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.
Problem Prevention/Solving Process…DMAIC
(Goal is to reduce process variation).
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Why Do It?
Improvement of Process Capability: (USLLSL)/Process Variation
Elimination of Waste
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)
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
Where does industry stand?
Where does NACE stand?
No one knew?
Strategies that don’t work…clinging to old habits
(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
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
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?
Quantify the Cost of Quality for the Business
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
TV Units Sold
5 million
Estimated Revenues (5 x $500 per set)
$2.5 billion
Estimated Earnings (5% of sales)
$125 million
Scrap (Measured)
$12 million
Total Cost of Quality (Measured & Hidden)
$72-600 million
Cost of Scrap per TV (12M/5M)
$2.40 per unit
Total Cost of Quality
(M+H) per TV Sold
(6/1 to 50/1 Iceberg)
$14.40 - $120
% Total Cost of Quality
per TV/Selling Price
(14.40/500 – 120/500)
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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