are some global variables that need to be true in order for this process to be a success?
• What are some global variables that, if are not true, invalidate what we expect we will achieve
with this project?

▪ Ex. If the price of oils is below $90 / barrel.

▪ Ex. If self-driving cars are not adopted by more than 50% of Americans.

• What things are crucial to our success?

• Are there other projects or efforts underway that are required for this project to be successful?
• What times are showstoppers? What potential events are out there that could totally derail
our effort?
• Note: You could list everything in the world on this list. The best course of action is to focus
on the critical few that are worth considering.

Roles & Responsibilities of team members.

• Identify team members, equipment, and material to be used.

• Refer to Sponsor, Champion, Green Belt Black belt etc etc.

Stakeholders

• Detail how the project impacts them or their groups, and what they may be required to help
with.
• Review the assumptions and dependencies with them. Be transparent. Perhaps they can
remove some obstacles or know of better ways to ameliorate the risks. Sometimes sponsors who
have a greater or more comprehensive view of the organization will be privy to dependencies that
your team is not aware of.

Possible Project Charter additions

• Note that a detailed budget or reference analysis is not needed but is sometimes included.
• Stakeholders, how the project impacts them or their groups, and what they may be required
to help with.
• Risk analysis – Sometimes projects arise from prior risk analysis activities (like a FMEA). If
that’s the case, you would include them in the appendix for context.
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Question: In order for a problem to be solved correctly, which of the following must occur first ?

(A) The problem must be defined.

(B) Relevant data must be gathered.
(C) The measurement system must be validated.
(D) The process must be mapped.

Answer: (A) The problem must be defined. Without a good problem definition, we do not know what
data is relevant to be collected. Nor would we know what measurement systems to be used let alone
how to validate it. And we could not even map the process without a good problem definition.

Project Charter Questions

Question: What is wrong with the following Business Problem statement?

We (Santa’s elves) started receiving a lot of letters complaining about erroneous coal deliveries on
Christmas. Our goal is to create a specialized group of senior elves to handle this topic.

Answer: How would Santa’s workshop know that creating a specialized group is the right / most
cost-effective solution? In order to effectively use Six Sigma techniques you must have the maturity
to state that you don’t know what the answer is at the outset but will use rigorous data and analytical
techniques to discern what the truth is. Stating the goal up front like this abrogates that process. A
good business problem statement would objectively state the facts and not let opinions creep in.

Question: What is wrong with the following Business Problem statement?

The Tooth Fairy’s tooth-reclamation process is not optimal and a lack of communication leads to
poor results.

Answer: How do you know the process is not optimal? What has been done to examine this? Again,
here we’ve jumped past multiple phases of DMAIC.

Question: What is wrong with the following Business Problem statement?

The Letters to Santa client communication effort has led to poor results. We are unable to receive
children’s toy request in a quick enough manner and our turn around cycle time leads to additional
poor practices contributing to the wrong gifts being delivered to the wrong children. By creating a
computer-based system to handle all external communication we should be able to reduced cycle
time to 2 days and reduce incorrectly-delivered toys by 75% by December of next year.

Answer: While the level of detail is admirable, this business problem statement presumes a
solution. How do they know that creating / deploying this software will fix the process?

Question: What is wrong with the following Business Problem statement?

The average processing time for Santa’s elves to verify the Naughty and Nice list exceeds staffing
allowances. The distribution of verification times is not even and the outliers in morally grey areas
can take weeks. This significantly impacts the staffing model.

Answer: There is nothing wrong. Great Business Problem Statement!

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Question: What is wrong with the following Business Problem statement?

The travel policy for the tooth fairy’s teeth collection unit is not documented and the practices are
not uniformly applied. The opportunity exists to document the process, update the training modules,
and monitor compliance with strict controls.

Answer: Fails to demonstrate what the pain of the issue is. Also prescribes actions that may or may
not be the best course of action.

Question: What is wrong with the following Business Problem statement?

Some group inside Global corporation X has a client acquisition cost of $20 per client. That group
has an internal goal of client acquisition costs of $15 by the year 2020.

Answer: While this statement is specific, measurable, actionable, relevant and timely, it doesn’t
explain the “why” of the goal. What is the point of pain for the organization if this project does not go
through. While you might think that a cost reduction effort is self-explanatory, remember that every
company has a large portfolio of projects that need to be rated against each other to decide which
ones will be validated. Also, without an understanding of the amount of pain, how would you begin
to understand the scale of the issue or calculate the ROI?

1.3.2 Developing Project Metrics

The most common approach used by teams is to understand the problem statement, brainstorm
metrics, and finally decide what metrics can help them achieve better performance. The team then
reviews these metrics with executive management to ensure that they are in synergy with the overall
strategy of the business, and an iterative approach may be utilized. Care should be exercised in
determining what is measured. Metrics should be based on what, in fact, needs to be measured to
improve the process, rather than what fits the current measurement system. Metrics need to be
scrutinized from the value they add in understanding a process.

Balanced Scorecard Approach to Metrics

Many Six Sigma professionals advocate the use of a balanced scorecard type of approach for the
selection of project metrics as a method for ensuring that the project meets both customer and
business needs. The balanced scorecard approach includes both financial and non-financial
metrics, as well as lagging and leading measures across the four areas or perspectives: financial,
customer, internal processes, and employee learning and growth. Lagging measures are those that
are measured at the end of an event, while leading measures are measures that help as achieve
the objectives and are measured upstream of the event. Most balanced scorecard metrics are based
on brainstorming, however the approach of brainstorming can have limited success in establishing
sound metrics that have a good balance between lagging and leading measures. Typical
brainstormed balanced scorecard metrics utilized in Six Sigma projects can be summarized in the
below. The primary issue in utilizing a scorecard is that it might not reflect the actual strategies
applied by the team for achieving breakthrough in their project.
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Example Project Balanced Scorecard

Financial Customer

• Inventory levels • Customer satisfaction

• Cost per unit • On-time delivery
• Hidden factory • Final product quality
• Activity-based costing • Safety communications
• Cost of poor quality
• Overall project savings

Internal Business Processes Employee Learning and Growth

• Defects, inspection data, DPMO, sigma • Six Sigma tool utilization

level • Quality of training
• Rolled throughput yield • Meeting effectiveness
• Supplier quality • Lessons learned
• Cycle time • Total trained in Six Sigma
• Volume shipped • Project schedule versus actual date
• Rework hours • Number of projects completed
• Total savings to date

Instead of utilizing the Balanced Scorecard approach described above, the teams can employ a
more effective method by answering the questions in the figure given below. This approach helps
team members understand the objectives of the project from each of the four perspectives.

Once the team has brainstormed for each of the four perspectives, the various objectives that must
be met by the project will be clearer. These objectives can then me mapped in a strategy map cutting
across all the perspectives and projects of the organization. The arrows help in understanding the
cause-and-effect linkages in the strategy. The next illustration shows an example of a strategy map
applied.
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Conclusion

Once the strategy map for the project is determined, the team can begin brainstorming appropriate
metrics for each of the objectives and, while doing so, maintain a balance in selection between
leading and lagging measures. This kind of an approach ensures that the team selects a set of
metrics that are aligned with the strategy used by them on the Six Sigma Project. Metrics selected
in this way not only ensure that appropriate metrics are developed but also help the team in the
project planning and creates a purpose of direction for the team.

1.3.3 Financial Evaluation and Benefits Capture

In Six Sigma projects, we use financial measures to analyse the wider effects of our efforts. Looking
at the number of defects is ideal for identifying issues. However, it’s very low level and narrowly
focused. It doesn’t help us measure the final impact of process changes. It also won’t mean much
to stockholders and board members. That’s why we also need to use financial measures. There are
two basic types of financial measures we can use:

• Forward looking measures: These help us figure out whether a project will be worthwhile.
• Backward looking measures: These help us to measure the financial effect of our recent
projects.

Returns

This category of metrics look at the income received vs the effort made and the assets owned.
They’re backward-looking measures. In other words, they’re generally calculated after a project
ends.

ROI

Return on Investment (ROI) = Gain realized / Effort spent.

This metric measures how efficient and profitable an endeavour (project, program, etc) is. You could
be building a valuable product, but spending too much money to get it.

ROI = ((end value – cost) / cost)

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where:

• ROI = Return on Investment.

• End value = Final value of the project.
• Cost = the amount of money spent on the project.

How to Calculate ROI

Example ROI calculation

For example, a software company is creating a piece of software. It pays four developers and testers
for a year to complete the product, at a cost of $250,000. It pays a marketer $50,000 for six months
to create the marketing campaign. 300 customers subscribe to pay $200 a month for access to the
software in the first year after the product is released.

ROI = (end value – cost) / cost

ROI = ((300 x 200 x 12) - 300000) / 300000
ROI = (720000 - 300000) / 300000
ROI = 420000 / 300000
ROI = 1.4 = 140%

ROA

Return on Assets (ROA) = Income / Assets.

This metric measures as to how efficient management is in turning its holdings into earnings. It
compares the company’s income with the assets it owns. Is it using those assets effectively to gain
more income?

ROA = (income / assets)

Where:

• ROA = Return on assets.

• Income = The company’s net income.
• Assets = The current valuation of the company’s assets.

How to Calculate ROA

Example ROA calculation

The software company in the example above owns a server farm that delivers its software. Its current
valuation is $200,000. So, we plug that figure and its earnings into the ROA formula.

ROA = income / assets

ROA = 420000 / 200000
ROA = 2.1 = 210%
Using ROI and ROA

ROI and ROA are useful in Six Sigma because they help us gauge the success of completed
projects.
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Cost-Benefit Analysis

This is a forward-looking measure. It involves looking at the projected costs and returns of a project.
It gives us data that we need to decide whether a project is worth doing. But it’s not just useful within
a team. You can use a cost benefit analysis to demonstrate the value of a project to people outside
your team, like upper management.

From a financial standpoint:

• If the cost is greater than the benefit, the project isn’t worthwhile.
• If the benefit is substantially greater than the cost, the project is worthwhile.

How to conduct a cost-benefit analysis

There are three basic steps to conducting a cost benefit analysis:

1. Calculate the expected costs of the project. Include one time costs like design and implementation
resources, ongoing costs like training and new equipment, and cost of capital expenses.
2. Calculate the projected benefit of the project. This might include new one time revenue like customers
buying a product, or ongoing benefits like reducing hours per week spent on specific tasks, at $/hr.
3. Determine the cost vs benefit ratio.

Cost-Benefit Analysis formula

CBA = (Cost / Benefit)

Where:

• Cost = the projected cost of the project

• Benefit = the projected return of the project

Example cost-benefit analysis calculation

We can conduct a retrospective CBA on the software company that we looked at earlier.

CBA = Cost / Benefit CBA = 300000 / 420000 CBA = 0.714 = 71.4%

Net Present Value (NPV)

Projects rarely deliver only simple, one-time costs and returns. Often the costs and returns
associated with a project will continue for years. The value of these costs and returns will change
each year, thanks to inflation. One dollar today will be worth more than one dollar in five years’ time.
We use NPV to calculate the present value of future costs and returns.
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How to calculate NPV
Net Present Value formula
NPV = Rt / (1 + i)t

Where:

• NPV is the net present value.

• Rt is the net cash flow for the period.
• i is the discount rate: the return that could be made on an investment with a similar risk profile.
• t is the period of time.

Internal Rate of Return (IRR)

We can use the Net Present Value for the cash flow each year to determine the projected percentage
return from a project. The higher the IRR, the better. Generally, a company will compare the IRR to
expected return from an investment with a similar risk profile. If the project’s IRR is a lot higher than
the comparison investment return, it’s a winner. If it’s lower, then from a financial perspective, it
doesn’t make sense to proceed.

Note: Expected financial returns aren’t the only reason to go ahead with a project. There might be
social or environmental returns that outweigh the financial aspect. However, most organizations will
need to thoroughly understand the financial measures.

IRR formula
0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n

Where:

• P0 = the immediate cash flow (usually a negative figure).

• P1 = the projected cash flow in the first year.
• P2 = the projected cash flow in the second year.
• P3 = the projected cash flow in the third year.
• Pn = the projected cash flow in the nth year.
• IRR = the Internal Rate of Return.

This is pretty complicated to solve manually, but Excel has inbuilt IRR formulas that you can utilize.

Example IRR scenario

A company is considering moving its software product into the cloud. It’s calculated that the initial
cost would be around $50,000, and annual maintenance and upgrade costs would be about $10,000
thereafter. But it’s also figured that it would no longer need to maintain a bank of servers to host the
development and production environments (a saving of around $100,000 over five years) and would
save around $5000 a year currently being offered in discounts to customers when server outages
occur.

Its IRR equation would look something like this:

0 = -50000 + 15000/(1+IRR) + 15000/(1+IRR)2 + 15000/(1+IRR)3 + 15000/(1+IRR)4 +

15000/(1+IRR)5
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In Excel, we’d add the key data:

A B
1 Year Cash flow
20 -50000
31 15000
42 15000
53 15000
64 15000
75 15000

Then we’d use the following Excel formula to calculate the IRR:

=IRR(B2:B7)

Which Excel calculates as 15%.

A fair investment return for 5 years is 10%. So a 15% projected return gives extra value, and will
probably be accepted as a worthwhile venture.

Payback Period

Payback is one of the useful capital budgeting methods. It is generally used to evaluate the project
considering the associated risks before investing. Payback calculates the number of years after
the initial invest amount will be recovered from a project’s net cash inflows. In other words, the
length of the time initial outlay of investment reaches a breakeven point. Invest in a project where
payback is less than the maximum allowed time.

Payback period formula

The formula for payback period depends on fixed and irregular cash flow.

• Case1: Fixed cash inflow: Payback period = Initial investment/Net cash inflows per period
• Case 2: Irregular cash inflow: Payback period = Last time period with negative net cash
flow+ (Net cash flow at the time of last negative value/ cash flow of the consecutive year)

Payback period example

Example1: Fixed or even cash flow Method: A manufacturing plant is planning to start a new
project with an initial investment of $115 million. Management expecting returns of $20 million per
year in net cash flows for 8 years. Calculate the payback period of the new project.

Initial investment = $115 million

Cash flow per year = $20 million

Number of years = 8

Payback period = Initial investment / Net cash flow per period = $115/$20 = 5.75 years.
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Example 2 : Irregular or uneven cash flow method: A manufacturing plant is planning to start a
new project with an initial investment of $80 million. Management expecting returns of $15 million in
the first year, $ 20 million in the second year, $25 million third year and $35million in the fourth year,
and $20 million in the fifth year. Calculate the payback period.

Payback period =Last time period with negative net cash flow+ (Net cash flow at the time of last
negative value/ cash flow of the consecutive year) = 3+(20/35) = 3+0.57=3.57 years

Advantages of Payback period

• Payback method is very easy to understand and calculate the period

• It considers the organization liquidity, helps to find the project that provides quick returns
• Favours with ranking and accounts the inherent project risks

Disadvantages of Payback period

• Payback does not consider the time value of money

• It does not account for the cash flows after the payback period

Question: A shoe manufacturing firm learned through a Lean Six Sigma project their boot soles
could be made of a different material requiring two less steps in the process. Removal of these two
steps yielded a monthly cost savings of $7,500. Therefore, the reported financial savings for this
LSS project were:

A) $45,000

B) $75,000

C) $90,000

D) $120,000

Question: A six sigma team has gathered data for a project proposal and is using the following
notations:

I = Initial investment
C = Periodic maintenance cost
B = Benefits to be accrued
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On the basis of the information above, which of the following is the criteria used to select a project
?

• (A) B / (I+C) > 0

• (B) B / (I+C) > 1
• (C) B / (I+C) <= 1
• (D) B / (I+C) <= 0

Question: A six sigma project to reduce billing statement expenses has shown the need to hire two
additional mailroom clerks. Based on this information, which of the following metrics should be used
to measure the financial benefits of the project? (Taken from ASQ sample Black Belt exam.)

(A) Cost of poor quality

(B) Return on investment
(C) Net present value
(D) Internal rate of return

1.4 THE LEAN ENTERPRISE

1.4.1 Understanding Lean

A Definition of Lean

Lean is a methodology of continuous improvement with the goal of reducing waste by eliminating
unnecessary steps within a process. Steps which don't add value from the customer's point of view
are considered waste. There are 7 types of waste:

• Over-production against plan

• Waiting time of operators and machines
• Unnecessary transportation
• Waste in the process itself
• Excess stock of material and components
• Non-value-adding motion
• Defects in quality

Whilst Lean sometimes is only seen as a set of tools for continuous improvement, a Lean mindset
should be encouraged throughout the whole company. Promoting Lean at all levels will lead to a
much better result.

What is Kaizen?
Kaizen is Japanese and stands for "Continuous Improvement". It refers to activities aiming for the
implementation of positive, ongoing changes at the work station. In other words, it is a strategy that
involves all employees from every company level to work together and proactively, with the goal of
achieving regular, incremental improvements to the manufacturing process.

Kaizen puts emphasis on the significance of continuous improvement. It is not enough to undertake
changes once. Organizations have to make an effort in continuing improvements repeatedly.
Numerous companies have applied Kaizen's concept and strategy in order to increase employee
productivity, reduce costs, and improve the overall customer experience.
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1.4.2 Origins of Lean

Lean is not a new methodology but in the last years it gained more and more importance to
businesses in order to achieve Operational Excellence. It originated in manufacturing in Japan with
the Toyota Production System (TPS) which combined many best practices of other companies
with the goal to increase competitivity. TPS influenced many following methodologies like Six Sigma.

According to the Lean Enterprise Institute the development of TPS is credited to Taiichi Ohno,
Toyota’s chief of production in the post-WW II period. Beginning in machining operations and
spreading from there, Ohno led the development of TPS at Toyota throughout the 1950s and 1960s,
and the dissemination to the supply base through the 1960s and 1970s. Outside Japan,
dissemination began in earnest with the creation of the Toyota- General Motors joint venture—
NUMMI—in California in 1984.

The concepts of just-in-time (JIT) and Jidoka both have their roots in the pre-war period. Sakichi
Toyoda, founder of the Toyota group of companies, invented the concept of Jidoka in the early 20th
Century by incorporating a device on his automatic looms that would stop the loom from operating
whenever a thread broke. This enabled great improvements in quality and freed people to do more
value creating work than simply monitoring machines for quality. Eventually, this simple concept
found its way into every machine, every production line, and every Toyota operation

The 5 Lean Principles

According to Womack and Jones, there are five key lean principles i.e. value, value stream, flow,
pull, and perfection :-

1. Specify value from the standpoint of the end customer by product family.
2. Map the value Stream: Identify all the steps in the value stream for each product family,
eliminating whenever possible those steps that do not create value.

3. Create flow: Make the value-creating steps occur in tight sequence so the product will flow
smoothly toward the customer.

4. Establish pull: As flow is introduced, let customers pull value from the next upstream activity.

5. Seek perfection: As value is specified, value streams are identified, wasted steps are
removed, and flow and pull are introduced, begin the process again and continue it until a
state of perfection is reached in which perfect value is created with no waste.
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1.4.3 What happens if we combine Lean and Six Sigma?

Combining two powerful methodologies can only create an even more powerful tool. Six Sigma also
is a methodology of continuous improvement but instead of achieving this through reducing
unnecessary steps, this methodology focuses on reducing waste through diminishing variations
within the process. This can be accomplished by the implementing DMAIC, a Six Sigma sub-
methodology. DMAIC is the abbreviation for:

• Define: define the problem in order to solve it.

• Measure: measure all of your available data as well as take a more detailed look into your
processes.
• Analysis: perform analysis of your findings and figure out the problem's root.
• Improvement: once you analysed your data, find possible solutions and implement them
• Control: ensure to maintain your new implemented process.

Lean and Six Sigma are two different approaches to reach the same goal. Besides reducing waste,
they aim to minimize costs and maximize efficiency. Although they are different, they work best hand
in hand.

Leading Culture Change through Lean Leadership

As mentioned before Lean shouldn't only be seen as a methodology or a set off tools to achieve
continuous improvement and reduce waste, it is also very important to integrate it into the company's
culture. What does this mean? Changes always affect the whole company. It is not possible to only
change processes and expect no other consequences, positive and negative. Lean has to be
promoted and implemented throughout the whole company. It has to become a mindset and part of
the company culture. This also means that Managers have to change their way of thinking and adapt
Lean Leadership.

Lean Leadership means moving away from traditional concepts of management, where the
manager gives instructions, only focuses on short-term results and the team members are expected
to do their tasks. In Lean Leadership the manager has a strategic focus, he is at the workplace, asks
questions and mentors his team members who do standard work, improve processes, measure
results and get the training they need.

"Lean also means creating a culture of structured problem solving. To do so, we have to
understand how systems drive behaviours. Enterprise level culture is really the behaviours of
people at the unit or local level. Essentially, the principle follows; In order to engineer the culture
we want in our organization, we have to find a way to change specific behaviours.

Remember that a behaviour is an action that can be videotaped. For example, a nurse or physician
washing their hands before examining a patient is a behaviour linked to reducing infections. With
this in mind, it only makes sense that behaviours are driven by the systems we create. The
behaviour around structured problem-solving could be anything, from :-

• Writing out the actual problem in clear terms

• Graphically displaying the barriers
• Using a “fishbone” to identify root causes and so forth

We can drive those desired behaviours by creating a system made of literal items such as an A3
sheet of paper that requires a written problem statement and root causes, which would drive a
Kaizen event where teams can graphically denote the issues they are faced with.
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It comes down to the systems. Creating systems that drive a behaviour around structured
problem solving will create a culture of structured problem solving. Once you create this
specific culture you have the system to design a different culture or modify the existing culture
through the use of systems to drive behaviours."

1.4.4 The Seven Elements of Waste

Classic Wastes are looked as blockage against the productivity. In a highly competitive world, it is
not possible to enhance the top line by increasing the prices. Hence, it is necessary to build effective
systems and one of the ways is to understand the ‘wastages’ and eliminating them. Unlike the other
categories of work, unplanned work is recovery work, which almost always takes you away from
your goals. That’s why it’s so important to know where your unplanned work is coming from.

Muda

Muda refers to the wastage of unnecessary activities. Muda is said to occur when the time, money
and other resources of the organization is expensed without adding any value to the customer. The
best practice for recognizing Muda is to identify the activities in the process that needs to be
eliminated or at least reduced. Seven basic types of Mudas have been identified:

• Transportation
• Inventory
• Motion
o Bending
o Reaching
o Searching
• Waiting
• Over-processing
• Overproducing
• Defects

Overproduction:

This is the kind of wastage that occur when the production output is much more than the requirement
of the next process or customer. Overproduction is generally common when the manufacturer keeps
the mindset of ‘just in case’, but it leads to wastage of production time, resources, storage space,
and consider the case if the customer decides not to take the product, or the product spoils before
the actual delivery.

Inventory:

Inefficient planning of inventory and ordering either less or more of inventory further leads to
wastage. In case, extra materials are order, there may be a possibility of wastage due to changes
in product specifications, storage and handling. Similarly, under production leads to stopped
production and waiting!

Waiting:

Wastage of the operator time in avoidable events like failure of equipment, late arrival of necessary
tools, lack of trained staff, inefficient planning and idle machine time leads to wastage. These all
events leads to bottlenecks in time and hampers production, delay in delivery and even can cause
missing of important deadlines. Moreover, just imagine that you are paying people for sitting idle
and wait for things to fall in time.
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Defects:

Defects and broken parts add to the dissatisfaction among customers, and the company would be
busy solving problems, reworking and even paying off to the customers for the defects.

Motion:

Wastage due to unnecessary movement of parts and products between different processes and
places. It generally happens due to inefficient work processes, non- standardized procedures and
untrained staff.

Over- processing:

Unnecessary performance of any process due to design failure or usage of poor quality of tools and
processes. It leads to wastage of time, resources and energy to produce products, and are generally
results from unnecessary manufacturing steps, outdated processes and methods.

Transport & Handling:

This Muda can be observed in many activities, like shipping damage, packing material wastage,
inefficient utilization of space while loading trucks, inefficient motions of the staff while lifting and
handling materials and products.

Muri

Muri is the wastage caused due to overburdening your machines and staff. It causes stress and
pressure on your resources- both human and physical by placing unnecessary and unreasonable
demands on them. It should be noted that Muri even leads to Muda by adding non- value adding
steps within the process. Some of the instances of Muri include working on processes without proper
training, unclear instructions, lack of proper tools and equipment and poor communication tools.

It is highly essential to eliminate or at least reduce Muri. Remember that a ‘penny saved is better
than a penny earned’. When the company stresses its resources, it hampers the productivity and
finally impacts the bottom line adversely. Hence, it is extremely important to undertake all efforts in
order to establish efficient processes that help to maximize the yield without over-burdening the staff
and machinery.

Mura

Mura refers to a type of inconsistency or irregularity. This inconsistency can be witnessed in many
parts of a production system like material flows, uneven demands of the customer, fluctuating
inventory, inconsistent quality of goods produced, uneven training of staff, uneven distribution of
workflow and erratic work schedules.

Mura leads to accumulation of Muda, hampers the production schedules, inventory and other
wastages and adversely affects the profitability of the company.

Effects of Eliminating the Classic Wastes on Quality

Elimination of wastes like storage, transport, and handling all can help increase quality – even more
so than some improvements to standard work, like standard work sheets for example. Things like
set up reduction improve productivity and efficiency more than they do quality.
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1.4.5 The 5S

5S derives its name from five Japanese terms beginning with the “s” utilized to create a workplace
suited for visual control and lean production. Collectively, the 5S’s detail how to create a workplace
that is visibly organized, free of clutter, neatly arranged, and sparkling clean. The 5S system is often
a starting place for implementing lean operations. 5S in lean six- sigma is the approach that ensures
smart workspace organization- known as ‘Good Housekeeping’. In order to be high- performing, the
organizational workplace should be clean, which is guaranteed through 5S. The strategy is to
engage the frontline process teams to facilitate improvement and keep out the waste on a daily
basis. 5S not only helps to reduce the defects and waste but also maintains improvements over a
long term. The 5S signifies the five Japanese words that capture the actions that are built and
integrated to each other and must be conducted in a particular sequence. These words are
explained as under :-

1. Sort,
o Red tag all unnecessary items
2. Store | Straighten,
o On frequency of use
3. Shine,
o Clean the work area as well as inspect the machinery
▪ pick up trash and sweep the floor is part of this, but not the complete answer
▪ The 3 phases of shine are:
▪ Daily cleanliness
▪ Cleanliness inspections
▪ Cleanliness maintenance
4. Standardize (Hard)
5. Sustain (Hard)

These above activities are to be done in order

Sort

This is the first step towards good housekeeping, and the operator must revisit all the material,
equipment, machinery, tools and other resources to determine the requirement on the workplace.
The resources that is required for the process needs to be retained while the others need to be
returned at the right department or scrapped, recycled or sold after seeking proper authority.

Straighten (or store)

Once the essential resources are retained and others are got rid from, a unique place for each and
every tool and equipment should be made. This will help the staff to know where to search for what.
Also, once a resource is or about to get replenished, the same can be sourced without the waste of
time.

Sweep (Or Shine)

The worksite should be cleaned on a daily basis such that the right order for all the things is
maintained. This will also foster positive attitude and increased productivity throughout the
workplace. This in turn will lead to better safety, improved ability to detect defects and wastes.
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Standardize

All the worksites should be made consistent in all manners. Organizing and standardizing the
worksite helps manage change effectively. Suppose a worker shifts from one worksite to another,
standardizing the worksites will help the worker learn the new processes without wasting time and
efforts. The productivity can be enhanced multi- fold by standardizing the workplaces.

Sustain

This ‘S’ means facilitating training and discipline such that the entire organization follows the initial
4S. This will help to develop an improvement-oriented culture of the organization. A proper schedule
should be maintained such that everyone follows the other S simultaneously. Moreover, it should be
noted that implementing the 5S should be the responsibility of every member of the organization.

Question: Which of the following techniques would help increase process stability when the cause
of variation is a cluttered work station?

(A) 5S
(B) SMED
(C) Preventive maintenance
(D) Visual factory

Answer: 5S. The phrase cluttered workstation should be the tip off to the answer. Using 5 S to
standardize – for example – putting all of the tools in the right place would eliminate variation. SMED,
or Single Minute Exchange of Die, is a manufacturing term for reducing cycle time of casting parts
and is not applicable. Preventive maintenance indicates taking care of tools to ensure their operating
efficiency, so that’s not a great answer. Visual factory could work but 5S is clearly the best choice.