Playing Offense—Growing the Effort
While your efforts to hold project gains and the benefits of the overall Six Sigma system help sustain momentum, this is basically a defensive strategy. You don't want to lose the benefits you have worked so hard to obtain. As in all of life, however, the best defense is a good offense.
While you work on holding gains, you also want to take proactive steps to grow and expand the deployment into new areas. This is your offensive strategy. Continuing to drive Six Sigma into new areas will keep the initiative fresh, and prevent it from losing steam.
Some key areas that may prove particularly fruitful are extending Six Sigma to the entire organization, taking it to suppliers and customers, and using it to drive top line growth to complement the bottom line benefits already achieved.
Expanding Six Sigma Throughout the Organization
Most Six Sigma initiatives begin in manufacturing or operations because manufacturing typically has better measurement systems than other functions. These measurement systems enable you to get going on improvement projects faster, and the money to be made is more obvious and easier to quantify than in other parts of the organization. Nothing shows that Sigma works better than speed and results.
These two ingredients—speed and results—help you demonstrate the success of Six Sigma and allow the organization to see that “Six Sigma will work here!” In the process you gain experience in Six Sigma, build confidence that you can deploy it successfully, and produce bottom line results. Six Sigma is shown to more than pay for itself.
But there is much more to be gained. Many believe that more than half of an organization's improvement opportunity lies outside manufacturing or operations. This additional improvement is a huge opportunity the organization must capture. Organizations typically move Six Sigma in one of two directions after manufacturing/operations—to administrative and transactional processes, or to new product development (R&D). Some organizations may want to improve both areas at the same time. Most, however, move first to the administrative and transactional processes, such as accounts receivable, transportation and shipping, human resources, finance, and other areas listed in Table 6-5. The list on pages 26 and 27 shows additional examples of financial applications.
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Transactional and administrative areas have unique characteristics that are unlike those of manufacturing processes.
The culture is usually less scientific and people don't think in terms of processes, measurements, and data.
The work typically requires considerable human intervention, such as customer interaction, underwriting or approval decisions, and manual report generation. Human intervention is, of course, an additional source of variation and errors.
Transactional and administrative processes are often invisible, complex, and not well-defined or well-documented. Such characteristics make opportunities for improvement difficult to identify, and projects difficult to define.
Measurements are often nonexistent or ill-defined, resulting in the need to create measurement systems first, and then begin to collect the data.
The process output is often intangible, and can be unique. For example, the actual output of a due diligence study is knowledge, possibly documented in the form of a report, and each due diligence study will be unique.
Similar activities are often done in varying ways. Three people in three different company locations are unlikely to do the same job in the same manner.
The most important of these unique attributes is the frequent lack of process measurements. In our experience, four key measures of the performance of non-manufacturing processes come up repeatedly: accuracy, cycle time, cost, and customer satisfaction.
Accuracy is measured by correct financial figures, completeness of information, or freedom from data errors.
Cycle time is how long it takes to do something, such as pay an invoice.
By cost we mean the internal cost of process steps, as opposed to the price charged for services. In many cases, cost is largely determined by the accuracy and/or cycle time of the process; the longer it takes, and the more mistakes that have to be fixed, the higher the cost.
Customer satisfaction is the fourth common measurement. For a situation in which the key process outputs are intangible, such as customer service processes, customer satisfaction (often measured through surveys) will likely be the primary measure of success.
Fortunately, there are more similarities than differences between manufacturing and non-manufacturing processes. One of the key similarities is that both types of processes have “hidden factories,” places where the defective product is sent to be reworked or scrapped (revised, corrected, or discarded in non-manufacturing terms). In reality, every process has a hidden factory (Figures 6-3 and 6-4). Find the hidden factory (performing manual account reconciliation, revising budgets until management will “accept” them, and making repeat sales calls to customers because there wasn't all the requested information on the first visit) and you have found one good place to look for opportunities to improve the process.
Figure 6-3. Every Process Has a Hidden Factory: A Non-Manufacturing View
Figure 6-4. Every Process Has a Hidden Factory: Eyeglasses Fitting Process
Use of Six Sigma in new product development (R&D) is commonly referred to as Design for Six Sigma (DFSS). This is another area in which you must expand the Six Sigma effort, since the entitlement of a process is often determined in the design phase. The goal is to improve the product development process so that the company can get new and better products to market quicker and at less cost to both the consumer and the company.
The strategy is to build the Six Sigma methods and tools into the company's new-product development process (usually a stage-gate process).
Close interaction with marketing also greatly improves the development process, and therefore the new products and services that are ultimately produced. The payoff on DFSS projects usually has a longer time frame because of the time required to get a new product to market. The training is still project focused (no project, no training), and is done at both the Black Belt/MBB and Green Belt levels. More will be said about DFSS when top-line growth is discussed later in this chapter.
Using Six Sigma to Improve Supplier Performance
You will quickly learn that the average level and variability of quality and the cost of the materials from suppliers have a big effect on the quality and cost of products and services. It is not unusual for 40–60% of the final cost of a company's product to derive from the costs of materials purchased from suppliers. Since you cannot overlook such a high cost, or the effects of variation in materials on the performance of processes, you may wonder how to get suppliers to use Six Sigma to improve their performance.
You will have more credibility going to suppliers with a recommendation to use Six Sigma once you have used it in your organization and demonstrated that it works. For this reason supplier Six Sigma programs typically don't start until after the first or second year of a Six Sigma deployment.
The first step in getting suppliers to use Six Sigma is to determine how the quality and cost of supplier materials are affecting the performance of your organization. One way to accomplish this is to track supplier materials as they flow through your processes and determine the scrap, waste, downtime, and yield loss they cause. (You will also see that a large portion of the loss is due to your company's processes, thereby identifying additional opportunities for internal improvement.)
We do not recommend focusing improvement efforts on beating up suppliers, without a clear understanding of how their materials affect your process. This misguided step is popular because it requires no change or hard work on the part of your organization. A more effective method is to first focus Six Sigma on what you can control and, as you learn about root causes coming from materials, integrate suppliers into your improvement efforts.
This approach works in both manufacturing and non-manufacturing environments. For example, a newspaper company initiated a Six Sigma project to reduce errors in the paper. Such errors were generally found prior to publication, but finding and fixing them is an expensive form of rework. Data from the project ultimately revealed that the root causes of many errors were in the information obtained from external sources, such as wrong facts, wrong names, and wrong figures (see Hoerl and Snee [2002], Chapter 10). Armed with this information, the newspaper communicated to reporters and copy editors which information sources (suppliers) could be trusted and should be used. Other sources needed to initiate improvement efforts in order to be trusted and used.
Once you know the magnitude of the problems coming from suppliers, you can set an improvement goal for them to attain. A common goal is 5% reduction per year in price, adjusted for inflation. The intent is that the price reduction would be based on supplier improvement projects that reduced the supplier's costs. In this way, both the supplier and customer benefit financially. The price reduction goal may be mandatory, or suppliers that meet this price reduction goal may receive preferential treatment.
To the extent that these goals are based on actual data, and can be achieved via a win-win approach, communicating such expectations is not simply beating up suppliers. It may also be appropriate, when it makes business sense, to have unique improvement goals for different organizations or processes within a given supplier.
Next, you have to determine which suppliers you are going to approach with encouragement to use the Six Sigma approach. One way is to do a Pareto analysis of the key sources of costs, such as supplier-caused scrap, rework, and other losses. Focus on those materials and suppliers that are associated with the highest costs; the biggest problems usually represent the biggest opportunity. You may also wish to approach key suppliers with which you desire a long-term strategic relationship.
Companies have introduced suppliers to Six Sigma in a variety of ways. One way is to identify a few high-impact projects, and form customer-supplier teams to complete the projects using Six Sigma. If the supplier doesn't have Black Belts available to work on the project, then the customer supplies the Six Sigma expertise and any needed training. Tremendous progress is made when both the customer and the supplier have one or more Black Belts on the project team.
Another approach is for the company to make available supplier training programs that are partially funded by the customer and that make available both Champion and Black Belt training, at a minimum. An effective way to create such a program is to start with a few good projects and then use their success to expand the program. It is essential that the supplier's management be involved in the program. An executive workshop is a good way to help build this involvement, as it helps communicate what Six Sigma is and the benefits the supplier organization can expect to receive.
Clearly, careful planning is needed to have a successful Six Sigma supplier program. Any financial arrangements must be defined and agreed to up front so that the expectations of both parties are met. The goals and objectives have to be carefully thought out and clearly communicated.
Six Sigma must be positioned as a “how” rather than a “what.” In other words, your purpose is not to have the supplier use Six Sigma. Your purpose is for suppliers to make tangible improvements that positively affect you and your organization, and Six Sigma is just a means to help you accomplish this objective. Six Sigma can be an effective methodology for achieving customer and supplier goals, once those goals have been clearly defined and communicated.
Improving Top-Line Growth
A common question from those implementing Six Sigma is: “I can see how to use Six Sigma to reduce costs, but how can I use Six Sigma to increase revenues?” It often goes unnoticed that Six Sigma can grow the top line as well as improve the bottom line. In general, revenues are increased by:
Getting new customers (find more)
Getting current customers to buy more (get more)
Regaining old customers who have left to do business with your competitors (keep more)
Fortunately, Six Sigma can be applied in many ways that directly tie to one or more of these revenue-increasing areas.
For example, consider the following specific approaches, with the principle revenue-increasing areas noted:
Use DFSS to create new and better products (find, get, and keep more)
Increase capacity (productivity) when the product line is sold out (find and get more)
Improve product quality and price (find, get, and keep more)
Improve the service processes that touch the customer such as delivery, billing, and customer service (get and keep more)
Show customers how to benefit from Six Sigma (get more)
“At the customer, for the customer” Six Sigma projects
Successfully complete strategic sales and marketing Six Sigma projects (find, get, and keep more)
Developing new and better products or services are obviously key means to growing the top line. DFSS is the Six Sigma approach to accomplishing this objective. We've seen that DFSS is typically started about one year after the initiation of the DMAIC methodology for improving existing processes, and you have gained confidence that Six Sigma will work in the company. Conceptually, you can consider product design a process and apply Six Sigma in a straightforward manner to improve it. In most cases, however, organizations wish to apply Six Sigma to the design of a specific new product or service. While it applies equally well here, Six Sigma requires a different roadmap more tailored to design. If a team applies the DMAIC roadmap to designing a new product, it will likely stumble in the measure phase, since there is no existing process on which to take measurements.
GE developed the DMADV roadmap, adopted by many others since then, to apply to design projects. The define stage is analogous to define in DMAIC, although typically more complicated, since you are designing a new product or service, not improving an existing process. In the DMADV measure phase, you determine the CTQ characteristics, and ensure that you have measurement capability, but you do not measure an existing process, unless the new design is an enhancement of a current design.
The analyze phase focuses on conceptual design, in which you use creative “out of the box” thinking to determine the most promising high-level design to satisfy your CTQs. For product designs, you may develop prototypes. The details of this design are completed in the design phase, where you make calculations to predict final design capability. If these calculations are not promising, the team must repeat the analyze phase and design phase to improve the design capability. In the verify phase you pilot the new design under realistic conditions to obtain real data verifying design capability.
For example, if you were designing a manufactured product, you would utilize a pilot run in a real manufacturing facility, using regular workers and raw materials for the verify phase. This contrasts with a prototype made under ideal conditions that might be used to prove the design concept in the analyze phase. If you are designing a web-based insurance application and underwriting system, you would utilize people with computer skills similar to your targeted market to access the system, and do so during normal business hours using standard platforms. In many cases you may go through a mini-DMAIC cycle to improve design flaws observed in the pilot. If there are major discrepancies in capability, you may have to loop back through the analyze phase and design phase again.
This approach to DFSS maintains the key technical elements of DMAIC:
Disciplined approach
Use of metrics throughout the process
Use of analytical tools
Emphasis on variation
Data-based decision making
There are other ways to use Six Sigma to improve the top line besides DFSS. One way is to find situations in which a product is in a sold out condition today, or is forecast to be sold out in the near future. Here you can use Six Sigma in a traditional manner (DMAIC) to increase capacity (productivity). While Six Sigma is often thought of as primarily a quality improvement methodology, it applies equally well to improving productivity. When you increase capacity closer and closer to the theoretical maximum capacity (capacity entitlement), you have the opportunity to sell more to new or existing customers, resulting in top-line growth. When you have reached theoretical maximum capacity, you will likely need DFSS projects or capital expenditures to further increase output.
Often customers will buy more if the quality of your product is improved, or you are able to reduce price. In these situations you can use Six Sigma to improve your quality and decrease your internal costs. Part of the cost savings can be passed on to the customer if you desire, thereby increasing volume without having to sacrifice margin. You may also be able to obtain new customers because of the improved quality and decreased price. Better yet, you may regain some customers that you lost because of poor quality or high price in the past.
In many instances the key problem is a service issue, such as customer response time or CRT—the time between placing an order and receiving the product or service. Resolving service issues can require you to analyze the whole process: order, manufacture, delivery, bill, and return. The root cause of the problem may be in some or all of these steps.
A point often missed is that manufacturing is only one step in the process of serving the customer. We know of one instance in which the customer response time for a piece of heavy equipment was 12 months. A look at the subprocess cycle times revealed that the physical manufacture took only three months, so reducing manufacturing time to just a few days still left 75% of the cycle time untouched. Clearly you will sometimes have to move outside manufacturing to obtain significant reductions in total cycle time.
Variation in customer response time is as important as, if not more important than, the average level of CRT. For example, if a customer receives two orders, one 30 days early and one 30 days late, the average CRT is perfect, but neither order was on time!
In some instances early orders are worse than late ones, because the customer is not prepared to handle the early delivery and may tell the shipper to return the order to the vendor. GE, noting this, focused on reducing variation as a way of creating greater customer satisfaction (see the “Message to the Shareholders” in the 1998 GE Annual Report).
The opportunity to increase revenues by improving quality and/or service requires input from the customer. (Price reduction is universally appreciated!) You need to know those key problems that, if fixed, would result in the customer buying more. Asking the customer, “What changes can I make in my products or services that would allow you to buy more from me?” is not without risk. It can lead the customer to expect that any improvements requested will be made. Of course, you can also ask non-customers or previous customers the same question to try to win their business as well.
Another way to use Six Sigma to grow the top line is to introduce your customers to Six Sigma, and show them how Six Sigma can help them improve. The theory is that customers with a better bottom line will be happier customers with a closer working relationship with you, and will repay you by buying more products and services from you.
Helping your customers solve their problems as a method for developing better business relationships is not new, and has been used for many years by many different companies. What is new is the use of Six Sigma in working with customers in this way.
GE is now using Six Sigma as the model for this type of relationship, and is having its Black Belts work with customers on solving customer problems. GE calls the program “Six Sigma at the Customer for the Customer.”
Welch (2001) reports that in 2000 GE helped 50 GE Aircraft Engine customers complete 1,500 projects that saved $230 million. Also in 2000, a total of 1,000 projects were completed for GE Medical Systems customers returning $100 million to the customers' bottom lines. Many of these projects were done primarily by GE Black Belts as at the customer, for the customer projects.
Six Sigma can be applied to strategic sales and marketing processes. DMAIC projects in these areas will primarily improve top-line growth, but they may have secondary benefits for cost savings as well. Such projects are generally initiated as part of the effort to spread Six Sigma across the organization, as discussed earlier. Potential applications include:
Improving the impact of advertising (more bang for the buck)
Improving marketing research studies, which drive DFSS projects
Increasing sales force effectiveness
With the exception of improving capacity, all the approaches discussed require close working relationships with customers. This aspect of using Six Sigma is somewhat different from the uses of Six Sigma in cost reduction projects. Of course all Six Sigma projects have a link to customers in one way or another; some links are just stronger than others.