MGT 563 OPERATIONS STRATEGIES

1. MGT 563OPERATIONS STRATEGIES Dr. Aneel SALMAN Department of Management Sciences COMSATS Institute of Information Technology, Islamabad

2. Recap Lecture 12 • General Introduction • Business Process Reengineering BPR Symbols • Understand and be able to implement a BPR Strategy • Understand the main challenges in implementing a BPR Strategy • Conclusion

4. Todays Lecture • Six Sigma Basics • Application of six sigma • Barriers to implementation • Why six sigma is successful • DMAIC Methodology • Elements of six sigma • Application of all these tools (TQM, Six sigma, Lean, BPR)

5. Basics • A new way of doing business • Wise application of statistical tools within a structured methodology • Repeated application of strategy to individual projects • Projects selected that will have a substantial impact on the ‘bottom line’

6. Six Sigma A scientific and practical method to achieve improvements in a company • Scientific: • Structured approach. • Assuming quantitative data. • Practical: • Emphasis on financial result. • Start with the voice of the customer. “Show me the data” ”Show me the money”

7. Where can Six Sigma be applied? Service Design Management Purchase Six Sigma Methods Administration Production IT Quality Depart. HRM M & S

8. The Six Sigma Initiative integrates these efforts SPC Improvement teams Problem Solving teams Strategic planning Knowledge Management ISO 9000 DOE Benchmarking and more

9. ‘Six Sigma’ companies • Companies who have successfully adopted ‘Six Sigma’ strategies include:

10. General Electric • In 1995 GE mandated each employee to work towards achieving 6 sigma • The average process at GE was 3 sigma in 1995 • In 1997 the average reached 3.5 sigma • GE’s goal was to reach 6 sigma by 2001 • Investments in 6 sigma training and projects reached 45MUS$ in 1998, profits increased by 1.2BUS$ “the most important initiative GE has ever undertaken”. Jack Welch Chief Executive Officer General Electric

11. MOTOROLA “At Motorola we use statistical methods daily throughout all of our disciplines to synthesize an abundance of data to derive concrete actions…. How has the use of statistical methods within Motorola Six Sigma initiative, across disciplines, contributed to our growth? Over the past decade we have reduced in-process defects by over 300 fold, which has resulted in cumulative manufacturing cost savings of over 11 billion dollars”*. Robert W. Galvin Chairman of the Executive Committee Motorola, Inc. *From the forward to MODERN INDUSTRIAL STATISTICS by Kenett and Zacks, Duxbury, 1998

12. Barriers to implementation Barrier #1: Engineers and managers are not interested in mathematical statistics Barrier #2: Statisticians have problems communicating with managers and engineers Barrier #3: Non-statisticians experience “statistical anxiety” which has to be minimized before learning can take place Barrier # 4: Statistical methods need to be matched to management style and organizational culture

13. MBB BB Master Black Belts Statisticians Black Belts Technical Skills Quality Improvement Facilitators Soft Skills

14. Reality • Six Sigma through the correct application of statistical tools can reap a company enormous rewards that will have a positive effect for years or • Six Sigma can be a dismal failure if not used correctly • ISRU, CAMT and Sauer Danfoss will ensure the former occurs

15. Six Sigma • The precise definition of Six Sigma is not important; the content of the program is • A disciplined quantitative approach for improvement of defined metrics • Can be applied to all business processes, manufacturing, finance and services

16. Focus of Six Sigma* • Accelerating fast breakthrough performance • Significant financial results in 4-8 months • Ensuring Six Sigma is an extension of the Corporate culture, not the program of the month • Results first, then culture change! *Adapted from Zinkgraf (1999), Sigma Breakthrough Technologies Inc., Austin, TX.

17. Six Sigma: Reasons for Success • The Success at Motorola, GE and AlliedSignal has been attributed to: • Strong leadership (Jack Welch, Larry Bossidy and Bob Galvin personally involved) • Initial focus on operations • Aggressive project selection (potential savings in cost of poor quality > $50,000/year) • Training the right people

18. The right way! • Plan for “quick wins” • Find good initial projects - fast wins • Establish resource structure • Make sure you know where it is • Publicise success • Often and continually - blow that trumpet • Embed the skills • Everyone owns successes

19. Six-Sigma Metrics • Defect – any mistake or error that is passed on to a customer • Defects per unit (DPU) = number of defects discovered  number of units produced • Defects per million opportunities (dpmo) = DPU  1,000,000  opportunities for error

20. Six-Sigma Quality • Ensuring that process variation is half the design tolerance (Cp = 2.0) while allowing the mean to shift as much as 1.5 standard deviations, resulting in at most 3.4 dpmo.

21. Problem Solving • Problem: any deviation between what “should be” and what “is” that is important enough to need correcting • Structured • Semistructured • Ill-structured • Problem Solving: the activity associated with changing the state of what “is” to what “should be”

22. Quality Problem Types • Conformance problems • Unstructured performance problems • Efficiency problems • Product design problems • Process design problems

23. Key Factors in Six Sigma Project Selection • Financial return, as measured by costs associated with quality and process performance, and impacts on revenues and market share • Impacts on customers and organizational effectiveness • Probability of success • Impact on employees • Fit to strategy and competitive advantage

24. Problem Solving Process • Redefining and analyzing the problem • Generating ideas • Evaluating and selecting ideas • Implementing ideas

25. DMAIC Methodology • Define • Measure • Analyze • Improve • Control DMAIC

26. Define • Describe the problem in operational terms • Drill down to a specific problem statement (project scoping) • Identify customers and CTQs, performance metrics, and cost/revenue implications

27. Measure • Key data collection questions • What questions are we trying to answer? • What type of data will we need to answer the question? • Where can we find the data? • Who can provide the data? • How can we collect the data with minimum effort and with minimum chance of error?

28. Analyze • Focus on why defects, errors, or excessive variation occur • Seek the root cause • 5-Why technique • Experimentation and verification

29. Improve • Idea generation • Brainstorming • Evaluation and selection • Implementation planning

30. Control • Maintain improvements • Standard operating procedures • Training • Checklist or reviews • Statistical process control charts

31. Tools for Six-Sigma and Quality Improvement • Elementary statistics • Advanced statistics • Product design and reliability • Measurement • Process control • Process improvement • Implementation and teamwork

32. Key Six Sigma Metrics in Services • Accuracy • Cycle time • Cost • Customer satisfaction

33. Elements of Six Sigma • Customer-driven objectives: ‘the process of comparing process outputs against customer requirements’ • Use of evidence: Six Sigma emphasises observational methods of collecting data and the use of experimentation to examine hypotheses. Techniques include graphical methods, analysis of variance, and two-level factorial experiment design.

34. Structured improvement cycle: The DMAIC cycle starts with defining the problem or problems, partly to understand the scope of what needs to be done and partly to define exactly the requirements of the process improvement. Often at this stage a formal goal or target for the improvement is set. • Structured training and organization of improvement: It recommends a specially trained cadre of practitioners, many of whom should be dedicated full time to improving processes as internal consultants. The terms that have become associated with this group of experts (and denote their level of expertise) are Master Black Belt, Black Belt and Green Belt. Master Black Belts are experts in the use of Six Sigma tools and techniques as well as how such techniques can be used and implemented.

35. Process capability and control: Processes change over time, as does their performance. Some aspects of process performance (usually important ones) are measured periodically (either as a single measurement or as a small sample of measurements).

36. Application of all these techniques

37. Each of the ‘new approaches’ positioned in terms of its emphasis on what changes to make or how to make the changes, and whether it emphasizes rapid or gradual change

38. All these approaches are different • These approaches are not strategies, but they are strategic decisions • Before we apply …. • Does the approach have the potential to add value in terms of the requirements • of our customers? • Do we have the resources (expertise, capacity, budget) to adopt the approach? • Have similar organizations to ours adopted this approach, and what is their experience of using it? • Is this approach compatible with other strategic decisions that we have made? • Are we capable of communicating the ideas behind the approach and carrying out the necessary training and development to ensure that all staff understand how it fits into the company’s strategy?