An Introduction to Process Improvement

1. An Introduction to Process Improvement “85% of the reasons for failure to meet customer requirements are related to deficiencies in systems and processes…rather than the employee. The role of management is to change the process rather than badgering individuals to do better.” - W. Edwards Deming (1900 -1993) Six Sigma Simplicity

2. Agenda • What is Lean Six Sigma? • Why are we using it? • How are we deploying it? • L6S Roles and Responsibilities • DMAIC phases Six Sigma Simplicity

3. History of Lean Six Sigma • Began in 1979 at Motorola – Art Sundry at a management meeting – “The real problem at Motorola is that our quality stinks” • Initiative was designed to help a business anticipate problems, not just react to them (Saved $2.2 billion over 4 years with Six Sigma) • Lean began with Ford – then Toyota – emphasis was on improving efficiency by optimizing flow – based on Toyota Production System • In the 1980’s it was named “Lean Production” because of the focus on removing waste • In the late 1990’s Allied Signal and Maytag independently developed curriculum including aspects of Lean and Six Sigma • The goal of combining these programs was to reduce waste and cost while improving quality Six Sigma Simplicity

4. Who Has Used Lean Six Sigma? • GE – operating margin improvement of 16.7% in 3 years • Allied Signal - $2 billion in cost savings in 5 years • Raytheon - $1 billion annually • Motorola - $500 million annually • Caterpillar - revenue grown of 80% in 4 years • Other examples: • Amazon.com • Bank of America • GIECO • Chase • CSX • Thousands more… Six Sigma Simplicity

5. Common Objections to Lean Six Sigma • Just another flavor of the month – here today, gone tomorrow • Too costly to implement • Not effective – have heard horror stories • It can be done without a formal program or structure • It’s another way to reduce headcount • It’s only theory Six Sigma Simplicity

6. Top Ten Ways Lean Six Sigma Programs Fail • Make sure senior management is only lightly involved • Choose the least-experienced employees to become ‘Black Belts’ • Select a Lean Six Sigma training company based on cost, not credentials (in other words, skimp on training) • Select projects that are not aligned with your core business strategy • Select very low-value, low-impact projects • Assign projects then forget about them • Provide everyone in the company with Six Sigma awareness training, then walk away • Think of Lean Six Sigma as a collection of projects rather than business transformation efforts • Expect results in short periods of time – patience is a virtue • Only expect operational improvements – customers may or may not ever feel the improvements Six Sigma Simplicity

7. What is Lean? • Lean concepts came from the Toyota Production System, translated through teachings of Ohno and Shingo • The goal of Lean is to: • Eliminate waste (muda) such that you are only doing value added work • Value added is defined as: • Customer recognizes the value (willing to pay for it) • Changes the product in a desired manner • Processes that are done right the first time Six Sigma Simplicity

8. What is Six Sigma ()? • Sigma is a letter in the Greek Alphabet • Sigma is a symbol which shows the degree of variation in a process (standard deviation) • The goal of a Six Sigma capable process is to: • Minimize variation • Center the process • The degree of acceptable variation in a process depends on knowing the target. How close are you to meeting your target? Do you know where your target is? Six Sigma Simplicity

9. Why Combine Lean and Six Sigma? • Simple: • Common Sense • Reduction of waste • Reduction of variation • Reduced operating costs • Complex: • Vision & strategic approach • Methodology that aligns improvements to strategic objectives & utilizes aggressive goal-setting to drive real bottom-line financial improvement • Tool for: customer focus, continuous improvement, people involvement, operational excellence Six Sigma Simplicity

10. What Lean Six Sigma Is / Isn’t • What it isn’t • A here today/ gone tomorrow approach • The only way to solve a problem • Only applicable in manufacturing industry • What it is • A data-driven methodology focused on bottom-line results • A methodology focused on driving out waste and variation to improve efficiency • Culture focus on optimization • Structured approach to what we’re already doing Six Sigma Simplicity

11. It’s About Changing Mentality / Mindset • Traditional way of thinking • Problem = Trial and Error Solution • This way can be painful, and is not always based on fact, leading to unforeseen consequences • No view of upstream or downstream impacts • Lean Six Sigma way of thinking • Practical Problem translated to a statistical problem, which is solved by a statistical solution, and then translated to a practical solution • Data-driven solutions that have long-lasting and meaningful impact to problems Six Sigma Simplicity

12. Lean Six Sigma Way of Thinking (Stevedoring) Vessel Start times are slower than expected Practical Problem Reduce vessel start times from 24 minutes to 15 minutes Statistical Problem The assignment of the first move is statistically significant to vessel start times Statistical Solution First move for UTRs given at gate entrance, instead of at vessel Practical Solution Six Sigma Simplicity

13. Types of Problems You Will Normally Solve Simple Complex Decision-Making Growth Path Intuition, gut feel, I think … We have Raw Data and look at it. We make graphs/charts of the data. We use advanced statistical tools to evaluate the data. Changing the Decision-Making Processes How many times have you heard this? “I feel the problem is…” Six Sigma Simplicity

14. Lean Six Sigma Focus • Removal of waste to reduce time to execute processes • Improving performance by flawless execution • Achieving rapid breakthrough improvement • Applying advanced breakthrough tools that work • Making a positive and deep cultural change • Ultimately – “Getting Real Financial Results” Six Sigma Simplicity

15. Agenda • What is Lean Six Sigma? • Why are we using it? • How are we deploying it? • L6S Roles and Responsibilities • DMAIC phases Six Sigma Simplicity

16. Why now? Burning Platform • The slow-moving economy is keeping volumes low • In some regions, market share is shrinking compared to our competition • Market competition is driving down rates • Increased pressure from union’s are driving up labor costs • Customer wants things performed faster Six Sigma Simplicity

17. Why we are doing this… • Reduce daily firefighting, increase in strategic-thinking • Improve profitability of business unit through more targeted projects • Provide management tools that can be applied at all levels of the business • Create a continuous improvement business culture • Identify a baseline for future improvements Six Sigma Simplicity

18. Why we are doing this… (cont’d) • Increase data exchange and communication between Management/ Operations/ Shared Service Center… It’s a Team Sport ! • Support your business to succeed and ultimately… Save / Make Money ! Six Sigma Simplicity

19. What does it mean to implement Lean Six Sigma? • Setting clear expectations for breakthrough in business execution • Achieving excellence through process characterization, optimization, and control • Creating a “One Company” approach to drive performance breakthroughs • Same roadmap • Same tools • Same language • Driving improvement from facts Six Sigma Simplicity

20. Our Common Enemy • Variation • Common cause • Is present in every process • Is produced by the process itself (the way we do business) • Special cause • Unpredictable • Caused by unique disturbances or a series of them • Waste • The 7 types of waste: • Defects, Over-production, Transportation, Waiting, Inventory, Motion, Processing • Waste is so often right in front of us that we don’t always see it! Six Sigma Simplicity

21. Prevention Costs Education and training Safety Controlling processes Appraisal Costs Incoming inspection Maintenance and calibration of equipment Process audits Internal Failure Incorrect gate transactions Wrong boxes out gate Rework Re-inspection Late Start Times External Failures Processing customer inquiries Incurring penalties/claims Lost sales Business Impacts of Variability Six Sigma Simplicity

22. Statistical Measures of Distribution • Measures of the Center of Data • Mean: Arithmetic average of a set of values • Median: Reflects the 50% rank - the center number after a set of numbers has been sorted • Measures of the Spread of Data • Range: the distance between the extreme values of a data set (Highest - Lowest) • Variance( ): the Average Squared Deviation of each data point from the Mean • Standard Deviation ( ): the Square Root of the Variance   Six Sigma Simplicity

23. Distribution Shape: Normal • The Normal Distribution is a distribution which has certain consistent properties • These properties are very useful in our understanding of the characteristics of the underlying system from which the data were obtained • Many natural phenomena and most processes can be adequately represented by a normal distribution Six Sigma Simplicity

24. Distribution 1 Distribution 2 Distribution 3 The Normal Distribution • Property 1: A normal distribution can be described completely by knowing only the : • mean and standard deviation What is the difference between these normal distributions? Six Sigma Simplicity

25. The Normal Curve and Probability Areas • Property 2: The area under the curve can be used to estimate the probability of certain “events” occurring Cumulative probability of obtaining a value between two values 68% 40% 30% 95% Frequency 20% 99.7% 10% 0% - 4 - 3 - 2 - 1 0 1 2 3 4 # of standard deviations from the mean Six Sigma Simplicity

26. LSL USL Taking 6 Sigma One Step Further • Compares the Voice of the Process to the Voice of the Customer • Upper Spec Limit (USL) & Lower Spec Limit (LSL) come from the Customer Voice of The Process Voice of The Customer Six Sigma Simplicity

27. Material / Component Variation Measurement Variation Process Variation Environment LSL USL Waste/defects resulting in additional cost Process Distribution Dissecting Capability Six Sigma Simplicity

28. L o w e r S p e c U p p e r S p e c 3 Sigma Process s s s s s s Six Sigma Simplicity

29. Recall: this is 3 Sigma Capability 6 Sigma Capability (in Red) Lower Spec Upper Spec s s s s s s s s s s s s Six Sigma Simplicity

30. Lower Spec. Limit Upper Spec. Limit 3 Sigma 0 . 4 0 . 3 0 . 2 0 . 1 0 . 0 - 4 - 3 - 2 - 1 0 1 2 3 4 Visualizing – Which is Better? Why? Lower Spec Limit Upper Spec. Limit 6 Sigma 0 . 4 0 . 3 0 . 2 0 . 1 0 . 0 - 8 - 6 - 4 - 2 0 2 4 6 8 Six Sigma Simplicity

31. Terminal X - Vessel Start Capability (Before) Six Sigma Simplicity

32. Terminal X - Vessel Start Capability (After) Six Sigma Simplicity

33. Waste • Goal - Eliminate downtime (waste) such that you are only doing value added work • The common types of waste: • Defects - incorrect data entry, inspection • Over production - preparing extra reports, reports not acted upon, multiple copies in data storage • Waiting - processing monthly not as the work comes in (i. e. closings, billings, collections) • Non-utilized resources • Transportation - extra steps in the process, distance traveled (equip.) • Inventory - transactions not processed • Motion - extra steps, travel from office to office / desk to desk, extra data entry... • ExcessProcessing – redundant work, multiple sign-offs, multiple inspections Six Sigma Simplicity

34. Layout (distance) Long set-up times Incapable processes Poor maintenance Poor work methods Lack of training Lack of adherence Poor supervisory skills Ineffective scheduling Inconsistent performance measures Dies-Functional organization Excessive controls No back-up/cross-training Unbalanced workload No decision rules No visual control Lack of workplace organization Supplier/Partner quality Inconsistent supply of detail information Over-engineering Inspection Sources Of Waste The longer waste occurs, the more accepting your become! Six Sigma Simplicity

35. Waste in the Form of Rework • Each defect must be detected, repaired and placed back in the process • Each defect costs time and money Waste Causes A "Hidden Factory"Increased Cost & Lost Capacity Six Sigma Simplicity

36. How Do We Know When to Take Action? Everyday we are flooded by data and we are forced to make decisions: • Outstanding Receivables Increases from 8% to 12% • Overtime Increases from 716 to 833 Hours • Company Earnings are Off $240 Million • Near Miss Occurrences are Up 2% • US Trade Deficit Rises By $40 Billion Should We Take Action ? Six Sigma Simplicity

37. 3 Scrap Level (%) 2 Party Time 1 J F M A 1996 1997 APRIL 1996 • The factory scrap level is at a year low of 2% • Manager presents an award to the plant • Ceremony in the cafeteria: pizza and refreshments for all! • “Everyone should be proud of what you’ve accomplished” Derived from Understanding Variation: The Key To Managing Chaos, Donald J. Wheeler, SPC Press. 1993. Six Sigma Simplicity

38. 3 Scrap Level (%) 2 Manager wants to take back award 1 J F M A M J J 1996 1997 JUNE 1996 • Three consecutive months of scrap increases • Manager wishes he could take back the award • “Recognition has backfired” • Instead of holding the gains, scrap went right back up • Manager is thinking about taking action Derived from Understanding Variation: The Key To Managing Chaos, Donald J. Wheeler, SPC Press. 1993. Six Sigma Simplicity

39. 3 Scrap Level (%) 2 No more “Soft Management” 1 J F M A M J J A S O N D 1996 1997 NOVEMBER 1996 • Scrap rises to a value of 2.6% , manager decides to take action • A “special meeting” is called to solve this problem once and for all • After a sound lecture on the importance of scrap, the manager leaves. Employees aren’t sure what to do. Besides, they have other metrics which have more importance. So they do nothing. Derived from Understanding Variation: The Key To Managing Chaos, Donald J. Wheeler, SPC Press. 1993. Six Sigma Simplicity

40. Manager concludes: “Tough Love Makes Things Happen” 3 Scrap Level (%) 2 1 J F M A M J J F M A M J J A S O N D JUNE 1997 • Manager has seen reduced scrap levels since the end of last year. “Things are looking-up!” • His takeaway: “A tough management style gets results!” 1996 1997 Derived from Understanding Variation: The Key To Managing Chaos, Donald J. Wheeler, SPC Press. 1993. Six Sigma Simplicity

41. UCL 3 Scrap Level (%) 2 1 LCL J F M M J J A S O J F M A M J J A S O N D 1996 1997 Statistical Process Control (SPC) • Tells a different story… Derived from Understanding Variation: The Key To Managing Chaos, Donald J. Wheeler, SPC Press. 1993. Six Sigma Simplicity

42. Manager concludes, “Tough Love Makes Things Happen!” Party Time Manager Wants To Take Back Award No more soft management UCL 3 Scrap Level (%) 2 1 LCL J F M M J J A S O J F M A M J J A S O N D 1996 1997 SPC Tells a Different Story – Why ? • Old View - “Hey, I made my decision based on data - How can I go wrong?” • New View - “Your decisions were made from observing high and low points as signals. When in reality, it was all noise. Look at the data, there was no significant change in the process.” Six Sigma Simplicity

43. Rules of Standard Deviation“Where should the data lie?” % of Data Points UCL 99-99.9% 3 Sigma 90-98% 2 Sigma The Item We Are Measuring 1 Sigma 60-75% 1 Sigma 2 Sigma 3 Sigma LCL TIME Six Sigma Simplicity

44. Terminal X - Vessel Start Times - Before Six Sigma Simplicity

45. Terminal X - Vessel Start Times - After Six Sigma Simplicity

46. Agenda • What is Lean Six Sigma? • Why are we using it? • How are we deploying it? • L6S Roles and Responsibilities • DMAIC phases Six Sigma Simplicity

47. A Simple Approach The right support + The right projects + The right people + The right roadmap and tools = The right results Six Sigma Simplicity

48. The Right Support • Infrastructure to drive Lean Six Sigma throughout the company is in place: • Champions for each business unit • Sponsors are identified and trained • Operational units provide subject matter experts • Data is made available • BU finance identifies the savings • BU leaders emphasize the urgency Six Sigma Simplicity

49. The Right Projects “A project is a problem scheduled for solution.” - J. M. Juran • Identifies a problem to be solved • Problem is of major importance to the BU • Clear connection to business priorities • Strategic and annual operating plans • Clear quantitative measures of success • Baseline, goals and entitlement well-defined • Reasonable scope • Scope too large is a common problem • Management support and approval • Needed to get the resources and remove barriers Reduce/optimize/increase: (project Y) from (current value) to (goal level) for (specific area) while holding constant (constraints) Six Sigma Simplicity

50. The Right People • Champions (BU) • Sponsors (BU) • Controllers (BU) • Process Owners (BU) • Master Black Belts (Process Excellence) • Black Belts (Process Excellence + BU) • Green Belts (BU) • Kaizen Facilitators (BU) Six Sigma Simplicity