Production & Operations Management Jonathan Butt Greg Cake Subir Roy July 26, 2005

1. Six Sigma: Production & Operations Management Jonathan Butt Greg Cake Subir Roy July 26, 2005

2. What is Six Sigma? • Statistically-based process improvement methodology which aims to reduce defects to a rate of 3.4 per million opportunities. • This reduction is achieved by identifying & eliminating variation in process. • Through defining “defects” the Six Sigma process focuses on customer requirements, and thus is very customer orientated. • Fundamental methodology of Six Sigma is based on “DMAIC” an acronym: Define, Measure, Analyze, Improve, & Control. • Six Sigma is not a quality management system, or quality certification system like ISO-9001. • The focus on defects is shifted from checking products for defects to improving the process so that defects do not occur.

3. Key Concepts of Six Sigma • At it’s core, Six Sigma revolves around a few key concepts: Critical to Quality (CTQ): The attributes most important to the customer. Defect: Failing to deliver what the customer wants. Process Capability: What your process can deliver. Variation: What the customer sees & feels. Stable Operations: Ensuring consistent, predictable processes to improve variation. Design for Six Sigma (DFSS): Designing to meet customer needs and process capability.

4. Origins of Six Sigma • Credited to Bill Smith a reliability engineer at Motorola, who noted system failure rates were quite higher than predicted by final product testing. • Smith blamed dramatic increases in system complexity & the resulting opportunities for failure as well as a fundamental flaw in traditional quality thinking. • However many other quality “gurus” also made presentations to upper management at Motorola around the same time, and conflicting information arises about who actually developed this philosophy first.

5. Why Sigma? • The concept of Six Sigma relates to the fundamental statistical concept of deviation, which is noted by the Greek letter sigma (σ). • The deviation by which a product’s quality could fluctuate during production and still be of acceptable quality at the time was 3σ, or just over 66 000 defects per million (6.68%) • At Motorola during this period the design margin for quality had been 4σ, which was considerably better at 0.621%. • Sometime in 1986 Smith realized that actual quality figures at Motorola did not match the 4σ deviation for quality, and theorized that the real mean value could be differing by as much as 1.5σ because of increasing complexity in systems and the higher probability of one of these many components to be substandard.

6. All these deviation values basically led to a goal of 6σ or 3.4 defects per million opportunities. • With a four sigma standard for quality Hospital: 5,000 incorrect surgical procedures per week. Air travel: Two short or long landings at every major airport every day. Drug Prescriptions: 200 000 wrong prescriptions every year. Downtime: 54 hours of system downtime per year. Golf: One missed putt every nine rounds. • Lets compare with six sigma quality standards Hospital: 1.7 incorrect surgical procedures per week. Air travel: a short or long landing at every major airport once every five years. Drug Prescriptions: 68 wrong prescriptions every year. Downtime: 2 minutes of system downtime per year. Golf: One missed putt every 163 years.

7. Because of this increased focus on reliability, Motorola received the Malcolm Baldrige Award shortly after the rollout of Six Sigma in 1988. • Receiving this award required Motorola to share it’s methods with colleagues, and showed Motorola’s quality professionals how far ahead they were with respect to their competitors. • At this point Mikel Harry developed the strategic vision for Six Sigma. His basic ideals were: • A change in company focus towards preventing defects, not inspecting for them. • Anchoring quality by dollars (increased spending). • Finally seeking a whole business transformation. This vision included the description of difference competence levels in Six Sigma and based on the traditions of karate, were designated by belts: • Green Belt • Black Belt • Master Black Belt

8. Six Sigma & Belts • Developed as a core initiative of the Six Sigma program, the concept shows the skills and dedication to the methodology of quality, and is designed to instill pride in the six sigma workforce. The six sigma workforce is broken down into different organizational groups. • Champion: These individuals are high-level executives with great understanding of the methodology and are committed to the success of the program. In all organizations the program will be led by a full time champion who uses six sigma in everyday work & communicates the merits of six sigma at every opportunity.

9. Sponsor: The owner of the process who helps to initiate and coordinate improvement activities in their area of responsibility. • Master Black Belt: Highest level of technical & organizational proficiency. These individuals provide technical leadership to the program, as well as provide most of the training. Because of this communications & teaching skills are as important as technical competence. • Black Belt: A technically minded individual with a strong background in college level mathematics & statistics. The Black Belt provides much of the quantitative analysis involved in the daily six sigma project. • Green Belt: Six Sigma project leader, capable of facilitating six sigma teams & projects from conception to completion. Training for green belts in much less than Black, with emphasis on project management, and quality control. These individuals are not employed full time on six sigma projects. • A mature six sigma program has around 1 Master Black Belt for every 1000 employees, a Black Belt completes from 5 to 7 projects a year.

10. Themes In order for a company to be successful in Six Sigma development the following “themes” must become second nature: • Continuous focus on customer requirements. • Use of measurements & statistics to identify and measure variation in the process of interest. • Identifying root causes of problems. • Process improvements to remove variation and thus lower defects. • Pro-active management focusing on problem prevention, continuous improvement & ever constant strive for perfection. • Cross-functional collaboration within the organization. • Setting very high goals.

11. Who uses Six Sigma? • Surveys undertaken in the US in the first half of this decade by a number of firms show larger use of six sigma than one might imagine. • Also, company size is not a determining factor in six sigma use. The highest percentage of survey’d respondents with six sigma programs in use, were those with 1000 or less employees Company Size and Percentages with Six Sigma Note: QD – Quality Digest Magazine, The Dyncorp percentages do not add to 100 because all respondents were used in tabulating results, QD numbers are only respondents who have a six sigma program in place. QD refers to the number of employees as all persons in the employ of the company, Dyncorp does not specify how the number of employee values were determined.

12. Along with the wide variety in the size of companies with six sigma programs, there are also many companies who have been on board the six sigma philosophy for a number of years. Length of Time Six Sigma Has Been in Place Note: QD – Quality Digest. QD numbers total 100%, The Dyncorp percentages do not add to 100 because all respondents were used in tabulating results, QD numbers are only respondents who have a six sigma program in place.

13. While six sigma is most commonly used in manufacturing processes, the same methodology can be used to improve other business processes. It can be used to: • Identify ways to increase production capacities in equipment. • Improve on time delivery. • Reduce cycle time for hiring & training new employees. • Reduce quality or delivery problems with suppliers. • Improve logistics. • Improve quality of customer service. • Almost 50% of all American manufacturing companies have a six sigma program in place, while just under 40% of service companies have implemented a program. • Also, within a business different functional groups also use six sigma, the following chart shows results from the same Quality Digest survey

15. Why use Six Sigma? Since the Six Sigma philosophy focuses on defects, it would be obvious that it can reduce production times, but six sigma can be used for much more • Through reduction in defects, a six sigma program can reduce overhead costs. Since nearly every product produced is of prescribed quality, inventories can be reduced. • WIP and cycle times can be reduced. • Managers are freed from the process. With vastly improved product quality managers no longer have to spend time “problem solving” • Six Sigma will increase customer satisfaction, less defects means more people who get what they wanted the first time. • Six Sigma companies have shown greater ease of expansion. Because of the emphasis placed on quality and the problem solving skills required to achieve that quality, these companies recover from the initial setbacks of a new process quicker.

16. Six Sigma transforms the way a company thinks and works on major business issues - Process design: Designed to have the best and most consistent outcome from the beginning. - Analysis & reasoning: Using facts to find root cause, instead of educated guesses & intuition. - Focus on process improvement as a key to excellence in quality. - Broader participation in problem solving. - Goal setting: aiming at stretch goals, not “good enough” targets. This ensures the company is always striving for improvement. - Suppliers are no longer evaluated on cost, instead evaluated on relative capability to consistently provide quality materials with short lead times.

17. DMAIC Roadmap • DMAIC methodology is central to Six Sigma process improvement projects. Each phase provides a problem solving process where-by specific tools are employed to turn a practical problem into a statistical problem, then generate a statistical solution and turn it back into a practical solution. • Each letter represents a phase in six sigma implementation, from the initial project design to ensuring the benefits gained using this system stay implemented. • The DMAIC roadmap is usually implemented for a process that is underperforming, not a process in the design stage.

18. D: Define • The purpose of the define phase is to clearly identify the problem, the requirements of the project, or it’s objectives. These should be critical issues and aligned with the company business strategy, and the customer requirements. • This phase includes: • Development of defect definitions • Development of a team charter and a champion • Estimate the financial impact of the project • Senior management approval

19. Key Questions for the Define phase • What matters to the customer? • What defect are we trying to reduce? • By how much? • By when? • How much are defects costing right now? • Who will be in the project team? • Who is going to support this project implementation? • At this point in implementation, visual charts (pareto, trend, process flow,) are useful to see the development of defects.

20. M: Measure • The purpose of the measure phase is to fully understand the process and it’s current performance by identifying how to best measure performance. These measurements must be realistic as well as useful, in order to provide help in reducing defects. • This phase includes • Identifying specific performance requirements of relevant critical-to-quality (CTQ) characteristics • Mapping of relevant processes, with all inputs that effect a particular output identified. • Analyze measurement system capability & establish relevant baseline for process capacity • Collect data (ensuring opportunities for error are evaluated) • Verify the problem actually exists

21. Key Questions for the Measure phase • What is the process? How does it function? • Which outputs effect CTQ the most? • Which inputs effect outputs the most? • Is the ability to measure/detect sufficient? • How is the current process performing? • What is the “best” the process was designed to do? • At this point fishbone diagrams, process mapping and cause and effect analysis are useful tools.

22. A: Analyze • In the analyze phase, the information collected in the measure phase is analyzed. Hypotheses on root cause of variations in measured values are developed. Statistical analysis is undertaken to validate these hypotheses. • This phase includes: • Generation of hypotheses about possible root causes of variation & potential critical inputs. • Identify the vital root causes and critical inputs that have the most significant impact. • Validate these hypotheses by performing multivariable statistical analysis.

23. Key Questions for the Analyze phase • Which inputs actually affect CTQ’s most (based on actual data)? • By how much? • Do combinations of variables affect inputs? • If an input is changed, does the output really change in the desired way? • How many observations are required to draw conclusions? • What is the level of confidence? • At this point in the process, statistical analysis, as well as the “five why’s” are useful tools.

24. I: Improve • The improve phase focuses on developing ideas to remove root causes of variation, testing & standardizing these solutions. • This phase includes: • Identifying ways of removing causes of variation. • Verify critical inputs. • Discover relationships between variables. • Establish operating tolerances which are upper and lower specifications. of the process, and if followed precisely will ensure “defect free” products. • Optimize critical inputs or reconfigure the current process.

25. Key Questions for the Improve phase • Once it is known which inputs affect the outputs most, how can they be controlled? • How many trials do we need to ensure optimal settings have been achieved? • Should the old process be improved, or should a new process be designed? • By how much has the defects per million opportunities decreased? • The most applicable tool at this phase is process mapping to show new & improved processes.

26. C: Control • The control phase aims to establish standard measures to maintain performance & to correct problems as needed, including those with the measurement system. • This phase includes: • The validation of measuring systems. • Validation of long term capability. • Implementation of process control with a plan to ensure problems don’t reoccur.

27. Key Questions for the Control phase • Once defects have been reduced, how to ensure the improvement is sustained? • What systems need to be in place to check that the improved procedures stay implemented? • How can these improvements be shared with the rest of the company? • During the control phase, a standardized set of documents for procedures, as well as a means to record data and check it against historical values are important tools.

28. So you want to implement Six Sigma? • Although the results of a six sigma project are highly desirable by most companies, the implementation process must be carefully considered. Six Sigma is a long term commitment, and will not produce results overnight. • To build six sigma capacity requires the following steps: • Discover: recognize the need for six sigma & explore the impact it may have on the company. • Decide: management approves the initiative, then defines purpose & scope. • Initialize: create detailed deployment plans for numbers of Black Belts, as well as other human resources needed, training requirements, proposals for 6σ projects and the financial impact of each. • Deploy: train project Champions & Black Belts. Meanwhile select and implement improvement projects: • Sustain: train 6σ Green Belts & process improvement team leaders to speed up improvements & maintain acheivements.

29. Factors Critical to Six Sigma Success • Senior management must be committed: without this six sigma projects are doomed to failure. GE’s success with the program is due to the role Jack Welch (former CEO) played in advocating the program and integrating it into the core of business strategy at GE. • Training the right people: The methods of analysis often used for six sigma projects are technical by nature, and training programs focused on analytical problem solving skills as well as leadership are critical to initial momentum. People selected for a six sigma initiative should be motivated by compensation, rewards, recognition & promotion. • Selecting the right project: Initial six sigma projects should be focused on key problem areas with impact to critical aspects of business success. Not all business problems need a six sigma solution.