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Six Sigma for Managers
24 Lessons to Understand and Apply Six Sigma Principles in Any Organization
By Greg Brue
The McGraw-Hill Companies, Inc.Copyright © 2005The McGraw-Hill Companies, Inc.
All rights reserved.
[check] Six Sigma: A methodology for improvement
Six Sigma is a method for improving productivity and profitability. It's a disciplined application of statistical problem-solving tools to identify and quantify waste and indicate steps for improvement.
The Six Sigma story began in the 1980s at Motorola. In 1983, reliability engineer Bill Smith concluded that inspections and tests were not detecting all product defects, customers were finding defects, and defects were causing products to fail. Since process failure rates were much higher than indicated by final product tests, Smith decided that the best way to solve the problem of defects was to improve the processes to reduce or eliminate the possibility of defects in the first place. He set the standard of six sigma—nearly perfect, 99.9997%—and coined the term for the methodology.
Mikel Harry, a quality and reliability engineer at Motorola who founded the Motorola Six Sigma Research Institute, further refined the methodology beyond eliminating process waste. Bob Galvin, the CEO of Motorola at the time, promoted Six Sigma, and Motorola realized huge bottom-line results as a result of its Six Sigma efforts, documenting more than $16 billion in savings in 15 years.
Larry Bossidy of Allied Signal (now Honeywell) and Jack Welch of General Electric initiated Six Sigma programs in their companies. Allied Signal saved $500 million in one year, Honeywell saved $1.8 billion in three years, and GE saved $4.4 billion in four years. Other companies have also achieved impressive savings.
Those savings were possible because of the high levels of variation in business processes, variation that causes defects and wastes and keeps costs higher than necessary. Most companies function at four sigma—tolerating 6,210 defects per one million opportunities. Operating at six sigma creates an almost defect- free environment, allowing only 3.4 defects per one million opportunities: products and services are nearly perfect (99.9997%). Eliminating defects eliminates dissatisfaction.
Six Sigma asks hard questions about your processes and provides solutions. Six Sigma eliminates wasteful variation, changes business cultures, and creates the infrastructure you need to initiate and sustain greater productivity, profitability, and customer satisfaction rates.
Six Sigma statistically measures and reflects true process capability, correlating to such characteristics as number of defects per number of outputs, and probabilities of process success or failure. Its value is in transforming corporate culture from complacency to accomplishment.
For Six Sigma to work, managers at all levels, from top to bottom, must commit to investing the resources to initiate, promote, execute, and support a Six Sigma program. That means providing their employees with the training, resources, knowledge, and authority to solve problems and then trusting them to do so.
Finally, as you go through this book, remember that this is just an overview of Six Sigma and its tools and processes. There are many other books available to help you get into the subject in more depth, including two other books I wrote: Six Sigma for Managers (McGraw-Hill, 2002) and Design for Six Sigma (McGraw-Hill, 2003).
[check] Reduce defects, cut costs
In any organization, the hidden costs of defects are huge: the monetary impact on productivity, customer satisfaction, and profitability is dramatic! Many companies believe that dealing with defects is just a cost of doing business. But that way of thinking is just plain wrong.
Six Sigma helps you identify the problems in your processes and reduce the defects that are costing you time, money, opportunities, and customers.
It's all about defects. The name "Six Sigma" derives from a level of quality: performing at the six sigma level means only 3.4 defects per million opportunities (DPMO). (The Greek letter sigma is the symbol in statistics for standard deviation, a measure of variation.)
Most organizations in the U.S. are operating at levels of three to four sigma. Defects in these organizations in terms of time, waste, and labor cost them as much as 25% of their total revenue.
How much are defects costing you? What's the cost of scrap and rework? What's the cost of excessive cycle times and delays? What's the cost of business lost because customers are dissatisfied? What's the cost of opportunities lost because you don't have the time or the resources to take advantage of them? What's your total cost of poor quality? Often there are certain factors (sometimes called the "vital few") you can identify that substantially affect these costs.
Can you answer the questions above? If so, then you know how much it's worth to reduce defects. If not, then you need to get some answers so you can begin to cut costs.
Even if a process has a variation of six sigmas above or below the ideal average, the outputs still fall within specification limits and be acceptable
Six Sigma helps you find out which characteristics are critical for your customers, identify the factors that most influence those characteristics, and reduce variations in those key factors.
It requires commitment from the top and throughout the organization. It requires questioning traditional beliefs and ways. It's no longer business as usual—for anyone on the organizational chart.
Implementing the Six Sigma methodology costs money, of course—for time, resources, consulting, training, and improvements. But the return is worth the investment. When you reduce defects and inefficiencies, costs decline naturally.
Six Sigma helps you do the following:
Know what your customers want: That's what matters, not what you think they want. What characteristics of your products or services are critical to quality (CTQ) for your customers?
Focus on the vital few factors: Understand the factors in your processes that most influence the CTQs. Then you can work most efficiently to improve your processes.
Control variation in the vital few factors: Less variation, fewer defects. Fewer defects, higher customer satisfaction and lower costs.
[check] Set business metrics
Metrics are essential to Six Sigma. If you can measure your processes, you can understand them. If you can understand them, you can improve them and reduce costs.
Many organizations operate by axiom—they accept certain beliefs as truths. For example, "We are committed to quality." But managers generally cannot justify their acceptance of these axioms. What does that mean exactly? Unless they have metrics to demonstrate the truth of this axiom, it will have little meaning.
How do you set appropriate metrics? Measure what's critical to your business.
Start with your customers. What things matter most to them?
Involve your leaders. Metrics should align with company strategy. When upper managers are engaged and committed to process improvement, then all employees will have the power to make changes based on what the metrics tell you.
All metrics should link to bottom-line results. With Six Sigma, this is a continual question, because Six Sigma focuses on tangible financial results.
Metrics should relate to important, regular activities and processes. Your metrics must enable you to reduce defects and correct the processes to reduce costs.
Ask questions. Why do we measure this? Why do we measure it in this way? What does this measurement mean? Why is this measureme
Excerpted from Six Sigma for Managers by Greg Brue. Copyright © 2005 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
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