TERM PAPER OF OPERATION MANAGEMENT

TOPIC: - SIX SIGMA AND APPLICATION

DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY PHAGWARA

SUBMITTED TO: Mr. HARSHA SUBMITTED BY:Puneet Bharti Roll no. 27 Reg no. 7020070007 BBA(Hons.) SIX SIGMA AND APPLICATION
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Table of content:

Introduction of six sigma Historical overview Methods Six sigma and its benefits Six sigma approach Six sigma methodology

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INTRODUCTION TO SIX SIGMA

Six Sigma is usually related to the magic number of 3.4 defects per million opportunities. People often view Six Sigma as yet another rigorous statistical quality control mechanism. Pioneered at Motorola in the mid-1980s, Six Sigma was initially targeted to quantify the defects occurred during manufacturing processes, and to reduce those defects to a very small level. Motorola claimed to have saved several million dollars. Another very popular success was at GE. Six Sigma contributed over US $ 300 million to GE's 1997 operating income. Today Six Sigma is delivering business excellence, higher customer satisfaction, and superior profits by dramatically improving every process in an enterprise from financial to operational to production. Six Sigma has become a darling of a wide spectrum of industries, from health care to insurance to telecommunications to software. Six Sigma is a business management strategy originally developed by Motorola.[1] As of 2009, it enjoys widespread application in many sectors of industry, although its application is not without controversy. Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of quality management methods, including statistical methods, and creates a special infrastructure of people within the organization ("Black Belts, Green Belts", etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified targets. These targets can be financial (cost reduction or profit increase) or whatever is critical to the customer of that process (cycle time, safety, delivery, etc.). What is Six Sigma? It is important to recall that every customer always values consistent and predicable services and/or products with near zero defects. Therefore they experience the variation and not the mean. Mean is their expectation or our target.

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If we can measure process variations that cause defects i.e. unacceptable deviation from the mean or target, we can work towards systematically managing the variation to eliminate defects. Six Sigma is a methodology focused on creating breakthrough improvements by managing variation and reducing defects in processes across the enterprise. Sigma is a Greek symbol represented by "". Why do we call Six Sigma as Six Sigma and not Four or Five Sigma or Eight Alpha (another Greek symbol)? Sigma is a statistical term that measures process deviation from process mean or target. Mean is also referred as average in common language. The figure of six was arrived statistically by looking at the current average maturity of most business enterprises. We would like to revise this figure to 8 or may be 9 provided the world becomes a more orderly and predictable (even with increasing entropy or chaos) place to live! We have a detailed discussion on keywords "breakthrough improvement" and "variation" apart from the "methodology" in later sections.

Example: Let us take an example to bring a breakthrough improvement in our current understanding of the concept of Six Sigma. This requires us to have basic knowledge of statistics. We have a detailed discussion on required statistical concepts later.Consider a pizza delivery shop that guarantees the order delivery with 30 minutes from the time of accepting an order. In the event of a delivery time miss, the customer is refunded 100% money. The management took a target (read mean) of delivering every pizza order within 15 minutes and aligned its processes to meet this goal.

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If we collect data of delivery times over a large number of the delivery made by the pizza shop and make a frequency distribution graph, we discover that it resembles a "bell shaped curve". A frequency distribution graph is constructed from the frequency table; a frequency table lists different time intervals (called classes) like 0 to 2 minute, 2 to 4 minutes, to 14 to 16 minutes to 28 to 30 minutes and the count of the deliveries made in each interval. The mean is found to be 16 minutes and standard deviation (measure of deviation or dispersion in data i.e. ) is found as 2.5 minutes. A graph drawn from the data of over 5000 deliveries made is given below. Note, this not a real graph and is used only for illustration purposes.

This bell shape curved is called "normal distribution" in statistical terms. In real life, a lot of frequency distributions follow normal distribution, as is the case in the pizza delivery times. Natural variations cause such a distribution or deviation. One of the characteristics of this distribution is that 68% of area (i.e. the data points) falls within the area of -1 and +1 on either side of the mean. Similarly, 2 on either side will cover approximately 95.5% area. 3 on either side from mean covers almost 99.7% area. A more peaked curve (e.g. more and more deliveries were made on target) indicates lower variation or more mature and capable process. Whereas a flatter bell curve indicates higher variation or less mature or capable process.

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After this statistical detour let us come back to our pizza example. If the pizza shop delivers 68% of pizza orders in time, we call it a "One Sigma shop". Similarly, if the pizza shop makes 95.5% deliveries on time, we call it a "Two Sigma shop". In our example, data suggests that it is almost a "Three Sigma shop". We should now be able to appreciate why management took a delivery time target of 15 minutes and not 30 minutes. Imagine what would have happened with a 30 minutes delivery time target! The "delivery time" is a critical-to-quality parameter from the customer perspective and has a significant impact on profits. In addition, it is an entry barrier for the competition. Such a parameter is called a CTQ and its definition in context of our pizza shop is given below: CTQ Name: Timely Pizza delivery CTQ Measure: Time in Minutes CTQ Specification: Delivery with 30 minutes from the order acceptance time Now we can easily define a defect: Defect: Delivery that takes longer than 30 minutes Unit: Order Opportunity: 1 per order i.e. only "1" defect can occur in "1" order Technical Note: This discussion on the example did not include 1.5 process shift during the above analysis. The concept is discussed later. The Six Sigma conversion graph including a 1.5 shift in process is given below:

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This graph is on a logarithmic scale. Notice the increasing rate of improvement. For example, 1 sigma to 3 sigma is only 10 times improvement; 3 sigma to 4 sigma is a big 10 times improvement; whereas 5 sigma to 6 sigma is a whooping 1825 times change. That is why we are talking about breakthrough improvements in a journey to Six Sigma. How does Six Sigma work? The driving force behind any Six Sigma project comes from its primary focus - "bringing breakthrough improvements in a systematic manner by managing variation and reducing defects". This requires us to ask tougher questions, raise the bar significantly, and force people to think out of the box and to be innovative. The objective is to stretch, stretch mentally and not physically. To make this journey successful there is a methodology(s) to support Six Sigma implementations. There are 2 potential scenarios - (a) there is already an existing process(s) that is working "reasonably" well and (b) there is no process at all. A bad process is as good as no process.

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Scenario (a) focuses on significant process improvements and requires use of DMAIC: 1. Define process goals in terms of key critical parameters (i.e. critical to quality or critical to production) on the basis of customer requirements or Voice Of Customer (VOC) 2. Measure the current process performance in context of goals 3. Analyze the current scenario in terms of causes of variations and defects 4. Improve the process by systematically reducing variation and eliminating defects 5. Control future performance of the process Scenario (b) focuses on process design using Design for Six Sigma (DFSS) approach. DFSS typically requires IDOV: 1. Identify process goals in terms of critical parameters, industry & competitor benchmarks, VOC 2. Design involves enumeration of potential solutions and selection of the best 3. Optimize performance by using advanced statistical modeling and simulation techniques and design refinements 4. Validate that design works in accordance to the process goals Note, sometimes a DMAIC project may turn into a DFSS project because the process in question requires complete re-design to bring about the desired degree of improvement. Such a discovery usually occurs during improvement phase of DMAIC.In addition to the methodology, what counts in this journey is being smart and innovative.

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Historical overview
Six Sigma originated as a set of practices designed to improve manufacturing processes and eliminate defects, but its application was subsequently extended to other types of business processes as well. In Six Sigma, a defect is defined as any process output that does not meet customer specifications, or that could lead to creating an output that does not meet customer specifications. Bill Smith first formulated the particulars of the methodology at Motorola in 1986. Six Sigma was heavily inspired by six preceding decades of quality improvement methodologies such as quality control, TQM, and Zero Defects, based on the work of pioneers such as Shewhart, Deming, Juran, Ishikawa, Taguchi and others. Like its predecessors, Six Sigma doctrine asserts that: Continuous efforts to achieve stable and predictable process results (i.e. reduce process variation) are of vital importance to business success. Manufacturing and business processes have characteristics that can be measured, analyzed, improved and controlled. Achieving sustained quality improvement requires commitment from the entire organization, particularly from top-level management. Features that set Six Sigma apart from previous quality improvement initiatives include: A clear focus on achieving measurable and quantifiable financial returns from any Six Sigma project. An increased emphasis on strong and passionate management leadership and support. A special infrastructure of "Champions," "Master Black Belts," "Black Belts," etc. to lead and implement the Six Sigma approach. A clear commitment to making decisions on the basis of verifiable data, rather than assumptions and guesswork. The term "Six Sigma" comes from a field of statistics known as process capability studies. Originally, it referred to the ability of manufacturing processes to produce a very high proportion of output within specification.

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Processes that operate with "six sigma quality" over the short term are assumed to produce longterm defect levels below 3.4 defects per million opportunities (DPMO). Six Sigma's implicit goal is to improve all processes to that level of quality or better. Six Sigma is a registered service mark and trademark of Motorola Inc.[9] As of 2006 Motorola reported over US$17 billion in savings from Six Sigma. Other early adopters of Six Sigma who achieved well-publicized success include Honeywell (previously known as AlliedSignal) and General Electric, where Jack Welch introduced the method. By the late 1990s, about two-thirds of the Fortune 500 organizations had begun Six Sigma initiatives with the aim of reducing costs and improving quality. In recent years, some practitioners have combined Six Sigma ideas with lean manufacturing to yield a methodology named Lean Six Sigma. Methods Six Sigma projects follow two project methodologies inspired by Deming's Plan-Do-Check-Act Cycle. These methodologies, comprising five phases each, bear the acronyms DMAIC and DMADV. DMAIC is used for projects aimed at improving an existing business process. DMADV is used for projects aimed at creating new product or process designs. DMAIC The DMAIC project methodology has five phases: Define the problem, the voice of the customer, and the project goals, specifically. Measure key aspects of the current process and collect relevant data. Analyze the data to investigate and verify cause-and-effect relationships. Determine what the relationships are, and attempt to ensure that all factors have been considered. Seek out root cause of the defect under investigation. Improve or optimize the current process based upon data analysis using techniques such as design of experiments, poka yoke or mistake proofing, and standard work to create a new, future state process. Set up pilot runs to establish process capability. Control the future state process to ensure that any deviations from target are corrected before they result in defects. Control systems are implemented such as statistical process control, production boards, and visual workplaces and the process is continuously monitored.

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DMADV The DMADV project methodology, also known as DFSS ("Design for Six Sigma"), features five phases: Define design goals that are consistent with customer demands and the enterprise strategy. Measure and identify CTQs (characteristics that are Critical to Quality), product capabilities, production process capability, and risks. Analyze to develop and design alternatives, create a high-level design and evaluate design capability to select the best design. Design details, optimize the design, and plan for design verification. This phase may require simulations. Verify the design, set up pilot runs, implement the production process and hand it over to the process owners. Quality management tools and methods used in Six Sigma Within the individual phases of a DMAIC or DMADV project, Six Sigma utilizes many established quality-management tools that are also used outside of Six Sigma. Origin and meaning of the term "six sigma process"

Graph of the normal distribution, which underlies the statistical assumptions of the Six Sigma model. The Greek letter (sigma) marks the distance on the horizontal axis between the mean, , and the curve's inflection point. The greater this distance, the greater is the spread of values encountered. For the curve shown above, = 0 and = 1. The upper and lower specification limits (USL, LSL) are at a distance of 6 from the mean. Due to the properties of the normal distribution, values lying that far away from the mean are extremely unlikely.

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Even if the mean were to move right or left by 1.5 at some point in the future (1.5 sigma shift), there is still a good safety cushion. This is why Six Sigma aims to have processes where the mean is at least 6 away from the nearest specification limit. The term "six sigma process" comes from the notion that if one has six standard deviations between the process mean and the nearest specification limit, as shown in the graph, practically no items will fail to meet specifications.[8] This is based on the calculation method employed in process capability studies.

Capability studies measure the number of standard deviations between the process mean and the nearest specification limit in sigma units. As process standard deviation goes up, or the mean of the process moves away from the center of the tolerance, fewer standard deviations will fit between the mean and the nearest specification limit, decreasing the sigma number and increasing the likelihood of items outside specification Role of the 1.5 sigma shift Experience has shown that in the long term, processes usually do not perform as well as they do in the short. As a result, the number of sigmas that will fit between the processes mean and the nearest specification limit may well drop over time, compared to an initial short-term study. To account for this real-life increase in process variation over time, an empirically-based 1.5 sigma shift is introduced into the calculation. According to this idea, a process that fits six sigmas between the process mean and the nearest specification limit in a short-term study will in the long term only fit 4.5 sigmas either because the process mean will move over time, or because the long-term standard deviation of the process will be greater than that observed in the short term, or both. Hence the widely accepted definition of a six sigma process as one that produces 3.4 defective parts per million opportunities (DPMO). This is based on the fact that a process that isnormally distributed will have 3.4 parts per million beyond a point that is 4.5 standard deviations above or below the mean (one-sided capability study). So the 3.4 DPMO of a "Six Sigma" process in fact corresponds to 4.5 sigmas, namely 6 sigmas minus the 1.5 sigma shift introduced to account for

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long-term variation. This is designed to prevent underestimation of the defect levels likely to be encountered in real-life operation. Six Sigma And Its Benefits Before starting about how to have a positive approach to Six Sigma or rather what is a positive approach towards Six Sigma lets discuss what a Six Sigma initiative is. To put in laymans terms, Six Sigma is all about improving the capabilities of the business processes by reducing the defect margin to zero, so that there is no scope for poor quality. Today customers are enlightened and they know that they have lots of options - therefore they value only those products or services that are very high on quality and have consistent and predictable quality. However, most businesses measure their performance or quality on the average of the recent past. This problem was solved by Six Sigma because it ensures that business dont have to present customers with a variant experience of their performance. In other words, Six Sigma aims at reducing the variation thus improving the business processes to an extent where the customers will be satisfied with the product or services quality. The Six Sigma Approach The Six Sigma uses an approach which recognizes and eliminates defects through a problem solving method that is both structured and data driven. The Six Sigma approach has to collect all the data, which is then passed on to a statistical analysis unit for further quantitative calculation. Quantitatively, the standard defects ratio is estimated to be 3.4 in a million opportunities where the opportunities mean a chance for non-conformance. If we look at the cost of poor quality in a business process, then for most businesses it is an astounding 20% to 30% of total revenue. The Six Sigma approaches to reduce these defects and achieve world-class quality levels. A Six Sigma approach is different from other performance improvement approach because it tackles the problem at its root level, thus eliminating the need for any inspection or reworking. This is unlike other performance improvement programs that first measures the output variation and then puts a check on the problem area (like an inspection program) to reduce organizational defects.

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The Six Sigma approach starts its work by first making a note about what is critical to the customer. Once the goal is set, a rigorous analysis is done for each and every business process to assess the perfection, which the customer demands, and to which extend the business is able to deliver. Next it is matched with the data collected to reveal what are the core causes of the defects in the organizational process. The statistical and financial analysis done earlier will then lead to making of an improvement strategy that will aim at improved customer satisfaction, increased profit margin, reduced cycle times and cut costs.

Six Sigma strategies aim at minimizing variations among all critical processes. These processes need not be only manufacturing processes - they can be even billing or new product development related or budgeting or human resource related by which an organization manages its overall operations. Here an important thing to note is that the implementation part is the most important part of the Six Sigma Strategy . And for ensuring that the strategy is a success monetary commitment as well as wholehearted involvement from the employees is very necessary. Six Sigma Training funds must be utilized in an effective manner. A new working culture will have to be adopted and the Six Sigma leaders need to make sure that the transition is smooth. However, considering the past successes this approach has made the little inconvenience with the new approach is worth the awards that everyone will reap after the business attains success. Steps in Six Sigma Methodology Six Sigma is a philosophy and methodology for managing processes and performance. It goes beyond just isolated improvement projects, and is best implemented using a system of components designed to clarify an organization's goals, stakeholders, and needs. All these steps contribute to its success.

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Establish Roles

Six Sigma is most successful when leadership is truly committed to the philosophy and methodology it entails. In larger companies, a Director or other high-level employee takes the lead role in creating and guiding Six Sigma efforts. Also for large-scale efforts, Black Belts should be trained up front as they will be responsible for leading improvement projects and in some cases for advising process owners on establishing appropriate metrics and procedures.

Within each operational area of an organization, the Process Owners need to be identified. These are the individuals who will be responsible for tracking their group's processes and performance and determining what action to take when improvement is needed. Green Belt training may also be established so that Process Owners and other key employees have the basic understanding and tools for working with Black Belts and managing processes. Create a Dashboard Once personnel are in place, the team needs to start at the highest level, by determining how it defines the organization's success. In its simplest form, success for a for-profit entity is typically defined using measures of profitability and shareholder satisfaction, customer satisfaction, and employee satisfaction. For nonprofits and other organizations serving the community, the definition will include measures of alignment with the mission, achievement of the mission and vision, and satisfaction of donors, employees, and the community. The dashboard is essentially a summary of the key metrics for an organization. In the early stage it will likely consist solely of metrics related to results, but as time goes on the team will establish

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input measures that strongly influence results, and those will be included as well. Many measures can be incorporated into a dashboard, so it is the team's responsibility to clarify its own values and ensure those values is reflected in a balanced dashboard. Establish Performance Expectations Now that the key metrics have been clarified, the next step is determining what level of performance in each area is acceptable. For instance, what threshold level of customer satisfaction does the company expect to maintain, and how much should sales increase year over year? These performance levels can be incorporated into the dashboard in a variety of ways, for instance by showing in green any metric that meets the performance requirement, in yellow or orange any metric that is at risk of shifting out of spec, and in red any metric that is not at an acceptable level. Identify Improvement Needs Once an area has its dashboard in place, leaders should be regularly monitoring process performance. When performance does not reliably meet the established requirement, leaders will need to determine whether and how to act. Typically there will be quite a few opportunities for improvement at any given time, so decisions will be necessary regarding which hold greatest priority. The Six Sigma leadership team should establish a standard method of prioritizing potential improvement opportunities, and of determining what type of methodolgy is best for each case. Determine Improvement Approaches In many cases, the reasons for inadequate performance are fairly obvious, and the solution is equally obvious. In those cases, a Six Sigma project should not be chartered, instead the business manager should "just do it" and address the problem. In other cases, the details of a problem are not known, or the causes of a problem are not clear. For those situations the DMAIC process is ideal, and chartering a DMAIC project would be the best move.

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In some cases, usually in organizations further along with their Six Sigma implementation, a design project (DMADV or DFE) can be initiated to create a new process or product or to completely re-create a process that is fundamentally not working.

Follow Improvement Methodology For any process improvement projects that are established, the methodology should be followed closely. For instance for a DMAIC project, a project team is created, and the team works through the standard DMAIC phases: Define, Measure, Analyze, Improve and Control. Similarly, a design project should follow the standard methodology chosen. Once the improvement goal has been achieved, the project is closed out, and the dashboard is updated to reflect the new performance level. Additional improvement initiatives may then be chartered based on new findings uncovered during the original project, or based on priorities established earlier for potential projects. Maintain the Framework Improvement projects have built-in steps to ensure that the gains established by each project are maintained. At a higher level, a successful Six Sigma initiative requires continuous attention to ensure that the established procedures, culture, and responsibilities are maintained. On an ongoing basis, leadership should be training employees, updating the dashboard with current performance levels and changes to key metrics, and revisiting priorities and procedures for selecting projects. Documenting these high-level procedures will also prove beneficial as employee turnover occurs and the individuals involved change.

References: www.6-sigma.com SIX SIGMA AND APPLICATION

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www.sixsigma.co.uk www.sixsigmasystems.com www.isixsigma.com

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