Six Sigma - A Breakthrough Strategy Competitive Edge Management Consultants
1. Basic concepts of Six Sigma Most effective strategy Limitation of other tools What is Sigma Six Sigma and defect rate Old and new concept of quality Six Sigma and cost of quality How Six Sigma works Reasons to adopt Six Sigma Global acceptability and success stories
Most effective strategy • Six Sigma is the most effective breakthrough strategy ever devised. It enables companies to make substantial improvements in their bottom-line by designing and monitoring every day business activities in ways which minimizes all types of waste and non-value adding activities and maximizes customer satisfaction.
Limitations of other tools • Many organizations have earlier tried Downsizing, Outsourcing, Activity based costing, Business process reengineering, Just in time, Kaizen & TQM for improving quality and business results. While all these tools are useful in their own ways, they often fail to make breakthrough improvements in bottom line and quality.
Limitations of other tools • Kaizen, for example, means doing little things better and continuously reaching for better standards, work well till 3 or 4 sigma in specific processes. These small improvements may not necessarily translate into overall business improvement. This is because Kaizen only uses basic tools. For reaching 5 or 6 sigma standards, the organization will have to use sophisticated tools like Quality Function Deployment (QFD), Failure Mode and Effect Analysis (FMEA) and Design of Experiments (DOE) to achieve optimum throughput at minimum cost.
What is Sigma • The term ‘Sigma’ taken from the Greek alphabet, is used to designate the distribution or spread about the mean (average) of any parameter of product, process or procedure. In the context of business or manufacturing process, Sigma capability is a metric which indicates how the process is behaving. Higher the Sigma value, better the capability of the process to produce defect free work and vice versa.
Six Sigma and error or defect rate • At present most companies, when their processes are under control, are able to achieve 3 sigma capability which represents 99.7% performance i.e 3 defects per 1000. With rapid technological advances and development of complex products, this level of quality is no longer acceptable.
Six Sigma and error or defect rate • As manufacturing of most of the products involves large number of processes and if each process has a maximum quality capability of 99.7%, the quality of finished product would be considerably less. Therefore, if the companies have to compete in the global markets, they have to achieve a much higher level of quality capability.
Levels of Sigma and defect rate *Parts Per Million
Old concept of quality • Past concepts of quality focused on “conformance to standards”. This definition assumed that as long as the company produced quality products and services, their performance standard was correct regardless of how those standards were met. Moreover, setting of standards and measurement of performance was mainly confined to the production areas and the commercial and other service functions were managed through command and control.
New concept of quality • In Six Sigma, the concept of quality encompasses manufacturing, commercial and other service functions of an organization because all these functions directly or indirectly affect products/service quality & customer satisfaction. It also embodies a structured system of capturing all types of errors and their quantified measurement for subsequent analysis and improvement. • Under the new approach, quality is a state in which Value enrichment is realized for the customer and provider in every aspect of business relationship. Value
Value enrichment • The term ‘Value enrichment’ for the company means that they must strive to produce highest quality products at the lowest possible costs to be competitive in the global markets. • For customers, the term ‘Value enrichment’ means that they have the right to purchase high quality products/services at the lowest cost.
Knowing characteristics critical to customer • Value enrichment for the company and the customer is done by measurement based approach of Six Sigma, which enables us to find :- • Vast areas of business about which wedo not know enough. • When we do not know about a parameter or a characteristic which are important to customers, wedo not value it. • If we do not value a parameter or a characteristic, we do not measure it. • If we do not measure, we can not improve.
Six Sigma and cost of quality • Six Sigma has a very significant impact on the cost of quality. As the Sigma level moves up, the cost of quality comes down and vice versa. Traditionally recorded quality cost generally account for only 4 to 5 percent of sales which mainly comprise of cost of scrap, re-work and warranty.
Hidden costs of quality • There are additional costs of quality which are hidden and do not appear in the account books of the company, as they are intangible and difficult to measure. These additional costs could be as high as 20-25% of sales and comprise of low conversion efficiency of materials, cost of resolving customer problems, inadequate resource utilization, high inventory, long cycle times, more set-up times, penalties due to late delivery and lost customer loyalty and goodwill.
Cost of quality at various levels of Sigma Sigma Defect rate(PPM) Cost of quality Competitive level 6 3.4 <10% World Class 233 10-15% 5 15-20% 4 6210 Industry Average 20-30% 3 66807 30-40% 2 308537 Non Competitive >40% 1 6,90000
How Six Sigma works • Six Sigma is a high performance data driven approach focused on analyzing the root causes of business problems and solving them. It ties the outputs of a business directly to market place.
Clear focus on the bottom line • Six Sigma places a clear focus on getting the bottom line results along with the time frame. No Six Sigma project is approved until the bottom line or the success factors are clearly spelt out. Each project must be completed within a given time frame which is usually 3-6 months.
Objectives of Six Sigma • At the strategic level, the goal of Six Sigma is to align an organization to its marketplace and deliver real improvements (in terms of rupees/dollars) to the bottom line. • At the operational level, the Six Sigma goal is to move the business product or service attributes within the zone of customer specifications and to significantly shrink process variation.
Impact of Six Sigma • The Six Sigma strategy affects five fundamental areas of business :- • 1. Process improvement • 2. Product & service improvement • 3. Customer satisfaction • 4. Design methodology • 5. Supplier improvement • The business improvement mechanism is shown in the next slide.
Six Sigma business improvement mechanism Suppliers Inputs Business Process Process Outputs Critical Customer Requirements Defects Variation in output of processes causes defects