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JWI 550 (1208) Page 1 of 9

JWI 550: Operational Excellence

Week Eight Lecture Notes

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VARIATION IS EVIL: REDUCE IT WITH SIX SIGMA What It Means In the world of operations management, variation is evil! Whether it’s in the making of a product or the delivery of a service, an operation that produces a consistent result can lead to fewer errors and happier customers. Six Sigma is a well-known methodology that is focused on reducing variance. It was created by Motorola and widely adopted at GE and many organizations worldwide. Six Sigma employs statistical techniques to measure, analyze, and improve processes, products, and services. Practitioners argue that we should focus not just on whether average performance is on target, but also on how to minimize or eliminate variation. Why It Matters

• Your customers want predictability in what they can expect from you – in many cases the success of their businesses depend on it.

• By reducing variation, your processes, products and services become more reliable, your costs decline, and your customers are happier.

• Customers are more vocal about negative experiences than positive; organizations that deliver inconsistent products and services may not even know their customers are unhappy, but they will see the fallout in declining sales

“Averages stink; variation from the mean is what counts.”

Jack Welch

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JWI 550 (1208) Page 3 of 9

THE CHALLENGE AND OPPORTUNITY FOR MANAGERS

Six Sigma can be deployed company-wide, led by the CEO and executive leadership. The methodology and tools of Six Sigma can also be used in individual projects. If Six Sigma is deployed as part of a company-wide initiative to achieve operational excellence, then there is a company-wide awareness of how it can contribute to competitive advantage. With the CEO and senior leadership team leading the charge, there is commitment, support, and resources to identify improvement opportunities, as well as to select and launch projects to improve processes, products, and services. Managers can participate as champions of multiple projects and provide resources and time for project teams to carry out those projects. Some may even participate as project leaders. If there is not a company-wide initiative to use Six Sigma, that is not the end of the world. You don’t need to wait for the CEO or the senior leadership team to decide. As managers, whether you are in HR, IT, Customer Service, or Operations, you can still add Six Sigma to your tool kit. There is no mandate or requirement to call an improvement project a “Six Sigma project.” Call it whatever makes sense – “Improving our Hiring Process,” “Reducing Drive-Thru Times,” or “Improving Quality of Product K” are all perfectly fine examples. Understanding how Six Sigma can be applied in either scenario will be an asset to you as you lead your respective teams, departments, or organizations toward operational excellence.

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JWI 550 (1208) Page 4 of 9

YOUR STARTING POINT

1. How consistent and predictable are the outputs your team delivers?

2. Have you talked to your team about the causes of waste and variation in your outputs?

3. Have you undertaken any initiatives in the past to reduce wasteful variation? If so, what did you

try, and what were the results?

4. Do you know what deliverables are most important to your customers and why?

5. If you could focus on only one area that would benefit from a reduction in waste and variation,

what would it be and why?

6. Do you know what the financial impacts on your business have been due to waste and variation? If not, how could you find out?

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JWI 550 (1208) Page 5 of 9

FOCUSING ON THE CUSTOMER WITH SIX SIGMA You’ve probably heard the term “Six Sigma Black Belt” before in the business world. Having a Black Belt certification in Six Sigma means that you can effectively apply the concepts, tools, and techniques of Six Sigma. But what is Six Sigma itself? Simply put, it’s a method of eliminating waste and improving quality that focuses on the customer. The goal is to produce near-perfect processes, improving financial performance and organizational efficiency to “breakthrough” levels. Sigma, written in Greek as “σ,” is a statistical term that denotes the standard deviation, or measure of variation, in a process. In other words, sigma is a measure of how variable a process is. As a metric, sigma indicates the level of performance, with six sigma as near perfection at no more than 3.4 defects per million opportunities (or dpmo). These defects or errors could come from anything from the design and production of a product to a customer-oriented service process. As variation reduces, the standard deviation decreases. With a more consistent process, the sigma level of performance increases. To quote Jack Welch, “Variation is evil.” Variation, here, refers to variation in your processes. We consider this evil from an operations management standpoint because variation within your processes produces inconsistencies. This makes the processes unpredictable, which makes it difficult to plan, budget, schedule, and deliver to meet customer requirements and expectations. This unpredictability leads to errors and quality defects – and therefore, customer dissatisfaction.

SIX SIGMA TARGETS VARIATION

The underlying premise of Six Sigma is the equation Y = F(X). In this equation, Y is a function of X. Y is the response or output of interest, while X represents factors or determinants that impact Y. By analyzing, identifying, and controlling the key X factors, we can reduce variation and improve the level of performance of Y.

How Six Sigma Works Six Sigma translates customers’ needs into operational terms or critical to quality (CTQ) requirements. In other words, it determines what matters most to customers, defines processes critical to the customers’ wants and needs, and establishes what tasks must be done. Six Sigma projects improve the performance of processes, services, or products to breakthrough levels of effectiveness and efficiency. Breakthrough performance is generally defined as a new and unprecedented level of performance compared to what the business entity was previously achieving. There are two project methodologies used in Six Sigma. One of them, used for improvement projects, is called DMAIC. The other, used for design projects, is called DMADV or DFSS (Design for Six Sigma).

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JWI 550 (1208) Page 6 of 9

DMAIC Improvement projects in Six Sigma follow a five-phased methodology called DMAIC. The letters represent the project phases: Define, Measure, Analyze, Improve, and Control:

• Define — Identify the problem or improvement opportunity, Y. Tools used to define the opportunity include the project charter (detailing the problem statement, goal statement, project scope, metrics/CTQs, operational and financial impact, project team, stakeholders, milestones, and approvals) and SIPOC (a high-level process map).

• Measure — Measure the size of the problem, document the process, identify key customer requirements, and identify and theorize on potentially key Xs in Y= f(X). Tools used to measure the problem include process maps, a data collection plan, measurement system analysis, graphs and charts (such as Pareto, histograms, and boxplots), descriptive statistics, baseline process capability and sigma level, brainstorming of theories, and cause-effect diagrams.

• Analyze — Plan for data collection, assess the data, and diagnose the key Xs that drive performance. Tools used for analysis include a data collection plan to test likely theories, hypothesis testing, and inferential statistics like correlation, regression, and analysis of variance (ANOVA).

• Improve — Develop solutions to address the proven Xs. Tools used for improvement include creative idea generation, evaluation and selection matrices (such as criteria-based matrices and Pugh matrices), design of experiments (DOE), detailed process maps, failure modes effects analysis (FMEA), and pilots and statistical tests to confirm significance of results.

• Control — Implement solutions and enact controls on proven key Xs to ensure project gains on Y are sustainable. Tools used for control include mistake-proofing, control plans, SPC control charts, process capability, training, change management, standard operating procedures (SOPs), and sign-off on results.

DMADV Design projects follow a methodology called Design for Six Sigma (DFSS) or DMADV. The letters in DMADV again stand for the project phases: Define, Measure, Analyze, Design, and Verify. DMADV is customer focused; the voice of the customer and customer requirements drive the design effort. This results in an effective product, process, or service.

• Define — Identify what product, service, or process is to be designed. Tools used to define this include the project charter. Measure — Translate customer needs into CTQs, or what’s critical to quality in the eyes of the customer. Tools used for measuring include Voice of the Customer (VOC) analysis, focus groups,

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JWI 550 (1208) Page 7 of 9

interviews, observations, VOC translation to CTQs, design scorecards, and Quality Function Deployment (QFD) matrices.

• Analyze — Identify alternative design concepts and develop one or more into a high-level design(s). Tools used for analysis include transfer functions, QFD matrices, creative idea generation, function diagrams, high-level designs, the Pugh matrix, and design scorecards.

• Design — Develop the design in detail. Tools used for design include transfer functions, QFD matrices, design of experiments (DOE), simulation, inferential statistics, pilots, design FMEA (DFMEA), and design scorecards.

• Verify — Verify performance of the new design and roll out to production. Tools used in this phase include process capability, SPC control charts, inferential statistics, control plans, and training, documentation, and implementation plans.

Example: Reducing Blood Wastage Most people understand that Six Sigma reduces waste. Never forget that this reduction is not merely academic. It isn’t always a matter of improving the bottom line. Reducing waste can affect all aspects of a business or other entity. Sometimes, the difference saves lives. Take, for example, Johns Hopkins Hospital. At Johns Hopkins, more than 4.4 percent of packed red blood cells had to be discarded before they could be delivered to patients. Most of the time, this was because units left the blood bank for more than the 30 minutes allowed to administer them. Blood that reaches temperatures beyond the maximum allowed limits, or which has been out of the blood bank for too long, cannot be given to patients. Using Lean Six Sigma, a team with backgrounds in anesthesiology, transfusion medicine, and nursing identified major factors affecting blood product wastage. These included units being improperly packed in coolers, which allowed them to become too warm before they could be administered. Implementing the team’s Six Sigma changes reduced blood wastage at Johns Hopkins by more than 50 percent. Over its first 4 years, this effort saved the hospital $800,000 — and, even more importantly, ensured that more of this life-saving resource was available to patients who needed it.

Remember… Six Sigma is not just a theory and not just an academic methodology. Applied properly, it can improve a business entity’s operations, better position that company for competitive advantage, and significantly increase effectiveness and efficiency while reducing or eliminating waste. Business leaders must be prepared to implement Six Sigma from the top down, selecting and launching projects that help their companies achieve both short- and long-term financial and strategic goals. By driving improvements in effectiveness and efficiency, Six Sigma is one way that business leaders use operations management to win.

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JWI 550 (1208) Page 8 of 9

SUCCEEDING BEYOND THE COURSE

As you read the materials and participate in class activities, stay focused on the key learning outcomes for the week and how they can be applied to your job.

• Explore the key objectives of Six Sigma View Six Sigma as a means, not as an end in itself. As you drive your organization toward operational excellence, understand that Six Sigma project methodologies, tools, and techniques provide the means to reduce variation and improve processes, products, and services for customers. For improvement projects, use Six Sigma (DMAIC). For design or redesign projects, use Design for Six Sigma (DMADV).

• Summarize the phases of a Six Sigma project Six Sigma improvement projects use a 5-phased methodology: Define, Measure, Analyze, Improve, and Control, or DMAIC. Design or redesign of products, services, or processes can benefit from Design for Six Sigma. These design or redesign efforts follow a 5-phased project methodology: Define, Measure, Analyze, Design, and Verify, or DMADV.

• Apply Six Sigma tools and techniques to improve outcomes There are many tools and techniques used in Six Sigma. While there are a few tools unique to Six Sigma, many tools have been drawn from the Quality field. The tools are applied systematically as teams progress through each phase of the Six Sigma project methodology. Six Sigma should be deployed as projects. To avoid sub-optimization, management should select, launch, and champion projects to gain competitive advantage.

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JWI 550 (1208) Page 9 of 9

ACTION PLAN To apply what I have learned this week in my course to my job, I will …

Action Item(s) Resources and Tools Needed (from this course and in my workplace) Timeline and Milestones Success Metrics