Why Do Six Sigma?

ASC Asia Six Sigma Consultants

HAMID REZA REZAIEWhy Do Six Sigma 1

Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Why Do Six Sigma?



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

What is Six Sigma

• Sigma is Greek letter used to indicate standard deviation

–A sigma level provides a statistical estimate of the Defect (Error) Rate

• Six Sigma relates to 3.4 Defects Per Million Opportunities



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Graphical View of Six Sigma

USL = 6σLSL = - 6σ Target +3σ

Measured Process

– Customer Requirements (USL, LSL) defined at ± Six Sigma from the measured Process Mean



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Why 3.4 PPM Defect Rate?

USL = 6σLSL = - 6σ Target +3σ

Measured Process

– Measured process may shift by as much as 1.5 sigma (shown in pink), resulting in a max defect rate of 3.4 ppm



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Does Six Sigma Apply to…

• Low volume production:

–How can you measure Defects per Million Opportunities

• Service Companies:

–What’s a Defect? We don’t produce anything?



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Six Sigma Applications

• Manufacturing, Service, Chemical, Financial…

• High or low volume

• Millions or Billions in Revenue

• Even Non-profits



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Errors Happen

• Wherever errors occur, can measure a Defect Level

• Need to define

–Customers• Internal or External

–Critical Customer Requirements• needs, specifications



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

How DPMO Relates to Sigma Level

Examples of Sigma Levels

0.1

10

1000

100000

10000000

1 2 3 4 5 6 7

Sigma Level

DPM

O



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Service Example• IRS tax form advice• Survey of responses indicates predicted

error rate• If 40% then:

–DPO = .40

–DPMO = .40 defects/opportunity * 1,000,000 opportunities/million opportunities

–400,000 DPMO = 1.75 Sigma



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

What Sigma Level Are Your Key Processes?

• Product-based:

–Scrap / Yield Reports

–Best to include Reworks (Hidden Factory)

• Service:

–Error rate of information exchanged

–Cycle time



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Order Processing Example

• Requirements:

–Name exactly as appears on credit card

–Billing Address exactly as on credit card statement

–Credit card number

–Credit card expiration date

–Product ID being ordered

–Quantity Ordered



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Example (cont.)

• Find 600 errors on 200 orders in random sample of 4,000 orders

• 6 critical characteristics

• DPMO = (600 defects / (4000 orders * 6 opportunities / order)) * 1,000,000

• DPMO = 25,000

• Sigma Level approx. 3.5



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Processes in Series

• Final Yield = Yield1 * Yield2 * Yield3 * … Yieldn

• Example: Order is processed through six departments, each with defect rates calculated as 0.3%, 0.5%, 5%, 7.5%, 11.1%, 7.9%

• Final Yield = .997 * .995 * .95 * .925 * .899 *.921 * 100% = 71.4 %

DPMO = 286,000

Sigma Level approx. 2



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Why DPMO?• 1% error rate (10,000 DPMO) = 3.8

Sigma• 4 Sigma = 0.6 %• 5 Sigma = 0.02 %• 6 Sigma = 0.00034 %

• Inconvenient to use % beyond 3 or 4 Sigma



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Example Sigma Levels(ref: Six Sigma Deployment by Paul Keller, Quality Publishing, Inc. 2001)



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

3 Sigma vs. 6 Sigma Processes(source: Six Sigma Handbook by Thomas Pyzdek, Quality Publishing, Inc. 2001)

Defect 3 Sigma 6 Sigma

Mishandled Healthcare Claim

10,800,000 550

US Savings Bonds Lost / Month

18,900 1

Checks Lost / Night by Single US Bank

54,000 3

Erroneous Credit Card Transactions / Year

270,000,000 13,741



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

The DPMO Game

• How to classify an “Opportunity”?

–Ex: Define opportunity for earlier IRS Tax advice example:• each customer contact, OR

• each question from each customer contact

–The latter choice provides more opportunities

• More opportunities = less DPMO for same number of errors



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Using DPMO Appropriately

• Classify opportunities in customer terms

–An opportunity should be related to a transaction that results in customer appraisal

• Consider only what is critical to customer

–Countless non-critical criteria can be excluded

• Limit DPMO / Sigma Level use

–Comparisons between companies often meaningless



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Six Sigma in Terms of CostCost of Quality as % of Revenue

• As Sigma Level increases, defect costs can be shifted to revenue-generating activities – (Numerator decreases AND denominator increases)



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Hidden Factory

• Most companies operate in 3 to 4 Sigma Levels

–For-profit companies cannot afford 2 Sigma

–Many costs go unreported as Quality costs

–Failure costs include warranty, rework, sorting, fine-tuning, management approvals, next day deliveries, invoicing errors,….



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

How are Cost Savings Achieved?

• Failure Costs moved to Prevention Costs

–As improvement occurs, wasted dollars go to bottom line

–Go from ‘fire-fighting’ to sales & profit generation

• Design for Six Sigma

–Particularly useful for companies at ≥ 4 Sigma

–Incorporates prevention activities at early stages of product / service development



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Key Differences: SS & typical TQM

1. Project Focus & Duration

2. Organizational Support & Infrastructure

3. Clear & Consistent Methodology

4. Top-down Training



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Key Difference 1: Project Focus & Duration

• Projects focus on one or more key areas:

–Cost, Schedule, Quality

• Directly linked to strategic goals

• Project scope ‘small’

–designed to conclude in 3 or 4 month or less

• Project Charter defines scope, objective and deliverables



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Key Difference 2: Organizational Support & Infrastructure

• Executive Staff

• Champions

• Sponsors

• Master Black Belts

• Black Belts

• Green Belts



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Key Difference 3: Clear & Consistent Methodology

• DMAIC

–Define

–Measure

–Analyze

–Improve

–Control



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

DMAIC Approach

• Structured approach leads to success

–Check sheet applied to each stage

• Projects clearly defined and implemented

• Results standardized into operational practices

• Financial results certified by Accounting dept.



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Key Difference 4: Top Down Training

• Starts at top:

–Executive Level

–Champion

–Black Belt

–Green Belt

• Goal: Data driven decision making



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Key Differences: SS & typical TQM 1. Project Focus & Duration

2. Organizational Support & Infrastructure

3. Clear & Consistent Methodology

4. Top-down Training

RESULT: Data-driven decision making at all levels of organization, geared towards satisfying critical needs of key stakeholders.



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Success Stories

• Motorola

• Allied Signal / Honeywell

• GE



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Six Sigma Origins• Motorola developed Six Sigma

Methodology in 80’s• In 1981, Motorola set out to improve the

quality of their products and services tenfold

• In 1988, accepted Malcolm Baldrige National Quality Award, and began the Six Sigma Quality movement



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Motorola Experience(ref: http:/mu.Motorola.com/Six Sigma/SixSigma.html)

• Between 1983-87: spent $70 Million on quality-related education

• Productivity increased average of 12.3% /yr• Cost of Quality reduced by more than 84%• 99.7% of in-process defects eliminated• $11 Billion in manufacturing costs saved• Average annual compounded growth rate of

17% in earnings, revenues, and stock prices



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Allied Signal Experience• Larry Bossidy, CEO of Allied Signal,

began their Six Sigma program in 1994.

• In 1998, achieved cost savings of $500 million directly attributable to their Six Sigma program

• In 1999, the cost savings grew to $600 million.



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Allied Delights Customersref.: 1999 Annual Report

“…cost savings are only part of the story. Delighting customers and accelerating growth completes the picture. When we are more efficient and improve work flow throughout every function in the company, we provide tremendous added value to our customers - through higher quality solutions that are more competitively priced, delivered on time and invoiced correctly. That makes us a more desirable business partner.“



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Allied Cycle Time Reductions

• Two plants operating at full capacity could not satisfy customer demand

–Six Sigma methodology increased production rate by 30%, with little to no additional costs.



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

GE Six Sigma Deployment (ref: 1998 Annual Report)

• Capacity improvements of 12-18%

• Rise in operating margin to 16.7%

• $750 million in savings.



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

GE Plastics • Reduced color variation in plastic

products. - Raised quality from 2 sigma to 4.9 sigma

over 4 months

- Saved $400,000 a year for one plant. (ref GE Way)

• In 1996, first year of Six Sigma deployment, GE Plastics achieved benefits of $20M



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

GE Capital Mortgage Insurance

• Cut defects 96%.

• Claim payments were reduced by $8M, while borrowers were offered alternatives to foreclosure. (ref: 1997 GE Annual Report)

• Reported a 160% increase in new transactions.



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

GE Aircraft Engines

• Reduced custom charges and cut delays at the border by 50%

- Reduced defects in the paperwork needed when parts are imported into Canada. (ref: 1997 GE Annual Report)



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

GE Medical Systems

• Developed a new ultrasound technology which allows medical personnel to more clearly diagnose risk factors contributing to stroke.

• Technology became available two years earlier than otherwise possible, due to GE’s Design for Six Sigma deployment.



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Other SS Industry Leaders

• Boeing, IBM, Bombadier, Asea Brown Boveri, DuPont, Kodak, Compaq and Texas Instruments.

• GMAC Mortgage, Citibank, JP Morgan and Cendant Mortgage.



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Six Sigma Doesn’t Cost, It Pays

• Cost of training low relative to resulting savings

–Each project $100,000 or more in savings

• Reap rewards as you go

–Train as needed

–More projects = More savings

• Bottom line impact grows with program maturity



Six

Sig

ma

Six

Sig

ma

Overv

iew

Overv

iew

Still Wondering?

• What would the impact be if your closest competitor implemented a Six Sigma program and you didn’t ?

Why Do Six Sigma?

Documents