OPERATIONS MANAGEMENTOPERATIONS MANAGEMENTfor MBAs for MBAs FourthFourth Edition Edition

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Meredith and Shafer

John Wiley and Sons, Inc.

Chapter 4: Minimizing Variation Through Six Sigma

Topic 7: Process Improvement & Six Sigma

OutlineOutline

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• Overview Business Process Design

• Six Sigma & DMAIC Improvement Phases-tools, metrics

• Six Sigma Certification

• Reference Material

• Homework

Business Process DesignBusiness Process Design

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•New •Fundamentally flawed•Incremental improvement not appropriate•Technological advances•Corporate strategy change•Competitive environment change

- order winners / order qualifiers

Business Process DesignBusiness Process Design

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Business Process Design / Reengineering Important Elements

Element Description

Critical processes Emphasis on core business processes, normal process improvement activities can continue with other processes

Strong leadership Strong leadership from senior executives to overcome resistance

Cross-functional teams A team with members from each functional area charged with carrying out the project

Information technology Primary enabler of the project as most reengineering projects involve information flows

Clean-slate philosophy Start with the way the customer wants to deal with the company and includes internal and external customers

Process analysis Must understand the current processes throughout the organization

& DMAIC improvement process& DMAIC improvement process

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•Sigma refers to standard deviation, variability.•No more than 3.4 mistakes (defects) per million opportunities.•Near perfect quality.•Evolved into a methodology for designing and improving processes.•Potential Benefits; profitability, quality, morale, lower costs, lead times, market share, customer satisfaction•Structured, logical, disciplined approach•Generally follow a structured process; DMAIC phases

In the popular book The Six Sigma Way, Six Sigma is defined as:

◦ a comprehensive and flexible system for achieving, sustaining and maximizing business success. Six Sigma is uniquely driven by close understanding of customer needs, disciplined use of facts, data, and statistical analysis, and diligent attention to managing, improving, and reinventing business processes. (p. xi)

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The define phase of a DMAIC project focuses on clearly specifying the problem or opportunity, what the goals are for the process improvement project, and what the scope of the project is. Identifying who the customer is and their requirements is also critical given that the overarching goal for all Six Sigma projects is improving the organization’s ability to meet the needs of its customers.

Benchmarking Quality Function Deployment

The Define Phase The Define Phase

The Define Phase The Define Phase Headliner Example: Check Sheet

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The Define Phase The Define Phase

Defect

Type

f p P

C. Broken Fiber

Board36 0.72 0.72

D. Ragged edges

7 0.14 0.86

A. Tears in Fabric

4 0.08 0.94

B. Discolored

Fabric3 0.06 1.00

Headliner Example: frequency and percentage distributions chart

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The Define Phase The Define Phase

Nu

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100

80

60

40

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50

40

30

20

10

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um

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Defect type

C

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Headliner Example: Pareto Chart

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The Measure Phase The Measure Phase

The measure phase begins with the identification of the key process performance metrics.

Once the key process performance metrics have been specified, related process and customer data is collected.

Two commonly used process performance measures, namely, Defects per Million Opportunities (DPMO) and Process Sigma.

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The Measure Phase The Measure Phase

Six Sigma translates into 3.4 DPMO, benchmark 0.0000034 = 0.00034%

DPO Defects

Units X Opportunites

Example: Loan process consists of 25 steps. 10,000 loans processed and 100 had errors.DPO = 100 / (10,000 X 25) = 0.0004, DPMO = 400

Example: Widget factory. Each widget consists of 5 parts. 10,000 widgets were inspected, 6 had defects.DPO = 6 / (10,000 X 5) = 0.00012, DPMO = 120

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The Measure Phase The Measure Phase Where does 6 sigma and 3.4 DPMO come from?

Defects Opps DPMO success % raw Z sigma237 2450 96734.7 0.9033 1.300 2.8003.4 1000000 3.4 1.0000 4.500 6.000

233 1000000 233.0 0.9998 3.500 5.0006210 1000000 6210.0 0.9938 2.500 4.000

66807 1000000 66807.0 0.9332 1.500 3.000308538 1000000 308538.0 0.6915 0.500 2.000691462 1000000 691462.0 0.3085 -0.500 1.000

0.0967 = % defective0.9033

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Process Sigma Process Sigma

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The Analyze Phase The Analyze Phase

•Brainstorming•Cause & Effect Diagrams•Process Capability Analysis

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Process Capability Process Capability Analysis Analysis

Cp=1

Cpk good

Cp>1

Cpk good

Cp<1

Cpk good

Cp=1

Cpk bad

2222

No Yes

No

Yes

Variation needs attention?

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Crit>Cpl<Cpu, Cp<CritCrit>Cpu<Cpl, Cp<Crit

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Process Capability Example Process Capability Example

Webster Chemical’s nominal weight for filling tubes of caulk is 8.00 ounces ± 0.60 ounces. The target process capability ratio is 1.33, signifying that management wants 4-sigma performance. The current distribution of the filling process is centered on 8.054 ounces with a standard deviation of 0.192 ounces. Compute the process capability index and process capability ratio to assess whether the filling process is capable and set properly.

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The Improve Phase The Improve Phase

$Design

$$Service Delivered

$$$$$$$$$$Post Service Delivery

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The Control Phase The Control Phase

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Six Sigma in Practice Six Sigma in Practice

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Homework Homework

You are a Quality Assurance Manager for Pepsi. Pepsi strives for three sigma quality in its production processes. One of the quality metrics you are concerned about are the fill weights for the 12 oz. bottle production line. Five random samples of Pepsi soda bottles are taken from last month’s production and you want to determine two things:

1.Is the production process for the 12 oz. bottles consistent and in control?2.Are we meeting retailer standard design specifications of 12 oz. + / - .02 oz., to a high level of quality (three sigma)?

Total Quality Management (TQM)Total Quality Management (TQM)

Philosophy: Do it right the first time

Other names:Total Quality Control – Hewlett PackardLeadership through Quality – XeroxSix Sigma – Motorola (3 defect per million parts)(PDQ)2 – Perfect Design Quality, Pretty Darn Quick – Intel

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Elements of TQM Programs◦ everyone gets training in quality◦ redefine customer◦ quality at the source◦ employee participation◦ continuous improvement◦ preventive maintenance◦ involve suppliers◦ top management commitment

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Pioneers in the Quality RevolutionPioneers in the Quality Revolution

W. Edwards Deming◦ helped Japan after WW II◦ 14 points for management◦ Deming Prize in Japan

Joseph Juran◦ helped Japan after WW II◦ Quality Control Handbook

Armand Feigenbaum◦ Total Quality Control◦ quality at the source

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Pioneers in the Quality RevolutionPioneers in the Quality Revolution

Kaoru Ishikawa◦ fishbone diagrams (Ishikawa charts)◦ 7 tools for quality control◦ quality control circles

Philip Crosby◦ book: Quality if Free◦ always strive for zero defects

Genichi Taguchi◦ experimental design methods to reduce

variability

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Achievement Recognition for Achievement Recognition for Quality Quality Malcolm Baldrige National Quality

Award (U.S.)Deming Prize (Japan)Shingo Prize (Utah State)Texas Quality Award (most states

have awards)ISO 9000 (a certification, not an

award)QS 9000 (for U.S. auto parts suppliers

to Big 3)

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Malcolm Baldrige National Quality Malcolm Baldrige National Quality AwardAward

The Baldrige Award is given by the President of the United States to businesses—manufacturing and service, small and large—and to education and health care organizations that apply and are judged to be outstanding in seven areas: leadership, strategic planning, customer and market focus, information and analysis, human resource focus, process management, and business results.

Congress established the award program in 1987 to recognize U.S. organizations for their achievements in quality and performance and to raise awareness about the importance of quality and performance excellence as a competitive edge.

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Baldrige Performance Excellence Baldrige Performance Excellence CriteriaCriteria

Leadership—Examines how senior executives guide the organization and how the organization addresses its responsibilities to the public and practices good citizenship.

Strategic planning—Examines how the organization sets strategic directions and how it determines key action plans.

Customer and market focus—Examines how the organization determines requirements and expectations of customers and markets.

Information and analysis—Examines the management, effective use, and analysis of data and information to support key organization processes and the organization’s performance management system.

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Baldrige Performance Excellence Baldrige Performance Excellence CriteriaCriteria

Human resource focus—Examines how the organization enables its workforce to develop its full potential and how the workforce is aligned with the organization’s objectives.

Process management—Examines aspects of how key production/delivery and support processes are designed, managed, and improved.

Business results—Examines the organization’s performance and improvement in its key business areas: customer satisfaction, financial and marketplace performance, human resources, supplier and partner performance, and operational performance. The category also examines how the organization performs relative to competitors.

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Deming PrizeDeming Prize

The Union of Japanese Scientists and Engineers (JUSE) invited Dr. Deming to Japan in July 1950. He held a series of lectures and seminars during which he taught the basic principles of statistical quality control to executives, managers and engineers of Japanese industries. His teachings made a deep impression on the participants' minds and provided great impetus in implementing quality control in Japan.

In appreciation, JUSE, created a prize to commemorate Dr. Deming's contribution and friendship and to promote the continued development of quality control in Japan. The prize was established in 1950 and annual awards are still given each year.

Focuses on quality control37

Shingo PrizeShingo Prize

The Mission of the Shingo Prize is to: Facilitate an increased awareness in the

manufacturing community of excellent to world-class manufacturing practices and techniques which can maintain and enhance a company's competitive position in the global marketplace.

Foster understanding and sharing of successful core manufacturing and business improvement methodologies.

Encourage research in business and manufacturing processes and production improvements by both the academic and business practitioners.

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Shingo PrizeShingo Prize

Eligibility Based in the United States, the Prize is open

to manufacturers in the United States, Canada, and Mexico and to researchers throughout the world.  The Prize is awarded annually to recognize:

Manufacturing companies, divisions, and plants in the United States, Canada, and Mexico that demonstrate excellence in manufacturing leading to superior customer satisfaction and business performance.

Research and writing which addresses innovative manufacturing and business improvement methods, systems and processes consistent with the Achievement Criteria of the Shingo Business Prize.

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Texas Quality AwardTexas Quality Award

The Texas Quality Award is given to recognize Texas organizations that excel in quality management and achievement. The award sets high standards for Texas, similar to those set for the United States by the Malcolm Baldrige National Quality Award, and is given annually to organizations that are role models for quality and excellence in Texas.

The Texas Quality Award is designed to promote quality awareness and practices in organizations of all kinds; provide information by documenting and communicating successful quality strategies and initiatives; foster cooperation and teamwork; stimulate continuous improvement through innovation, benchmarking, and sharing of information. These efforts serve to improve quality, reduce waste, and increase customer satisfaction, thereby enhancing economic development, retaining and creating jobs, and raising the overall quality of life throughout the state.

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ISO 14001ISO 14001

identify and control the environmental impact of its activities, products or services, and to

improve its environmental performance continually, and to

implement a systematic approach to setting environmental objectives and targets, to achieving these and to demonstrating that they have been achieved.

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QS 9000QS 9000

QS-9000 is the shorthand name for "Quality System Requirements QS-9000." It is the common supplier quality standard for DaimlerChrysler Corporation, Ford Motor Company, and General Motors Corporation. QS-9000 is based on the 1994 edition of ISO 9001, but it contains additional requirements that are particular to the automotive industry. These additions are considered automotive "interpretations" by the ISO community of accreditation bodies and registrars. QS-9000 applies to suppliers of production materials, production and service parts, heat treating, painting and plating and other finishing services. It does not, therefore, apply to all suppliers of the Big Three.

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