ASC Asia Six Sigma Consultants

1
Why Do Six Sigma?
2
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

3
Graphical View of Six Sigma
Measured Process
USL 6s
LSL - 6s
Target
3s

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

4
Why 3.4 PPM Defect Rate?
Measured Process
USL 6s
LSL - 6s
Target
3s

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

5
Does Six Sigma Apply to

• Low volume production
• How can you measure Defects per Million
  Opportunities
• Service Companies
• Whats a Defect? We dont produce anything?

6
Six Sigma Applications

• Manufacturing, Service, Chemical, Financial
• High or low volume
• Millions or Billions in Revenue
• Even Non-profits

7
Errors Happen

• Wherever errors occur, can measure a Defect Level
• Need to define
• Customers
• Internal or External
• Critical Customer Requirements
• needs, specifications

8
How DPMO Relates to Sigma Level
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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

10
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

11
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

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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

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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

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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

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

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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

19
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)

20
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,.

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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

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Key Differences SS typical TQM

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

• 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

• Executive Staff
• Champions
• Sponsors
• Master Black Belts
• Black Belts
• Green Belts

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Key Difference 3 Clear Consistent Methodology

• DMAIC
• Define
• Measure
• Analyze
• Improve
• Control

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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.

27
Key Difference 4 Top Down Training

• Starts at top
• Executive Level
• Champion
• Black Belt
• Green Belt
• Goal Data driven decision making

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Key Differences SS typical TQM

• 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.

29
Success Stories

• Motorola
• Allied Signal / Honeywell
• GE

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Six Sigma Origins

• Motorola developed Six Sigma Methodology in 80s
• 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/Si
x 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

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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.

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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.

34
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.

35
GE Six Sigma Deployment (ref 1998 Annual Report)

• Capacity improvements of 12-18
• Rise in operating margin to 16.7
• 750 million in savings.

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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

37
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.

38
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)

39
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 GEs Design for
  Six Sigma deployment.

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Other SS Industry Leaders

• Boeing, IBM, Bombadier, Asea Brown Boveri,
  DuPont, Kodak, Compaq and Texas Instruments.
• GMAC Mortgage, Citibank, JP Morgan and Cendant
  Mortgage.

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Six Sigma Doesnt 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

42
Still Wondering?

• What would the impact be if your closest
  competitor implemented a Six Sigma program and
  you didnt ?