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CHAPTER TWO
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Worker-related factors: Lack of Purpose, Skills and Experience
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Profitability Reduction Factors
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Non-worker-related factors: Material, Info., Machines, Tools, Proc., Training, Capacity, Maintenance, Design, Sales, Purchasing, Req., Mgmt policies, Decisions, Comm.
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FIGURE 2-3.
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Factors contributing to reduction in profitability.
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Suboptimized designs Poorly understood customer requirements Overambitious sales representatives Excessive discounts Informally communicated requirements to suppliers Purchasing policies requiring cheapest parts instead of value Management uncertainty in decision making and lack of direction
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Note that most of these cost factors are related to neither management nor employees. However, with changing business practices, increasing complexity of products, and interdependence of various functions, everyone must work to ensure that necessary activities occur correctly. Management is no longer solely responsible for every action of all employees, nor are employees solely responsible for every decision that management makes. Instead, everyone must be responsible for inefficiencies in the system. The system is not a function of two
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SIX SIGMA AN OVERVIEW
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processes; it is a collection of various processes that generate hidden and visible waste in the system. Considering waste in the system, as well as ever-increasing customer expectations, Motorola recognized that a new yield model was needed. The late Bill Smith, a senior manager at Motorola, developed a model that would allow higher yields at each operation, thus generating better products and services to customers. With the Six Sigma level of performance, each function must be performed virtually perfectly. The failure rate at each operation is expected to be 3.4 parts per million versus simply 99 percent. With such a high level of performance, the field performance improves significantly, waste reduces dramatically, and profitability can improve enormously. Figure 2-4 shows the impact of the revised business model on the overall performance of the system. With this magnitude of improvement, the Six Sigma concept becomes a powerful strategy to drive improvement in an organization s performance and profitability.
BASICS OF SIX SIGMA
Six Sigma offers a measure of goodness, a methodology for improving performance, a measurement system that drives dramatic results, and a new paradigm that requires a passionate commitment from leadership to set high expectations. Figure 2-5 demonstrates the relationship between defect rate, sigma level, and cost reduction opportunities.
Number of Operations or Components 100 500 1000 5000
Overall Yield, % (99% Yield at Each Process, or for Each Component) 36.7 0.5 0 0
Overall Yield, % (99.9996% Yield at Each Process, or for Each Component) 99.9 99.8 99.6 98
Improvement, % Greater than 100% Greater than 1000% Practically infinite Practically infinite
FIGURE 2-4.
Performance improvement due to the Six Sigma process capability.
CHAPTER TWO
Defect Rate, parts per million 66,810 (or 6.7%) 6210 (0.6%) 233 3.4
Sigma Level
Cost Reduction Opportunities, % of Sales 25 15 5 1
3 4 5 6
FIGURE 2-5. Sigma level and related opportunities for improvement.
Companies that have implemented Six Sigma have reported enormous savings. For example, Motorola, GE, Honeywell (formerly Allied Signal), Raytheon, ABB, and many more have realized savings in the hundreds of millions of dollars. During the first 5 years of Six Sigma implementation, Motorola reported about $1 billion in manufacturing operation savings and similar savings in nonmanufacturing operations. For Motorola, 1987 to 1992 was a significant period when sales and profitability improved significantly.
TRADITIONAL APPROACH TO SIX SIGMA
The traditional approach to Six Sigma involves the steps that focus on discovering customers critical requirements, developing process maps, and establishing key business indicators. After these steps are completed, the business moves on to review its performance against the Six Sigma standards of performance and takes actions to realize virtual performance. The often overlooked aspect of achieving dramatic improvement in business performance is the superior management review process, in which the senior executives become extensively involved in monitoring performance and demanding necessary improvements from their middle managers and employees. Once success is achieved, reward and recognition are critical success factors to perpetuate the rate of improvement. The traditional approach, used by Motorola during the first 5 years, requires leadership and managerial staff to undergo extensive training for change management supported
SIX SIGMA AN OVERVIEW
by Motorola University, followed by training in Six Sigma methods. Senior management then taught employees to create an upward communication process. When employees had a problem, they were required to go to their supervisors for answers. The outcome was a common understanding of the Six Sigma process and common goals for improvement. Employees were asked to set goals that would allow them to stretch their imaginations, promoting creativity and superior teamwork. When teams excelled, they were recognized by the CEO and were rewarded with the CEO Quality Award. This became the best award employees could receive, and they strived for it.
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