1. Six Sigma and Cost Saving
By: -
Rohit Pinto

2. Agenda
• Quality
• 6 sigma basics
• Where does cost come in?

3. Quality – What is it?
• Quality is perceptual, conditional and
subjective. Different people see it differently
• Quality is the first and one of the most
important things regarding different objects
and other stuff.
• Quality is how good a product is.

4. What does the dictionary say?
• The standard of something as measured against
other things of a similar kind
• Degree of excellence
• Key attributes in a person/object

5. My Definition
The degree of adherence of the key
attributes of a product/ service to a chosen
Standard.

6. So how can we measure it?
You cannot manage what you cannot measure
- Anon
Define key Set a measurable Set the limits of
attributes for each what is acceptable Measure each of
characteristic of and what is not the products
(What are the key produced against
characteristics of the product (Will my customer the measurable
my product/ (What standard accept the that’s been set
service) do I follow?) product?)

7. Quality Management – Assuring the
Control of Quality
Product Oriented
Quality Control (Don’t let the defective
products out)
Quality Management
Process oriented
Quality Assurance (Don’t let the products
be defective)

8. The QM Cycle
Act Plan
Check Do

9. SIX SIGMA

10. What is Six Sigma?
• A goal of near perfection in meeting customer requirements
• A sweeping culture change effort to position a company for greater customer
satisfaction, profitability and competitiveness
• A comprehensive and flexible system for achieving, sustaining and maximizing
business success; 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
(Source:The Six Sigma Way by Pande, Neuman and Cavanagh)
It’s a business strategy!!

11. History of Six Sigma
1986
1980
Motorola launches a Six Sigma is born
new 4 point strategy thanks to Bill Smith
• Global Competitiveness
• Participative Management 1984
• Quality Improvements
• Motorola Training and Motorola
Education Center
Manufacturing Institute
was launched, but they
still lacked a common
1979 Metric for sharing and
Our quality stinks!! – Art comparing initiatives
Sundry, Communications
Manager, Motorola

12. Technically Speaking
• If one has six standard deviations between the
process mean and the nearest specification limit,
practically no items will fail to meet specifications

13. In Terms of Number of Defects
Sigma Level DPMO Defect Percentage Yield
1 6,91,462 69% 31%
2 3,08,538 31% 69%
3 66,807 6.7% 93.3%
4 6,210 0.62% 99.38%
5 233 0.023% 99.977%
6 3.4 0.00034% 99.999666%
7 0.019 0.0000019% 99.9999981%

14. Is 99% Quality Good Enough?
• 22,000 checks will be deducted from the
wrong bank accounts in the next 60
minutes.
• 20,000 incorrect drug prescriptions will be
written in the next 12 months.
• 12 babies will be given to the wrong
parents each day.

15. But is Six Sigma Realistic?
·
·
Defects Per Million Opportunities (DPMO)
100K
····
Restaurant Bills
Doctor Prescription Writing
10K
41 Payroll Processing
··
Average Order Write-up
·
Journal Vouchers
Company Wire Transfers
1K
31 Air Line Baggage Handling
·
Purchased Material
Lot Reject Rate
100
21 (233 ppm)
10
11
Best in Class Domestic Airline
1 Flight Fatality Rate
1
(3.4 ppm)
2 3 3 4 4 5 5 6 6 7
(0.43 ppm) 7
SIGMA

16. Six Sigma Improvement Methods
DMAIC vs. DMADV
Define
Measure
Analyze
Continuous Improvement Reengineering
Improve Design
Control Validate

17. Six Sigma DMAIC Process
Control Define: Define who your customers
are, and what their requirements are
for your products and services – Their
Improve expectations. Define your team goals,
project boundaries, what you will focus
on and what you won’t. Define the
Define process you are striving to improve by
mapping the process.
Analyze
Measure

18. Six Sigma DMAIC Process
Measure: Eliminate guesswork and
assumptions about what customers need
Control and expect and how well processes are
working. Collect data from many sources
to determine speed in responding to
Improve customer requests, defect types and how
frequently they occur, client feedback on
how processes fit their needs, how clients
Define rate us over time, etc. The data collection
may suggest Charter revision.
Analyze
Measure

19. Six Sigma DMAIC Process
Analyze: Grounded in the context of the
Control customer and competitive environment,
analyze is used to organize data and look
for process problems and opportunities.
Improve This step helps to identify gaps between
current and goal performance, prioritize
opportunities to improve, identify sources
Define of variation and root causes of problems
in the process.
Analyze
Measure

20. Six Sigma DMAIC Process
Control
Improve: Generate both obvious and
Improve creative solutions to fix and prevent
problems. Finding creative solutions by
correcting root causes requires
Define innovation, technology and discipline.
Analyze
Measure

21. Six Sigma DMAIC Process
Control: Ensure that the process
Control improvements, once implemented, will
“hold the gains” rather than revert to
the same problems again. Various
Improve control tools such as statistical process
control can be used. Other tools such
as procedure documentation helps
Define
institutionalize the improvement.
Analyze
Measure

22. Six Sigma DMADV Process
Design: Develop detailed design
Validate for new process. Determine and
evaluate enabling elements.
Create control and testing plan for
Design new design. Use tools such as
simulation, benchmarking, DOE,
Quality Function Deployment
Define
(QFD), FMECA analysis, and
cost/benefit analysis.
Analyze
Measure

23. Six Sigma DMADV Process
Validate
Validate: Test detailed design
with a pilot implementation. If
Design successful, develop and execute a
full-scale implementation. Tools
in this step include: planning
Define tools, flowcharts/other process
management techniques, and
Analyze work documentation.
Measure

24. Okay, so we used 6 Sigma, and lets
say, our Quality improved
But what about our costs?!!

25. Quiz Time
Answer True or False
Higher quality costs more.

26. Cost of Defects?!
Cost Area Examples
Factory Accounts •Materials Scrapped
•Labour burden on product scrapped
•Labour, Material and burden to repair product
•Extra operations added because of presence of
defectives
• Burden arising from excess production capacity
necessitated by defectives
•Excess inspection costs Investigation of causes of defects
Sales Costs •Discount on seconds
•Customer complaints
•Charges to quality guarantee account
•Costs due to delays
Intangible Costs •Delays and stoppages caused by defectives
•Customer good will
•Loss in morale due to friction between departments

27. The Traditional View
Cost of Production
120
100
80
60
Cost of Production
40
20
0
100% Defective 100% Good

28. Cost of Defects
140
120
100
80
60 Cost of Production
Cost of Defects
40
20
0
100% 100% Good
Defective

29. Cost of Quality
140
120
100
80
Cost of Production
60 Cost of Defects
Total Cost of Quality
40
20
0
100% Defective 100% Good

30. Does it really work?
• “Operating margins of 3M went from 17% in
2001 to 23% in 2005 all due to the six sigma drive
by McNerney”
• “GE produces annual benefits of over $2.5 billion
across the organization from Six Sigma.”
• “Motorola reduced manufacturing costs by $1.4
billion from 1987-1994.”
• “Six Sigma reportedly saved Motorola $15 billion
over the last 11 years.”

31. A word of Caution
• Generally 6 Sigma takes between 1 to 3 years
of investment before it shows results
4
3.5
3
2.5
2
Cumulative Investment
1.5 Cumulative Savings
1
0.5
0
1996 1997 1998 1999
Source: GE Annual Reports

32. A word of caution
• There are as many failures as there are
successes
– Untrained/ improperly trained “Master Black
Belts”
– Urgency to show results leads to improper
implementation
– Training is not sustained hence new employees
are not aware