Six Sigma as E-Sourcing Capability Model - Coursework Example

Six Sigma as E-Sourcing Capability Model Six Sigma is a business-driven, multi faceted approach to process improvement, reduced costs and increased profits. (9) With a fundamental principle to improve customer satisfaction by reducing defects, its ultimate performance target is virtually defect-free processes and products. The Six Sigma methodology consisting of the following steps “ define, measure, analyze, improve and control. Within this improvement framework, it is the responsibility of the improvement team to identify the process, the definition of defect, and the corresponding measurements. This degree of flexibility enables the Six Sigma method, along with its toolkit, to easily integrate with existing models of software process implementation. Introduction Six Sigma is a well-liked method to make changeability from developments by means of prevailing statistical instruments and skills (12). Although originally introduced by Motorola in 1986 as a quality performance measurement, six sigma has evolved into a statistically oriented approach to process and product quality improvement. Many organizations have reported significant benefits as a result of six sigma project implementation, though not all are yet success stories. The notion of execution of Six Sigma approach was initiated at Motorola in the 1980s with the objective of decreasing value rates and rates of not accomplishing things right first time, rates of not beating consumer’s needs. After Motorola, other companies such as Texas Instruments, Allied Signal, Kodak, General Electric, Sony, etc. have claimed great savings as a result of the implementation of Six Sigma projects. However, Six Sigma stresses the application of statistical and problem-solving tools and techniques in a methodical and systematic fashion to gain knowledge that leads to breakthrough improvements with dramatic impact on the bottom-line results. While the original goal of Six Sigma was to focus on manufacturing process, today, marketing, purchasing, billing and invoicing functions are also embarked on Six Sigma strategies with the aim of continuously reducing defects throughout the organization’s processes. The main factors that is indispensable to the accomplishment of the execution of any excellence development inventiveness. The identification of such factors will encourage their consideration when companies are developing an appropriate implementation plan such as identifying the key components of successful Six Sigma implementation, such as upper management support, organizational infrastructure, training, application of statistical tools and link to human resources-based actions such as bonuses and promotions. Even though many authors have advocated the success factors at various places of the literature, very little attempt has been made to validate them by empirical research. The objective of this research project is to determine the key ingredients for the effective implementation of Six Sigma programs in UK industry by means of a pilot study. The paper will also make an attempt to understand the common tools and techniques within UK industry currently practicing Six Sigma philosophy. The quality-focused program is the philosophy of the Six Sigma that requires process design that can accept twice the normal variation of ^3 sigma in a process, even if the process mean shifts by as much as ^1.5 sigma. Thus, the six-sigma approach to quality ensures that a maximum of 3.4 parts per million are defective in each step of the process (13). The six-sigma concept addresses quality in all aspects of the business: products and services, manufacturing, administration, and operations. When Motorola first introduced six sigma, they combined the following key ingredients: a primary goal of total customer satisfaction;. Common, uniform quality metrics for all areas of the business; identical improvement rates for all areas of the business measured on one scale; goal-directed incentive for managers and employees; and training in reasons for these goals and ways to achieve them (13). They went on to define the six-sigma quality system as collective plans, activities, and events designed to ensure that products, processes, and services would satisfy customer needs. In summary, Six Sigma is a customer-focused approach to business that provides an overall framework for quality management. The main objective of Six Sigma is to perk up consumer approval and thus success, by dropping and removing deficiency.(14) effects may be related to any aspect of customer satisfaction: high product quality, schedule adherence, cost minimization.. Common Six Sigma metrics include defect rate (parts per million or ppm), sigma level, process capability indices, defects per unit, and yield. Many Six Sigma metrics can be mathematically related to the others. The Six Sigma drive for defect reduction, process improvement and customer satisfaction is based on the "statistical thinking" paradigm: (Harold,1999) Everything is a process All processes have inherent variability Data is used to understand the variability and drive process improvement decisions As the key steps in the Six Sigma improvement framework are Define - Measure - Analyze - Improve – Control Six Sigma distinguishes itself from other quality improvement programs immediately in the "Define" step.(10) When a specific Six Sigma project is launched, the customer satisfaction goals have likely been established and decomposed into sub goals such as cycle time reduction, cost reduction, or defect reduction. Once an effort or project is defined, the team methodically proceeds through Measurement, Analysis, Improvement, and Control steps. (9) A Six Sigma improvement team is responsible for identifying relevant metrics based on engineering principles and models. With data/information in hand, the team then proceeds to evaluate the data/information for trends, patterns, causal relationships and "root cause," etc. If needed, special experiments and modeling may be done to confirm hypothesized relationships or to understand the extent of leverage of factors; but many improvement projects may be accomplished with the most basic statistical and non-statistical tools. It is often necessary to iterate through the Measure-Analyze-Improve steps. When the target level of performance is achieved, control measures are then established to sustain performance. Current Issues of Six Sigma All staffs and employees in the department should first identify these purposes. (20) The companys philosophy about customer service and quality improvement and in reference to customers they serve, employees should ask themselves, "What do I do?" The answer could range from manufacturing a tangible product to assessing something being communicated to those outside their group or department. Second, they should identify the customers for their product or service and determine what they consider important. Employees should ask, "For whom do I work?" and, to answer this question, ask each customer, "What product or service do you need from us?" and "Why do you need it?" Sometimes the answer to this question may be obvious; sometimes it is not. Third is a need to identify what the employee needs to satisfy the customer. Each person must ask, "What do I need to do my work better?" This question is the essence of trying to make improvements by eliminating, simplifying, or combining. Information can come from phone calls, physical equipment, or other data. Once people have determined their needs, they can then sit down with those who supply them with goods and services and determine what they need to do their work. The fourth step is that the employees should define the process for doing their work and ask themselves the following questions, "How can I specifically define my work?" Defining work means breaking down each operation of a job into steps and tasks and then identifying the detailed inputs and outputs for each step. This process can involve developing a flowchart and diagram of a persons present way of doing work, to see graphically what is involved and can help spot areas prone to error. Once this step is done, key areas can then be measured to see where too little or too much time is being spent. The next step is the critical design process. In this case, Motorolas objective is to make tasks as mistake-proof as possible and eliminate wasted effort. The central question for anyone wanting to eliminate, simplify, or combine is, "How can I do work better?" The answer might include eliminating or simplifying tasks, increasing training, or changing methodology and if possible, eliminating those steps that do not add value or at least simplifying or combining them with other steps. This change eliminates waste. The final step in Motorolas process to ensure continuous improvement by measuring, analyzing, and controlling the improvement process and a flowchart can be used not only to document changes but also graphically to show the total savings, regardless of whether one uses a flowchart or not.(20) It is important for people continuously to examine how well they are doing their work. Among other things this step may involve tracking and recording the time it takes to do jobs. What is important is to find some way of measuring and evaluating what employees do, not accepting the status quo, always benchmarking the process, and then finding ways of improving efforts. This process of benchmarking and trying to continuously improve is Motorolas secret to improving performance. According to another study, Six sigma has been called the latest incarnation of Total Quality Management (TQM). (7) The name simply means that customer-specified tolerances for acceptable output are six standard deviations (sigma) from the mean. Major corporations that practice its application include Motorola, General Electric, and Allied Signal. Companies whose products or services are produced under a Six Sigma philosophy are essentially perfect. Six Sigma management has high training costs, ranging anywhere from $1,300 to upwards of $20,000 per employee. Outside organizations and consulting firms also offer Six Sigma training, with costs running as high as $30,000 per person. Six Sigma management is implemented through teams whose goal is to improve or innovate processes such that they produce approximately 3.4 defects per million opportunities. The management of Six Sigma proudly claims the thought that the voice of the process should take up no more than half of the tolerance allowed by the voice of the customer, a process that transforms inputs into outputs through the addition or creation of value.(7) The accounting function is referred to as a Three Sigma process because the process mean plus or minus three standard deviations is equal to the specification limits in other terms, USL = M + 3 sigma and LSL = M - 3 sigma. This scenario will yield 2,700 defects per million opportunities from a normal distribution table, or one early or late monthly report in 30.86 years [(1/.0027)/12]. The top management team designated a Six Sigma team to monitor the output of a monthly report by the accounting department. (Stewart, 1990) The assignment includes the need for the project, the costs and benefits, the resources required, and the time frame. The team determined that management wants a monthly accounting report to be completed in seven days. They also determined that the report should never be completed in less than four days and never later than 10 days. Team members identified the project charter as follows: Reduce (direction) the variability in the cycle time (measure) to produce an error-free accounting report (process) from the current level of seven days plus or minus three days to seven days plus or minus a half-day (target) by January 10, 2002 (deadline). The measure phase involves developing operational definitions for each CTQ variable, performing studies to determine the veracity of the measurement procedure, and establishing baseline capabilities. First, the members of the Six Sigma team defined "variability in cycle time" such that all relevant personnel agreed upon the definition. Second, they performed a study to determine the veracity of the measurement process. Finally, the team members collected baseline data about variability in cycle time, and statistically analyzed it. The analysis phase involves identifying upstream variables (X) for each CTQ; operationally defining, collecting baseline data, performing studies to determine the veracity of the measurement process, and establishing baseline capabilities for each X; and understanding the effect of each X on the CTQ. Future Issues of Six Sigma Six Sigma offers both opportunities and challenges. Companies wishing to implement Six Sigma need to make sure that proposed processes are designed within the parameters of good business practice. Because the data gathering and analysis phases are of critical importance, the CPA will be called upon to verify the veracity and timeliness of the data (4). Also, companies that hire outside consultants to produce new or revised processes would be well advised to have a CPA review the documentation prior to acceptance of the Six Sigma team’s report by the process owner. A CEO and other top leaders should be articulate enough to provide a a training using the Strategic Six Sigma leadership training and also to quantify their business strategies, outline the challenges that lie ahead for the business, and identify strategic improvement goals to improve performance, profitability, productivity, or customer satisfaction. The specific goals can be anything thats important to the company and its top leaders. For example, a goal might be to increase product, service, plant, or process performance; reduce defects or transaction errors; condense cycle times; or streamline the supply chain. At the end of the training the participant- employees should be able to: * select potential Six Sigma projects to support achievement of the business strategy * undertake initial infrastructure development to identify the resources, people, systems, and processes that will need to be controlled or managed to support project completion * introduce the essentials of business process management and why it should guide the selection and completion of Six Sigma projects * discuss voice-of-the-customer and voice-of-the-market approaches relevant to moving forward to attain Six Sigma process improvement goals * manage continuous organizational change as part of spearheading the ongoing selection and completion of Six Sigma projects. The definition of core processes is "those that are closely linked to customers and the organizations key competencies and are at the heart of the companys identity with its customers and markets." (1) A core process for one company a good example is Intel that might be its manufacturing processes. A core process for another company (a 3M) might be its reputation for innovation. We also identify core processes as those whose "overall improvement, redesign, or development has the most potential to help it achieve strategic objectives and are essential to satisfying shareholders expectations of excellent financial returns." Typical core processes in most organizations include marketing, sales, new product development, product manufacturing, and customer service. According to Kathleen Bader, group president and VP of quality and business excellence at Dow Chemical says, "The change challenges in adopting Six Sigma are in many ways similar to adopting any other initiative...but in some ways substantially different.(Kumar, Motwati, Anthony, p.208) Theyre similar in the sense that if you cant put in front of people the fundamental reasons for change, youre not going to get them to change. And if you cant show people whats in it for them personally and for the business...you wont get there. However, with Six Sigma theres an step: the adoption of a different way of thinking--looking at inputs versus outputs, intolerance for variation, focus on data, and absolute belief in the need for sustainability of results. People really need to change how they do their daily work in significant ways, and that creates an additional barrier to change." According to Industrial Engineering Terminology (1996), work measurement is a generic term used to refer to the determination or setting of time standards to perform standardized tasks using recognized industrial engineering techniques, such as time study, standard data, work sampling, or predetermined motion time systems. It includes the assessment of actual effort exerted versus the real effort required to accomplish the task. We require the means to measure work at the human-process interface with minimal verifiable data while enabling decision making with an acceptable degree of accuracy. To identify critical-to-quality issues such as goals and objectives, first, develop a work measurement system responsible for work standards and maintenance based on verifiable data. The system should be designed to automate and standardize the process of data collection, analysis, and documentation of detailed factory level and process-related information. Provide a data-to-knowledge transfer of information to traditional work measurement customers such as production, planning, and control. Finally, identify leveraged opportunity for nontraditional work measurement customers where these facts and data become the source of information for business operations. The study of customer and managerial needs reveals how work measurement results can be useful to a companys different departments and managers, thereby reducing objections to application by minimizing cost and maximizing data-to-knowledge transfer. (2) This system is expected to facilitate data collection at the human-process interface and when designing performance standards, ensure that documented processes and links are established with internal customers. Then ensure a lean process design that includes a simplified, error-proofed, standardized method to collect data, detect human factors issues, and develop a statement of work. The design should also include a method to determine reliable standard time for a statement of work and be able to identify and measure process waste. Automate when appropriate. Traditional work measurement involves using labor standards to measure and control the time required to perform tasks, enabling scheduling improvements and opportunities in motion that impact efficiency. But these methods have limitations in data management and data-to-knowledge conversions. Fortunately, work measurement technology can now capture data, analyze work, and immediately provide information that becomes knowledge. Advances in work measurement technology have enabled Boeing to semi-automate and standardize the process of collecting, analyzing, and documenting detailed process level information. (15) This technology will continue to advance toward methods of data collection that endorse data quality and reliability as requirements for effective and efficient information systems. The benefits provided improvements in traditional metrics and enabled the automation of methods analysis while providing for an acceptable return on investment and as industrial engineers, the larger systems of which the problem is a part instead of looking only at the parts of the problem. It is time to look at the system design and synthesis rather than only analysis and subdivision. We must ensure that information from the parts of the problem is accurate enough to drive knowledge center activities and therefore becomes reliable for making sound decisions today and in the next generation of manufacturing. Six Sigma has different interpretations and definitions for different people. It is a formal and disciplined methodology for defining, measuring, analyzing, improving and controlling processes (1). The fundamental idea behind the Six Sigma philosophy is to continuously reduce variation in processes and aim at the elimination of defects or failures from every product, service and transactional process (12). Six Sigma can be defined in both statistical and business terms. In business terms, Six Sigma is a business improvement strategy used to improve profitability, to drive out waste, to reduce quality costs and improve the effectiveness and efficiency of all operations that meet or even exceed customers needs and expectations (1). In statistical terms, Six Sigma is a term that refers to 3.4 defects per million opportunities (DPMO), where sigma is a term used to represent the variation about the process average. One key to the success of the Six Sigma program is the step-by-step approach or road map using define, measure, analyze, improve and control (DMAIC) methodology. The definition phase entails the definition of the problem and the definition of critical quality characteristics which are most important to customers. In the measure phase, select the most appropriate output quality characteristics to be improved and establish what is unacceptable performance or a defect for such characteristics. Once this is done, gather preliminary data to evaluate current process performance and capability. In the analysis phase, we need to analyze the root causes of defects or errors (the Xs or input variables). In the improvement phase, we need to reduce the defect rate or number of defects using simple but powerful statistical tools/techniques. For some processes, several rounds of improvements may be required to achieve a desired process performance or capability. In the control phase, we need to sustain the improvement that has been achieved from the improvement phase. It is critical to "communicate both the `why and the `how of Six Sigma as early as possible, and provide the opportunity to people to improve their comfort level through training classes" (10) before unleashing the employees into the world of Six Sigma. There is usually a hierarchy of expertise, which is identified by the "belt system". The belt system ensures that everyone in the organization is speaking the same language. This makes the setting up and execution of Six Sigma projects much easier throughout the organization. The curriculum in the belt system varies from organization to organization and consultant to consultant; however it needs to be provided by identifying the key roles of the people directly involved in applying Six Sigma. For example, the training for becoming a black belt within Motorola is a minimum of one year. In order to be accredited to black belt, candidates must complete an application form to demonstrate how they have met the requirements in both training and practice of Six Sigma (7). In GE, the length of training is approximately 16-20 weeks. Qualification as a black belt is very important when employees are being considered for promotion. In general, it appears that GE has a more structured approach to training than does Motorola. Moreover, the length of training in GE is comparatively much shorter and therefore results in a greater number of accredited black belts. However, the black belt training in Motorola seems to be more flexible and potentially should result in a greater depth and breadth of expertise. While Raytheon Corporation is using six sigma as a means to reduce defects, and instill continuous improvement philosophies throughout the organization. Raytheon’s six-sigma success is attributed to eliminating non-value added work, reducing defects, simplifying processes, reducing variation, and looking for reusable solutions. This enables them to respond more quickly to customer’s needs, which results in improved customer satisfaction, competitive advantage, profits, and growth (16). As worker motivation is very important in successful implementation of quality programs, another area of literature research was related to motivation of line-workers. The literature suggests three methods of increasing employee motivation. The first is incentive-based compensation, the second employee ownership plans, and the third implementation of work-based teams. When using any motivational plan, it is extremely important to keep employees informed of how their cost savings are being utilized for the benefit of the company. These programs work best when compensation is based upon team accomplishments (13). To reward the individual, in the egalitarian union environment, less remunerative, but highly visible awards such as plaques and coffee mugs may be sufficient (19) While a different approach, used by Chrysler, is to define many different responsibilities for each person on the continuous improvement team, and then differentiate their pay scale based upon responsibility (6). Although practical, this approach contradicts one school of thought that suggests the teams should be loosely structured to facilitate maximum employee participation (12). In summary, it ppears the correct strategy is dependent upon the level of participation management wishes to create. Full-scale implementation of six sigma at Dow began early in 2000.(19) As many as four training waves, each containing approximately 200 black belts, have been conducted since the full-scale launch. Each business and function within Dow has a business champion to drive the implementation. Furthermore, local champions are in place to make certain that black belts are supported at the local level with viable project charters and barrier-breaking support. Process owners are also identified to make sure that control plans stay in place and gains are sustained for the long term. The company aims for savings of $250,000 per project, but as a senior manager said, “That dollar amount isn’t written in stone. We have projects that produced a dollar savings of less than that, but they resulted in other benefits too, for example, a customer loyalty benefit or reduced cycle time”. The company has also established a six-sigma resource commitment. This commitment calls for 3 percent of all employees to be six-sigma black belts. Black belts are expected to fulfill a two-year, full-time commitment to six sigma. The two-year commitment begins when their first project goes into realization. In addition to culture change being facilitated by having 3 percent of all employees as six-sigma black belts, Dow employs numerous other levers to effect cultural change. For example, employee compensation plans are tied to six-sigma results. Top leadership has established an expectation that all employees have at least one personal goal tied to Six Sigma. Additionally, the company has established an expectation that all of its professional-level employees must be engaged in a successful six-sigma project by year-end 2005. There is an old maxim that goes: “Nothing succeeds like success.” In its implementation of Six Sigma, Dow has exceeded each one of its financial results targets. Dow’s six sigma implementation is generating significant financial results and is effectively driving positive, powerful cultural change. Dow Chemicals, which implemented six sigma on a corporate-wide basis in 2000, achieved its target of $1.5 billion in cumulative EBIT (earnings before interest and taxes) gains by the end of 2002, one year ahead of the scheduled target date, says Tom Gurd, vice president, quality and business excellence at Dow Chemical (19). The company currently has over 3,000 projects underway using six sigma, with 150 master black belts, 1,400 active black belts and 2,500 green belts. Overall, Dow has had 40 percent of its workforce engaged at some level in at least one six sigma project, and by 2010, it hopes to have its entire workforce of roughly 50,000 engaged in Six Sigma. References 1. Antony, J., Banuelas, R., 2001, "A strategy for survival", Manufacturing Engineer, 80, 3, 119-21. 2. Bolz, S. (1998), “A six sigma approach to competitiveness”, Transmission & Distribution World, Vol. 50 No. 8, 3. Denton, TX, available at: www.workteams.unt.edu/edu/ developing high-performance work teams”, Center for the Study of Work Teams, North Texas State University, 4. Eckes, G., 2000, The Six Sigma Revolution, John Wiley & Sons, New York, NY. 5. Elliot, Richard (2005) Six Sigma,  Business metrics,  Industrial engineering,  Standards,  Benefit cost analysis. Industrial Engineer. Vol. 37, Iss. 4;  pg. 40, 6 pgs. Norcross: United States 6. Foundation for Enterprise Development (1996), “US Department of Labor Office of the American Workplace: Chrysler Corporation Company Profile”, available at: www.fed.org/ library/articles/labor/a_m/Chrysler_Corporation.html,p. wwwfedorg/library/articles/labor/a_m/Chrysler_Co 7. Friedman, Mark (2002). Six Sigma Primer for CPAS. The CPA Journal. Vol.22, issue no. 11. New York City. 8. Harrold, Dave. (1999).Designing for Six Sigma Capability [Online]. http://www.controleng.com/archives/1999/ctl0101.99/01a103.htm> 9. Harry, Mikel.( 2000). "Six Sigma: The Breakthrough Management Strategy Revolutionizing the Worlds Top Corporations." New York, N.Y. Random House Publishers, 10. Hendricks, C.A., Kelbaugh, R., 1998, "Implementing Six Sigma at GE", The Journal of Quality and Participation, 21, 4, 48-53. 11. Henkoff, Ronald.(1990) "Cost Cutting: How to Do It Right." Fortune, 40-48. 12. Jones, S. and Beyerlein, M. (Eds) (1999), “Abstract case studies: 13. Kumar, S. and Gupta, Y. (1993), “Statistical process control at Motorola’s Austin assembly plant”, Interface, Vol. 23, March-April, pp. 84-92. 14. Pyzdek, Thomas.(2001) Six Sigma and Beyond: Why Six Sigma Is Not TQM[online]. http://www.qualitydigest.com/feb01/html/sixsigma.html> 15. Oliver, J. (1996), “Cash on delivery”, Management Today, August, pp. 52-5. 16. Raytheon (1999), available at: www.raytheon.com/rtis/docs/ baldrige/sixsigma.htm, Raytheon Company, Waltham, MA 17. Sherman, Stratford.(1989) "Inside the Mind of Jack Welch." Fortune, 38. 18. Stewart Thomas A. (1990) "Do You Push Your People Too Hard?" Fortune, 124. 19. Van Arnum, P. (2003), “Quality focus: the next phase of six sigma”, Chemical Market Reporter, Vol. 264 No. 8, p. 10. 20. Wiggenhorn Bill.(1988) "Achieving Six Sigma Quality." Opportunities 5, no. 2: 2. Presentation/Game The presentation can be a game named Pictionary, where the class will be divided into two teams and each team will assign all of the members to come to the board and draw the clues of the word that they need to guess. For every correct word the team will win one point. The first team to get five points will be the winner. Rules of the game There will only be 60 seconds to draw the clue and guess the word. The person who will draw the clue will only just draw; he could not speak and write letters of the word but allowed to indicate how many letters and syllables. If the team cannot guess the word the other team is allowed to steal once. The words Six Sigma Infrastructure collective plans statistical thinking employees product flowchart Total Quality Management core processes key competencies Read More