OPERATIONS MANAGEMENT for MBAs Fourth Edition Meredith and Shafer Prepared by: Al Ansari Seattle University John Wiley and Sons, Inc. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 1 Chapter 4 Process Improvement: Minimizing Variation Through Six Sigma Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 2 Business Process Design (BPD) Nynex Analyzed company in terms of four core processes ◦ ◦ ◦ ◦ customer operations customer support customer contact customer provisioning Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 3 Nynex continue Obtained services of Boston Consulting Group Visited 152 companies to document best practices Estimated savings are $1.5 to $1.7 billion Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 4 Business Process Design (BPD) The fundamental rethinking and radical redesign of business processes to bring about dramatic improvements in performance Hammer, M. and Stanton, S. The Reengineering Revolution, Harper Business, 1995. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 5 Radical Profoundly change the way work performed Not concerned with making superficial changes Get to root Get rid of old Reinventing, not improving Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 6 Redesign BPD is about designing how work is done Smart, capable, well trained, highly motivated employees mean little if the way work is performed is poorly designed Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 7 Process All organizations perform processes Customers not interested in individual activities but rather overall results Few of them are organized on the basis of processes Thus, processes tend to go unmanaged Team approach one way this addressed Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 8 Dramatic Quantum leaps in performance, not marginal or incremental improvements Breakthroughs in performance Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 9 IBM Credit Example Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 10 IBM Credit Example continue Order logged by 1 of 14 people in conference room Carted upstairs to credit department Information entered into computer to check borrower’s creditworthiness Results written on piece of paper Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 11 IBM Credit Example continue Business practices department modified standard loan covenant in response to customer requests Used its own computer system Pricer keyed data into PC to determine appropriate interest rate Administrator converted to quote letter and Fedexed to field sales rep. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 12 IBM Credit Example continue Average time to process a request was 6 days Could take as long as 2 weeks Actual processing time 90 minutes Deal Structurer ◦ Turnaround time 4 hours ◦ Number of deals processed increased 100 times with small reduction in head count Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 13 Six Sigma and the DMAIC Improvement Process Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 14 A Brief History of Six Sigma The Six Sigma concept was developed by Bill Smith, a senior engineer at Motorola, in 1986 as a way to standardize the way defects were tallied. Sigma is the Greek symbol used in statistics to refer to standard deviation which is a measure of variation. Adding “six” to “sigma” combines a measure of process performance (sigma) with the goal of nearly perfect quality (six). Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 15 A Brief History of Six Sigma continue In the popular book The Six Sigma Way, Six Sigma is defined as: ◦ a comprehensive and flexible system for achieving, sustaining and maximizing business success. Six Sigma is uniquely driven by close understanding of customer needs, disciplined use of facts, data, and statistical analysis, and diligent attention to managing, improving, and reinventing business processes. (p. xi) Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 16 The DMAIC Improvement Process Six Sigma projects generally follow a well defined process consisting of five phases. ◦ define ◦ measure ◦ analyze ◦ improve ◦ control pronounced dey-MAY-ihk Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 17 The DMAIC Improvement Process Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 18 Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 19 The Define Phase The define phase of a DMAIC project focuses on clearly specifying the problem or opportunity, what the goals are for the process improvement project, and what the scope of the project is. Identifying who the customer is and their requirements is also critical given that the overarching goal for all Six Sigma projects is improving the organization’s ability to meet the needs of its customers. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 20 Benchmarking Benchmarking involves comparing an organization's processes with the best practices to be found. Benchmarking is used for a variety of purposes, including: ◦ Comparing an organization's processes with the best organization's processes. ◦ Comparing an organization's products and services with those of other organizations. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 21 Benchmarking continue Identifying the best practices to implement. Projecting trends in order to be able to respond proactively to future challenges and opportunities. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 22 Quality Function Deployment (QFD) Two key drivers of an organization’s long-term competitive success are the extent to which its new products or services meet customers’ needs, and having the organizational capabilities to develop and deliver such new products and services. Tools for helping translate customer desires directly into product service attributes. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 23 Four Houses of Quality Customer requirements Technical requirements Component requirements Process deployment requirements Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 24 House of Quality Details Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 25 The Measure Phase The measure phase begins with the identification of the key process performance metrics. Once the key process performance metrics have been specified, related process and customer data is collected. Two commonly used process performance measures, namely, Defects per Million Opportunities (DPMO) and Process Sigma. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 26 Defects Per Million Opportunities Earlier it was noted that a literal interpretation of Six Sigma is 3.4 defects per million opportunities (DPMO). This may have caused some confusion for more statistically inclined readers, which we shall now attempt to reconcile. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 27 Defects Per Million Opportunities Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 28 Process Sigma How sigma itself can be used to measure the performance of a process. ◦ One way to measure the performance of a process is to calculate the number of standard deviations the customer requirements are from the process mean or target value. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 29 DPMO for Alternative Process Sigma Levels Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 30 Motorola’s Assumption the Process Mean Can Shift by as Much as 1.5 Standard Deviations Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 31 Comparison of 3 Sigma Process and 6 Sigma Process Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 32 The Analyze Phase In this phase our objective is to utilize the data that has been collected to develop and test theories related to the root causes of existing gaps between the process’ current performance and its desired performance. See next slide Table 4.3 Common tools and methodologies in the Six Sigma toolset. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 33 Brainstorming The brainstorming approach: ◦ ◦ ◦ ◦ Do not criticize ideas during the brainstorming session. Express all ideas no matter how radical, bizarre, unconventional, ridiculous, or impractical they may seem. Generate as many ideas as possible. Combine, extend, and/or improve on one another’s ideas. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 34 Brainstorming: Actions to Enhance Team Creativity Create diversified teams. Use analogical reasoning. Use brain writing. Use the Nominal Group Technique. Record team ideas. Use trained facilitators to run the brainstorming session. Set high standards. Change the composition of the team. Use electronic brainstorming. Make the workplace a playground. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 35 Cause and Effect Diagrams Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 36 Process Capability Analysis Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 37 Process Capability Analysis continue Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 38 The Improve Phase: Design of Experiments (DOE) OFAT and 1FAT - one factor at a time. ◦ Shortcomings Not typically possible to test one factor at a time and hold all the other factors constant. Not possible to account for interactions or joint variation between variables (Figure 4.16). Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 39 Design of Experiments (DOE) Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 40 DOE: continue Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 41 DOE: continue Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 42 DOE continue Some of the major considerations associated with DOE include: ◦ Determining which factors to include in the experiment. ◦ Specifying the levels for each factor. ◦ Determining how much data to collect. ◦ Determining the type of experimental design. Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 43 Taguchi Methods Design for Manufacturability (DFM) Procedure for statistical testing to determine best combination of product and transformation system design that will make output relatively independent of normal fluctuations in the production system Chapter 4: Process Improvement: Minimizing Variation Through Six Sigma 44 Copyright Copyright 2010 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. 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