Transcript Document

Case 2:
Six Sigma as a Business
(Improvement) Strategy
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What is Six Sigma?

Strategy…a data driven philosophy & process
resulting in paradigm shifts in way a company behaves,
treats its customers, & produces products/services.

Measurement…Measurement of the variation of a
process…Standard Deviation. Translates into process
performance…dpm, COQ.
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Problem Prevention/Solving Process…DMAIC
(Goal is to reduce process variation).
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Why Do It?
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Improvement of Process Capability: (USLLSL)/Process Variation
Elimination of Waste
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Hidden factory
Non-value-added activities
Cycle Time Reduction
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Macro & Micro Economics of Quality
(Translating Operating Performance into Financial Performance)

Macroeconomics of Quality…Iceberg
Principle (Figures 2 – 4)
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Macro & Micro Economics of Quality
(Translating Operating Performance into Financial Performance)
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Microeconomics of Quality..Variation & Bias *
E(COQ) = ak * (2 + (μ – T)2)
where
2 = process variance
(μ – T)2 = bias
k = constant, unique to a given process/product
a = iceberg multiplier
and
Y = performance measure
T = performance target
μ = process mean
 = process standard deviation (variation)
E(COQ) = ak * E(Y-T)2
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Getting to Six Sigma
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Where does industry stand?
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Where does NACE stand?
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No one knew?
Strategies that don’t work…clinging to old habits

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(Figure 5)
Inspection (defect detection)
Driving processes through numbers
Changing habits
A strategy that does work…DMAIC
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Six Sigma Deployment: Key
Success Factors
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Emphasis on statistical science &
measurement.
Rigorous and structured training deployment
plans (Champion, Master Black Belt, Black
Belt, Green Belt, etc.)
Project-focused approach using DMAIC
strategy & tools.
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Six Sigma Deployment: Key
Success Factors
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Reinforcement of quality tenets…top
management, leadership & support,
continuous training & education, annual
savings plan.
Incorporation of Six Sigma across entire
enterprise.
Develop a business plan.
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Where Can Six Sigma be
Applied?

Every business process & function

(Figure 6)
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Figure 2: Why Estimate Cost of Quality?
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Quantify the Cost of Quality for the Business
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Identify magnitude of potential savings
Sensitize Management to the size of opportunity
Help to re-expose problems we have learned to
tolerate
Identify the Highest Loss Areas
Permit Prioritizing the Loss Areas for Corrective
Action
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Figure 3: Measured & Hidden Costs of Quality
Hidden Costs = 6 to 50X Measured Costs
Direct Measured Costs:
Scrap/Rework
Service Calls
Warranties/Concessions
Indirect/Hidden Costs:

Excess Inventory

Overtime

Reputation/Image
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Figure 4: Economics of Quality – Example 1
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TV Units Sold
5 million
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Estimated Revenues (5 x $500 per set)
$2.5 billion
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Estimated Earnings (5% of sales)
$125 million
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Scrap (Measured)
$12 million
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Total Cost of Quality (Measured & Hidden)
$72-600 million
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Cost of Scrap per TV (12M/5M)
$2.40 per unit
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Total Cost of Quality
(M+H) per TV Sold
(6/1 to 50/1 Iceberg)
$14.40 - $120
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% Total Cost of Quality
per TV/Selling Price
(14.40/500 – 120/500)
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What if we could cut losses in half?
½ x $12,000,000
If Iceberg is between 6/1 to 50/1
$6,000,000
$36,000,000 to $300,000,000
Recall: Total net earnings were?
$125 million

3% - 24%
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Figure 5: Where does U.S. Industry stand?
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Figure 6: Six Sigma Can Be Applied to
Every Business Function
Service
Design
Purchasing
Administration
Six Sigma
Methods
Quality
Assurance
Manufacturing
Maintenance
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