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Introduction to Six Sigma
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History and Background
In the late 1980’s, as the popularity of the Malcolm Baldrige Award was peaking, an engineer and
statistician at Motorola, Dr. Mikel Harry, began to study process
variation as a way to improve performance. Dr. Harry formalized his Six
Sigma philosophies into a system for measurably improving business
quality.
Dr. Harry is commonly viewed as the father of Six Sigma. He is currently
co-founder and member of the Board of Directors of Arizona-based Six Sigma
Academy and claims ownership of Six Sigma terminology, although many firms
use the terms freely.
The Six Sigma approach became the focal point of Motorola’s quality effort
and a way of doing business. Motorola’s CEO began to tout the benefits of
the methodology and other executives began to listen. Soon companies like
General Electric, Allied Signal and Texas Instruments were on board.
The concept has since spread widely throughout the manufacturing sector,
and within the last two years, it has been receiving attention and interest
in the financial services sector. Six Sigma methodologies are delivering
positive results in the service sector and the popularity of the technique
is expected to grow.
Overview
Although definitions vary slightly by source, the most
common might be: “A disciplined, data-driven approach and methodology
for eliminating defects in any process – from manufacturing to
transactional and from product to service.”
There are three over-arching themes to Six Sigma:
 | Process Focus (at its core, Six Sigma is about measuring process
variations) |
| Meeting Customer Needs (process outputs must meet customer requirements) |
| Data Driven (rigorous analytical methods drive improvements that deliver
measurable differences felt by the customer) |
The objective of the Six Sigma methodology is to implement
a measurement-based approach that focuses on improving processes and
reducing process variation through Six Sigma projects. In essence, it
quantifies how a process is performing and seeks to improve that process
by meeting customer requirements more frequently.
Dr. Harry and Motorola originally coined the term “Six
Sigma” in 1986. The martial arts terms used to describe levels of Six
Sigma proficiency were also originally adopted and coined by Motorola, and
are generally defined as follows:
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Master Black Belt – The highest level of technical, organizational and
training proficiency. |
| Black Belt – Technically-oriented individuals that need not be formally
trained statisticians or engineers, but typically possess a background
in college-level mathematics and/or statistics. Black belts typically
lead the statistical piece of the project. |
| Green Belt – Six Sigma team leaders capable of forming and
facilitating six sigma teams and managing six sigma projects from
concept to completion. Typically, green-belt training consists of
five days of classroom training conducted in conjunction with Six Sigma
projects. Training covers facilitation techniques, meeting management,
project management, quality management tools, quality control tools,
problem solving and exploratory data analysis, all skills that Nolan
consultants possess. |
Although these terms are quite common, they are not universal. They indicate peer recognition, not
registration or licensure.
The three most prominent organizations promoting Six Sigma include:
| International Society of Six Sigma Professionals (ISSSP) |
| American Society for Quality (ASQ) |
| International Quality Federation (IQF) |
According to a noted Six Sigma expert, “Companies
and consulting firms often create their own titles to describe the work
done by these technical leaders. There is currently no standard describing
the body of knowledge people with these titles must master, let alone
licensing or certifying credentials.” Experts are currently working to
change that through the IQF.
Statistics
In statistical nomenclature, the Greek letter sigma, is
used to denote standard deviation, which is a measure of variance about
the mean or average. In a standard bell-shaped curve that represents
normal distribution, one sigma, or one standard deviation, represents
about 68% of the measured population, two sigma about 95%, three sigma
about 99% and so on. Six sigma equates to 99.99966% of the measured
population.
When measuring process performance, you divide the number
of errors or defects by the total number of opportunities. If a process
has a 5% error rate, then that process is performing at two sigma. This
means that the process performs correctly (meets customer requirements)
95% of the time.
 Most organizations perform somewhere between 2.7 and 4
sigma. If process performance reached six sigma, there would only be 3.4
errors per million opportunities which is near perfection.
The concept of Six Sigma is based on the theory of variation, meaning that
all things that are measured fine enough will vary. Variation in a process
is driven by: machines, materials, methods, measurement systems,
environment and people. When there is no undue influence by any one of
these six factors, the variation produced is called “common cause” or
“normal” variation. When one or more of the components have an undue
influence, “special cause” or “abnormal variation” exists, which takes the
form of multiple or “binomial distributions” in statistics language. This
distinction is critical in order to select the best course for management
intervention because only abnormal variation can be corrected or reduced.
There are two methods for calculating sigma, the Discrete Method and the
Continuous Method. The Discrete Method assumes that the customer gives
credit to the service or product provider if only some of the customer
requirements are met, so it may be misleading. The Continuous Method is
more appropriate for more demanding customers. It tends to be more
accurate in that it provides a picture of the magnitude of variation, the
type of variation, common or special cause variation, and requires less
data collection.
Once the average and standard deviation (sigma) of a process becomes
known, more specific measures of process performance or capability are
typically applied. These include capability ratio, capability index, and
capability index compared to some constant. The capability ratio compares
process performance against the customer specifications. The capability
index is the inverse of the capability ratio.
These calculations have limitations in that they are based on the
assumption that the process is centered at the mean, when in reality,
processes drift from their intended centers over time. A more precise
measure is therefore the capability index compared to a constant-k.
There are two formulas that can be used. One is used when the center of
the distribution is closer to the upper customer specification; another is
used when the center is closer to the lower specification.
When applying these formulas, consideration must be given to short-term
vs. long-term process performance. In other words, a given data sample
should be considered short-term due to the variability of performance over
time. In general, the larger the sample size and/or number of samples
taken, the more accurate the result.
Program Implementation and Project Steps
Once an organization has decided to implement the Six Sigma methodology,
there are some initial steps that need to be completed:
| Develop process maps for core processes, key sub-processes and enabling
processes, and assign a process owner for each. |
| Develop a measurement dashboard or scorecard for each process. (all
measures for a given process) |
| Develop a data collection plan (measure options, data sources,
collection forms, etc.) for each dashboard process and collect
sufficient data. |
| Create project selection criteria and weight factors for choosing
projects which should include impact on business objectives, current
process performance, current process cost or financial impact,
feasibility (difficulty, use of resources, time commitment), etc. |
| Rate processes and select potential Six Sigma project(s) based on
overall score. |
It should be noted here that Six Sigma is not a business
strategy. In fact, Six Sigma would assume that strategic business
objectives have already been developed. Processes that are selected for
Six Sigma projects are those that most closely relate to strategic
objectives.
Once the initial program setup steps have been completed
and an individual project has been selected, the typical Six Sigma project
would include the following steps:
| Develop a project team to include sponsor, leader, technical expert
(Black Belt), and team members. |
| Prepare a project charter. (business case, problem statement, scope,
goals, milestones, roles & responsibilities, etc.) |
| Identify customer needs and requirements. |
| Create high-level process maps to include process definition, start and
stop points, inputs, outputs, customers, customer requirements,
suppliers, etc. |
| Establish baseline process performance and current sigma. |
| Determine process defects and conduct root cause analysis. |
| Develop alternatives and select solution. |
| Implement the improvement and control measures to hold the gains. |
The DMAIC Project Cycle
There are two Six Sigma methodologies that are alternately used depending
upon the type of project. For developing new processes at Six Sigma performance levels,
the methodology is DMADV (define, measure, analyze, design, verify). For
the far more common process improvement projects, the methodology is DMAIC
(define, measure, analyze, improve, control). DMAIC focuses on
incrementally improving existing processes. An illustration of the DMAIC
project process (Copyright 2000 by Thomas Pyzdek) follows:
 Six Sigma Use in Organizations and Its Results
According to the Six Sigma Academy, Black Belts save companies
approximately $230,000 per project. General Electric for example, has
estimated benefits on the order of $10 billion during the first five years
of implementation. During the 1990s, Allied Signal’s sales repeatedly rose
in double digits, while productivity and earnings rose dramatically. Texas
Instruments adopted Six Sigma with similar success. Other organizations
using Six Sigma include; Motorola, Sony, Honda, Maytag, Johnson Controls, Raytheon, Canon, Hitachi, Polaroid, and Lockheed Martin.
As you can see, the organizations listed above are manufacturing companies,
but more recently Six Sigma has spread into financial services. Good
examples of this include GE Capital Services, American Express, J.P. Morgan, Fannie
Mae, Liberty Insurance, Mount Carmel Health and State Street Bank.
Service industry organizations differ significantly from manufacturing
organizations in their approach to quality in the following ways:
| Day-to-Day decision making on conformance to standards is largely in the hands of line departments
(i.e. no independent inspection personnel, who have the power to hold up
delivery of a non-conforming product). |
| The concept of a separate manager and staff of specialists devoting full
time to quality control has a minority acceptance. |
| Organized coordination of the quality function seldom exists in
continuing form. For specific projects or crisis situations, it
typically takes the form of temporary committees. |
It appears that in spite of these concerns, there is significant potential
for Six Sigma to continue to expand into the financial services industry
as reengineering did in the 90s. A methodology that has a demonstrated
track record of delivering process improvement, increasing customer
satisfaction and delivering bottom line results will be hard to resist.
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