Transcript Six Sigma Overv iew Why Do Six Sigma?

Why Do Six Sigma?
Six Sigma Overview
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Why Do Six Sigma 1
What is Six Sigma
Six Sigma Overview
• 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
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Graphical View of Six Sigma
Six Sigma Overview
Measured Process
LSL = - 6σ
Target
+3σ
USL = 6σ
– Customer Requirements (USL, LSL) defined at ± Six Sigma
from the measured Process Mean
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Why 3.4 PPM Defect Rate?
Six Sigma Overview
Measured Process
LSL = - 6σ
Target
+3σ
USL = 6σ
– Measured process may shift by as much as 1.5 sigma (shown
in pink), resulting in a max defect rate of 3.4 ppm
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Does Six Sigma Apply to…
Six Sigma Overview
• Low volume production:
– How can you measure Defects per Million
Opportunities
• Service Companies:
– What’s a Defect? We don’t produce
anything?
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Six Sigma Applications
Six Sigma Overview
• Manufacturing, Service, Chemical,
Financial…
• High or low volume
• Millions or Billions in Revenue
• Even Non-profits
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Errors Happen
Six Sigma Overview
• Wherever errors occur, can measure a
Defect Level
• Need to define
– Customers
• Internal or External
– Critical Customer Requirements
• needs, specifications
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How DPMO Relates to Sigma Level
10000000
100000
DPMO
Six Sigma Overview
Examples of Sigma Levels
1000
10
0.1
1
2
3
4
5
6
Sigma Level
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7
Service Example
Six Sigma Overview
• 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
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Why Do Six Sigma 9
What Sigma Level Are Your Key
Processes?
Six Sigma Overview
• Product-based:
– Scrap / Yield Reports
– Best to include Reworks (Hidden Factory)
• Service:
– Error rate of information exchanged
– Cycle time
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Order Processing Example
Six Sigma Overview
• 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
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Example (cont.)
Six Sigma Overview
• 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
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Processes in Series
Six Sigma Overview
• 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
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Why DPMO?
Six Sigma Overview
• 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
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Example Sigma Levels
(ref: Six Sigma Deployment by Paul Keller, Quality Publishing, Inc. 2001)
Six Sigma Overview
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3 Sigma vs. 6 Sigma Processes
(source: Six Sigma Handbook by Thomas Pyzdek, Quality Publishing, Inc. 2001)
Six Sigma Overview
Defect
Mishandled
Healthcare Claim
US Savings Bonds
Lost / Month
Checks Lost / Night
by Single US Bank
Erroneous Credit
Card Transactions /
Year
3 Sigma
10,800,000
6 Sigma
550
18,900
1
54,000
3
270,000,000
13,741
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The DPMO Game
Six Sigma Overview
• 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
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Using DPMO Appropriately
Six Sigma Overview
• 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
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Six Sigma in Terms of Cost
Cost of Quality as % of Revenue
Six Sigma Overview
• As Sigma Level increases, defect costs can be shifted to
revenue-generating activities
– (Numerator decreases AND denominator increases)
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Hidden Factory
Six Sigma Overview
• 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,….
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How are Cost Savings Achieved?
Six Sigma Overview
• 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
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Key Differences: SS & typical TQM
Six Sigma Overview
1. Project Focus & Duration
2. Organizational Support &
Infrastructure
3. Clear & Consistent Methodology
4. Top-down Training
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Key Difference 1: Project Focus &
Duration
Six Sigma Overview
• 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
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Key Difference 2: Organizational
Support & Infrastructure
Six Sigma Overview
•
•
•
•
•
•
Executive Staff
Champions
Sponsors
Master Black Belts
Black Belts
Green Belts
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Key Difference 3: Clear & Consistent
Methodology
Six Sigma Overview
• DMAIC
– Define
– Measure
– Analyze
– Improve
– Control
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DMAIC Approach
Six Sigma Overview
• 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.
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Key Difference 4: Top Down
Training
Six Sigma Overview
• Starts at top:
– Executive Level
– Champion
– Black Belt
– Green Belt
• Goal: Data driven decision making
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Key Differences: SS & typical TQM
Six Sigma Overview
1.
2.
3.
4.
Project Focus & Duration
Organizational Support & Infrastructure
Clear & Consistent Methodology
Top-down Training
RESULT: Data-driven decision making at all
levels of organization, geared towards
satisfying critical needs of key stakeholders.
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Success Stories
Six Sigma Overview
• Motorola
• Allied Signal / Honeywell
• GE
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Six Sigma Origins
Six Sigma Overview
• 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
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Motorola Experience
(ref: http:/mu.Motorola.com/Six Sigma/SixSigma.html)
Six Sigma Overview
• Between 1983-87: spent $70 Million on qualityrelated 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
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Allied Signal Experience
Six Sigma Overview
• 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.
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Allied Delights Customers
ref.: 1999 Annual Report
Six Sigma Overview
“…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.“
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Allied Cycle Time Reductions
Six Sigma Overview
• 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.
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GE Six Sigma Deployment
(ref: 1998 Annual Report)
Six Sigma Overview
• Capacity improvements of 12-18%
• Rise in operating margin to 16.7%
• $750 million in savings.
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GE Plastics
Six Sigma Overview
• 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
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GE Capital Mortgage Insurance
Six Sigma Overview
• 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.
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Why Do Six Sigma 37
GE Aircraft Engines
Six Sigma Overview
• 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)
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GE Medical Systems
Six Sigma Overview
• 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.
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Other SS Industry Leaders
Six Sigma Overview
• Boeing, IBM, Bombadier, Asea Brown
Boveri, DuPont, Kodak, Compaq and
Texas Instruments.
• GMAC Mortgage, Citibank, JP Morgan
and Cendant Mortgage.
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Why Do Six Sigma 40
Six Sigma Doesn’t Cost, It Pays
Six Sigma Overview
• 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
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Still Wondering?
Six Sigma Overview
• What would the impact be if your
closest competitor implemented a
Six Sigma program and you didn’t ?
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Why Do Six Sigma 42