Six Sigma Executive Overview Note all information is proprietary and confidential Association of Business Process Management Professionals Chicago Chapter

Six SigmaExecutive Overview

Note all information is proprietary and confidential

Association of Business Process Management Professionals

Chicago Chapter

February 10, 2010

Lilly Eng

2Note all information is proprietary and confidential

Agenda

The Evolution of Six Sigma

Deployment Strategy

What is Six Sigma?

Methodology and Tools

Q&A


Historical Perspective

1920s Late 1980s 1991 Mid 1990s 2000

Word “Sigma” used by

mathematicians and engineers

Six Sigma originates at

MotorolaAllied Signal adopts Six

Sigma methods

General Electric puts Six Sigma

on the mapSix Sigma

established as its own industry

Today

Thousands of companies across all industries have

deployed Six Sigma



Deployment Approaches Can Differ

Organically vs. Top-Down

Letting project successes drive demand

Using methodology and tools to put strategy into action, enabling fact-based decision-making, and developing critical leadership skills

Selecting strategic projects that reduce operational risk, improve customer experience, and increase shareholder value

Organic vs. Top-Down

Mandating from the top – required from a performance management perspective

Treating as “another ‘A’ priority”

Applying broadly to all project work


Roles & Responsibilities

SeniorLeaders

Black Belt

Team Members

Process Owner

Coach

Champion

• Assists in project selection

• Accountable for results

• Provides direction/support

• Provides subject matter expertise

• Assists in data collection

• Assists in process documentation

• Leads and manages project

• Delivers project results

• Delivers financial benefits

• Is the expert on Six Sigma methodology & tools

• Coaches Black Belts throughout their projects

• Partners with Champion to ensure project success

• Accountable for implementation of process improvements

• Monitors ongoing process performance and takes action when necessary

• May sponsor a project


Prerequisite – must have an approved project and leadership approval Attend three full weeks over 4 months (training weeks are separated by 4-6

weeks of project work) Receive weekly coaching by Coach Project teams receive just-in-time training from Black Belt and through e-learning

courses Access to training materials, templates, and tools Attend quarterly enrichment sessions to continuously update their skills After completing two projects, Black Belts sit for internal certification After passing internal certification, Black Belts are encouraged to pursue the

American Society for Quality designation

One Company’s Training Model for Black Belts


Sources of Project Ideas

Dashboards ScorecardsSLAs Work Condition Reports Compliance ProjectsCycle Time Studies Benchmark GapsCustomer Dissatisfaction Logs any “Re” process

PMO/Project Logs Business Performance

MeasuresStrategy, Goals,

& Aspirations

Future Growth Plans Annual AOR GoalsSpeed to Market Expense Management InnovationPost Rollout

Resource Utilization Contingent Workers Competency Model Talent Management Expense Management

People Efficiency& Effectiveness

Customer Experience New Initiatives Audit Findings Rework

Other

Reoccurring problemsPlaces with no controls in placeFines have been levied


What is Six Sigma?

View 1 – a metric

Scale for levels of goodness or quality - 3.4 DPMO

Operating at Three Sigma

514 incorrect credit card transactions recorded each minute

27 minutes of dead air on television each week (per channel)

Operating at Six Sigma

0.65 incorrect credit card transactions recorded each minute

2 seconds of dead air on television each week (per channel)


Process Yield DPMO* Sigma Level

75% 250,000 2.150

90% 100,000 2.775

95% 50,000 3.150

98% 20,000 3.550

99% 10,000 3.825

99.38% 6,200 4.000

99.977 230 5.000

99.99966 3.4 6.000

*Defects per million opportunities

Where most organizations

operate (spending 25-40% of

revenue fixing problems)

Typically, industry specific

Yield vs. DPMO vs. Sigma Level


What is Six Sigma?

View #2 – a methodology

ProcessCapability

FMEA

Mistake Proofing

Reliability

SPC

ProcessMapping

DOE

C&E Matrix

Problem Solving

SystemsThinkingVisual

Controls

Value Stream Mapping

TakeTime

UnpredictableDemand

Balanced Work

JIT

Supplier Capability

QFDAxiomatic

Design

Predictive Modeling

ProductDevelopment

Marketing & Sales

TRIZ

CTQ

ReduceReduceVariabilityVariability

Innovate & Innovate & GrowGrow

Eliminate Eliminate UnnecessaryUnnecessary

StepsSteps

Client service enhanced

Growth engines built

Redundancies eliminated

Attract, retain and excite talent

DFSSDFSS

LEANLEAN DMAICDMAIC

KANO


What is Six Sigma?

View 3 – a management system

High performance system for executing business strategy Drives clarity around the business strategy and the metrics

Provides framework to prioritize resources for projects to improve the metrics

Leverages leaders to manage efforts for rapid, sustainable, and improved business results

“Six Sigma is not an improvement program. It is instead a business philosophy that employs a step-by-step approach to reducing variation, increasing quality, client satisfaction, and in time, market share.”

Mikel HarryCEO, Six Sigma Academy


Six Sigma Concepts and Tools


Six Sigma …..Manages Variation

Defect Defect

Too soon Too late

Delivery Time

Goal

Delivery Time

Too soon Too lateGoal

Too soon Too late

Delivery Time

Defect Defect

Delivery Time

Too soon Too late

The closer to perfect the process, the better equipped you are to handle normal process variation!

Process Shift Naturally Happens

Goal

Goal


Cycle Time

Six Sigma …Uncovers Variation

Managing with averages may not always be enough

Analysis of data:

Tracked over 3000 policies for cycle time to issue. Goal established by leadership

is 22.6 days. Current average issue time is

18.6 days. Question: Is this a cause to

celebrate? Think of the customer experience.

How many customers experienced more than the average of 22.6 days?


InnovationMeets Needs

Versions of a Process

What wethink it is

What itreally is

What itshould be

(includes rework steps)

What itcould be

Six Sigma …Helps us understand process capability

Process Mapping Reveals Customer Touchpoints

Why are process maps needed?

Provides a common language and understanding for more efficient process discussions.

Can help to better see the impact of even a small change to the overall process.

Can help to identify redundancies, bottlenecks, and non-value added tasks.


What to look for in a process map:

Non-value added steps (decision points, error correction, review, etc.)

Rework loops Potential bottlenecks Hand-offs How a proposed change

impacts the overall process

No

Yes

Yes

Start

1.Phone reptakes order

4.TimingOK?

2.In stock?

3.Checks

manufacturingschedule

18. Lose order

17.Date OK?

19.Send to

warehouse

5.Enters orderin computer

16.Phone rep

calls customer

15.Date OK?

6.Phone rep fillsout order form

7. Order sentto order

processing

9. Phone rep

corrects errors

8.Errors?

12. Errors?

10. Process

order

11. Send toshipping

scheduler

13.Signs order

14.Schedulesshipping

No

Yes

No

No

No

No

Yes

Yes

Yes

Process Map


Six Sigma...Helps to reduce variation by identifying and controlling the

root causes of variation...the Xs

Y= f(x1, x2, x3…)

key process inputs that causevariation in the outputa function ofisProcess output

The Basic Equation


Six SigmaWhat Lean Six Sigma Isn’t

It is not:• a diet dinner• a faster DMAIC framework• a lighter version of Six Sigma

LEAN Six Sigma Methodology


What is Lean?

Business improvement methodology that focuses on making processes more efficient through eliminating waste and reducing cycle time. It is about processing speed.

Mostly used in manufacturing.

Five core concepts of Lean (Womack and Jones):

Specify value in the eyes of the customer

Identify the value stream and eliminate waste

Make value flow at the pull of the customer

Involve and empower employees

Continuously improve in the pursuit of perfection



Prepare the Work PlaceThe 5 S’s

Leave only essentials , discard what is not needed

Arrange items for ease of use, put items away

Maintain a clean positive work environment

Establish consistent procedures

Establish good habits, lead by example


Value Stream MappingRecruiting Process

Manager Manager

Post Req ScreenResumes

Resource Allocation Process

CT = 60 m.

True Time – 10 m

# Resources – 3

#Systems – 3

Procedures - none


Define client requirements Carefully scope projects

DEFINEDEFINE

Mistake Proof the Solution Standardize process CONTROLCONTROL

Validate and pilot the solution Implement improvement plan

IMPROVEIMPROVE

Identify root causes Establish improvement targets

ANALYZEANALYZE

Collect data Calculate Sigma levelMEASUREMEASURE

ANALYZEANALYZE

MEASUREMEASURE

DEFINEDEFINE

CONTROLCONTROL

IMPROVEIMPROVE

RECOGNIZERECOGNIZE

STANDARDIZE / INTEGRATESTANDARDIZE / INTEGRATE

DMAIC Methodology


SIPOC

Suppliers Input Variables Output Variables

(Providers of the required resources)

(Resources required for the process step)

(Deliverables from the step)

Accounting team

Accounting report 29403 &

29402

Commissions are paid or

reversed

Sales suspense and Policy is inforce

Issuance teams

New Business Overage is mailed to policy

Financial team holders if applicable

Accounting reports cleared

Compliance SOX

assessments

are notified

Agents (notifies policyholder)

Money is charged off or

Money is received

Commissions are reversed or

extension for 2 additional

days

Agent is given an

if applicable or

Agent is given 7 days to locate

Customer credit is returned

identified and prioritized

based on oldest date

Items over 60 days are

Report is generated on a weekly

basis

Process

(Process Step description of the activity)

Contact Center

Accounting department

Compliance department

Field Agents

Policyholders

Customers(Anyone who receives a

deliverable from the process)

Value of SIPOC Analysis

Provides a high level understanding of the process

Identifies the steps in the process

Identifies inputs/suppliers Identifies outputs/customers Can help determine appropriate

metrics for the process

Define Phase Tool - SIPOC


Critical To Quality

Shorten cycle time

Better claim explanation/ investigation

Simplify status

What the Insured SAYS

“It takes too long to get my deductible back.”

“Why do I have to pay my deductible, it wasn’t my fault?”

“I don’t have a clear place to go to get status on my subrogation claim.”

“My agent does not seem to have all the information to help me.”

Performance Standards

Cycle time is 5 days (from notice to reimbursement)

Customer can find status and understand disposition on first try

Agent can find all the information in one try

General (Hard to Measure) Specific (Easy to Measure)

Define Phase Tool - Voice of the Customer


1. Determine number of defect O = opportunities per unit

2. Determine number of units N = processed

3. Determine total number of D = defects made (include defects made and later fixed)

4. Calculate Defects Per Opportunity

5. Calculate Yield

6. Look up Sigma in the Process Sigma Table

Measurement Phase Tools

Process Control

3020100

60

50

40

30

20

10

0

-10

Observation Number

Individu

al V

alue

I Chart for Call Dur

1

3

1

Mean=15.16

UCL=37.64

LCL=-7.333

Process Capability

403020100

LSLLSL

Process Capability Analysis for Torque

PPM Total

PPM > USL

PPM < LSL

PPM Total

PPM > USL

PPM < LSL

Cpm

Ppk

Z.LSL

Z.USL

Z.Bench

StDev (Overall)

Sample N

Mean

LSL

Target

USL

40271.59

*

40271.59

0.00

*

0.00

*

0.58

1.75

*

1.75

6.44602

68

21.2647

10.0000

*

*

Expected PerformanceObserved Performance

Overall Capability

Process Data

3

187

209

0.373

62.7%

1.8

DPO =

Calculating Process Sigma

D

N x O=

Yield = (1 – DPO) x 100 =

Process Sigma =


Analyze Phase - Root Cause Analysis

Forklift Operators A B C D E F G H

# Corner Gouges(2 days)

63 56 48 41 9 7 6 2

Years on Job 1.5 .75 1.25 1.25 12.75 9 8.5 11.5

Age 24 29 20 25 57 42 31 36

Training OrientationOn-the-Job TrainingOSHA Required Training

OrientationOn-the-Job TrainingOSHA Required TrainingThree-Day Forklift OperatorSchool (discontinued 1995)

A company was trying to reduce the number of damaged cartons that came

out of their warehouse.

They collected data on operators to help make their decision.

What conclusions can you draw?

Based on the information, what change(s) would you recommend?

Why?


A B C D

Junior Operators

50

100

150

200

A B C D

Junior Operators

50

100

150

200

Operators A, B, C, DBefore Training

Operators A, B, C, DAfter Training

After instituting a new training program for forklift operators, the company compared the number of gouges by the junior operators with the number of gouges that had occurred before the training.

The Improvement team identified one potential root cause and acted on it.

But … it was the wrong conclusion.

Analyze Phase - Root Cause Analysis


Analyze Phase Tools

Why are there

inefficiencies

in claim

processing?

SYSTEM

COMMUNICATION PROCESS

PEOPLEPRODUCT

COMPLIANCE

TRAINING

Multiple

systems#4

MULTIPLE

PROD.

#3

DOCUMEN -

TATION

Inexperienced

employees

Don’t fully

understand own

business

#2

TRAINING

#5

FEATURES

Multiple

ways to do the

same thing

#1:

TRANSCEND

Fishbone Diagram

0

1

2

3

4

5

6

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Location A

0

1

2

3

4

5

6

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Location B

0

1

2

3

4

5

6

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Location C

Time to Complete(all locations)

1

2

3

4

5

6

8 9 10 11 12 13 14 15 16 17 18 19 20 21

Minutes

Data Stratification


18 10 19 43 59274 4.3 2.4 4.510.213.964.8

100.0 95.7 93.4 88.9 78.7 64.8

400

300

200

100

0

100

80

60

40

20

0

Defect

CountPercentCum %

Per

cen

t

Cou

nt

Pareto Chart for DefectsPareto Chart Box Plots

Run Chart Scatter Plot Histogram

Analyze Phase – Graphical Tools


Analyze Phase Tools

Hypothesis testing

• t-test

• paired t-test

• ANOVA

• Chi-Square

Regression analysis

• linear

• multi-linear

Diff_Amt

Cycl

eTi

me D

ays

100000800006000040000200000

90

80

70

60

50

40

30

20

Scatterplot of CycleTime Days vs Diff_Amt

Two-Sample T-Test and CI: CycleTime Days, Def/NonDef

Def/NonDef N Mean StDev SE Mean

D 48 52.6 13.1 1.9

ND 247 44.0 11.5 0.73

Difference = mu (D) - mu (ND)

Estimate for difference: 8.64060

95% CI for difference: (4.59176, 12.68945)

T-Test of difference = 0 (vs not =): T-Value = 4.27 P-Value = 0.000 DF = 61


Improve Phase Tools

Cost Benefit Analysis

• Prioritization matrix

• Responsibility chart

1

2

3

4

5

Ease

to Im

plem

ent

Action

What Outcome Who When

ProblemRoot

Cause

Counter -

measure Pot

entia

l Impr

ovem

ent

Proba

bility

of S

ucce

ss

Total

scor

e

Brainstorming ToolsQuantitative Analysis Project Name:Description of improvement: Champion:

Black Belt:

Benefits (inflows) Year 1 Year 2 Year 3 Year 4 Year 5

(a) 0.0 0.0 0.0 0.0 0.0(b) 0.0 0.0 0.0 0.0 0.0(c) 0.0 0.0 0.0 0.0 0.0

Total Benefits (inflows) 0.0 0.0 0.0 0.0 0.0

Costs (outflows) Year 1 Year 2 Year 3 Year 4 Year 5

(a) 0.0 0.0 0.0 0.0 0.0(b) 0.0 0.0 0.0 0.0 0.0(c) 0.0 0.0 0.0 0.0 0.0

Total Costs (outflows) 0.0 0.0 0.0 0.0 0.0

Net Annual Cash Flow 0.0 0.0 0.0 0.0 0.0

Discount Rate 10.5% (note there must be at least one positive cash flow value and one

negative cash flow value to calculate the internal rate of return)

Present Value Benefits $0.00Present Value Costs $0.00 Five-year Internal Rate of Return #NUM!

Net Present Value $0.00 Payback PeriodNo payback


Improve

Improve Phase Tools - FMEA


Control Phase Tool – Process Management Chart

Scanned

Process: Claims Process

Standard:

Process Owner: Pearl Harrison

Measurement Owner: Pearl Harrison

Control/ MeasurementHigh-level Process Map

Action Recommended

Current PerformanceStandard

Month of:

Examiner Processes

Refer Pend Claim to Manager

Manager review claim

Turnaround time remains within 3-10 day timeframe for both Cancer and Accident Claims processed.

Effective May 04, no overtime dollars used.

Process Capability Chart/I-MR chart. Published weekly by administrative assistant.

Accident Claims processed are right at the 10 day mark. With only 4 FTE – when one is not available, turnaround time suffers.

When trend continues over two week period. Management team reviews and provides feedback to bring turnaround time within standards.

To assist with reducing turnaround time, examiners are working overtime to reduce turnaround time in an attempt to remain within 3-10 day timeframe.

If overtime is necessary, managers provide written justification to Claims Director justifying need for overtime to meet turnaround time standards. See FMEA

Report from Finance on Overtime $$ spent. Report gathered monthly.

Any Add’l Info?

Yes

Process Claim

Any Add’l Info

Claim pended

Yes

No


Q&A

Documents

Six Sigma Executive Overview Note all information is proprietary and confidential Association of Business Process Management Professionals Chicago Chapter