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SIX SIGMA BUSINESS SCORECARD VALIDATION
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provide financial incentives for submitting recommendations, still others offer personal recognition from the executive for participating in the recommendation program, and some distribute recognition and rewards for employees who publish articles or submit an innovation for a patent. The intent is to maximize the intellectual involvement of employees in improving processes and developing new products or services that will contribute to higher profitability and growth. The Six Sigma Business Scorecard guidelines for this measurement were set to facilitate this process; however, a company may implement a different guideline that better meets its needs in encouraging employee participation. For example, employees can be encouraged to submit a recommendation or two every quarter.
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5. TOTAL SPENDING/SALES
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The total spending per total sales can be easily measured initially as a ratio of cost of goods sold to revenue. This is an existing measurement that corporations already collect. In many cases, however, this measure is used in its absolute terms instead of reviewing it with respect to revenue. The ratio provides a better indicator when it is monitored in relation to its impact on profitability. The objective is to continually reduce the ratio of the cost of goods sold to revenue.
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6. SUPPLIERS DEFECT RATE
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Suppliers are a critical part of a company s success. During the past 15 years, corporations have consolidated their supplier base to reduce variation, but this approach can lead to dependency on a small group of vendors. Instead of simply supplying some parts or services, suppliers have become partners in their customers success. This increased dependency means that the suppliers performance must be monitored as an internal process to ensure customer satisfaction. On the Six Sigma Business Scorecard, the quality of suppliers parts or services is measured in terms of Sigma through the use of Defects per Unit (DPU) for products and Errors per Order (EPO) for services. The number of opportunities for
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CHAPTER TWELVE
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error is determined according to the number of parts and processes for products and the number of processes and entries, in financial reports or purchase orders, for services. If the DPU or EPO is not tracked, yield numbers can be used to estimate the DPU from DPU ln(yield)
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In the absence of any supplier performance data, a business can look into approximating the measure by using the total credit requested from suppliers.
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7. OPERATIONAL CYCLE TIME VARIANCE
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In addition to quality, suppliers responsiveness in meeting customer requirements is a critical measure of customer satisfaction. The normal measure for monitoring on-time delivery is to compare the actual delivery time to the customer s required delivery time. For internal operations, however, the cycle time measurement tracks various segments of the operation, including the following: Total cycle time Lead time Process cycle time Production cycle time Time between receiving the customer order and payment Time between placing the order and receiving the shipment Total time required to complete a process cycle Total time required to receive the material on dock and ship the product
Considering the above descriptions of various cycle times or response times, businesses can establish their own internal goals that will vary from company to company. The Operational Cycle Time Variance is a measure of deviation from the planned cycle time. This measure requires that a business establish internal goals for cycle time reduction similar to the other performance objectives. To achieve total customer satis-
SIX SIGMA BUSINESS SCORECARD VALIDATION
faction, an organization must supply what the customer loves to have and deliver it when the customer wants it.
8. OPERATIONAL SIGMA
The operational Sigma measurement requires that each process in an organization be executed well. In other words, each process must demonstrate a measure of goodness. In addition, the complexity of each process must be established in terms of opportunities for error. The measure allows determination of DPU and DPMO at each process. Based on the Opportunities for Error and the DPMO, the Sigma level can be estimated. To determine the overall Sigma level, a business adds all its DPUs for individual processes to calculate the total DPU (TDPU): TDPU DPU1 DPU2 DPU3 ... DPUn
Given the TDPU and the number of opportunities for error the final product or service can have from the customers perspective, the business can then determine its overall Sigma level. The method of counting the number of opportunities is often a source of much debate, since an increase in the number of opportunities tends to improve the Sigma level. However, this inflation of opportunities for improvement runs counter to the intent of continual improvement. As a matter of fact, the goal should be to reduce the number of opportunities in order to reduce the DPU.
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