Importance of Six Sigma
- Amruta Bhaskar
- Oct 7, 2020
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Six Sigma is a methodology that helps improve business processes by using statistical analysis. It is a data-driven and highly disciplined methodology and approach that ensures the elimination of defects in any type of business or organizational process.
In order to achieve Six Sigma, organizational processes need to keep their defects to a maximum of 3.4 per million (99.99966%) opportunities. A Six Sigma defect can be defined as anything that is outside of client specifications. Its objective is to minimize the variability in business and manufacturing processes. One of the salient highlights is the ability to create a focus on achieving quantifiable and measurable financial returns from any six sigma project.
Developed by Motorola in 1986, Six Sigma is basically a set of tools and techniques that enable process improvement.
Six Benefits of Six Sigma Methodology
Regardless of an organization’s industry or size, Six Sigma methodology provides a standard approach to problem-solving in terms of Six Sigma projects. To avail benefits or fruits of Six Sigma methodology, a Six Sigma Yellow or Green or Black or Master Black Belt project has to be undertaken. The project has to be in the respective vertical or business unit. Six key benefits of this methodology can be categorized in the following manner:-
1. Reduce Operational Costs
For most of the companies operating globally, operational cost & risks are significant factors. These factors contribute to low profits or even losses. Some risks cannot be eliminated, and operational cost is always omnipresent. Six Sigma methodology can provide a road map that can drastically reduce an organization’s exposure to risks. Also making organizations more efficient & effective at delivering its product or service.
Hard savings are actual reductions in dollars now being spent. Reduced budgets, fewer employees, reduction of prices paid on purchasing contracts are a few examples of hard savings. Soft savings are projected reductions that should result from the project. For example, savings from less inventory, lower cycle times, and reduced scrap. Additional benefits may gather by consistently meeting service-level agreements (SLAs) with customers, avoiding penalties, recognizing revenue faster and so on.
2. Improve Efficiency or Timeliness
Six Sigma projects help improve the efficiency of the overall process. Moreover; improving the timelines in delivering the process output or improving the on-time delivery of products or service every time can be the focus areas for Six Sigma projects.
To improve timeliness, Six Sigma projects can be targeted towards reducing the number of machine setups or set-up hours in a manufacturing process, improving the productivity of production or assembly lines, fully or partially automating the process wherever manual intervention in the process or function is higher than required and so on.
According to the industry the company is operating in, the terminology of process pain areas may change. Before undertaking any Six Sigma project, it is important to quantify or define all aspects of efficiency or timeliness. The defect in a process or product should be studied with the help of data, facts, figures, and information.
3. Improve Accuracy, Controls, and Policy Compliance
Six Sigma projects help improve accuracy by reducing Defects-Per-Million-Opportunities (DPMO) across the value stream in the process. The word ‘opportunity’ means the chance to commit an error. DPMO is a probabilistic measure of error rate or capability of a business or manufacturing process. This measure takes into account both actual defects & number of probable defects in every opportunity.
As DPMO increases, sigma-level of the process goes down and vice versa. Six Sigma project help measure baseline and target process accuracy in terms of DPMO & Sigma Level. It is a systematic way to measure process accuracy as it aims to prevent the occurrence of defects.
According to the Six Sigma methodology, the process which is in a state of statistical control is the stable process. With the help of graphical & Statistical Process Control (SPC) tools i.e., Control Charts and Run Charts, Six Sigma project helps track and monitor the stability of the process on an ongoing basis. There are different types of control charts; according to the type of data under consideration.
The word ‘Compliance’ refers to conforming or adhering to the rule or protocol. The compliance can be internal as well as external. Six Sigma tools & techniques help assess deviation from the plan, forecast, budget, or expectations. These techniques also help determine if customers or parties comply with the Service Level Agreements (SLAs).
4. Improve Customer Service
The image of the company is created in large part by its interaction with customers. Any company would want this interaction to be as stable as possible. The reason being disappointed customers are vocal critics. Six Sigma projects can help identify the number of variations customers are experiencing, what is driving that variation, and ultimately, how the number of dissatisfied customers can be minimized. Such Six Sigma projects can also be aimed at improving customer & vendor satisfaction.
Six Sigma projects can be undertaken for fully knowing customers and not just their issues or concerns. The methodology can also help business anticipate customer needs and address them through a streamlined process. Six Sigma projects help assess the need to automate customer service function too. Six Sigma projects can be undertaken to address critical customer service issues. This depends on the industry that the company is operating in.
5. Improve Cash Flow
Six Sigma projects can also be targeted towards improving DSO i.e. Days Sales Outstanding in the business. If DSO improves, then cash flow improves as well. The higher the DSO, the lesser the ability of the company to convert credit sales into cash. Six Sigma projects can be aimed at reducing variation in Invoicing Process, Accounts Payable Process, Accounts Receivable process, Inventory Management Process, etc.
Multiple critical defects, which are measurable, will have to be identified across all the aforesaid processes to improve cash flow. It is a must to narrow-down the scope of improvement too.
6. Improve Regulatory Compliance
Normally, there are three aspects of regulatory compliance. The first one is Finance & Audit, the second one is Information Technology, and the third one is Legal. Six Sigma projects can be undertaken in each of these aspects; depending on the kind of defects identified.
Concerns Implementing Six Sigma
There are a number of common Six Sigma project management concerns that make it difficult for some companies to achieve the most benefits from these programs. These concerns are usually rooted in a variety of emotions, not in facts.
Business owners themselves can be resistant to adopt new practices given that they might undermine the very procedures and processes that started the business. A lot of people feel that if a process seems to be working, why change it? Perhaps a specific method has proven successful in the past, but has become outdated in the changing business environment. Companies continue to use outdated practises, however, simply because these things are a part of their comfort zone. It keeps them connected to the past and past successes. Companies must recognize that even processes that get the job done can still be wasteful and inefficient.
One thing that a lot of organizations fear is that if they speed up production, that they lose the ability to create a high quality product. This is not true with this strategy. In a Six Sigma Company, when production speeds up, there is a lot of emphases put on creating a high quality product, while reducing the amount of waste in creating that product. With increased production, and less waste, the revenue the organization brings in will increase; the ultimate goal most business owners look forward to.
Resolving Six Sigma project management concerns is something that is aggressively stressed in Six Sigma training. Managers are encouraged to become proactive and engaged as they are taught how to lead their teams effectively. They are also trained to become good motivators so that they can show all other parties how new or improved and more efficient processes will benefit all parties, both individually and collectively.