Introduction to Six Sigma Business Process Improvement through

Introduction to Six Sigma Business Process Improvement through Six Sigma © Max Zornada (2005) 1

What is Six Sigma? l Six Sigma is a statistical measure of quality: l l A Process for Continuous Improvement: l l Six Sigma is a “generic” structured methodology for continuous improvement, that can be used to improve any process in any business. An Enabler of Cultural Change: l l It is based on rigourous process based performance measures. Six Sigma changes the way organisations work and the way they think. A disciplined process focussed on delivering near perfect products and services. © Max Zornada (2005) 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) 3

Six Sigma is a measure of excellence l l l 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) 4

A 6 Sigma Process Lower Specification Limit Customer target Upper Specification Limit 0. 00017% 1. 7 ppm 6 6 = 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) 5

Relating Sigma to Defect Levels DPMO (Defects Per Million Opportunities) Error Free Rate Six Sigma 3. 4 99. 9997% Five Sigma 233 99. 977% Four Sigma 6, 210 99. 4% Three Sigma 66, 810 93% Two Sigma 308, 500 69% One Sigma 691, 500 31% © Max Zornada (2005) 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) 7

History of Six Sigma 1985 1987 Allied Signal introduces its Six Sigma program 1995 1990 GE introduces its Six Sigma program and adds the “D” in DMAIC Motorola launches its Six Sigma program l l GE - All 300, 000+ GE employees must be Six Sigma certified. All new GE products developed using the “Design for Six Sigma” approach. 3 M - CEO (from GE) requires all employees to become Six Sigma certified. 2000 l Who Else? Dupont, 3 M, Sun Microsystems, Raytheon, Boeing, Lockheed. Martin, Bank-of-America, American Express, HSBC, SAS Institute … the list keeps growing every day. © Max Zornada (2005) 8

Six Sigma at Dupont Many companies consider productivity to be a cost-saving operational issue. We at Du. Pont 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, Du. Pont 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 Du. Pont 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 Du. Pont way. Harvard Business Review, Sept, pp 132 © Max Zornada (2005) 9

Bottom Line Impact of Six Sigma l l l In dollar amounts, Six Sigma delivered more than $300 million to GE’s 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: l l l 1998 --$500 Million 1999 --$600 Million 2000 --$700 Million+ © Max Zornada (2005) 10

Six Sigma in the Services Sector l l “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 $300 MM 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) 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 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 1994 1996 2000 2002 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) 12

Key Elements of Six Sigma l l l 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) 13

The Six Sigma Approach DMAIC Control by standardising solution and monitoring performance. Improve by implementing potential solutions. Define the problem or opportunity. Control Improve Define 6 Measure Analyse Measure the current performance and capability Analyse to identify root causes. © Max Zornada (2005) 14

The Role of Statistics in Six Sigma Practical Problem Statistical Control Improve Statistical Solution Define 6 Measure Analyse Statistical Problem Practical Solution © Max Zornada (2005) 15

Six Sigma Support Structure l l l 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) 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) 17

Relationship between Quality, Market Share and ROI - The Business Case for Six Sigma 38 Return on Investment (ROI) % 27 29 20 20 13 21 14 Superior 7 Low 67% 25% 60% High 33 % Inferior Relative Quality Relative Market Share Source: Buzzell, R. D. & Gales, B. T. (1987) The PIMS Principles © Max Zornada (2005) 18

Six Sigma Competitive Advantage Revenue Products & Services Improve Quality Capital Costs Market Share Customer Satisfaction External Quality Internal Quality Processes & People Economies of Scale Operating Costs Higher Profit Higher ROI © Max Zornada (2005) 19

How did leaders become leaders …… A accumulation of competencies Flexibility Cost Delivery Control Define 6 Measure Improve Quality Analyse Six Sigma provides the on-ramp and the mechanism to progress up the steps. Nakane and Hall (1994) © Max Zornada (2005) 20

In god we trust, all others bring data. Grade your organisation on its use of data l l l l 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. © Max Zornada (2005) F E D C B A A+ 21