Introduction to Six Sigma

For Internal Service Departments and Professional Services Organizations

By Gus Berdebes
VP Professional Services, Tenrox
March 2003
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Abstract

Six Sigmas aim is to eliminate waste and inefficiency, thereby
increasing customer satisfaction by delivering what the
customer is expecting.

In most cases, the inefficiencies and errors it seeks to
eliminate are measured in wasted time and money, in some
case such as medical care and passenger airliners, errors are
also measured in lives lost.

Six Sigma is a statistical methodology that was first developed
in a manufacturing environment to reduce component errors
and defects to near zero. This was required because more and
more of our societys products and services are made up of
hundreds, or thousands of subcomponents and processes,
where high defect rate rages would cause the whole system to
fail.

However, Six Sigma has evolved and is now also applied to
optimizing processes in commercial enterprises, not-for-profit
organizations, and government agencies of all sorts.

Six Sigma follows a structured methodology, and has defined
roles for the participants.

It is a data driven methodology, and requires on accurate data
collection for the processes being analyzed.

Where it is implemented, significant money can be saved.



Table of Contents
INTRODUCTION ................................................................................... 1
WE ARE ALREADY 99% ERROR FREE. THIS IS GOOD ENOUGH, RIGHT?.................. 2
ACCURATE DATE IS A LARGE PART OF SIX SIGMA ......................................................4
IN-HOUSE VERSUS COMMERCIAL SYSTEMS .............................................................4
SIX SIGMA MEASUREMENTS OFTEN EXPRESSED AS PARTS PER MILLION ...................................4
SIX SIGMA USES MARTIAL ARTS TERMINOLOGY .........................................................4
PROFICIENCY LEVELS AND RESPONSIBILITIES ..........................................................5
ORIGINS OF SIX SIGMA ........................................................................... 5
WHAT IS INVOLVED IN SIX SIGMA .............................................................. 7
WHERE DO WE START? ..............................................................................9
BUSINESS PROCESS AUTOMATION AND SIX SIGMA.................................................... 10
SUMMARY .........................................................................................10
NOTES .............................................................................................12



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1
INTRODUCTION
Six Sigma focuses on one goal: delivering near-perfect products and services,
specifically it means a failure rate of 3.4 parts per million or 99.9997% perfect.

It is a rigorous statistics-driven quality control technique, which is becoming more
prevalent in many types of business, including industrial companies, where it
originated, and service organizations, ranging from call centers, to sales
organizations, to hospitals.

It has become popular in many well known organizations because they have found
that it is can save them significant amounts of money and earn them market share.
The list of Six Sigma adopters includes: Motorola, Texas Instruments, IBM, Asea Brown
Boveri, Allied Signal, GE, Whirlpool, and PACCAR.

Six Sigma implies a whole set of strategies, tools and statistical techniques to improve
profitability, performance and customer satisfaction.

The business logic driving the desire to reach 3.4 defects per million, is that a nearly
flawless product leads to lower customer service costs and ultimately, happier
customers. In fact, in some of our modern processes, even this level of defects may
be too high.





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We are already 99% error free. This is good enough, right?

The 99% error free target is still used by
numerous businesses today. It was the
official
1
US government quality standard for
World War II and so it has survived for over
50 years. It has the benefit of being simple
and intuitive. However, it is not an adequate
measure of quality in our modern
technological society.

The adjacent table shows the actual breakdown between different levels of Sigma
error rates, as well as the equivalent rate in defects per million (DPM).

As may be suspected, most of the problems with using a 99% error rate comes from
our ubiquitous modern systems which often involve enormous volumes of transactions
that must all be properly processed, or with services or equipment which are made up
of many hundreds or thousands of complicated subassemblies and components.

If we consider 99% error free as our quality goal, we are saying that we are willing to
accept the following as being inevitable:

Over two days of no electric power for our homes and business per year
52 hours of lost production computer services for our payroll systems,
telephone switching computers, airport radar equipment etc per year.
814,000 passenger airplane crashes
23.7 Billion misrouted telephone calls
270,000,000
1
erroneous credit card transactions
200,000
2
wrong drug prescriptions per year
5,000 incorrect surgical procedures per week
20,000 lost articles of mail per hour
54,000
3
checks would be lost each night by a single large bank.




1
Jerome A. Blakeslee, Jr., "Achieving Quantum Leaps in Quality and Competitiveness: Implementing
the Six Sigma Solution in Your Company."

2
Jerome A. Blakeslee, Jr., "Achieving Quantum Leaps in Quality and Competitiveness: Implementing
the Six Sigma Solution in Your Company.

3
Thomas Pyzdek, The Six Sigma Handbook",. Copyright 2001 by McGraw Hill (NY) and Quality Publishing,
Inc. (Tucson)

Sigma
Percentage of
error free
output
Error
Free per
Million
Defects
per
Million
(DPMO)
1 31.00% 310,000 690,000
2 69.00% 690,000 310,000
3 93.30% 933,000 67,000
4 99.40% 994,000 6,000
5 99.98% 999,800 200
6 99.9997% 999,997 3



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Six Sigma is about savings.
Generating less waste, and providing
better service.

Seeks to identify and avoid
variation.

Do it right the first time, and every
time.
Six Sigma is data driven: uses facts
and data to make decisions and
measure progress towards goals


Failures at Various Sigma Levels
Sigma
Percentage
of error
free
output Defects per Million (DPMO)
Airplane accidents (1) -
Scheduled Passenger
Operations
Misrouted telephone calls
(2)
1 31.00% 690,000 93,633,000.00 2,733,780,000,000.00
2 69.00% 310,000 42,067,000.00 1,228,220,000,000.00
3 93.30% 67,000 9,091,900.00 265,454,000,000.00
4 99.40% 6,000 814,200.00 23,772,000,000.00
5 99.98% 200 27,140.00 792,400,000.00
6 99.9997% 3 407.10 11,886,000.00

Note 1: Scheduled Passenger operations 1991 to 2000 - Departures.
2: FCC 1998 call statistics. 3962 Billion (local, Intrastate Toll, Interstate Toll)

As can be seen from the table above, some of our modern services represent
enormous volumes of transactions, or events,
that must all be processed perfectly or service
would be disrupted, or worse lives lost. Where
lives are at stake, some would argue that Six
Sigma perfection might not be enough.

Most of the modern services we take for
granted would not function at a 99% defect
rate. Because while one single component may
have defect free rate of 99% (which as we have
seen is a questionable target itself), multiple
components operating together would have much higher defect rates because
component error and failure rates are essentially multiplicative.

For example: a two components system with a 99% error free rate each would see
their combined rate drop to 0.99 x 0.99 = 0.98 or 98% error free. Similarly a 10-
component system would see the defect free rate drop to 0.877 or only 87% error
free.

Our modern health care systems, payroll
systems, customer support call centers,
navigation systems, automobiles, airplanes,
computers themselves, and our business
enterprises and governments are made up of hundreds and thousands of subsystems
and subcomponents. Using a 99% benchmark per component would result in most
things not working.



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Six Sigma participants:
Green belts are the team members
in Six Sigma projects.
Black Belts are the team leaders. .
Master Black Belts are the technical
leaders & instructors

Six Sigma is a data driven process that focuses on improving quality and therefore the
bottom line by making customer satisfaction and defect-free processes the
enterprises highest priorities.

Accurate data is a large part of Six Sigma

Having accurate project, time, expense, and budget information is necessary to be
able to perform an accurate analysis of what is the current situation, and what is in
need of improvement.

Since mechanizing the capture of project data is so important, it is also important to
make sure that the systems capturing this data are accurate, stable and dependable.

In-house versus Commercial Systems

The complexity of modern software systems is another reason why commercial
systems have a quality edge over in-house systems. Commercial systems have been
subjected to more extensive quality assurance, more thorough field-testing, and
burning-in than homegrown in-house
4
versions.

Six Sigma measurements often expressed as parts per million

Most businesses operated at a 3 Sigma level which as the table above indicates,
results in 67,000 defects per million. In most cases these defects represent extra costs
to businesses and governments, and sometimes fatalities.

Many of the principles of this and other statistical quality control techniques
originated in traditional manufacturing, but as we saw above, they apply to many
processes that are service oriented including making something as simple as a phone
call, billing a customer, or the government processing a tax refund.

Six Sigma uses martial arts terminology

Away from the sometimes unique terminology
employed by Six Sigma, for example Green and
Black Belts, the main focus of the methodology is

4
Quality software can be built by many different types of organizations. In some case the specialized, unique
nature of the requirements would make in-house development cost competitive. However, in many business
situations, most requirements can readily be met by commercial systems that have already been proven in the
market place and have been created and maintained by organizations whose central focus is in solving those
particular business pains.




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Six Sigma requires a long-term
commitment, to continuous measurement,
continuous improvement, predictable
processes, and consistent quality.
on predictable outputs and highly consistent products. By minimizing variations in
product quality, there are fewer defective products produced and delivered to
customers, less waste of time and materials, less customer support is required to
correct defects, there are fewer customer complaints and returns of defective
product, and more saleable product are produced at the optimum price.

The martial arts terminology is used to imply knowing your competitive strengths,
building up your weaknesses, repetition, practice, and taking advantage of situations
that develop.

Proficiency Levels and Responsibilities
5


Master black belts are the highest proficiency level in Six Sigma. Master black belts
train black and green belts in statistical analysis methods. Master black belts are
experts in Six Sigma and are expected to coach and teach the other Sigma technical
levels.

Black belts are technical leaders that are well considered by their peers. They are
actively involved in the organization. They are expected to master a number
statistical related methodology. They work to extract useful data for analysis from
the organizations data repositories.

Green belts are team leaders capable of facilitating Six Sigma teams and managing all
facets of Six Sigma projects. Their training covers how to manage and facilitate
meetings, project management, quality control techniques, and elementary data
analysis.


Origins of Six Sigma

There have been many statistical
methods for measuring and trying to
improve quality. However, Six Sigma has
captured a significant following.

The credit for Six Sigma is often given to Motorola when it published its Six Sigma
quality program in 1987.

Motorolas focus at process improvement started
6
when they noticed that a Japanese
firm taking over a Motorola factory was able to produce the same product with 1/20
th


5
The Complete Guide to Six Sigma
6
"The Six Sigma Handbook", by Thomas Pyzdek. Copyright 2001 by McGraw Hill (NY) and Quality
Publishing, Inc. (Tucson).



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the defects using the same manufacturing equipment and assembly workers. The
basic change had to do with management rather than new capital investment. This
raised the possibility that minimization of waste could lead to minimizing the need for
new capital spending. Motorolas CEO decided that change was required.

It was decided that quality levels measured in percent (parts-per-hundred) were no
longer acceptable, and instead moved the discussion to parts-per-million or even
parts-per-billion.

Motorola pointed out that modern
technology was too complex to
continue using old ideas about
"acceptable quality levels" could no
longer be tolerated. Modern business
require near perfect quality levels.

The effort paid off and it went on to
win the Malcolm Baldrige quality
prize.

Motorola helped show that defect costs are often extremely high. Companies
operating at three or four Sigma typically spend between 25 and 40 percent of their
revenues fixing problems. This is known as the cost of poor quality. Companies
operating at Six Sigma typically spend less than 5 percent of their revenues fixing
problems. General Electric estimates that the gap between three or four Sigma and
Six Sigma was costing them between $8 billion and $12 billion per year
7
.

Jack Welch at General Electric popularized the methodology further by crediting it
with raising profit margins from 13.6 percent in 1995 to 16.7 percent in 1999
8
. GE
spent $450 million dollars on its quality initiative and expects to get a return of $1.2
billion form implementing Six Sigma
9
. Mr. Welch, GEs Chairman at the time, said:
"GE's double-digit increases in 2000 again demonstrate the benefits of the company's
continuing emphasis on globalization, growth in services, Six Sigma quality and e-
business."
10
.

In the case of Motorola, the company has attributed $15 billion
11
in savings over last
11 years to Six Sigma.


7
The Six Sigma Revolution by Thomas Pyzdek, Pyzdek Consulting Inc.
8
Best Practices LLC publication "Building Six Sigma Excellence, A Case Study of General Electric."
9
Jan. 15, 1999 Issue of CIO Enterprise Magazine
10
GE Q4 2000 GE Q4 earnings rise 16 Percent press release
11
Jan. 15, 1999 Issue of CIO Enterprise Magazine



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V
a
r
i
a
b
i
l
i
t
y

S
c
a
l
e
Time

The dollar savings caught the eye of many businesses, however, in some cases it was a
matter of real life and death, as when a report was released in 1999
12
indicating that
40,000 people a year die from medical errors. In this case reducing errors was not
only about saving money, but also about saving lives.

What is involved in Six Sigma

Sigma is the term used in statistics to
denote standard deviation, which
provides a measure for how dispersed
data is about its mean.

Reducing waste and improving
processes requires developing a deep
understanding of the how the enterprise
or a specific process operates.

Multivariate Statistical Process Control (MVSPC) is used for Advanced Process Control
(APC) models. Processes are often charted; the signals decomposed to identify which
variables are contributing to what, and to create process models.

The models that are developed are used as the base lines to benchmark the resulting
improvements. The models are used to track all the variables of importance,
especially throughput, and various quality indicators, and hence can also indicate
what the optimal time is for maintenance to be scheduled. This makes the most use
of the existing investments enterprises have made in their capital equipment.

Using Six Sigma to reduce the variation in the process makes for a more consistent
quality. Over time, the variability in the process decreases leading to more
predictable results.

This approach is applicable to most business processes, whether traditional white
collar activities such as purchasing, customer orders, or traditional blue collar
industrial processes activities such as fabrication and assembly, and large chemical
refinery operations.

The Six Sigma process often follows a continuous Define, Measure, Analyze, Improve
and Control (DMAIC) cycle:


12
Hospitals Turn to Management Gurus By William Borden




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Define the relevant processes
Measure the system. Establish reliable measures
Analyze the results and gaps between current and desired states
Improve and re-engineer processes, validate, implement new improvements
Control and monitor the new systems

Various ISO processes that institutionalize and mechanize the resulting improvements
facilitate Six Sigma. Proven field-tested, commercial systems, ensuring consistency of
an organizations business processes can be ensure that Six Sigma improvements are
captured and enforced by workflow software and help in the mechanization
procedures.

Six Sigma
13
requires that processes operate to at least plus or minus Six Sigma from
the process mean. This requires significant testing - often thousands of tests are run
on multiple variables to get an understanding of what's going on.

Once the process variables are identified and understood, the ones causing the major
losses are highlighted and made more efficient. The following is a list of factors that
have to be considered:

Understand who your consumers are and what your product/service is
Review consumer surveys and other data
Screen and prioritize issues by severity, frequency/likelihood of occurrence, etc.
Determine the internal processes causing the most pain
Find out why and where the defects are occurring
Devise ways to address these defects effectively
Setup a good metrics gather accurate and timely data

Successful introduction of Six Sigma requires a team approach starting at the very top
of the enterprise:

Executives keep the program focused on important problems, select the projects
Project champions take the goals and translate them into projects, and identify
Black and Green belt candidates
The Master Black belts create the metrics and training, and provide operational
assistance to the rest of the team and management

Sigma Six is data driven. In many large enterprises, especially where complicated
processes are being modeled, advanced statistical tools are required to be able to
properly analyze the information and create simulation models that will include
Monte Carlo simulation, t-test, F-test, confidence intervals and sample size

13
http://thequalityportal.com/q_6Sigma.htm




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Six Sigma complementary to other programs:

Long-term commitment, to continuous
measurement, continuous improvement,
predictable processes, and consistent quality.
calculations, capability to include full and fractional factorials, Taguchi designs, and
regression analysis with prediction and multiple response optimization.

Where Do We Start?

Initial projects for Six Sigma
usually focus on easy-to-do
projects and easy-to-achieve
savings. These may result in
saving hundreds of thousands of
dollars.

Larger savings usually require larger changes to be made to corporate processes to
eliminate waste from happening in the first place.

Six Sigma is not a quick fix. It takes many months to finish these projects. For
example, the Six Sigma pioneer Motorola began the program in 1987, and it took five
years to see significant results. Similarly, GE launched Six Sigma in 1995 and hoped to
have implemented company wide by 2000.

Training and expertise is a big part of what is needed to succeed with Six Sigma.
Consultants are required to create and implement training programs. It is typical that
about $50,000 dollars of training is required per team member.

However, for internal service departments and professional services organizations, a
Six Sigma initiative must begin with business process automation.



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Business Process Automation and Six Sigma

Manufacturing related organizations have made important strides in defining and
improving their efficiency metrics such as units shipped per day, tons produced per
quarter, cost per unit and other such measures. Also, for internal service departments
and professional services organizations, there is currently a major effort towards
measuring throughput and production (work) efficiency.

Most such project/service driven organizations continue to operate using informal and
decentralized business processes. Information on project and non-project related
time and expenses, project issues, tasks and requests, budgets, revenues and costs
are partially maintained in spreadsheets, emails and/or multiple information systems
with no possibility of central tracking, reporting and analysis.

Business process automation software that centralizes, formally defines and enforces
internal business processes (such as timesheet management, expense reporting,
billing, budgeting, task assignment, leave management, internal quality control,
scope change and many more examples) is the first step towards implementing a Six
Sigma initiative. Without such controls current situation, inefficiencies, improvements
and results can neither be tracked nor measured.

Summary

Six Sigma is a comprehensive, rigorous program that uses an organized engineering
approach and advanced statistical techniques to significantly reduce waste and
increase customer satisfaction. It does this by collecting data on important processes
going on within an enterprise and analyzing each one to determine which variables
are key to affecting the desired output.

The data-gathering portion of Six Sigma and the constancy of execution can be
significantly helped by using commercial systems to accurately track project, time,
expense and budget project data and to formally track and monitor business
processes using workflows. Homegrown systems are often one of the key sources of
inaccuracy, hidden inefficiency, quality issues, and a distraction of energy for most
enterprises.

The purpose of this white paper was to explore Six Sigma. It was discussed what Six
Sigma is, why it was developed, and how it is used to reduce defects and errors.
Errors and defects were seen to result in higher costs and lower customer satisfaction.
In some cases the errors and defects result in loss of life.




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Six Sigma has proven to successful in many varied environments, ranging from
chemical processing, electronic component manufacturing and assembly, heavy
manufacturing, and drug delivery in hospitals. It is also most certainly applicable to
any organization that works on projects and delivers services.

This methodology makes heavy use of statistical techniques, and depends on accurate
data to make the proper decisions. Commercial software to capture costs, project
statistics, and mechanize business processes is vital to Six Sigma as well as in
maintaining a consistent high performance environment once the improvements are
implemented.

Using Web based workflow, issue, time, expense and project tracking software
simplifies the task of defining processes and enforcing them without having to track
them manually and provide written guidelines that may quickly become obsolete.

Tenrox offers powerful and award winning solutions that incorporate sophisticated yet
intuitive business process automation functionality. For more information on how
Tenrox can help you in your Six Sigma initiatives, please contact your Tenrox Account
Manager.


Gus Berdebes
VP Professional Services, Tenrox
www.tenrox.com




Notes