Six Sigma

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Contents

Introduction

The design of responsive supply chains is becoming a priority for companies who must continually reduce costs and streamline processes to remain competitive in a dynamic global market where companies that do not anticipate challenges and prepare for the unexpected can vanish almost overnight. This means that an organization today must pay more attention to the business environment, get tighter with its customers, analyze performance data better, and avoid disasters.

Six Sigma, which defines itself as a relentless quest for perfection through the disciplined use of fact-based, data-driven, decision-making methodology, is one methodology that companies can use to make their supply chains more responsive, foster innovation, and improve quality across the board. When properly applied, this ultimately leads to lower costs, greater profits, greater customer satisfaction rates and earnings per share for the shareholders, which is why Six Sigma has caught on at a number of large enterprises.

But it's no light undertaking - it requires massive commitment from the CEO down, considerable amounts of training and application, master black belts, black belts, and green belts, and operational changes across the board. In addition, it often requires new mindsets, new methodologies, new technologies, new performance metrics, and, most importantly, new incentives. Which leads one to ask, if an enterprise is not a large enterprise with a large spend, large budgets, and the time to transform, is it worth it?

That's not an easy question to answer. If one just looks at the average results, one might think it is a resounding yes. But no decision is ever that easy, especially when one does not really understand what something is and take the time to separate the facts from the hype.

After all, this is a methodology that is promoted as a revolution capable of fixing everything wrong with a corporation, with the possible exception of the clog in the lunch-room sink. (No wait, it has a process to fix that too!) For example, with a little digging on the internet, one can find numerous articles that state Six Sigma will help an organization with:

  • Globalization
  • Mergers and Acquisitions (M&A)
  • Supply Chain Design and Planning
  • Customer Relationship Management (CRM)
  • Brand Building
  • New Product Development (NPD)
  • Sustainable Growth
  • Innovation Management
  • Risk Management

and much, much more by

  • accelerating a company's learning cycle
  • speeding up research phases
  • speeding up redesign
  • enabling rapid information exchange
  • and so on.

To fully understand the breadth of this claim, imagine if a smart looking guy in a suit walked into the office and said "I'm the architect, foreman, electrician, plumber, steel worker, heavy equipment operator, drywaller, and project manager for that new office building the firm is planning to build. With just a few humble assistants, I'm going to take on that massive project all by myself and finish it faster, better, and at less cost then any of the multi-billion contracting firms that are currently under consideration." That's comparable to the breadth of the claim that Six Sigma often appears to be making.

A Definition

Theoretically, a universally applicable best practice generic methodology could be applicable to each of an organization's business functions, but just how helpful is it going to be if it is that generic? That's one of the questions this wiki is trying to answer.

However, first of all one needs to define what Six Sigma really is. Sigma measures variation, and more specifically, the standard deviation of a data set. Six Sigma refers to a distance of six standard deviations between the mean value of the data set and the nearest specified tolerance limit. A Six Sigma Process is one that produces at most three (well, 3.4 to be precise) defects per million trials (in the long one run).

Furthermore, Six Sigma is concerned with something called the Rolled Throughput Yield of a system, which ensures that the measurement applies to the finished product and not just a step in the process. The rolled throughput yield is calculated by multiplying the yield of each step. For example, a system with five steps and only 99% yield at each step would produce a rolled throughput yield of 0.99^5 = 0.951 or 95.1%. Thus, a six sigma process is one with a rolled throughput yield of at least 99.9997% or almost six nines reliability.

In short, a Six Sigma methodology is one that is designed to eliminate variation from a process to ensure consistent results every time.

Six Sigma is described as a relentless quest for perfection through the disciplined use of fact-based, data-driven, decision-making methodology. Since this should be the ultimate goal of any organization, this is a good start.

The Quality Focus

So how does Six Sigma improve quality? Six Sigma advocates proclaim that the Six Sigma philosophy is to prevent defects before they happen upfront via process improvements. This is the best way to attack a problem, prevent the conditions that allow it to occur in the first place.

So how does Six Sigma accomplish this task? It uses a toolbox of statistical tools and frameworks to:

  • identify which defects impact customer requirements,
  • determine why each defect was caused and uncover the hidden factory, and
  • improve the process parameters and product designs to reduce defects.

Instead of focusing simply on meeting design specifications, six sigma practitioners look for ways to decrease the overall amount of variation in a process subject to critical target values, since process variation is often the primary cause of defects in a well designed product. Decreasing variation is no simple matter when one considers that variation can stem from variation in internal processes, inconsistencies in material or information from suppliers, part and product designs that are not robust, and overly conservative design specifications, with both common causes (defined as system faults) and special causes (defined as fleeting events). In addition, these variations can be caused by any of the six Ms: man, machine, material, methods, measurements, and mother nature.

DMIAC

Six Sigma reduces variations by careful application of its DMIAC problem solving methodology and its toolset. DMIAC stands for Design-Measure-Improve-Analyze-Control and the process generally executes as follows:

  1. define each process step, inputs, and outputs
  2. map the customer requirements to process inputs and outputs
  3. identify key metrics to measure performance
  4. establish defect root causes for, and relationships between, inputs and outputs
  5. analyze and improve the process to optimize performance metrics
  6. provide controls to ensure sustainability of improvements

The analysis, root cause identifications, and improvements often come about using one of the following toolsets of a six sigma practitioner:

  • Pareto Principle
  • experimental design
  • Quality Function Deployment (QFD)
  • thought process maps
  • process flow charts
  • graphical techniques
  • cost analysis
  • scrap reports
  • cycle time fluctuations
  • Failure Modes and Effects Analysis (FMEA)

The basic DMIAC process and six sigma toolbox is also the basis for the three fundamental types of innovation projects identified by advocates:

  • creating new products, services, or markets
  • extensions or feature improvements to products, services, or markets
  • increased efficiencies in existing products or services

In other words, DMIAC is quite powerful, but so is any good problem solving methodology when properly applied.

Projects

A successful Six Sigma project will always have the following characteristics:

  • strong leadership,
  • clear definition,
  • strategic alignment with the business,
  • (more than) adequate management support, and
  • practical transferability.

Six Sigma projects require strong executive support and support from the functional and project leaders. Incentives must be aligned to insure that they devote enough time to the project. The project must have a clear definition that includes the precise problem definition, goals, 'stretch' goals, financial targets, and team structure. The project must be strategically aligned with business objectives and everyone must be on the same page. Management must support the project from inception through completion and it must be transferable to other users and business units.

In short, six sigma requires all of the elements of success that any other improvement project requires, including the dedication and the know-how. It also requires an extensive knowledge of best-practices and best-in-class techniques. It is essentially an evolution of business process management (BPM) best practices that have been discovered since the dawn of the organizational era by operations management researchers.

One of the application areas of Six Sigma, the relentless quest for perfection through the disciplined use of fact-based, data-driven, decision-making methodology, is supply chain, which includes supply management, spend management, and strategic sourcing. A number of firms are peddling six sigma initiatives designed to improve supply chain operations, including KPMG with their Six Sigma Strategic Sourcing (SSSS), but the best processes are those focused on value, such as Value Based Six Sigma (VBSS). These process stem from TQM (Total Quality Management) initiatives, but since they focus on TVM (Total Value Management), the focus is on the solution of those problems that directly support business goals and have the highest potential impact.

With VBSS, an organization applies a small-number-of-projects-at-a-time mentality to finish the projects as efficiently as possible to enjoy the benefits as soon as possible. It follows generally accepted Six Sigma Strategic Sourcing best practices, but selects the projects based on a value (cost/benefits) analysis aligned with business objectives (which should in turn be aligned with customer requirements).

Best Practices

So what are six-sigma strategic sourcing best practices? Simply put, they are every day sourcing best practices applied regularly and consistently across the sourcing and procurement organizations! There's nothing special or fancy - the key is to adopt the best process an organization can get its hands on, automate it, follow it consistently, and improve it on a regular basis. Where do these best processes come from? The e-Sourcing providers that built the current systems the organization is using and the supply chain and supply risk consultants who helped design the supply chain.

Six Sigma merely provides the DMIAC methodology that tells an organization, in sourcing terms, to define, measure, analyze, design, verify, control, and improve.

Specifically, as per KPMG's Six Sigma Strategic Sourcing:

Define

  • business case
  • business goals and objectives
  • procurement strategy
  • resource allocation

Measure

  • identify key metrics
  • validate/cleanse data
  • benchmark against best in class

Analyze

  • review data
  • identify gaps
  • obtain customer / end user feedback
  • identify opportunities for cost & price reduction
  • assess technology and organization effectiveness

Design

  • design process improvements
  • develop implementation plans
  • develop new contracts
  • identify technology upgrades

Verify

  • pilot recommendations
  • pilot performance metrics
  • rework/redesign as required
  • implement

So is six sigma worth it? Yes. Is it needed? That depends. If the organization can consistently identify and successfully implement best practices and draw from a large quality and innovation toolbox on a regular basis, then, no, since six sigma is just the consistent application and improvement of these tools and processes until the organization already has, in laymen's terms, essentially six nines reliability. However, if an organization doesn't know where to start, then a Value Based Six Sigma Strategic Sourcing Program can get the organization on track and usher in considerable savings at a phenomenal rate compared to other initiatives. It's certainly worth a look, but the original author personally believes that a business does not depend on it.

A Selected Bibliography

(The) Four Step Approach to Six Sigma Projects by CapGemini

ISSSP SCOR Executive Brief by Peter Bolstorff, September 2003

Introduction to Six Sigma Quality by Luke J. Vaccaro & Vishal Gaur, March 2005

Mid-Size Companies Reap Financial Benefits from Six Sigma, October 2006

Quality Toolbox: Tools and Techniques by General Dynamics Land Systems

Six Sigma Strategic Sourcing by KPMG, March 2002

Strategic Six Sigma by Dick Smith & Jerry Blakeslee, September 2002

[Six Sigma: An Experts Guide] by Phoebe Mygee & Rodec Philip

Technologies Enable Six Sigma by Cindy Jutras, September 2006

Value-Based Sicx Sigma: Full speed Ahead by ITT Industries, Summer 2000

Authors

Michael Lamoureux, PhD of Sourcing Innovation

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