Introduction to Six Sigma

Business Process Improvement through Six Sigma

Max Zornada (2005)

Slide 1

What is Six Sigma?

Six Sigma is a statistical measure of quality:

It is based on rigourous process based performance measures. Six Sigma is a generic structured methodology for continuous improvement, that can be used to improve any process in any business. Six Sigma changes the way organisations work and the way they think.

A Process for Continuous Improvement:

An Enabler of Cultural Change:

A disciplined process focussed on delivering near perfect products and services.

Max Zornada (2005) Slide 2

Six Sigma: A Definition

A comprehensive and flexible system for achieving, sustaining and maximising business success. Six Sigma is uniquely driven by close understanding of customer needs, disciplined use of facts, data and statistical analysis, and diligent attention to managing, improving and reinventing business processes.
The Six Sigma Way, by Pande, Newman and Cavanaugh

Max Zornada (2005)

Slide 3

Six Sigma is a measure of excellence

Six Sigma is a statistical measure of quality, which reflects process capability; It set the goal of achieving capability levels of 3.4 defects per million opportunities. Focuses on driving out variation in business processes - this is what the customer feels! Sigma is the Greek symbol used for Standard Deviation of a population. Why Six Sigma?

Max Zornada (2005)

Slide 4

A 6 Sigma Process
Customer target
Lower Specification Limit Upper Specification Limit

0.00017% 1.7 ppm

0.00017% 1.7 ppm

6s 6s = 99.7966% of data inside the limits (Cp = 2) 0.00034% of points will be outside of the specification limits ie. defects (= 3.4 parts per million out of spec.)
Max Zornada (2005) Slide 5

Relating Sigma to Defect Levels

DPMO (Defects Per Million Opportunities) Six Sigma Five Sigma Four Sigma Three Sigma 3.4 233 6,210 66,810 Error Free Rate 99.9997% 99.977% 99.4% 93%

Two Sigma
One Sigma

308,500
691,500
Max Zornada (2005)

69%
31%
Slide 6
9

Putting Six Sigma in Perspective!

If you played 100 rounds of golf per year, and played at:
2 sigma - you'd miss 6 putts per round 3 sigma - you'd miss 1 putt per round 4 sigma - you'd miss 1 putt every 9 rounds 5 sigma - you'd miss 1 putt every 2.33 years 6 sigma - you'd miss 1 putt every 163 years!

Max Zornada (2005)

Slide 7

History of Six Sigma

1985 1987
1990 Allied Signal introduces its Six Sigma program 1995 2000

Motorola launches its Six Sigma program

GE introduces its Six Sigma program and adds the D in DMAIC

GE - All 300,000+ GE employees must be Six Sigma certified. All new GE products developed using the Design for Six Sigma approach. 3M - CEO (from GE) requires all employees to become Six Sigma certified.

Who Else? Dupont, 3M, Sun Microsystems, Raytheon, Boeing, LockheedMartin, Bank-of-America, American Express, HSBC, SAS Institute the list keeps growing every day.
Slide 8

Max Zornada (2005)

Six Sigma at Dupont

Many companies consider productivity to be a cost-saving operational issue. We at DuPont have elevated productivity to the strategic level because we believe that it is central to our efforts in sustainability. As a sign of our commitment in this area, we have adopted six-sigma methodology, a stringent approach that strives to reduce manufacturing defects to just several per million. At the end of last year, we had 1,100 black belts and 1,700 green belts (employees who have undergone weeks of training in the six-sigma methodology) working on 4,200 projects. In one of them, DuPont was able to increase the production rate of its plant in Buffalo, New York, by 10% without any capital investments. The result: $26 million in additional revenue last year. This number might not seem huge for a company with $30 billion in sales, but DuPont has thousands of such projects, and we are adding 200 new ones each month. Altogether, our projects using six-sigma methodology are responsible for savings of more than $1 billion a year.
Source: Holliday, C. (2001). Sustainable growth the DuPont way. Harvard Business Review, Sept, pp 132

Max Zornada (2005)

Slide 9

Bottom Line Impact of Six Sigma

In dollar amounts, Six Sigma delivered more than $300 million to GEs 1997 operating income and more than $600 million in 1998; Raytheon - Six Sigma has generated a net benefit of $776 million for 1999-2003; Honeywell:

1998--$500 Million 1999--$600 Million 2000--$700 Million+

Max Zornada (2005)

Slide 10

Six Sigma in the Services Sector

Sustaining the intensity of our Six Sigma work is critical for Bank of America to achieve its strategic goals. Six Sigma has enabled us to generate more than $300MM in first-year productivity gains for the company. It has also had a significant impact upon the leadership team with our personal education and certification as Six Sigma Green Belts. As we look to the future, our leadership charge is to keep Six Sigma a top priority and use it to produce organic customer revenue growth. - Ken Lewis (10/9/02) Failing to implement Six Sigma in commercial areas with the same force that the company implemented it in its industrial sectors cost Motorola $5 billion over a four-year period.
Max Zornada (2005) Slide 11

A Timeline of Key Events leading up to Six Sigma

Shewhart's studies into variation at Bell Telephone Labs Shewhart publishes book, "Economic Control of Quality of Manufactured Product Widespread adoption of Shewhart's principles for War-time Production in the US Ishikawa develops Ishikawa diagram and pioneers use of 7-tools Widespread abandonment of Shewhart's principles in Post-War US. Deming teaches Shewhart principles to Japanese Deming develops management philosophy based on Shewhart concepts own ideas Japanese extend Deming's teachings, develop the "Total Quality concept
USA starts to copy Japan, called TQC (Total Quality Control) eventually the term TQM (Total Quality Management) is used as the label. Renewed focus on Process Management

1920's 1931 1940's 1943 1950

1960 1970

1980

1990

1994

1996

2000 2002

US discovers Deming Rapid spread TQM principles to US service industries Pacific basin countries, excluding Australia commence adopting TQM Western Europe discovers TQM Australian services sector copies US with adoption of TQM Australian manufacturing commences with TQM Developing countries rapidly adopting TQM

6-sigma goes mainstream Widespread emergence of Balanced Scorecard Organisational learning emerging as a key competitive issue Team based approaches to work gaining broad acceptance in industry Business Process Reengineering Benchmarking emerges as a supporting practice Max Zornada (2005) Slide 12

Key Elements of Six Sigma

Process Orientation Customer Focus Y = f(X) Data and Measurement Driven Focus on Variation Reduction Statistical Rigour Project Orientation The DMAIC Process Improvement/Problem Solving Process Dedicated Personnel Bottom Line Results Focussed Data Driven Culture (In God we trust, all others bring Data)
Max Zornada (2005) Slide 13

The Six Sigma Approach DMAIC

Control by standardising solution and monitoring performance.
Define the problem or opportunity. Control Define

Improve by implementing potential solutions.

Improve

6s Measure

Analyse

Measure the current performance and capability

Analyse to identify root causes.

Max Zornada (2005) Slide 14

The Role of Statistics in Six Sigma

Statistical Control
Control Define

Practical Problem

Improve

6s Measure
Statistical Problem

Statistical Solution

Analyse

Practical Solution
Max Zornada (2005) Slide 15

Six Sigma Support Structure

Champions: Business leaders who lead the implementation of Six Sigma within the business; Sponsors/Process Owners: Business leaders responsible for the implementation of process improvements and monitoring process performance; Master Black Belts: Fully trained quality leaders responsible for Six Sigma strategy, training, mentoring, deployment and results; Black Belts: Fully trained Six Sigma experts who lead improvement teams, work on Six Sigma projects and mentor Green belts; Green Belts: Fully trained individuals who apply Six Sigma skills to improvement projects; Team Members: (Yellow Belts) Individuals who support projects in their areas.
Max Zornada (2005) Slide 16

Implementing Six Sigma

Strategic Level Executive Steering Committee Master Black Belts Tactical Level Champions Black Belts Team Members Stakeholders Operational Level Green Belts Yellow Belts
Max Zornada (2005) Slide 17

Relationship between Quality, Market Share and ROI - The Business Case for Six Sigma
38 Return on Investment (ROI) % 27 20 29

20
21 13 14 Superior

7
Low 25% 60% High 33 % Inferior

67%

Relative Quality

Relative Market Share

Source: Buzzell, R.D. & Gales, B.T. (1987) The PIMS Principles

Max Zornada (2005)

Slide 18

Six Sigma Competitive Advantage

Revenue Products & Services External Quality Internal Quality Processes & People Operating Costs

Market Share
Customer Satisfaction Economies of Scale

Improve Quality Capital Costs

Higher Profit Higher ROI

Max Zornada (2005)

Slide 19

How did leaders become leaders

A accumulation of competencies

Flexibility Cost Delivery

Control Improve Define

6s Measure

Quality Six Sigma provides the on-ramp and the mechanism to progress up the steps.
Nakane and Hall (1994)
Max Zornada (2005) Slide 20

Analyse

In god we trust, all others bring data. Grade your organisation on its use of data

Our organisation uses only tribal knowledge i.e. people experience and the way we do things around here. We do not use data. Our organisation collects data so as to say we collect data but the data is not used. Our organisation collects data and we sometimes look at the numbers and use them to support problem solving and decision making. Our organisation logically groups the data. We report it in the form of charts. Our organisation uses sample data along with basic statistics. Our organisation uses sample data along with inferential statistics. Our organisation quantifies processes via predictive equations.

F
E D C B A A+

Max Zornada (2005)

Slide 21

Conclusion of introduction

Max Zornada (2005)

Slide 22