John SullivanJuly 27th, 2009

Six Sigma Basics Benefits of Six Sigma and Why it is Utilized Pioneers of the Science Methodologies/How to Apply it General Electric Conclusion Q & A

Six Sigma developed from TQM and similar quality initiatives

Evolved to be about business management, value creation and improvement for the customer and the shareholder

“A highly disciplined process that helps us focus on developing and delivering near-perfect products and services”

3.4 Defects per million opportunities (DPMO) and CTQ’s

◦ 1 Sigma = 690,000 DPMO =31% efficiency2 Sigma = 308,000 DPMO = 69.2% efficiency3 Sigma = 66,800 DPMO = 93.32% efficiency4 Sigma = 6,210 DPMO = 99.279% efficiency5 Sigma = 230 DPMO = 99.977% efficiency6 Sigma = 3.4 DPMO = 99.9996% efficiency

(1) # of Defective units = DPU (Defects per unit) # of units input

(2) % of defects (DPU) = DPO (Probability of defective units)

# of “opportunities” for defect

(3) 1- DPO (Opportunity level for “non-defected unit”)

(4) DPO x 1,000,000 = DPMO

(5) Reference σ chart

Example:Produce 100 units with 5 defects in total; there are 20 CTQ’s defined by the customer. What is the Sigma level of the company?

(1) 5 Defects =.05 DPU 100 units

(2) .05 DPU = .0025 DPO 20 CTQ’s

(3) 1- .0025 = .9975

(4) .0025 x 1,000,000 = 2,500 DMPO

(5) 2,555 DPMO = 4.30σ ; therefore ≈ 4.3 σ

Process Variances◦ Inadequate training◦ Unreliable vendors◦ Insufficient process capabilities/

barriers to achieving CTQ’s

Goals:◦ Eliminate variation in processes◦ Enhance productivity◦ Eliminate wastes

◦$ value increase of bottom line

“Any customer can have a car painted any colour that he wants so long as it is black”

-Henry Ford

1979 Art Sundry of Motorola“The real problem with Motorola is that

our quality stinks!” - Art Sundry

Higher quality products are less expensive ◦ Less re-work◦ Fewer re-funds◦ Lower EE costs

Sought a proactive approach through Prevention not Detection (Reactive)

“Stealing” market share through quality ◦ The Bandit Pager

1986- Invested $25 million in training◦ $250 million ROI in 1st year

1992- 70% of EE’s participated training Reduced errors by 80%

◦ $4 Billion in savings◦ $16 Billion by 2000

1988 – Baldrige National Quality Award

Hidden defects = High costs (20% -30% every $1 of sales)

◦ Increase Profitability◦ Improve market share◦ Meet overall strategic business goals◦ Ensure long-term viability of company◦ Fix “low hanging fruit = significant impacts to

bottom line“Every company that has followed our Six Sigma methodology has achieved breakthrough profitability.”

-Mikel Harry and Richard Schroeder

#1 Reason…Improve Profitability Quickly◦ Earn 8% more in the prices established◦ 3x more profitable than those with inferior levels of

quality◦ 10x improvement from previous level of profitability

Being Better is Cheaper◦ 1 Sigma level increase each year◦ 20% profit margin improvement• 12-18% increase in capacity• 12% reduction in EE’s and costs

associated with them• 10-30% capital reduction

“The best executive is the one who has sense enough to pick good men to do what he wants done, and self-restraint enough to keep from meddling with them while they do it.”

-Theodore Roosevelt

◦ Discover◦ Decide◦ Organize ◦ Initialize ◦ Deploy ◦ Sustain

Customer

Green Belts

Black Belts

Master Black Belts

Champions

Executive Leadership

Initial Stages of Six Sigma

The methodology behind the Six Sigma Science is the DMAIC model for process improvement

◦ Define opportunity◦ Measure performance◦ Analyze opportunity◦ Improve performance◦ Control performance

Define the problem

◦ Prioritize issues based on: Impact to the organization Profitability Strategic direction

◦ Set Goals Should be realistic

◦ Determine deliverables and set dates◦ Define metrics to be used◦ ID your team

“If you don’t know where you are going you will end up somewhere else”

- Yogi Berra

DMAIC

Measure performance

◦ Establish baseline data

◦ Taking a snapshot of current process from all angles

◦ Develop a Value Stream Map (VSM)

◦ Audit data for validity

“What does not get counted does not count”

- Charles Handy

Analyze opportunities

◦ Systematically look at data collected

◦ Use data to understand the “root causes”

◦ Quantify performance gap

◦ ID opportunities for Improvement

Improve performance

◦ The fun part! – begin to implement projects and see results Implemented on pilot level Champions head projects Executed by black belts/master black belts

◦ ROI becomes visible!

Control performance

◦ Don’t rest; continuous improvement (Kiazen!) Take new baseline measurements Capitalize on opportunities to enhance process further

◦ Monitor new process Develop metrics and control charts

◦ Documentation of training for new process Develop a system to properly train EE’s in new process

◦ Summarize results and make recommendations

Between 1981 and 1998 the market value of GE increased from $12 billion to $280 billion dollars

Ranked 4th on the Fortune 500 ◦ Nearly $157,000 million in revenues◦ $11,025 million in Profits

Can attribute much of this success to 6σ

General Electric

“GE Quality 2000”◦ (1) Retain businesses determined to retain a

competitive edge in; eliminate businesses that don’t

◦ (2) Strive for Six Sigma by the year 2000◦ (3) Invest in Training

1996 - $200 million to train 200 master black belts and 800 black belts

1997 Additional $250 million in training 4,000 black belts/master black belts and 60,000 green belts out of a 222,000 workforce.

Certifications became mandatory if EE’s wanted to progress vertically

GE Quality 2000

Results:◦ 1997- $200m invested in training

$300mi increase in operating income

◦ 1998- Total of $500m invested in Six Sigma up to this point $750m in savings Saved over $¾ billion in cost savings by 1998 through its Six

Sigma initiatives (=1/3 of net income at the time

◦ 1999 – $1.5 billion in savings

◦ Operating margin increase from 14.8% (1996) to 18.9% (2000)

General Electric

Basics of Six Sigma Benefits of Six Sigma and why it is utilized Motorola and their role in process improvements Methodologies and applying Six Sigma GE and their Six Sigma Experience

Any company that is:•Open to and prepared for change?• Ready to take a scientific approach to increase profits quickly•Willing to commit the time and resources necessary to realize great rewards….

That company is ready for