This chapter provides an overview of Lean Six Sigma methodology. It should give you a conceptual understanding of the philosophies and the rationale behind two of the most powerful process improvement methodologies in modern management—Lean and Six Sigma. It also puts forward the case for the high impact benefits that a combination of the two approaches can bring, which is far greater than using each of the methodologies alone. This chapter should serve as a brief but useful introduction to Lean Six Sigma for any stakeholder in an organization. It is essential to understand the basic concepts of the Lean Six Sigma methodology before we start the actual implementation. This chapter introduces these concepts, and the subsequent chapters of the book will deal with the actual implementation of Lean Six Sigma.
Normally denoted as 6 σ, the term consists of two parts—6 as a number and σ, a Greek letter used as a measure of variation within a specific set of measured data. For a robust process, variation with respect to customer requirements should be as low as possible. A stated Sigma level, in this case 6 Sigma, indicates how much the process varies in meeting customer requirements. The greater the Sigma level, the more the performance of the process coincides with the requirements of the customer. With a greater Sigma level, there are fewer chances of defects within a process, which will ultimately lead to improvements in an organization's bottom line and profitability. As Six Sigma has evolved, the term has acquired various other meanings as well, and refers to a range of issues that can bring benefits to a business. For example, Six Sigma:
Is a problem-solving methodology.
Is a statistical term to denote a process that generates less than 3.4 defects per million opportunities. This corresponds to a process performing at a quality level of 99.99967 percent.
Indicates dramatic improvement levels, typically of more than 50 percent.
Involves a distinct organizational infrastructure with a defined skill set, roles, and procedures.
Is strongly linked to the bottom-line and the profitability of an organization.
Note
Make a note
The history of Six Sigma
The Six Sigma methodology originated at Motorola in mid 1980s. The story goes that during one of the reviews Bob Galvin, the then CEO, remarked "Our quality stinks." This led Motorola to embark on the quality path known as Six Sigma. The existing basic principles and statistical methods employed in TQM and various quality engineering circles were combined with business and leadership principles to create a holistic management system. This resulted in staggering improvements in the quality level within a few years. Motorola won the inaugural Malcolm Baldridge National Quality Award in 1988. It was then that the world came to know about the secret of their success and thus was born the Six Sigma revolution. By the 1990s, leading corporations such as Texas instruments, Asea Brown Boveri, Allied Signal, Sony Corporation, and General Electric also embraced the methodology and reaped astonishing results. Since then, the legion of the Six Sigma embracing organizations has only grown and includes almost every corporation that one can put a finger on. By 2012, Google returned more than 31,000,000 results related to Six Sigma.
There are certain key concepts that you need to understand in order to have a good grasp of Six Sigma. This section covers these key concepts.
Accuracy refers to performance with respect to a defined value or target. The closer a value is to its target, the greater its accuracy will be.
Precision refers to the closeness or proximity between various data-points and their relationship to each other. In other words, precision is a measure of variation in measured data. The closer the data points are to each other, the greater the precision and the less the variation.
The following figure elucidates the difference further:
The accuracy of a measured set of data is indicated by measuring central tendency metrics such as the mean, mode, or the median. Variation is the voice of the process and is indicated by measures of dispersion such as Standard Deviation.
This equation is at the heart of Six Sigma. This simply indicates that Y or the outcome or effect of a process is a function of or dependent on various factors or causes, referred to as Xs. In other words, certain sets of inputs called X are transformed by a function, f, into an output called Y. The following table explains the relationship between Y and X.
|
Y |
X |
|---|---|
|
Dependent variable Output/result Effect Symptom Monitor |
Independent variable Input/process Cause Problem Control |
Instead of focusing on effects that would be akin to tackling symptoms rather than the root cause, the methodology stresses the identification and manipulation of underlying causes or Xs for these effects, Ys. The Y still needs to be monitored but Xs need to be controlled. This focus results in a sustained improvement with long terms benefits instead of superficial, flash-in-the-pan improvement with a risk of recurrence of the problem.
As mentioned earlier, Six Sigma is customer-centric. The term defect is used to denote instances or events that fail to deliver as per the requirements that are most critical to the customer, called critical to quality (CTQ). Every defect in the process has an adverse impact not only on the quality but also on the time the process takes to be both carried out and reworked. This results in an additional cost, which often goes unnoticed but impacts overall profitability. Any measurable event that may result in a defect is called an opportunity. A Six Sigma process technically implies 3.4 defects per million opportunities (DPMO) in that process.
The Six Sigma methodology also focuses on reducing variation in a given process. As seen in the following figure, the variation in the process reduces dramatically with the increase in Sigma level. A particular Sigma level indicates the distance between the target and the customer specification for the process, so the higher the Sigma level, the closer this will be. The target of a process is the value on which it is supposed to be centered.
A Six Sigma process implies that the process has been designed to be twice as good as the customer specification. Technically, it implies that the customer specifications are six standard deviations away from the process target. In other words, the variation is so low that six such processes can be accommodated within this gap between the process target and the specification limits. If we define defects as the outputs that fall out of the specification limits, we can see that as the sigma levels go up, there would be fewer chances of such defects being generated.
Note
Make a note
Variation is inherent in all processes. It cannot be eliminated. We can only ensure that these variations are within our control. Six Sigma focuses on reducing variation to be within acceptable limits.
Here we can see the way the Sigma level and variation in a process relate to one another—as the Sigma level increases, the degree of variation decreases.
Six Sigma as a methodology can lead to exponential improvement (as we see in the previous image). As the Sigma level goes up, the scale of improvement goes up dramatically. The following two graphics also demonstrate how improvement dramatically increases along with the Sigma level:
Six Sigma has three dimensions to address all the requirements of a specific process—design, improvement, and management. It addresses all these dimensions with specific methodologies such as Design for Six Sigma (DFSS), DMAIC, and Process Management.
The DFSS approach is used when a defined process is not in place or no further significant improvement is possible in the process. In this case, we need to design a robust process afresh. The DMAIC approach is used to help an existing and defined process to perform at its optimal level and to meet customer requirements. Process management refers to the routine approach to ensure that the existing process operates at the current and sustainable levels. This book deals with the more popular DMAIC approach.
Six Sigma brings certain unique advantages such as:
An emphasis on the identification of opportunities and elimination of defects according to the customer's requirements
A focus on reducing process variation
Addressing accuracy and consistency in a process
Employing data and statistics to drive decisions
Incorporating a comprehensive set of quality tools under a powerful framework
Prescribing a company-wide cultural transformation to achieve sustained improvements
Lean, as the name suggests, is about identifying and eliminating the "flab" or waste in a process thereby improving the speed of it. Lean considers spending any kind of resource that does not add any value to the end customer, to achieve an outcome as waste. This waste needs to be eliminated to speed up the process and improve overall efficiency. Unlike Six Sigma, which addresses accuracy and consistency through its focus on reducing defects and variation in the process, Lean addresses the speed, time, and efficiency of a process through the elimination of waste.
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The history of Lean
Post World War II, the Japanese industry in general was grappling with a plethora of problems. There was no market. They had to compete against western companies that enjoyed economy of scale. There were severe credit restrictions imposed by occupying forces leading to non-availability of capital to invest in new plants. Organizations like Toyota were struggling to stay afloat. It was this gloomy backdrop that prompted Taichi Ohno, an executive at Toyota to redesign the production system. His vision was focussed on how to maximize the returns on limited investment. It zeroed down to three fundamental principles – i) Build only what is required, ii) Eliminate anything that does not add value, and iii) Stop if something goes wrong. These ideas along with total employee involvement formed the core of the famous Toyota Production system that catapulted Toyota from the brink of bankruptcy to the pedestal of industry leader. As Toyota and other large Japanese companies expanded worldwide, the world gradually came to know of the Toyota Production system that gradually evolved into Lean manufacturing. Now, the Lean principles have grown beyond traditional manufacturing and have been employed in diverse industries such as service and software.
You now have an understanding of the core concepts behind Six Sigma; you now need to do the same thing with Lean before you can try to bring them together.
As mentioned earlier, waste is anything that is part of a process, by design or by accident, that does not add any value in the eyes of the customer. Lean aims at identifying and eliminating waste from a specific process.
A quick mnemonic to remember waste in a process would be TIMWOODS: Transportation, Inventory, Motion, Waiting, Over-production, Over-processing, Defects, and (underutilized) Skills. We will go into more detail on these later in the book.
A value-added activity in a process is something that a customer would agree is essential for the end product or service. The activities that do not fulfill this criterion are called non-value adding activities. The proportion of value-added activities in any given process is an indicator of the efficiency of the process. Our aim, with Lean, is to eliminate non-value adding activities from a process and hence improve its speed and efficiency.
Process cycle efficiency is a metric that can be used to identify an area in which the efficiency of a process could be improved. It is defined by the ratio of the time taken by value-adding tasks to the total time it takes to carry out the process.
Process velocity is an indicator of the flexibility of a process. Flexibility refers to the ability of a process to respond to potential changes in a cost-effective manner. It is calculated as the number of activities in the process divided by the total time taken to complete the process, known as process lead time. Process lead time is directly proportional to the number of activities within a process. Hence if we eliminate non-value adding activities, the process velocity goes up automatically, thereby improving flexibility.
As you will have probably already noticed, the effectiveness of a combined approach takes improvements to dramatically different levels. Lean and Six Sigma complement each other perfectly. Six Sigma not only scores in areas that require reduction in variation and the removal of defects but also cultivates a robust culture to drive sustained organizational improvements. Lean, on the other hand, is very effective at increasing the efficiency and speed of a process. Combined, the Lean Six Sigma approach enjoys the strengths of both methodologies, while overcoming their respective disadvantages. Lean Six Sigma is undoubtedly the most effective and proven improvement methodology in recent times.
|
Methodology / Parameter |
Accuracy |
Consistency |
Speed |
Time |
Efficiency |
|---|---|---|---|---|---|
|
Six Sigma |
Y |
Y |
N |
N |
N |
|
Lean |
N |
N |
Y |
Y |
Y |
|
Lean Six Sigma |
Y |
Y |
Y |
Y |
Y |
The following is an example case study that will be used throughout the book to demonstrate the effectiveness of Lean Six Sigma for an organization when applied successfully. This scenario should help to elucidate the tools, techniques, and key concepts of Lean Six Sigma, which should help you implement it successfully in your organization.
ABC Inc., an IT services company, has lately realized that it is losing its ground to the competition. Based on industry data and other studies, it found that the customer satisfaction with the support services has been just or below average. The customer satisfaction rating was found to be 70% while the ratings for "average" and "best-in-class" companies were 75% and 83% respectively. They also observed that there is a strong positive correlation between the customer satisfaction rating and new account growth. The average cost per support call of ABC Inc. was also found to be significantly higher at $25 compared to $22 and $18 for average and best-in-class companies. The management team then concluded that a Lean Six Sigma improvement project should be launched to improve the customer satisfaction rating and to reduce the cost per support call. The management strongly feels that this will help them control operational costs as well as achieve higher account growth. A Lean Six Sigma team was constituted to drive this.
Six Sigma has been successfully deployed across organizations all around the world. It is a data-driven methodology built around a framework to identify and reduce defects and variation in critical organization processes. It addresses the accuracy and consistency of these processes. Six Sigma also helps to build a culture of continuous improvement through its prescriptive framework.
Lean originated in a manufacturing setup but its concepts have found application across a range of industries. Unlike Six Sigma, it addresses the speed and efficiency of a process by identifying waste and eliminating non-value adding activities from it. This also helps simplify it. Studies have shown that the cost of poor quality, the cost associated with defective products or services, increases as the number of steps or the complexity of a process increases. Probability of defects being generated goes up as the number of steps increase. This results in greater reworking, and this of course costs money.
Lean Six Sigma is a combined approach that utilizes the strengths of the two methodologies. The two approaches complement each other well. By combining the two approaches, organizations and businesses will find dramatic improvements.
The next chapter describes the life cycle and process of implementing Lean Six Sigma in an organization.
Which of the following statements is true about Six Sigma quality?
Motorola invented Six Sigma methodology
Six Sigma implies 3.4 defects per million opportunities
Six Sigma is a statistics and data-driven methodology
All of the above
Which of the following statements is not correct?
Accuracy is indicated by measures of central tendency
Precision implies the gap between actual and target performances
Precision is measured by standard deviation
Precision is an indication of variation within the process
The equation Y=f(X) is at the core of Six Sigma methodology. Which of these statements is not correct?
Y is a dependent variable and X is an independent variable
Y is an independent variable and X is a dependent variable
Y should be controlled and X should be monitored
Both B and C
Which of these statements is correct in view of Lean principles?
Waste is any non-value added activity in a process that should be eliminated
Process cycle efficiency is an indicator of the time taken by value added activities as the percentage of the total process time
The lower the number of steps in a process, the higher the velocity of the process
All of the above
Six Sigma does not focus on:
Reduction of defects
Improving the cost of poor quality
Reduction of variation
Eliminate NVA
Lean does not focus on:
Reduction of variation
Eliminating waste
Reduction of defects
Improvement in process velocity
Sigma Level indicates:
Closeness of process performance to the customer requirements
Variation in the process
Capability of the process
All of the above
Lean Six Sigma methodology:
Is applicable only for manufacturing organizations
Has cost saving as the primary objective
Has not been effective in service organizations
None of the above
Answers: 1 – D; 2 – B; 3 – D; 4 – D; 5 – D; 6 – C; 7 – D; 8 - D