Six Sigma - Why and what is it all about?

Article as appeared in Sunday Mail - 13 April 2008

Introduction

Six Sigma, what is it? It is commonly denoted in several different ways, namely “6σ “, “6 Sigma” or “6s”. It is a methodology for minimising mistakes and maximising operational significance. Ultimately mistakes have a cost, a lost customer, the need to undertake an activity again, a part that has to be replaced, time or material wasted, efficiency lost, or productivity squandered. In fact, waste and mistakes cost many organisations as much as 20 to 30 percent of their revenue. In other words Six Sigma has been defined as a measure of the quality of products and services, a philosophy and a process. Higher product quality is measured by higher “σ” ratings and Six Sigma uses a range of tools to achieve quality.

In our business environment, we all have room for improvement. By their nature, organisations tend to become chaotic as they grow. Processes, technology, systems and procedures become tangled with bottlenecks, meaning work piles up in one part of the organisation while other parts remain idle with nothing to do. Work is often performed incorrectly, or the outcome is flawed in some way. When this happens, one has to scrap products and services and have to do the work over and over again. The organisation has to consume additional resources to correct a problem before the product or service is delivered to the customer, or the customer asks later for a ‘redo’ – a new product or a more satisfactory service.

In many organisations Six Sigma simply means a measure of quality that strives for near perfection. It is disciplined, data-driven approach and methodology for eliminating defects in any process, from manufacturing to transactional and from product to service.

Six Sigma was once a quality improvement methodology, but now it’s a general purpose approach. Sigma is a statistical concept that represents the amount of variation present in a process relative to customer requirements or specifications. When a process operates at the Six Sigma level, the variation is so small that the resulting products and services are 99.99966% defect free.

History

The Six Sigma philosophy and methodology started at Motorola Corporation in the mid 1980s, when the company discovered that products with a high first-pass yield (that is, those that made it through the production process defect-free) rarely failed in actual use. Motorola began focusing on creating strategies to reduce defects in its products and in 1988 was among the first group of organisations to win the Malcolm Baldridge National Quality Award. Today, based on its pioneering work, Motorola holds the trademark for the Six Sigma® methodology. In 1989 Motorola announced that it would achieve a defect rate of not more than 3.4 parts per million within five years.

This clam effectively changed the focus on quality within the US, from one where quality levels were measured in percentages (parts per hundred) to a discussion of parts per million or even parts per billion. It was not long before many US giants – Xerox, Boeing, General Electric (GE), Kodak – were following Motorola’s lead.

Even though Six Sigma came into being at Motorola back in 1986, the most visible promoter of this methodology in recent years has been General Electric’s former boss, Jack Welch. His personal epiphany came in 1996 when he saw the light of Six Sigma and began a huge cultural transformation of his company. There is no doubt that Six Sigma was a success at GE, which saw operating margins increased to about 19 percent by the turn of the century.

Now that Six Sigma is well established across the manufacturing industry and its benefits acknowledged internationally, it is being used extensively in financial services, transport, healthcare, public services and telecommunications.

The Six Sigma approach is not for the faint hearted, nor the unprepared organisation. It’s intense and rigorous, and it entails a thorough inspection of the way every process operates. Six Sigma sets ambitious business objectives and measures performance in a way that forces accountability. It does not allow a management team to become complacent, but, rather it exposes waste that otherwise would remain largely invincible.

Six Sigma takes a business out of its comfort zone – but for a relatively short time. After the first project gains are made and the money starts flowing to the profit margin, a cultural change takes hold. The early discomfort of changing business processes gives way to success, problems become opportunities for improvement, and the organisation begins to enthusiastically leverage the methods and tools of Six Sigma – more pervasively and with a keen eye on value.

What is Sigma?

Sigma is the Greek letter that is a statistical unit of measurement used to define the standard deviation of a population. It measures the variability or spread of the data.

In the world of Six Sigma companies, the term Sigma has to come to signify how well a business process, product, or service is meeting the requirements of the marketplace. Six Sigma has come to mean failing to meet customer requirement only 3.4 times out of a million opportunities.

Why should I use Six Sigma?

The benefits of following the Six Sigma concept and using the accompanying methods are many. They include the following:

• Having a measurable way to track performance improvements
• Focusing your attention on process management at all organisational levels
• Improving your customer relationships by addressing defects
• Improving the efficiency and effectiveness of your processes by aligning them with your customers’ needs

With measurable tracking one is informed of which changes are working and which ones are not. It can also speed up significant improvement. Having a process focus lets you define defects and calculate sigma levels. Aligning a process with your customers’ needs can result in greater customer loyalty and retention.

The Six Sigma methodologies

The fundamental objective of the Six Sigma methodology is the implementation of a measurement strategy that focuses on process improvement and variation reduction through the application of Six Sigma projects. This is accomplished through the use of two sub-methodologies: Define-Measure-Analyse-Improve-Control (DMAIC) and Define-Measure-Analyse-Design-Verify (DMADV). The DMAIC process is an improvement system for existing processes falling below specification and looking for incremental improvement. The DMADV process is an improvement system used to develop new processes or products at Six Sigma quality levels. It can also be employed if a current process requires more than just incremental improvement.

The DMAIC method is very robust. Many organisations have used it successfully to produce dramatic improvements. Using the DMAIC method also results in the following benefits:

• It improves a framework
• It provides a common language
• It provides a checklist to prevent skipping critical steps in the process
• It enables you to improve the way in which you advance.

The Six Sigma Team

The rigorous nature of Six Sigma deployment compels an organisation to call on its very best people to participate. When you are involved in a Six Sigma initiative, you are working with the best and brightest, and you are part of a structured assembly of talent that works together in lockstep to achieve the breakthrough goals of Six Sigma improvement. A Six Sigma initiative begins with a team of executives and business-unit leaders, who approve the Six Sigma deployment program, endorse projects and are accountable for achieving the results.

Six Sigma is a top-down initiative. While the methods and tools of Six Sigma are applicable at all levels, breakthrough organizational performance requires a full coordinated commitment – and that can only come from the top.

The Six Sigma Method

In today’s business, quality can no longer be just about processes, products, services or people. All four of these things must be considered. Our notion of quality must be both systematic and strategic, not placemeal, inconsistent, or erratic. In other words, it is only with a systematic and strategic quality framework in place that we will be able to anticipate the future and build sustainable excellence in meeting customer requirements.

A Quality System must therefore be defined as an enterprise-wide framework of actively managed business processes that assures (in the long term) not only that the needs of one’s customers are met (price customers are willing to pay), but also that the enterprise itself remains viable, profitable and ongoing. Such systems should be able to prevent catastrophic failure and all the consequences that potentially can flow from such events, that is to say, from loss of life and property to loss of market share, customer satisfaction or product and service quality. At the same time, the system should be constructed to allow for accurate monitoring and measurement of current performance, the methodology adopted for continuous improvement and the constant infusion and application of new information and knowledge to improve efficiency, productivity and operational excellence.

So, why statistics? Variation is everywhere, which diminishes the ability to consistently produce quality results, meet schedules and stay under budget. This is why organisations have performance problems, and why you define those problems with a problem and an objective statement for improvement. Statistics takes the enterprise out of the realm of intuition and guessing and into the realm of objective truth.

The effectiveness of Six Sigma is dependent upon taking accurate and appropriate performance measurements, so the enterprise can advance its improvement efforts to a state of scientific certainty

The Sigma Scale

The Sigma Scale is a universal measure of how well a critical characteristic performs compared to its requirements. The higher the Sigma Scale the more capable the characteristic. For example, if a critical characteristic is defective 31 percent of the time, you say that this characteristic operates at two sigma. But if it runs at 93.3 percent compliance, you say that it operates at three sigma. Experts believe that the quality levels for most businesses today fall within the three- to four-sigma scale. The table below, titled “At what Six Sigma Does Your Process Operate?” shows the Sigma Scale (Six Sigma Scale vs Defects per Million Opportunities (DPMO).

There are instances where great companies are able to produce Six Sigma quality in their final products, services and transactions – especially when safety or human life is involved. For example, an airline passenger is about 2,000 times more likely to reach his/her destination when travelling than the luggage. That’s because airline safety operates at a level higher than Six Sigma, while baggage reliability operates at about four Sigma.

Conclusion

Enterprises all over the world are forced to do more with less, to trim costs while growing profits and to move quickly in new business directions. Six Sigma’s emphasis on data-driven decision making provides a powerful lever to create strong organisational focus, and to forge strong alignment of a Company’s leaders and employees around a commonly understood language of metrics and business goals. Clearly, Six Sigma has a powerful role to play, not only in ensuring the efficiency of business processes, and the successful deployment of business strategies, but also in guaranteeing business integrity and ethical corporate governance.

By Adrian Ioannou
Director
Business Advisory