Operations/Production Management Article

Bahauddin Zakariya University, Multan

Sahiwal Campus

An Article On
Operations/Production Management

Title
Relevance & Application of Six Sigma in Services Sector

Submitted To
Mr. Shehzad Akhtar

Submitted By
Umar Riaz BBS-07-23
Waqar-ul-Hassan BBS-07-36
Bilal Ahmad BBS-07-48
Ghulam Hussain BBS-07-52

Class
BBA (Hons) 7th Semester

Session
2007-2011

Department of Business Administration

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 Operations/Production Management Article

Relevance & Application of Six Sigma in Services Sector

Aniket Raj Agarwal & Nikhil K. Jainender

Six Sigma is originally designed to perfect manufacturing processes that were already
highly engineered and might seem ill-suited to service organizations, wherein processes aren’t
engineered at all. But this is precisely why the methodology has something valuable to offer
service organizations. Because many service businesses (which often suffer from inflated costs
and poor customer service) have never analyzed their processes, they are ripe with potential for
improvement. When the global economy is services-driven and more than 75% of the GDP of
most developed countries is contributed by services, the role of six sigma becomes much more
relevant. India, though known globally for services offered in the field of IT, BPO, finance,
healthcare, telecommunication, etc., has been losing its competitive advantage of low cost to
countries like Indonesia, Philippines, etc., due to appreciating rupee, increasing labor cost and
increasing cost of poor quality. In order to sustain this lead, India has to improve the quality of
services offered and the skills of the workforce. By identifying what are the critical to quality
factor for our customer and what is voice of our business, we could pin-point specific areas for
six sigma application that could give sustainable competitive advantage to Indian service sector.

Service processes are subjected to more noise or uncontrollable factors due to human
intervention at every stage. The intangibility of services offered and variability of perceived
delivered quality is major set-back for application of traditional quality control tools like ISO
9000, TQM, etc. However, the closeness and direct interaction services organization have with
customer supports the application of six sigma, which is highly dependent on reliable data. Six
sigma offers a robust methodology of continuous improvement by inculcating both qualitative
and quantitative aspect of services. Six sigma follows the DMAIC (Define Measure Analyze
Improve Control) approach to problem solving and DMADV (Define Measure Analyze Design
Verify) for new process development. Either the Voice of Customer (VOC) or Voice of Business
(VOB) acts as a source for identification of major improvement areas. The most prominent
source of customer dissatisfaction in services lies in the presence of GAPs in the quality
delivered and quality perceived by the customer service organizations.

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 Operations/Production Management Article

Six-Sigma means "a systematic, scientific, statistical and smarter approach to statistically
measure and analyze causes of defects that happen in all parts of management, and then remove
those causes". A defect in the context of Six Sigma is defined as "anything that does not meet the
customer requirements". It is a methodology to define a problem from the view-point of
managers or users as a defect and ascertain its causes in order to solve it. Six Sigma was first
developed at Motorola, refined at AlliedSignal and transformed into legend at GE under Jack
Welch. It has found application in myriad business sectors. Today, it applies to service areas to
find out the non-value added activities and variation in core service process to achieve
continuous and breakthrough improvements in service performance. For example, in a call-
centre, the following opportunities could result in defects which ultimately cause customer
dissatisfaction and, hence, lost customers: -

1. The number of abandoned calls

2. Time taken to resolve the problem once the data are entered in the system
3. Time taken to send out the requested follow-up material
4. Politeness, eagerness to help the customer

Service processes are all non-manufacturing operations and activities, either in non-
manufacturing industries, or within organizations that manufacture. The major segments of
service sector are: -

 Banking
 Healthcare
 e-Commerce
 Food Services
 Retail Sales
 Call-center
 Tele-communication
 Aviation
 Hospitality
 Legal

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 Education
 Entertainment

Six Sigma methodology has a major role to play to pin-point the major problem areas and
devise powerful strategies to tackle problems which improve the customer experience in these
services. It follows the DMAIC (Define Measure Analyze Improve Control) approach to
problem solving and DMADV (Define Measure Analyze Design Verify) for developing new
processes. It focuses on the following key issues: -

 What core processes in our services business are critical to meet customer needs and
expectations?
 What are the critical-to-quality (CTQ) characteristics in our core processes, and how do
we define and measure defects in these characteristics?
 Why do such defects occur in our processes and at what frequency do they occur?
 What is the impact of such defects on customer satisfaction?
 What strategies should be developed and implemented to prevent the occurrence of such
defects?

Uniqueness of Services

Most literature on quality management and improvement philosophies is originally

designed to improve product quality in the manufacturing sector. In this section, we will briefly
compare the manufacturing and service applications of Six Sigma.

In the manufacturing sector, it is quite common to have some sort of measurements in

place, which provides an indicator of process performance and product quality. In service
industry, measurement is often an overlooked area and, therefore, improvement of quality is not
adequately addressed.

In the manufacturing processes, it is quite common to have process maps before a Six
Sigma project is initiated. The use of flowcharts and process maps are uncommon in many
service processes. In the manufacturing industries, the measurement system analysis

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(repeatability and reproducibility study) is explicitly defined, whereas in service industries, the
measurement system analysis is often a more general problem of data quality and integrity.

Service processes are subjected to more noise or uncontrollable factors compared to

manufacturing processes as work requires considerable human intervention, therefore, more
probability that in service processes similar activities might be done in different ways. The
technical background of employees is generally minimal in services as compared to
manufacturing. Moreover, human behavioral characteristics, such as friendliness, eagerness to
help, honesty, etc., are thought to have major influence on service processes which determine the
quality of service provided to customers.

Service processes are greatly influenced by the culture and the culture doesn’t think in
terms of processes, variation, and data unlike manufacturing processes. Service processes are
often complex and not well-defined; process output is often intangible and can be unique.

Relevance of Six sigma in Current Service Sector Scenario

Services account for more than 75% of the GDP of most developed countries. It
contributes 55% to Indian GDP and has grown at 28% annual growth rate since last five years.
The major Indian services consist of ITES-BPO segment. Accordingly BPO exports are growing
at about 33.5% percent and have exceeded FY '06 expectation at USD 8.4 Billion in FY '07.
Other segment like healthcare industry is worth US $ 17 Billion in 2006, and it is expected to
grow by 13% per annum for next 6 years.

However, Indians service industries have to overcome a lot of challenges to continue

their heady growth and sustain their share relative to other competing countries. Without any
scientific references, it is suggested that overall sigma for product and services in India is mainly
around 2.5 sigma. A company with such low sigma will have cost of poor quality 2% of revenue.
If Government of India’s annual budget is around Rs. 100 Billion, cost of poor quality works out
to Rs. 2 Billion. This is shear waste. If we calculate the loss to society concept in all
governmental processes and infrastructure facilities, this figure can be much higher. Imagine the
same money is used for better road, better education, hospitals, railways and healthcare. In five
years time, the country will become developed country.

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Benefits of Six Sigma in Service Sector

The heart of every service-based business depends on the opinions, behaviors and
decisions of people acting through work processes. Analyzing and modifying human
performance in these environments is complex. Nevertheless, task-oriented service organizations
including mortgage lenders, wireless phone providers and call centers could use Six Sigma to
bring a process focus to their operations (e.g., streamlined mortgage approval procedures,
improved customer service processes and improved customer-problem resolution). Service-
oriented businesses adopting Six Sigma business strategy will have the following benefits: -

 Improved cross-functional teamwork across the entire organization

 Transformation of organizational culture from fire-fighting mode to fire-prevention mode
 Increased employee morale
 Reduced number of non-value added steps in critical business processes through
systematic elimination, leading to faster delivery of service
 Reduced cost of poor quality (COPQ - costs associated with late delivery, customer
complaints, misdirected problem solving, etc.)

Visible & Hidden Cost of Poor Quality

 Increased awareness of various problem solving tools and techniques, leading to greater
job satisfaction for employees
 Improved consistency level of service through systematic reduction of variability in
processes
 Effective management decisions due to reliance on data and facts rather than assumptions
and gut-feelings

Six Sigma Implementation

Successfully implementing Six Sigma in the service sector requires a relentless focus on
customers, specifically, meeting their needs as efficiently as possible. This requires four critical
steps: -

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Step I.

Define whats critical to customers and confirm that core processes are aligned to those
requirements. As the term "services" implies, we must understand customer's needs before we
can serve them. Find out what those needs are through surveys, call-center data, focus groups,
and promotional campaigns - whatever means allow the Voice of Customer (VOC) to be heard
clearly. At the same time, we must understand the key business issues, i.e., Voice of Business
(VOB) for our company and align the voice of the customer with them. The most common
metrics that can be used by the service organizations for project selection and after selection
identifying and prioritizing the workable specific areas include: -

 Process Mapping
 Affinity Diagrams
 Root Cause Analysis
 Control Charts
 Benchmarking
 Pareto Analysis

In service sector, Service Quality Gap analysis is also a very powerful tool to analyze the
intangible aspects like perception and delivery of quality from the supplier side and perception of
quality from customer point of view. The difference in these two mainly lead to dissatisfaction
among most of the customers in services. Various types of GAP that could exist in any service
process are as shown in table below: -

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Step II.

Translate customer requirements into measurable characteristics of processes. Once we

understand customer requirements, we must fulfill them by measuring our processes
effectiveness and efficiency. "Effectiveness" means addressing the problem of defects that
processes produce; "Efficiency" means addressing the time and money that the processes
consume in meeting customer needs. A high rate of defects, and time and money wasted in non-
value added activities, increases cost-per-transaction. The formula for translating customer
requirements into measurable characteristics is simple: "as measured by".

Step III.

Quantify the effect of gaps in the processes in terms of the cost of poor quality. For
example, a mortgage lender whose customers want fast action on their applications might find
that the process includes a high number of abandoned calls by customers or long delays in
producing quotes, causing a drop in prospects and numerous inaccurate credit reports. The Six
Sigma methodology includes powerful tools for analyzing each of those gaps and quantifying the
related cost of poor quality.

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Step IV.

Prioritize improvement projects. Once its clearly understand what each process gap costs,
we can prioritize improvement efforts according to whats most critical to our company (e.g.,
customer service, time, perceived value or other criteria). Because improvement in any
organization proceeds project by project, we must ensure that were investing our effort in the
right projects in the right order. Six sigma methods like Alternative Selection Process and Design
of Experiments (DOE) could be effectively employed to achieve the optimal solutions.

Conclusion

The role six sigma will play in the services is very promising. The closeness and kind of
direct interaction service providers enjoys with customer further endorses the feasibility of six
sigma in services. However, the high dependence of six sigma methodology on relevant data
necessitates the employment of reliable measurement system which is having accuracy,
repeatability, reproducibility and stability at every crucial service processes stage.

Source:

http://www.coolavenues.com/know/ops/aniket-nikhil-sixsigma-1.php

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