What is Six Sigma?

What is Six Sigma?
Six Sigma’s History
What’s Old and What’s New?
What’s Involved in a Six Sigma Initiative?
Things to Keep in Mind
Lessons Learned

What is Six Sigma?

Six Sigma is a company-wide initiative to generate breakthrough results in business performance. The term “six sigma” also represents a measure of product, process, and transaction quality with nearly 100% conformance. Six Sigma initiatives use well-defined strategies to identify, select, and improve business performance. The tools are not new, but are often more advanced than those traditionally used by many companies. Six Sigma is mostly old quality technologies from the 1980s, but has a few new twists in its approach, the first of which is the controversial measure of process performance called “sigma.” Unlike the statistical term s, “sigma” is a measure of conformance to specification. The table below shows examples. 

Sigma Nonconforming (PPM)
2 398,538
3 66,807
4 6,210
5 233
6 3.4
As your nonconforming rate decreases, your “sigma” rating increases. The sigma rating is based on the distribution of a process output as related to a customer requirement. This diagram shows the short-term process output (solid blue) which is centered in the specification. The short term variability of the process output is such that the upper specification limit (USL) and the lower specification limit (LSL) are both six standard deviations (called s, or sigma in statistical parlance) away from the center. Recognizing that most processes shift somewhat over a long period of time, an arbitrary change of plus or –1.5s is expected to happen, leaving 4.5s between the shifted average and the specification limit. This means that a process running at a six sigma level in the short term can tolerate a relatively large amount of drift and still make only 3.4 PPM nonconforming over the long term with the dashed blue line.

Work that LWI consultant Michael Petrovich has done shows that this ±1.5 s shift really cannot be generalized, as shown in the graph below which illustrates the ratio of long-term to short-term variation in real processes.

Ratios of Long-Term over Short-Term Standard Deviations

 
LT/ST

While the validity of the “sigma” measure is still debated, it is not central to the effectiveness of the Six Sigma initiative itself.

Six Sigma’s History

In 1981 Motorola launched an initiative calling for a 5-year, 10X improvement in quality.  In 1987 Motorola initiated its “Six Sigma Quality” initiative, with the goal of no more than 3.4 defective parts per million (ppm) across the company.  A 4-year 100X quality improvement goal was set.  In 1988, Motorola won the Malcolm Baldrige National Quality Award.  Motorola then shared its “Six Sigma” approach with other companies.  In 1989, Motorola Chairman, Bob Galvin asked Mikel Harry to head the Six Sigma Research Institute, an organization that received funding from a number of Fortune 500 companies.

In 1993 Mikel Harry left Motorola and went to Asea Brown Boveria Ltd. (ABB).  Here, the strategy changed from “Quality First” to “Business First.”  AlliedSignal implemented Six Sigma in 1994 and claimed savings of $1.2 billion by 1998.  Bossidy, CEO of AlliedSignal, convinced General Electric’s Jack Welch to try Six Sigma.  The following savings due to using Six Sigma were claimed in the GE Annual Report, Letter to Our Shareholders, February 12, 1999.

 

With successes like these and strong business leaders like Jack Welsh and Bossidy, the demand for Six Sigma has exploded. Many Fortune 500 companies have begun Six Sigma initiatives and others have asked if Six Sigma is right for them.  Numerous consulting firms have jumped on the bandwagon, including ASQ, and numerous articles and books have appeared on the subject.  Many product and service advertisements are now mentioning Six Sigma.

What’s Old and What’s New?

W. Edwards Deming used the following reasoning in Out of the Crises (1986) to explain why improving quality was important.

 

Many quality practitioners then viewed improving quality as the only objective. As a consequence, they often achieved improvements in quality that did not always translate substantially to the bottom line. While it is generally true that improvement in quality will translate to improved profitability, improving quality is not always the most effective way to improve profitability. However, Six Sigma Qualtec shows how the cost of poor quality is decreased by improving the sigma level.

 

Six Sigma initiatives seek to drive out measurable costs of poor quality, so the projects are selected based upon financial return, typically $100,000 minimum. Some businesses claim an average return of $175,000. American management is realizing there is money on the table to be had.

The old approach focused on quality to improve profitability. The Six Sigma approach focuses on profitability to improve quality. This new philosophy teaches that quality isn’t free…it’s profit generating. The new approach still has a strong customer focus, and requires a business commitment for Six Sigma at the same level required for a Total Quality Management implementation…a total organizational desire to implement Six Sigma and achieve the financial improvements. GE’s commitment to Six Sigma is exhibited by tying 40% of executive incentives to Six Sigma achievements and requires Black Belt training to be considered for promotion. GE puts Master Black Belts in variable incentive compensation plans based on the savings they achieve.

 These savings do not come for free. Significant resources are needed to support the effort. So-called “Black Belts,” or project leaders, are assigned full time to improvement efforts and report through “Master Black Belts” who themselves coordinate the improvement efforts around the plant.

The Six Sigma methodology declares that the “Seven Basic Tools” are not enough. Advanced statistical methods are required for breakthrough cost improvements.A disciplined improvement strategy is required, instead of just teaching everyone the tools. Financial analysis is necessary, not just “nice to do.” And finally, a disciplined deployment structure is critical.

The quality tools used to improve the sigma level (through reducing variability) have been around for decades, as well the ability to tie these improvements with cost savings. By creating an organized structure and an easy to understand measure of nonconformance linked to costs, a Six Sigma initiative gives managers good financial reasons to continually improve the process output.

What’s Involved In a Six Sigma Initiative?

There are six generic implementation phases for Six Sigma:

There are a variety of nicknames for the principle players in the initiative.

The structure of the Six Sigma organization within a business would look something like this:

The typical training needed for these positions

The improvement strategy used once opportunities have been identified by Champions or Master Black Belts is as follows.

Define Opportunity
Measure Current State
Analyze Causes
Improve Performance
Control Improved Process

Things to Keep in Mind

Here are some tips and cautions from LWI’s long experience in process improvement to help make sure a Six Sigma initiative is successful.

Customer satisfaction and dissatisfaction are not opposites. Eliminating complaints, defects, and errors does not guarantee customers will want to buy from you. You can go out of business working only on eliminating dissatisfaction. You must know why customers want to buy from you.

Reduction of variability around target may often be more important than nonconformance. This can be critical in product assemblies. Targeting process outputs is often a needed first step. In the 1980s, a Ford division desourced four suppliers that never shipped them nonconforming product.

Improvement does not happen “project-by-project.” They can come from the output of organization-wide, local, and personal improvement systems. Practice toward perfection can generate improvement itself.

Assessing the real value of a project is not often easy, for example, improving productivity when you are not at capacity may have no financial effect. Some financial consequences really are “unknown and unknowable.” How do you quantify a dissatisfied customer? Financial results must consider system effects. When incentives are involved the numbers will come, real or not.

Business excellence still requires

None of these requirements is the main thrust of Six Sigma.

Lessons Learned

What can we learn from the successes and failures of Six Sigma?