© Max Zornada (2005)Slide 1 Introduction to Six Sigma Business Process Improvement through Six Sigma

© Max Zornada (2005)Slide 2 What is Six Sigma? l Six Sigma is a statistical measure of quality: l It is based on rigorous process based performance measures. l A Process for Continuous Improvement: l Six Sigma is a “generic” structured methodology for continuous improvement, that can be used to improve any process in any business. l An Enabler of Cultural Change: l Six Sigma changes the way organisations work and the way they think. l A disciplined process focussed on delivering near perfect products and services.

© Max Zornada (2005)Slide 3 Six Sigma: A Definition “A comprehensive and flexible system for achieving, sustaining and maximising business success. Six Sigma is uniquely driven by close understanding of customer needs, disciplined use of facts, data and statistical analysis, and diligent attention to managing, improving and reinventing business processes.” The Six Sigma Way, by Pande, Newman and Cavanaugh

© Max Zornada (2005)Slide 4 Six Sigma is a measure of excellence l Six Sigma is a statistical measure of quality, which reflects process capability; l It set the goal of achieving capability levels of 3.4 defects per million opportunities. l Focuses on driving out variation in business processes - this is what the customer feels! l Sigma is the Greek symbol used for Standard Deviation of a population. l Why Six Sigma? 

© Max Zornada (2005)Slide 5 A 6 Sigma Process Customer target Lower Specification Limit Upper Specification Limit 66 66 % of points will be outside of the specification limits ie. defects (= 3.4 parts per million out of spec.) = % of data inside the limits (C p = 2) % 1.7 ppm % 1.7 ppm

© Max Zornada (2005)Slide 6 9 Relating Sigma to Defect Levels Six Sigma % Five Sigma % Four Sigma6, % Three Sigma 66,81093% Two Sigma308,50069% One Sigma691,50031% DPMO (Defects Per Million Opportunities) Error Free Rate

© Max Zornada (2005)Slide 7 Putting Six Sigma in Perspective! If you played 100 rounds of golf per year, and played at: 2 sigma - you'd miss 6 putts per round 3 sigma - you'd miss 1 putt per round 4 sigma - you'd miss 1 putt every 9 rounds 5 sigma - you'd miss 1 putt every 2.33 years 6 sigma - you'd miss 1 putt every 163 years!

© Max Zornada (2005)Slide 8 History of Six Sigma Motorola launches its Six Sigma program Allied Signal introduces its Six Sigma program GE introduces its Six Sigma program and adds the “D” in DMAIC 1987 l Dupont, 3M, Sun Microsystems, Raytheon, Boeing, Lockheed- Martin, Bank-of-America, American Express, HSBC, SAS Institute … the list keeps growing every day. Who Else? l GE - All 300,000+ GE employees must be Six Sigma certified. All new GE products developed using the “Design for Six Sigma” approach. l 3M - CEO (from GE) requires all employees to become Six Sigma certified.

© Max Zornada (2005)Slide 9 Six Sigma at Dupont Many companies consider productivity to be a cost-saving operational issue. We at DuPont have elevated productivity to the strategic level because we believe that it is central to our efforts in sustainability. As a sign of our commitment in this area, we have adopted six-sigma methodology, a stringent approach that strives to reduce manufacturing defects to just several per million. At the end of last year, we had 1,100 black belts and 1,700 green belts (employees who have undergone weeks of training in the six-sigma methodology) working on 4,200 projects. In one of them, DuPont was able to increase the production rate of its plant in Buffalo, New York, by 10% –without any capital investments. … The result: $26 million in additional revenue last year. This number might not seem huge for a company with $30 billion in sales, but DuPont has thousands of such projects, and we are adding 200 new ones each month. Altogether, our projects using six-sigma methodology are responsible for savings of more than $1 billion a year. Source: Holliday, C. (2001). Sustainable growth the DuPont way. Harvard Business Review, Sept, pp 132

© Max Zornada (2005)Slide 10 Bottom Line Impact of Six Sigma l In dollar amounts, Six Sigma delivered more than $300 million to GE’s 1997 operating income and more than $600 million in 1998; l Raytheon - Six Sigma has generated a net benefit of $776 million for ; l Honeywell: l $500 Million l $600 Million l $700 Million+

© Max Zornada (2005)Slide 11 Six Sigma in the Services Sector l “Sustaining the intensity of our Six Sigma work is critical for Bank of America to achieve its strategic goals. Six Sigma has enabled us to generate more than $300MM in first-year productivity gains for the company. It has also had a significant impact upon the leadership team with our personal education and certification as Six Sigma Green Belts. As we look to the future, our leadership charge is to keep Six Sigma a top priority and use it to produce organic customer revenue growth.” - Ken Lewis (10/9/02) l Failing to implement Six Sigma in commercial areas with the same force that the company implemented it in its industrial sectors cost Motorola $5 billion over a four-year period.

© Max Zornada (2005)Slide 12 A Timeline of Key Events leading up to Six Sigma 's 's Shewhart's studies into variation at Bell Telephone Labs Shewhart publishes book, "Economic Control of Quality of Manufactured Product Widespread adoption of Shewhart's principles for War-time Production in the US Ishikawa develops Ishikawa diagram and pioneers use of 7-tools Widespread abandonment of Shewhart's principles in Post-War US. Deming teaches Shewhart principles to Japanese Deming develops management philosophy based on Shewhart concepts own ideas Japanese extend Deming's teachings, develop the "Total Quality” concept USA starts to copy Japan, called TQC (Total Quality Control) eventually the term TQM (Total Quality Management) is used as the label. US discovers Deming Rapid spread TQM principles to US service industries Pacific basin countries, excluding Australia commence adopting TQM Western Europe discovers TQM Developing countries rapidly adopting TQM Australian services sector copies US with adoption of TQM Australian manufacturing commences with TQM Benchmarking emerges as a supporting practice Business Process Reengineering Team based approaches to work gaining broad acceptance in industry Organisational learning emerging as a key competitive issue 1996 Renewed focus on Process Management Widespread emergence of Balanced Scorecard 6-sigma goes mainstream 2002

© Max Zornada (2005)Slide 13 Key Elements of Six Sigma l Process Orientation l Customer Focus l Y = f(X) l Data and Measurement Driven l Focus on Variation Reduction l Statistical Rigour l Project Orientation l The DMAIC Process Improvement/Problem Solving Process l Dedicated Personnel l Bottom Line Results Focussed l Data Driven Culture (In God we trust, all others bring Data)

© Max Zornada (2005)Slide 14 The Six Sigma Approach DMAIC Define the problem or opportunity. Measure the current performance and capability Analyse to identify root causes. Improve by implementing potential solutions. Control by standardising solution and monitoring performance. Define Measure Analyse Improve Control 66

© Max Zornada (2005)Slide 15 The Role of Statistics in Six Sigma Define Measure Analyse Improve Control 66 Practical Problem Statistical Problem Statistical Solution Statistical Control Practical Solution

© Max Zornada (2005)Slide 16 Six Sigma Support Structure l Champions: Business leaders who lead the implementation of Six Sigma within the business; l Sponsors/Process Owners: Business leaders responsible for the implementation of process improvements and monitoring process performance; l Master Black Belts: Fully trained quality leaders responsible for Six Sigma strategy, training, mentoring, deployment and results; l Black Belts: Fully trained Six Sigma experts who lead improvement teams, work on Six Sigma projects and mentor Green belts; l Green Belts: Fully trained individuals who apply Six Sigma skills to improvement projects; l Team Members: (Yellow Belts) Individuals who support projects in their areas.

© Max Zornada (2005)Slide 17 Implementing Six Sigma Strategic Level Tactical Level Operational Level Executive Steering Committee Master Black Belts Champions Black Belts Team Members Stakeholders Green Belts Yellow Belts

© Max Zornada (2005)Slide 18 Relationship between Quality, Market Share and ROI - The Business Case for Six Sigma Relative Market Share Relative Quality Low25%60%High Inferior Superior 33 % 67% Return on Investment (ROI) % Source: Buzzell, R.D. & Gales, B.T. (1987) The PIMS Principles

© Max Zornada (2005)Slide 19 Six Sigma Competitive Advantage Improve Quality External Quality Customer Satisfaction Market Share Revenue Internal Quality Operating Costs Capital Costs Economies of Scale Higher Profit Higher ROI Products & Services Processes & People

© Max Zornada (2005)Slide 20 How did leaders become leaders …… A accumulation of competencies Quality Delivery Cost Flexibility Nakane and Hall (1994) Define Measure Analyse Improve Control 66 Six Sigma provides the on-ramp and the mechanism to progress up the steps.

© Max Zornada (2005)Slide 21 In god we trust, all others bring data. Grade your organisation on its use of data l Our organisation uses only tribal knowledge i.e. people experience and “the way we do things around here”. We do not use data. l Our organisation collects data so as to say “we collect data” but the data is not used. l Our organisation collects data and we sometimes look at the numbers and use them to support problem solving and decision making. l Our organisation logically groups the data. We report it in the form of charts. l Our organisation uses sample data along with basic statistics. l Our organisation uses sample data along with inferential statistics. l Our organisation quantifies processes via predictive equations. F E D C B A A +

© Max Zornada (2005)Slide 22 Conclusion of introduction