Dr. Ron Lembke SCM 462

 “It is the relentless and rigorous pursuit of the reduction of variation in all critical processes to achieve continuous and breakthrough improvements that impact the bottom line of the organization and increase customer satisfaction.” (p. 723)

 A “capable” process has UTL and LTL 3 standard deviations away from the mean, or 3 σ. LTLUTL 33 66 LTLUTL

3 sigma: Probability outside range = (1 – ) * 2 = Defect rate = 2,699 defects per million opportunities 6 sigma: Probability part outside range = Defect rate = dpm 1.97 defects per BILLION 33 66

 3 sigma: 1/.0027 = 1 every 370 parts  6 sigma: 1/  = 1 every million parts  If we make a million parts per year, we have:  3 σ : 2,699 defectives  6 σ : defectives

 Motorola, GE, Allied Signal say mean can shift 1.5 σ during early stages of 6 σ implementation  A 6 σ process then becomes 4.5 σ.  If this happens to a 3 σ process, it becomes 1.5 σ 66 4.5  7.5 

 With a 1.5 σ shift, defect rates become:  3 σ 66,807 dpm  6 σ 3.4 dpm  The commonly accepted definition of 6 σ quality is having a defect rate <= 3.4 dpm

 1986 began efforts  1987 plan to get to 3.4 dpmo by 1992  1988 Malcolm Baldridge Quality Award  1991 Black Belt (2 nd generation) initiative  x defect reduction every 2 years, cycle time every 4  1998 Corporate renewal  1999 Rules of engagement, Performance Excellence, Balanced Scorecard  2002 six sigma business improvement  Digital six sigma (3 rd generation)

 Popularized by GE in 1996 major initiative by Jack Welch  Better focus on customers  Data-driven decisions  Improved design & mfg capabilities  Individual rewards for process improvements

 Champions: Upper executives who will back up the proposals the black belts come up with  Responsible for financial & political well-being  Selects projects to be worked on  Understands discipline and tools of 6 σ  Promotes the methodology throughout the organization  Serve as coach, mentor, supports teams  Owns the process – monitoring process and measuring the savings realized  Allocates resources  20%-30% of time on 6 sigma

 Coach or lead 6 sigma improvement teams  Full-time work on defining, measuring, analyzing, improving, controlling processes A “thoroughly trained agent of improvement” Avg project saves $175k? Works on 4-6 projects per year Make sure what gets improved stays improved

 Have in-depth statistical training, serve as Black Belts for more teams  Help companies get started, choose team and projects  Teacher, mentor, lead agent of change  Skillfully facilitate change without taking over  Pass certification exam, supervise two black belts on successful projects

 Some 6 sigma training  Work on projects part-time, in a specific area  Solve chronic problems in their regular area  Take part in teams, small solo work  “Worker bees” critical to success  Must pass an exam, and participate in at least one project

 Financial return  Impact on customers and organizational effectiveness  Probability of success  Impact on employees  Fit to strategy and competitive advantage

 Conformance Projects  Unstructured Performance Projects  Problems because system poorly specified  Efficiency Projects  Acceptable products, not meeting internal goals  Product Design  Not meeting customer CTQ  Process design

 Define  Measure  Analyze  Improve  Control  (Alternate meaning: Dumb Managers Always Ignore Customers)

 Charter / rationale for the project  Why this, not others, need for project, costs, benefits  Developing a project charter (statement of the project)  Scoping:  Improve motor reliability  Most problems from brush wear  Problem with brush hardness  Reduce variability of brush hardness

 Gather voice of the customer data to identify critical-to-quality (CTQ) characteristics important to customers  Select performance metrics  What are current levels  Expected improvements  What will need to be done, by whom

 SIPOC Understand the relationships between  Suppliers  Inputs  Process  Outputs  Customers

 Develop operational definitions for each CTQ characteristic  Figure out how to measure internal processes affecting each CTQ  Figure 10.3  Figure out what data we need to collect  Easy to collect correctly  Interrupt process as little as possible  Collectors understand why collecting  “gage study” to determine the validity (repeatability and reproducibility) of the measurement procedure for each CTQ  Baseline data  Collect baseline capabilities for each CTQ  Determine the process capability for each CTQ

 Understand why defects and variation occur  Find the root causes  5W = 1H  Identify key causes  Experiments to verify impact  Formulate hypothesis, collect data

 Identify upstream variables (x’s) for each CTQ  Process mapping  Operationally define each x  Collect baseline data for each x  Perform studies to determine the validity (repeatability and reproducibility) of the measurement process for each x  Establish baseline capabilities for each x  Understand the effect of each x on each CTQ

 Brainstorm ideas of how to improve  Determine optimal levels of critical x’s to optimize the spread, shape and center of the CTQ’s  Action plans to implement the optimal level of the x’s  Conduct pilot test of the revised process

 Risk abatement planning and mistake-proofing to avoid potential problems with the revised settings of the x’s  Standardize successful process revisions in training manuals  Control revised settings of the critical x’s  Turn revised process over to the process owner for continuous improvement using the PDSA cycle

 Tell everyone what you did, so they can learn from it

 Black belt: 5 day sessions: 4 of them, with three weeks in-between  1: Define &Measure  2: Analyze  3: Analyze & Improve  4: Control & future steps  Green belt: 2 5-day sessions, three weeks in- between

Week 1 Overview Process improvement planning Process mapping Quality Function Deployment Failure mode and effects analysis Organizational effectiveness concepts Basic statistics Process capability Measurement systems analysis Week 2 Statistical thinking Hypothesis testing Correlation Simple regression Team assessment Week 3 Design of experiments Analysis of variance Multiple regression Facilitation tools Week 4 Control plans Statistical process control Mistake-proofing Team development

Training time costs Material costs Training manual development costs Administrative and operating costs for DMAIC projects Infrastructure costs such as the sots of constructing and using organizational metric tracking systems Monitoring DMAIC project costs Anecdotal evidence strongly indicates that he benefits of a Six Sigma process far outweigh the costs. This book suggests benefits of $250k per project

 Improved communication through six sigma terminology (for example, DPMO and process sigma)  Enhanced knowledge and enhanced ability to manage knowledge  Higher levels of customer and employee satisfaction  Increased Productivity  Reduced total defects  Improved process flows  Decreased work-in-progress (WIP), inventory, increased liquid capital  Improved capacity and output  Increased quality and reliability  Decreased unit costs  Increased price flexibility  Decreased time to market, faster delivery time

 58 large companies have announced Six Sigma efforts  91% trailed S&P 500 since then, according to Qualpro, (which has its own competing system)  July 11, 2006

 1995 – Got Excited about Six Sigma  January 1996 – GE’s “most ambitious undertaking ever.” Put the “best and brightest to work on it.”  Operating margins went from 14.8% to 18.9% by Book Publicity Materials: “Jack Welch may be the most talked about and widely emulated manager in business history. He's used his own uncanny instincts and unique leadership strategies to run GE, the most complex organization in the world, increasing its market value by more than $400 billion over two decades.”

6σ6σ

 S&P up 75%, GE up 210%. 6σ6σ

 S&P up 30%  GE down 4%  So Immelt is lousy?

Immelt starts 8/7/01 Welch’s Affair public Welch’s perks revealed

 $86,000 /yr consultant  “lifetime access to company facilities and services comparable to those which are currently made available to him by the company”  “unconditional and irrevocable”  $80,000 per month Manhattan apartment  Court-side Knicks, Red Sox & Yankees box seats  country club fees, security services and restaurant bills  Corporate $3.5m/year

 GE stock is down 4 percent  S&P 500 has gone up 30 percent.  Revenue and profits have risen at double-digit percentages in each of the past eight quarters.  2006 Fortune survey voted GE the world's most admired company

 Qualpro’s “Six Problems with Six Sigma”  Six sigma novices get “low hanging fruit” “Without years of experience under the guidance of an expert, they will not develop the needed competence”  Green belts get advice from people who don’t have experience implementing it  Loosely organized methodology doesn’t guarantee results (and they do?)  Six Sigma uses simple math – not “Multivariable Testing” (MVT)  Six Sigma training for all is expensive, time-consuming  Pressure to “do something” – low value projects

 Narrow focus on improving existing processes  Best and Brightest not focused on developing new products  Fortune July 11, 2006  Can be overly bureaucratic