Why Do Six Sigma?

1. Why Do Six Sigma? ASC Asia Six Sigma Consultants HAMID REZA REZAIE

2. What is Six Sigma • Sigma is Greek letter used to indicate standard deviation • A sigma level provides a statistical estimate of the Defect (Error) Rate • Six Sigma relates to 3.4 Defects Per Million Opportunities ASC Asia Six Sigma Consultants HAMID REZA REZAIE

3. Graphical View of Six Sigma • Customer Requirements (USL, LSL) defined at ± Six Sigma from the measured Process Mean Measured Process LSL = - 6σ Target +3σ USL = 6σ ASC Asia Six Sigma Consultants HAMID REZA REZAIE

4. Why 3.4 PPM Defect Rate? • Measured process may shift by as much as 1.5 sigma (shown in pink), resulting in a max defect rate of 3.4 ppm Measured Process LSL = - 6σ Target +3σ USL = 6σ ASC Asia Six Sigma Consultants HAMID REZA REZAIE

5. Does Six Sigma Apply to… • Low volume production: • How can you measure Defects per Million Opportunities • Service Companies: • What’s a Defect? We don’t produce anything? ASC Asia Six Sigma Consultants HAMID REZA REZAIE

6. Six Sigma Applications • Manufacturing, Service, Chemical, Financial… • High or low volume • Millions or Billions in Revenue • Even Non-profits ASC Asia Six Sigma Consultants HAMID REZA REZAIE

7. Errors Happen • Wherever errors occur, can measure a Defect Level • Need to define • Customers • Internal or External • Critical Customer Requirements • needs, specifications ASC Asia Six Sigma Consultants HAMID REZA REZAIE

8. How DPMO Relates to Sigma Level ASC Asia Six Sigma Consultants HAMID REZA REZAIE

9. Service Example • IRS tax form advice • Survey of responses indicates predicted error rate • If 40% then: • DPO = .40 • DPMO = .40 defects/opportunity * 1,000,000 opportunities/million opportunities • 400,000 DPMO = 1.75 Sigma ASC Asia Six Sigma Consultants HAMID REZA REZAIE

10. What Sigma Level Are Your Key Processes? • Product-based: • Scrap / Yield Reports • Best to include Reworks (Hidden Factory) • Service: • Error rate of information exchanged • Cycle time ASC Asia Six Sigma Consultants HAMID REZA REZAIE

11. Order Processing Example • Requirements: • Name exactly as appears on credit card • Billing Address exactly as on credit card statement • Credit card number • Credit card expiration date • Product ID being ordered • Quantity Ordered ASC Asia Six Sigma Consultants HAMID REZA REZAIE

12. Example (cont.) • Find 600 errors on 200 orders in random sample of 4,000 orders • 6 critical characteristics • DPMO = (600 defects / (4000 orders * 6 opportunities / order)) * 1,000,000 • DPMO = 25,000 • Sigma Level approx. 3.5 ASC Asia Six Sigma Consultants HAMID REZA REZAIE

13. Processes in Series • Final Yield = Yield1 * Yield2 * Yield3 * … Yieldn • Example: Order is processed through six departments, each with defect rates calculated as 0.3%, 0.5%, 5%, 7.5%, 11.1%, 7.9% • Final Yield = .997 * .995 * .95 * .925 * .899 *.921 * 100% = 71.4 % DPMO = 286,000 Sigma Level approx. 2 ASC Asia Six Sigma Consultants HAMID REZA REZAIE

14. Why DPMO? • 1% error rate (10,000 DPMO) = 3.8 Sigma • 4 Sigma = 0.6 % • 5 Sigma = 0.02 % • 6 Sigma = 0.00034 % • Inconvenient to use % beyond 3 or 4 Sigma ASC Asia Six Sigma Consultants HAMID REZA REZAIE

15. Example Sigma Levels(ref: Six Sigma Deployment by Paul Keller, Quality Publishing, Inc. 2001) ASC Asia Six Sigma Consultants HAMID REZA REZAIE

16. 3 Sigma vs. 6 Sigma Processes(source: Six Sigma Handbook by Thomas Pyzdek, Quality Publishing, Inc. 2001) ASC Asia Six Sigma Consultants HAMID REZA REZAIE

17. The DPMO Game • How to classify an “Opportunity”? • Ex: Define opportunity for earlier IRS Tax advice example: • each customer contact, OR • each question from each customer contact • The latter choice provides more opportunities • More opportunities = less DPMO for same number of errors ASC Asia Six Sigma Consultants HAMID REZA REZAIE

18. Using DPMO Appropriately • Classify opportunities in customer terms • An opportunity should be related to a transaction that results in customer appraisal • Consider only what is critical to customer • Countless non-critical criteria can be excluded • Limit DPMO / Sigma Level use • Comparisons between companies often meaningless ASC Asia Six Sigma Consultants HAMID REZA REZAIE

19. Six Sigma in Terms of CostCost of Quality as % of Revenue • As Sigma Level increases, defect costs can be shifted to revenue-generating activities • (Numerator decreases AND denominator increases) ASC Asia Six Sigma Consultants HAMID REZA REZAIE

20. Hidden Factory • Most companies operate in 3 to 4 Sigma Levels • For-profit companies cannot afford 2 Sigma • Many costs go unreported as Quality costs • Failure costs include warranty, rework, sorting, fine-tuning, management approvals, next day deliveries, invoicing errors,…. ASC Asia Six Sigma Consultants HAMID REZA REZAIE

21. How are Cost Savings Achieved? • Failure Costs moved to Prevention Costs • As improvement occurs, wasted dollars go to bottom line • Go from ‘fire-fighting’ to sales & profit generation • Design for Six Sigma • Particularly useful for companies at ≥ 4 Sigma • Incorporates prevention activities at early stages of product / service development ASC Asia Six Sigma Consultants HAMID REZA REZAIE

22. Key Differences: SS & typical TQM • Project Focus & Duration • Organizational Support & Infrastructure • Clear & Consistent Methodology • Top-down Training ASC Asia Six Sigma Consultants HAMID REZA REZAIE

23. Key Difference 1: Project Focus & Duration • Projects focus on one or more key areas: • Cost, Schedule, Quality • Directly linked to strategic goals • Project scope ‘small’ • designed to conclude in 3 or 4 month or less • Project Charter defines scope, objective and deliverables ASC Asia Six Sigma Consultants HAMID REZA REZAIE

24. Key Difference 2: Organizational Support & Infrastructure • Executive Staff • Champions • Sponsors • Master Black Belts • Black Belts • Green Belts ASC Asia Six Sigma Consultants HAMID REZA REZAIE

25. Key Difference 3: Clear & Consistent Methodology • DMAIC • Define • Measure • Analyze • Improve • Control ASC Asia Six Sigma Consultants HAMID REZA REZAIE

26. DMAIC Approach • Structured approach leads to success • Check sheet applied to each stage • Projects clearly defined and implemented • Results standardized into operational practices • Financial results certified by Accounting dept. ASC Asia Six Sigma Consultants HAMID REZA REZAIE

27. Key Difference 4: Top Down Training • Starts at top: • Executive Level • Champion • Black Belt • Green Belt • Goal: Data driven decision making ASC Asia Six Sigma Consultants HAMID REZA REZAIE

28. Key Differences: SS & typical TQM • Project Focus & Duration • Organizational Support & Infrastructure • Clear & Consistent Methodology • Top-down Training RESULT: Data-driven decision making at all levels of organization, geared towards satisfying critical needs of key stakeholders. ASC Asia Six Sigma Consultants HAMID REZA REZAIE

29. Success Stories • Motorola • Allied Signal / Honeywell • GE ASC Asia Six Sigma Consultants HAMID REZA REZAIE

30. Six Sigma Origins • Motorola developed Six Sigma Methodology in 80’s • In 1981, Motorola set out to improve the quality of their products and services tenfold • In 1988, accepted Malcolm Baldrige National Quality Award, and began the Six Sigma Quality movement ASC Asia Six Sigma Consultants HAMID REZA REZAIE

31. Motorola Experience(ref: http:/mu.Motorola.com/Six Sigma/SixSigma.html) • Between 1983-87: spent $70 Million on quality-related education • Productivity increased average of 12.3% /yr • Cost of Quality reduced by more than 84% • 99.7% of in-process defects eliminated • $11 Billion in manufacturing costs saved • Average annual compounded growth rate of 17% in earnings, revenues, and stock prices ASC Asia Six Sigma Consultants HAMID REZA REZAIE

32. Allied Signal Experience • Larry Bossidy, CEO of Allied Signal, began their Six Sigma program in 1994. • In 1998, achieved cost savings of $500 million directly attributable to their Six Sigma program • In 1999, the cost savings grew to $600 million. ASC Asia Six Sigma Consultants HAMID REZA REZAIE

33. Allied Delights Customersref.: 1999 Annual Report “…cost savings are only part of the story. Delighting customers and accelerating growth completes the picture. When we are more efficient and improve work flow throughout every function in the company, we provide tremendous added value to our customers - through higher quality solutions that are more competitively priced, delivered on time and invoiced correctly. That makes us a more desirable business partner.“ ASC Asia Six Sigma Consultants HAMID REZA REZAIE

34. Allied Cycle Time Reductions • Two plants operating at full capacity could not satisfy customer demand • Six Sigma methodology increased production rate by 30%, with little to no additional costs. ASC Asia Six Sigma Consultants HAMID REZA REZAIE

35. GE Six Sigma Deployment(ref: 1998 Annual Report) • Capacity improvements of 12-18% • Rise in operating margin to 16.7% • $750 million in savings. ASC Asia Six Sigma Consultants HAMID REZA REZAIE

36. GE Plastics • Reduced color variation in plastic products. • Raised quality from 2 sigma to 4.9 sigma over 4 months • Saved $400,000 a year for one plant. (ref GE Way) • In 1996, first year of Six Sigma deployment, GE Plastics achieved benefits of $20M ASC Asia Six Sigma Consultants HAMID REZA REZAIE

37. GE Capital Mortgage Insurance • Cut defects 96%. • Claim payments were reduced by $8M, while borrowers were offered alternatives to foreclosure. (ref: 1997 GE Annual Report) • Reported a 160% increase in new transactions. ASC Asia Six Sigma Consultants HAMID REZA REZAIE

38. GE Aircraft Engines • Reduced custom charges and cut delays at the border by 50% • Reduced defects in the paperwork needed when parts are imported into Canada. (ref: 1997 GE Annual Report) ASC Asia Six Sigma Consultants HAMID REZA REZAIE

39. GE Medical Systems • Developed a new ultrasound technology which allows medical personnel to more clearly diagnose risk factors contributing to stroke. • Technology became available two years earlier than otherwise possible, due to GE’s Design for Six Sigma deployment. ASC Asia Six Sigma Consultants HAMID REZA REZAIE

40. Other SS Industry Leaders • Boeing, IBM, Bombadier, Asea Brown Boveri, DuPont, Kodak, Compaq and Texas Instruments. • GMAC Mortgage, Citibank, JP Morgan and Cendant Mortgage. ASC Asia Six Sigma Consultants HAMID REZA REZAIE

41. Six Sigma Doesn’t Cost, It Pays • Cost of training low relative to resulting savings • Each project $100,000 or more in savings • Reap rewards as you go • Train as needed • More projects = More savings • Bottom line impact grows with program maturity ASC Asia Six Sigma Consultants HAMID REZA REZAIE

42. Still Wondering? • What would the impact be if your closest competitor implemented a Six Sigma program and you didn’t ? ASC Asia Six Sigma Consultants HAMID REZA REZAIE