Supply Chain Management Research Paper

Six Sigma University of Central Arkansas MBA 6330 – Operations Management Mark E. McMurtrey, Ph.D.

Miley Cyrus

April 25, 2013

Benefits and Applications

Cyrus MBA 6330

Six Sigma: Benefits and Applications

Table of Contents

Introduction to Six Sigma……………………………………………………………………2

DMAIC………………………………………………………………………………………3

Six Sigma Applications………………………………………………………………………5

Six Sigma as a Management Tool for Innovation……………………………………6

Six Sigma in Services and its Challenges……………………………………………8

Six Sigma and Multinational Corporations…………………………………………………10

Lean Six Sigma…………………………………………………………………………….11

Conclusion………………………………………………………………………………….11

References…………………………………………………………………………………..12

Appendix……………………………………………………………………………………13

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Six Sigma: Benefits and Applications

Introduction to Six Sigma

In the technologically-driven world we live in, innovation and efficiency are crucial in

order for companies to thrive. The global aspect of our economies makes for very tight

competition, regardless of location. Geographic boundaries are less restraining and companies

throughout the world can compete in the same playing field due to the ease of communication

provided by the internet, and also because of advances in shipping and logistics. A small-

business owner in the United Stated can choose to have a manufacturer in China produce the

same product that he or she could have manufactured in the US, except in China the

manufacturer can do it for a fraction of the cost. This scenario illustrates the push companies

around the globe now face to manufacture, manage and operate more effectively in order to bring

the best offering to the client at the lowest possible price, to keep sales volumes soaring, while

still maintaining healthy profit margins.

Six Sigma was first introduced in the 1980’s by Motorola as a response to the Japanese

competition they were facing in the semi-conductor industry (Braunscheidel, Hamister, Suresh &

Star, 2011). The term “six sigma” was first coined by a Motorola engineer by the name of Bill

Smith, in which the sigma, the greek alphabet letter, is used to denote the standard deviation of a

given variable (Chiarini, 2011) (Goh & Xie, 2004).Six sigma can also be a reference to the

quality improvement philosophy derived by the methodology, as well as the program (Jacobs and

Chase, 2012).

Furthermore, Goh and Xie (2004) explain, six sigma is used to “represent the range of

values of a population with a normal distribution as mathematically, 99.73 percent of all values

can be expected to fall within a range that extends from three sigma lower than to three sigma

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Six Sigma: Benefits and Applications

higher than the population mean.” In other words, technically speaking, Six Sigma works as a

statistical measure that quantifies how often defects are likely to occur, and the higher the level,

the less likely a mistake is to take place (McAdam, Hazlett & Henderson, 2005).

The way levels are measured is in DPMO (defects per million opportunities), which was

a different and much more accurate approach in comparison to the previous method Motorola

used, which indicated defects in the thousands (Braunscheidel, Hamister, Suresh & Star, 2011)

(Chiarini, 2011). There are different levels depending on the variation in defects; Sigma 2 would

equal to 308,537 DPMO, Sigma 3 to 66,807 DPMO, Sigma 4 to 6,210 DPMO, Sigma 5 to 233

DPMO, and finally Sigma Six, that equals to 3.4 defects per million opportunities (McAdam,

Hazlett & Henderson, 2005). This is held as the number for companies to strive for, in order to

succeed. Companies that are in the Sigma 4 range, or higher, are considered good companies,

average organizations are considered to be so when they are in the Sigma 3 range, whereas any

company below this range would be thought to not be functional for much longer (Cowman,

2005). The whole concept is based on the premise that variability is the culprit for defects, thus

companies should focus on reducing variability in order to “perfect” their methods and defects

reduced almost to obsolescence (McAdam, Hazlett & Henderson, 2005).

DMAIC

Define, Measure, Analyze, Implement, and Control, most widely recognized as the

DMAIC cycle, is considered by some scholars as the most important part of Six Sigma (Byrne

and Norris, 2003). Basically, this acronym summarizes the actions to be taken in order to

properly implement Six Sigma within a company. This would ideally become the way of life of

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Six Sigma: Benefits and Applications

the organization, meaning it can be applied virtually to any problem faced by the multiple facets

that comprise an enterprise.

Define: This is the first step to be taken. In this stage the company is to state what

problem is going to be the focus of the process, the expected results, and the upper and lower

limits of quality (Cowman, 2005). Also, at this time, the benefits that can result from the project

are defined, as well as the way the customer is impacted (Goh & Xie, 2004).

Measure: In this phase, the company can identify the performance measures that are

considered the customer’s needs (Goh & Xie, 2004). These are also referred to as “critical to

quality” (CTQs) (Goh & Xie, 2004). In other words, make sure there is measurement capability,

measure the results of the process being evaluated and compare in regards to compliance to

quality standards (Goh & Xie, 2004) (Cowman, 2005). In this stage, current sigma value is

calculated, as well as improvement goals set (Goh & Xie, 2004) (Cowman, 2005).

Analyze: This stage is critical to the process. In the analyze phase, the root causes of

defects are determined, and key process variables that contribute to defects and waste are

uncovered (Goh & Xie, 2004) (Cowman, 2005).

Improve: In the improve phase, Goh and Xie (2004) state that the “influences of the key

process variables on the CTQs are quantified, acceptable limits of these variables are identified,

and the process modified to reduce CTQ defect levels”. In other words, the improvements on the

procedures are implemented in order to reduce the defects. However, it is important to note, that

sometimes the process is repeated several times regarding steps M, A, and I, until the expected

level of quality is met (Cowman, 2005).

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Six Sigma: Benefits and Applications

Control: in this final phase, steps are taken in order to maintain the improved quality

control level achieved, and ensure long term profitability (Goh & Xie, 2004).

When a company is contemplating incorporating six sigma as a method to improve

internal processes and profitability, the method must be implemented from the top-down,

meaning that top management must make a commitment to adhere to the methodology in order

for it to be functional because hierarchically speaking, the executives must be trained first. Then,

the Six Sigma Team will be trained by a Master Black Belt (MBB), most likely a consultant at

first. Because of the training the Six Sigma Team will receive, the company will most likely

choose the next Master Black Belts from it, who will be considered the leaders of projects, and

Green Belts, who are the team members of the projects, will also be chosen from there

(Cowman, 2005).

Six Sigma Applications

The impact that is attributed to six sigma, is due significantly to its measurable

improvements of CTQs, which are largely customer focused (Goh & Xie, 2004).

Goh and Xie (2004) further state:

“The effectiveness of six sigma is rooted in its judicious application of statistical

techniques for information gathering, analysis and interpretation. Six sigma translates an

operational problem into a statistical problem, makes use of proven mathematical tools to solve

it, and translates the results back to practical actions.”

The following are examples of applications of Six Sigma, aside from the operations

perspective.

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Six Sigma: Benefits and Applications

Six Sigma as a Management Tool for Innovation

As previously mentioned in the introduction, not only operational efficiency is essential, but

innovation is also crucial for companies. Six sigma can be used as a tool to promoting innovation

within a company. According to Azis and Osada (2010), six sigma, from a management

perspective, provides a tool for enhancing performance and has been widely accepted as a

management model that will guarantee in attaining competitive advantage if implemented

successfully.

Six sigma has another systematic process known as DFSS (Design for Six Sigma). DFSS

differs from DMAIC in that it is more geared towards design. DFSS is described as more

proactive with regards to the design of products, services, and business processes (Osada & Azis,

2010).

Using Osada’s management systems model, Azis and Osada illustrate how both of Six

Sigma’s processes together, DMAIC and DFSS, address the three main classifications of Osada’s

management system, the Driver, the Enabler, and the Performance.

The driver, which can be considered the company’s mission, vision, objectives, overall

direction, strategy, and organizational expectations, is addressed by six sigma because it helps

the company achieve its expectations by not only telling the company what to do, but also how to

do it. Furthermore, it assists in the strategic project management, meaning it helps organize the

way the project is handled, making sure every group is working in sync.

The enabler refers to the soft infrastructure, stock resources, process and flow resources

(Osada & Azis, 2010). The enabler is addressed by establishing a data driven approach which

forces the company to research and actually measure issues, as opposed to vague statements

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Six Sigma: Benefits and Applications

based on hunches in which managers just state their opinions on how they feel the company is

doing in a certain aspect (Osada & Azis, 2010). Also, the effectiveness of training, and employee

spirit and motivation seem to improve. In training, employees in order to be certified must

complete projects and achieve goals in which they save the company a given amount of money,

this ensures that the employees not only grasp, but are also able to employ the principles they

learn.

Employee spirit and motivation see an improvement because taking in such tasks

employees feel more connected to the firm in general, and more confident in their ability.

Furthermore, being able to see their capabilities clearly, and for management to visibly see and

praise their efforts, allow employees to get more promotions and get recognized concretely for

their hard work. Six sigma also improves the quality of communication. Since six sigma has a

standardized methodology and terminology, it is easy to relay information across business units

and the program actually allows for progress related to six sigma to be tracked and stored for

dissemination (Osada & Azis, 2010). It also assists in upgrading the production process,

improving inventory utilization, and enhances processes by eliminating non-value-added process

(Osada & Azis, 2010).

The performance section in the management model refers to the output, the outcome and

the financial result (Osada & Azis, 2010). Six sigma addresses this component by being a driver

of profitability. It is estimated that on average, the company that implements six sigma, typically

gets a payback of eight-to-one, savings to cost (Cowman, 2005).

Companies that have utilized Six Sigma have reported significant financial gain. For

example, to name a couple, GE, one of its first users, reported in 1998 having saved $330

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Six Sigma: Benefits and Applications

million; Honeywell reported to have saved the company over $3.5 billion since the time it was

implemented. Six sigma also helps the company brand increase in value, not to mention since

everything is based on CTQs, there is a noticeable improvement in customer relationships and

satisfaction (Osada & Azis, 2010).

Six Sigma in Services and its Challenges

The concept of service quality as defined by Nakhai and Neves (2009) is a term that

“embodies a particular model, relating service performance, customer perceptions of quality,

customer expectations, and customer satisfaction.” The main areas in the service industry that

have adopted six sigma are banking, healthcare, construction, supply chain management,

accounting, customer relations, education, libraries, material procurement, order processing,

airline industry, safety, government and non-profits (See Appendix, figure 3) (Nakhai & Neves,

2009).

Many service companies have yielded great benefits from implementing six sigma.

However, there are some challenges to be taken into consideration that apply specifically to

service organizations. For example, it is much harder to collect data in service industries;

measuring is difficult due to the different situations that can take place while customers and

service providers interact; since data is collected in a face to face manner, it may not be as

accurate as an anonymous alternative; finally, because of the difficulties that arise from the sub

processes in services, it may be more difficult to measure and control six sigma (Nakhai &

Neves, 2009).

Since goods and services are different, the factors that lead to each of those types of

enterprises to success may be different as well (Nakhai & Neves, 2009). Thus, it is very

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Six Sigma: Benefits and Applications

important to take that into consideration when trying to apply six sigma to service-oriented

companies (Nakhai & Neves, 2009).

The authors of the article “The challenges of six sigma in improving service quality”,

when asking the question of whether six sigma makes a significant contribution as a service

quality philosophy, argue that while the answer is yes, but there needs to be an understanding

that a variation in customers exists, and that there is a range of preferences, personalities, styles,

cultures and needs. This realization can help the company understand that modular solutions

need to be developed, and flexibility needs to be built into its service delivery processes (Nakhai

& Neves, 2009).

Nakhai and Neves (2009) continue by implying that an incorrect implementation of the

method in a service industry could actually be highly detrimental. They also believe that there is

an area of great opportunity with regards to using six sigma as an agent of change in the services

area, with the caveat that champions and black belts must be trained specifically to introduce

changes in service oriented companies. The authors continue by stating that “developing six

sigma curricula that focuses on the nature of services, how customers form expectations, and

how they evaluate service quality is an area of great opportunity.”

The most important contribution that six sigma provides for service oriented customers,

according to Nakhai and Neves (2009), is in the area of delivery of service reliability. If a

company can reduce the variations in the services that are being delivered, the customers’

expectations are more predictable, because their expectations have been shaped around what is

consistently being offered by that service provider. This they consider however, to be only half

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Six Sigma: Benefits and Applications

the battle because they maintain management must also pay attention to changing customer

needs, and tailor the offerings to where they satisfy customer standards.

Six Sigma and Multinational Corporations

As previously mentioned, six sigma has been adopted by famous corporations

throughout the globe. 3M, Caterpillar, Merril Lynch, Amazon, Bank of America, DHL, SGL

Group, Dell, Ford, DuPont, McGraw-Hill Companies, HSBC, among others, are companies that

have implemented six sigma in their company projects (AlSagheer, 2011). A study published on

the sustainability six sigma offers multinational corporations, can give an insight as to what

makes six sigma so popular among these giants. AlSagheer (2011), defines sustainable

development as “development that meets the need of present without compromising the ability of

future generations to meet their own needs” and continues to say that with regards to six sigma

sustainability refers to “utmost standardization with zero defects”. AlSagheer (2011) argues that

the core goal of these companies was to obtain financial sustainability.

Regardless of whether financial sustainability seemed to be the primary goal, most of

these companies, once they are able to stabilize and streamline their processes utilizing six

sigma, can build up monetary reserves that they can utilize further to apply to different causes.

Once the variables that promote defective work are taken care of, the company can focus on

alternate goals, like upgrading equipment, driving innovation, eliminating waste, achieve full

environmental sustainability, improving marketing efforts, whatever the company management

deems as the appropriate next step.

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Six Sigma: Benefits and Applications

Lean Six Sigma

Lean six sigma is considered a variation of Six Sigma that is a combination of Lean

manufacturing and the standard six sigma management approaches ("What is lean,"). The

merging of the two was said to have occurred when AlliedSignal and Maytag were cross training

employees and took different aspects of each and combined them.

The combination of the two seems like a logical one, since lean manufacturing is based

off of eliminating waste and streamlining processes to where only the essential core of the

specific process in question remains. Six sigma eliminates waste by eliminating variation, which

at times means removing non-value-added process steps.

Conclusion

Six sigma is best defined broadly as a “high performance, data-driven approach to

analyzing the root causes of business problems and solving them” (Blakeslee Jr., 1999). It can be

further analyzed as a “business process that allows companies to drastically improve their bottom

line by designing and monitoring everyday business activities in ways that minimize waste and

resources while increasing customer satisfaction” (Harry and Schroeder, 2000). Six sigma

provides a business with a great solution that can be tailored to many different applications, and

when followed as a “way of life”, it ultimately leads to business excellence. Today, some of the

most prestigious companies of the world like Apple Computers, American Express, Boeing,

Hewlett-Packard, Honda, LG, and Unilever, (among many others), implement Six sigma to

manage their projects and processes, and live the six sigma way ("Six sigma companies," 2008).

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Six Sigma: Benefits and Applications

References

AlSagheer, A. (2011). Six sigma for sustainability in multinational organizations. Journal of

Business Case Studies, 7(3), 7-15.

Blakeslee J.A. Jr. (1999), “Implementing the Six Sigma solution”, Quality Progress, Vol.32,

p.77.

Braunscheidel, M., Hamister, J., Suresh, N., & Star, H. (2011). An institutional theory

perspective on six sigma adoption. International Journal of Operations & Production

Management, 31(4), 423-451. Retrieved from www.emeraldinsight.com/0144-3577.htm

Chiarini, A. (2011). Japanese total quality control, tqm, deming's system of profound knowledge,

bpr, lean and six sigma. International Journal of Lean Six Sigma, 2(4), 332-355.

Retrieved from www.emeraldinsight.com/2040-4166.htm

Cowman, K. (2005). Six sigma: what, where, when, why & how. Materials Management and

Distribution, 50(8), 69. Retrieved from

http://search.proquest.com/docview/227981602?accountid=10017

Goh, T. N., & Xie, M. (2004). Improving on the six sigma paradigm. The TQM Magazine, 16(4),

235-240. Retrieved from

http://search.proquest.com/docview/227617145?accountid=10017

Harry, M.J. and Schroeder, R. (2000), Six Sigma: The Breakthrough Management Strategy

Revolutionizing the World’s Top Corporations, Doubleday, New York, NY.

Jacobs, F. Robert; Chase, Richard (2012). Operations and Supply Chain Management: The Core,

3rd edition (The Mcgraw-Hill/Irwin Series Operations and Decision Sciences) (Page

313). Business And Economics. Kindle Edition.

McAdam, R., Hazlett, S., & Henderson, J. (2005). A critical review of six sigma: exploring the

dichotomies. International Journal of Organizational Analysis, 13(2), 151-174.

Nakhai, B., & Neves, J. (2009). The challenges of six sigma in improving service quality.

International Journal of Quality & Reliability Management, 26(7), 663-684. Retrieved

from www.emeraldinsight.com/0265-671X.htm

Osada, H., & Azis, Y. (2010). Innovation in management system by six sigma: an empirical

study of world class companies. international Journal of Lean Six Sigma, 1(3), 172-190.

Retrieved from www.emeraldinsight.com/2040-4166.htm

Six sigma companies. (2008, June). Retrieved from http://www.asixsigma.com/companies.php

Wiesenfelder, H. (n.d.). Definition of lean six sigma. Retrieved from

http://www.ehow.com/facts_5007027_definition-lean-six-sigma.htm

What is lean six sigma? definition and meaning. (n.d.). Retrieved from

http://www.businessdictionary.com/definition/Lean-Six-Sigma.html

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Six Sigma: Benefits and Applications

Appendix

Graph illustrating the statistical explanation for Six Sigma

DMAIC Cycle Illustration

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Six Sigma: Benefits and Applications

Applications of Six Sigma in Services. From “The challenges of six sigma in improving service

quality”, by Nakhai and Neves (2008)