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Six Sigma for Managers
By Greg Brue
The McGraw-Hill Companies, Inc.Copyright © 2002The McGraw-Hill Companies, Inc.
All rights reserved.
What Is Six Sigma?
Knowledge is power.
—Francis Bacon (1561-1626)
Do you know, do you really know, what's going on in your organization? The assertion that knowledge is power rings as true today as it did four centuries ago. In any industry, organization, or daily process, when you don't know what you don't know, it's going to cost you. For too many organizations the costs (often hidden) of defects and waste in the way they operate are huge.
Having processes in which errors occasionally occur may not seem such a big deal. But when you consider how many errors may be lurking in company-wide processes, the monetary impact on overall productivity, customer satisfaction, and profitability multiplies dramatically! The Six Sigma approach to managing is all about helping you identify what you don't know as well as emphasizing what you should know, and taking action to reduce the errors and rework that cost you time, money, opportunities, and customers. Six Sigma translates that knowledge into opportunities for business growth.
Many companies believe that dealing with errors is just part of the cost of doing business. But you don't have to accept that faulty logic. With Six Sigma, you can eliminate most errors, reduce your costs, and better satisfy your customers.
Six Sigma Defined and Explained
Six sigma is a statistical concept that measures a process in terms of defects. Achieving six sigma means your processes are delivering only 3.4 million defects per million opportunities (DPMO)—in other words, they are working nearly perfectly. Sigma (the Greek letter σ) is a term in statistics that measures something called standard deviation. In its business use, it indicates defects in the outputs of a process, and helps us to understand how far the process deviates from perfection. (We'll get into the statistics in later chapters.)
A sigma represents 691462.5 defects per million opportunities, which translates to a percentage of nondefective outputs of only 30.854%. That's obviously really poor performance. If we have processes functioning at a three sigma level, this means we're allowing 66807.2 errors per million opportunities, or delivering 93.319% nondefective outputs. That's much better, but we're still wasting money and disappointing our customers.
How well are your processes operating? Are they three sigma? Four sigma? Five?
Most organizations in the U.S. are operating at three to four sigma quality levels. That means they could be losing up to 25% of their total revenue due to processes that deliver too many defects—defects that take up time and effort to repair as well as creating unhappy customers. Is that good enough? The answer is simple. No it's not when you could be doing a lot better. Helping you do that is what this book is about.
The central idea of Six Sigma management is that if you can measure the defects in a process, you can systematically figure out ways to eliminate them, to approach a quality level of zero defects.
So, in short, Six Sigma is several things:
A statistical basis of measurement: 3.4 defects per million opportunities
A philosophy and a goal: as perfect as practically possible
A symbol of quality
Six Sigma in Context
Let's take an example, an all-too-familiar scenario: lost luggage at the airport. Many of us have experienced the frustration of watching the baggage carousel slowly revolve while waiting for luggage that never arrives. The system is far from perfect. But just how far, in sigma measurement terms?
In general terms, the baggage handling capability of many airlines is performing at around the three sigma level. That means there are about 66,000 "defects" for every one million luggage transactions, which equates to an approximate 94% probability that you'll get your luggage. Is that good enough? Certainly not for the customers whose bags are among the "defects." The "defects" increase costs for the airlines, because employees must deal with misplaced luggage and unhappy passengers. And those "defects" can result in lost business in the future.
If the airline moves to six sigma in luggage handling, it clearly pays off in terms of lower costs and happy passengers, who are then more likely to fly with that airline again.
As Figure 1-1 indicates, operating at anything less than six sigma levels means your processes have higher probabilities of delivering defects.
It may seem like three sigma is good enough. After all, if there are 66,807 defects out of a million, that means that 933,193 things went well—93.319% perfection.
But if the airline is taking comfort in those statistics, it's losing money and losing customers. Consider this three sigma level from another perspective.
For customers, three sigma represents highly unsatisfactory performance. The airline is not meeting their most basic expectation—that their luggage will be put on the same flight, to travel with them to the same destination. So the airline is likely to be losing many of those frustrated customers.
Three sigma is also costing money. Variations—time, waste, and errors—abound in the baggage-handling process: misrouting the baggage, reporting the problem, processing the report, searching, retrieving, and finally delivering the lost luggage. When you translate the 6% probability gap of missing luggage into monetary terms, the hard cost of this defect can be much higher than 6% of the overall cost of handling luggage—perhaps several million dollars per year. If the baggage-routing process were improved, the margin for error would be reduced and the allocation of resources, both human and monetary, could be much more profitably used.
How many customers can your business afford to lose? How much money can your company afford to lose because of mistakes? Why accept it as normal to be running processes at only three sigma or four sigma when, by changing the way you manage your processes, you could get a lot closer to six sigma and all the resulting benefits.
Six Sigma uncovers the layers of process variables—in data terms—that you must understand and control to eliminate defects and wasteful costs. It's a management approach that aims to achieve the apex of quality by measuring, analyzing, improving, and controlling processes to root out defects and boost bottom-line results.
A Little History of Quality
Many people associate Six Sigma with the quality movement. So, it seems logical at this point to start from that perspective. How does Six Sigma differ from the "quality" programs you may have already experienced? To answer that question, let's briefly recap the history of the quality movement.
No understanding of the quality movement would be complete without mentioning the visionary W. Edwards Deming, best known for helping the Japanese revitalize their industries after World War II. His approach was radically new and had significant impact on the evolution of quality and continuous improvement programs in organizations around the world.
It is fair to say that Deming's management approach, which came to be known as Total Quality Management or TQM (though Deming didn't like that term), has changed the way thousands of companies conduct their operations. By the mid-1980s, the extent to which corporate management was focusing on quality was significant: businesses adopting TQM underwent a major paradigm shift, a transformation of "unlearning" everything previously believed about bus
Excerpted from Six Sigma for Managers by Greg Brue. Copyright © 2002 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
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