Six sigma and cost saving

Six Sigma and Cost Saving

By: -Rohit Pinto

Agenda

• Quality• 6 sigma basics• Where does cost come in?

Quality – What is it?

• Quality is perceptual, conditional and subjective. Different people see it differently

• Quality is the first and one of the most important things regarding different objects and other stuff.

• Quality is how good a product is.

What does the dictionary say?

• The standard of something as measured against other things of a similar kind

• Degree of excellence• Key attributes in a person/object

My Definition

The degree of adherence of the key attributes of a product/ service to a chosen

Standard.

So how can we measure it?

Define key attributes (What are the key

characteristics of my product/ service)

Set a measurable for each characteristic

of the product (What standard do I

follow?)

Set the limits of what is acceptable

and what is not(Will my customer

accept the product?)

Measure each of the products produced

against the measurable that’s

been set

You cannot manage what you cannot measure - Anon

Quality Management – Assuring the Control of Quality

Quality Management

Quality ControlProduct Oriented

(Don’t let the defective products out)

Quality AssuranceProcess oriented

(Don’t let the products be defective)

The QM Cycle

Plan

DoCheck

Act

SIX SIGMA

What is Six Sigma?

• A goal of near perfection in meeting customer requirements

• A sweeping culture change effort to position a company for greater customer satisfaction, profitability and competitiveness

• A comprehensive and flexible system for achieving, sustaining and maximizing business success; 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

(Source:The Six Sigma Way by Pande, Neuman and Cavanagh)

It’s a business strategy!!

History of Six Sigma

1979Our quality stinks!! – Art Sundry, Communications Manager, Motorola

1980Motorola launches a new 4 point strategy• Global Competitiveness• Participative Management• Quality Improvements• Motorola Training and

Education Center

1984Motorola Manufacturing Institute was launched, but they still lacked a common Metric for sharing and comparing initiatives

1986Six Sigma is born thanks to Bill Smith

Technically Speaking

• If one has six standard deviations between the process mean and the nearest specification limit, practically no items will fail to meet specifications

In Terms of Number of DefectsSigma Level DPMO Defect Percentage Yield

1 6,91,462 69% 31%

2 3,08,538 31% 69%

3 66,807 6.7% 93.3%

4 6,210 0.62% 99.38%

5 233 0.023% 99.977%

6 3.4 0.00034% 99.999666%

7 0.019 0.0000019% 99.9999981%

Is 99% Quality Good Enough?

• 22,000 checks will be deducted from the wrong bank accounts in the next 60 minutes.

• 20,000 incorrect drug prescriptions will be written in the next 12 months.

• 12 babies will be given to the wrong parents each day.

But is Six Sigma Realistic?

·

1

11

21

31

41

3 4 5 6 7

10

1

100

1K

10K

100K

765432

·

Best in Class

(3.4 ppm)

Domestic AirlineFlight Fatality Rate

(0.43 ppm)

·(233 ppm)

AverageCompany

Purchased MaterialLot Reject Rate

Air Line Baggage Handling

Wire Transfers

Journal VouchersOrder Write-up

Payroll Processing

Doctor Prescription WritingRestaurant Bills

·······

Defe

cts

Per

Million

Op

port

un

itie

s (

DP

MO

)

SIGMA

Six Sigma Improvement MethodsDMAIC vs. DMADV

Define

Measure

Analyze

Design

Validate

Improve

Control

Continuous Improvement Reengineering

Six Sigma DMAIC Process

Measure

Control

Define

Analyze

Improve

Define: Define who your customers are, and what their requirements are for your products and services – Their expectations. Define your team goals, project boundaries, what you will focus on and what you won’t. Define the process you are striving to improve by mapping the process.

Six Sigma DMAIC Process

Measure

Control

Define

Analyze

Improve

Measure: Eliminate guesswork and assumptions about what customers need and expect and how well processes are working. Collect data from many sources to determine speed in responding to customer requests, defect types and how frequently they occur, client feedback on how processes fit their needs, how clients rate us over time, etc. The data collection may suggest Charter revision.

Six Sigma DMAIC Process

Measure

Control

Define

Analyze

Improve

Analyze: Grounded in the context of the customer and competitive environment, analyze is used to organize data and look for process problems and opportunities. This step helps to identify gaps between current and goal performance, prioritize opportunities to improve, identify sources of variation and root causes of problems in the process.

Six Sigma DMAIC Process

Measure

Control

Define

Analyze

ImproveImprove: Generate both obvious and creative solutions to fix and prevent problems. Finding creative solutions by correcting root causes requires innovation, technology and discipline.

Six Sigma DMAIC Process

Measure

Control

Define

Analyze

Improve

Control: Ensure that the process improvements, once implemented, will “hold the gains” rather than revert to the same problems again. Various control tools such as statistical process control can be used. Other tools such as procedure documentation helps institutionalize the improvement.

Six Sigma DMADV Process

Measure

Validate

Define

Analyze

Design

Design: Develop detailed design for new process. Determine and evaluate enabling elements. Create control and testing plan for new design. Use tools such as simulation, benchmarking, DOE, Quality Function Deployment (QFD), FMECA analysis, and cost/benefit analysis.

Six Sigma DMADV Process

Measure

Validate

Define

Analyze

Design

Validate: Test detailed design with a pilot implementation. If successful, develop and execute a full-scale implementation. Tools in this step include: planning tools, flowcharts/other process management techniques, and work documentation.

Okay, so we used 6 Sigma, and lets say, our Quality improved

But what about our costs?!!

Quiz Time

Answer True or False

Higher quality costs more.

Cost of Defects?!Cost Area Examples

Factory Accounts •Materials Scrapped•Labour burden on product scrapped•Labour, Material and burden to repair product•Extra operations added because of presence of defectives• Burden arising from excess production capacity necessitated by defectives •Excess inspection costs Investigation of causes of defects

Sales Costs •Discount on seconds•Customer complaints•Charges to quality guarantee account•Costs due to delays

Intangible Costs •Delays and stoppages caused by defectives•Customer good will•Loss in morale due to friction between departments

The Traditional View

100% Defective 100% Good0

20

40

60

80

100

120

Cost of Production

Cost of Production

Cost of Defects

100% Defec-tive

100% Good0

20

40

60

80

100

120

140

Cost of ProductionCost of Defects

Cost of Quality

100% Defective 100% Good0

20

40

60

80

100

120

140

Cost of ProductionCost of DefectsTotal Cost of Quality

Does it really work?

• “Operating margins of 3M went from 17% in 2001 to 23% in 2005 all due to the six sigma drive by McNerney”

• “GE produces annual benefits of over $2.5 billion across the organization from Six Sigma.”

• “Motorola reduced manufacturing costs by $1.4 billion from 1987-1994.”

• “Six Sigma reportedly saved Motorola $15 billion over the last 11 years.”

A word of Caution

• Generally 6 Sigma takes between 1 to 3 years of investment before it shows results

1996 1997 1998 19990

0.5

1

1.5

2

2.5

3

3.5

4

Cumulative InvestmentCumulative Savings

Source: GE Annual Reports

A word of caution

• There are as many failures as there are successes– Untrained/ improperly trained “Master Black

Belts”– Urgency to show results leads to improper

implementation– Training is not sustained hence new employees

are not aware