OPERATIONS MANAGEMENT for MBAs Fourth Edition

1. OPERATIONS MANAGEMENTfor MBAs Fourth Edition Meredith and Shafer John Wiley and Sons, Inc. Topic 7: Process Improvement & Six Sigma Chapter 4: Minimizing Variation Through Six Sigma

2. Outline • Overview Business Process Design • Six Sigma & DMAIC Improvement Phases • tools, metrics • Six Sigma Certification • Reference Material • Homework

3. Business Process Design • New • Fundamentally flawed • Incremental improvement not appropriate • Technological advances • Corporate strategy change • Competitive environment change • - order winners / order qualifiers

4. Business Process Design

5. & DMAIC improvement process • Sigma refers to standard deviation, variability. • No more than 3.4 mistakes (defects) per million opportunities. • Near perfect quality. • Evolved into a methodology for designing and improving processes. • Potential Benefits; profitability, quality, morale, lower costs, lead times, market share, customer satisfaction • Structured, logical, disciplined approach • Generally follow a structured process; DMAIC phases • In the popular book The Six Sigma Way, Six Sigma is defined as: • a comprehensive and flexible system for achieving, sustaining and maximizing 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. (p. xi)

9. The Define Phase • The define phase of a DMAIC project focuses on clearly specifying the problem or opportunity, what the goals are for the process improvement project, and what the scope of the project is. Identifying who the customer is and their requirements is also critical given that the overarching goal for all Six Sigma projects is improving the organization’s ability to meet the needs of its customers. • Benchmarking • Quality Function Deployment

10. The Define Phase Headliner Example: Check Sheet

11. The Define Phase Headliner Example: frequency and percentage distributions chart

12. 50 40 30 20 10 0 100 80 60 40 20 0 C Cumulative percentage Number of defects D A B Defect type The Define Phase Headliner Example: Pareto Chart

13. The Measure Phase • The measure phase begins with the identification of the key process performance metrics. • Once the key process performance metrics have been specified, related process and customer data is collected. • Two commonly used process performance measures, namely, Defects per Million Opportunities (DPMO) and Process Sigma.

14. The Measure Phase • Six Sigma translates into 3.4 DPMO, benchmark • 0.0000034 = 0.00034% Example: Loan process consists of 25 steps. 10,000 loans processed and 100 had errors. DPO = 100 / (10,000 X 25) = 0.0004, DPMO = 400 Example: Widget factory. Each widget consists of 5 parts. 10,000 widgets were inspected, 6 had defects. DPO = 6 / (10,000 X 5) = 0.00012, DPMO = 120

15. The Measure Phase • Where does 6 sigma and 3.4 DPMO come from? 0.9033 0.0967 = % defective

16. Process Sigma

17. The Analyze Phase • Brainstorming • Cause & Effect Diagrams • Process Capability Analysis

21. Process Capability Analysis Cp=1 Cpk good Cp<1 Cpk good Cp=1 Cpk bad Cp>1 Cpk good

22. Variation needs attention? Yes No Crit<Cpl=Cpu, Cp>Crit Crit<Cpl<Cpu, Cp>Crit Crit<Cpu<Cpl, Cp>Crit Crit<Cpl=Cpu, Cp<Crit Crit<Cpl<Cpu, Cp<Crit Crit<Cpu<Cpl, Cp<Crit No Centering needs attention? Crit>Cpl<Cpu, Cp<Crit Crit>Cpu<Cpl, Cp<Crit Crit>Cpl<Cpu, Cp>Crit Crit>Cpu<Cpl, Cp>Crit Yes 22

23. Process Capability Example Webster Chemical’s nominal weight for filling tubes of caulk is 8.00 ounces ± 0.60 ounces. The target process capability ratio is 1.33, signifying that management wants 4-sigma performance. The current distribution of the filling process is centered on 8.054 ounces with a standard deviation of 0.192 ounces. Compute the process capability index and process capability ratio to assess whether the filling process is capable and set properly.

24. The Improve Phase $ Design $$ Service Delivered $$$$$$$$$$ Post Service Delivery

25. The Control Phase

26. Six Sigma in Practice

28. Homework • You are a Quality Assurance Manager for Pepsi. Pepsi strives for three sigma quality in its production processes. One of the quality metrics you are concerned about are the fill weights for the 12 oz. bottle production line. Five random samples of Pepsi soda bottles are taken from last month’s production and you want to determine two things: • Is the production process for the 12 oz. bottles consistent and in control? • Are we meeting retailer standard design specifications of 12 oz. + / - .02 oz., to a high level of quality (three sigma)?

29. Total Quality Management (TQM) Philosophy: Do it right the first time Other names: Total Quality Control – Hewlett Packard Leadership through Quality – Xerox Six Sigma – Motorola (3 defect per million parts) (PDQ)2 – Perfect Design Quality, Pretty Darn Quick – Intel

30. Elements of TQM Programs • everyone gets training in quality • redefine customer • quality at the source • employee participation • continuous improvement • preventive maintenance • involve suppliers • top management commitment

31. Pioneers in the Quality Revolution W. Edwards Deming • helped Japan after WW II • 14 points for management • Deming Prize in Japan Joseph Juran • helped Japan after WW II • Quality Control Handbook Armand Feigenbaum • Total Quality Control • quality at the source

32. Pioneers in the Quality Revolution Kaoru Ishikawa • fishbone diagrams (Ishikawa charts) • 7 tools for quality control • quality control circles Philip Crosby • book: Quality if Free • always strive for zero defects Genichi Taguchi • experimental design methods to reduce variability

33. Achievement Recognition for Quality • Malcolm Baldrige National Quality Award (U.S.) • Deming Prize (Japan) • Shingo Prize (Utah State) • Texas Quality Award (most states have awards) • ISO 9000 (a certification, not an award) • QS 9000 (for U.S. auto parts suppliers to Big 3)

34. Malcolm Baldrige National Quality Award • The Baldrige Award is given by the President of the United States to businesses—manufacturing and service, small and large—and to education and health care organizations that apply and are judged to be outstanding in seven areas: leadership, strategic planning, customer and market focus, information and analysis, human resource focus, process management, and business results. • Congress established the award program in 1987 to recognize U.S. organizations for their achievements in quality and performance and to raise awareness about the importance of quality and performance excellence as a competitive edge.

35. Baldrige Performance Excellence Criteria • Leadership—Examines how senior executives guide the organization and how the organization addresses its responsibilities to the public and practices good citizenship. • Strategic planning—Examines how the organization sets strategic directions and how it determines key action plans. • Customer and market focus—Examines how the organization determines requirements and expectations of customers and markets. • Information and analysis—Examines the management, effective use, and analysis of data and information to support key organization processes and the organization’s performance management system.

36. Baldrige Performance Excellence Criteria • Human resource focus—Examines how the organization enables its workforce to develop its full potential and how the workforce is aligned with the organization’s objectives. • Process management—Examines aspects of how key production/delivery and support processes are designed, managed, and improved. • Business results—Examines the organization’s performance and improvement in its key business areas: customer satisfaction, financial and marketplace performance, human resources, supplier and partner performance, and operational performance. The category also examines how the organization performs relative to competitors.

37. Deming Prize • The Union of Japanese Scientists and Engineers (JUSE) invited Dr. Deming to Japan in July 1950. He held a series of lectures and seminars during which he taught the basic principles of statistical quality control to executives, managers and engineers of Japanese industries. His teachings made a deep impression on the participants' minds and provided great impetus in implementing quality control in Japan. • In appreciation, JUSE, created a prize to commemorate Dr. Deming's contribution and friendship and to promote the continued development of quality control in Japan. The prize was established in 1950 and annual awards are still given each year. • Focuses on quality control

38. Shingo Prize The Mission of the Shingo Prize is to: • Facilitate an increased awareness in the manufacturing community of excellent to world-class manufacturing practices and techniques which can maintain and enhance a company's competitive position in the global marketplace. • Foster understanding and sharing of successful core manufacturing and business improvement methodologies. • Encourage research in business and manufacturing processes and production improvements by both the academic and business practitioners.

39. Shingo Prize Eligibility • Based in the United States, the Prize is open to manufacturers in the United States, Canada, and Mexico and to researchers throughout the world.  The Prize is awarded annually to recognize: • Manufacturing companies, divisions, and plants in the United States, Canada, and Mexico that demonstrate excellence in manufacturing leading to superior customer satisfaction and business performance. • Research and writing which addresses innovative manufacturing and business improvement methods, systems and processes consistent with the Achievement Criteria of the Shingo Business Prize.

40. Texas Quality Award • The Texas Quality Award is given to recognize Texas organizations that excel in quality management and achievement. The award sets high standards for Texas, similar to those set for the United States by the Malcolm Baldrige National Quality Award, and is given annually to organizations that are role models for quality and excellence in Texas. • The Texas Quality Award is designed to promote quality awareness and practices in organizations of all kinds; provide information by documenting and communicating successful quality strategies and initiatives; foster cooperation and teamwork; stimulate continuous improvement through innovation, benchmarking, and sharing of information. These efforts serve to improve quality, reduce waste, and increase customer satisfaction, thereby enhancing economic development, retaining and creating jobs, and raising the overall quality of life throughout the state.

41. ISO 14001 • identify and control the environmental impact of its activities, products or services, and to • improve its environmental performance continually, and to • implement a systematic approach to setting environmental objectives and targets, to achieving these and to demonstrating that they have been achieved.

42. QS 9000 • QS-9000 is the shorthand name for "Quality System Requirements QS-9000." It is the common supplier quality standard for DaimlerChrysler Corporation, Ford Motor Company, and General Motors Corporation. QS-9000 is based on the 1994 edition of ISO 9001, but it contains additional requirements that are particular to the automotive industry. These additions are considered automotive "interpretations" by the ISO community of accreditation bodies and registrars. QS-9000 applies to suppliers of production materials, production and service parts, heat treating, painting and plating and other finishing services. It does not, therefore, apply to all suppliers of the Big Three.