Six Sigma–The Three Types of Benchmarking

This post will be completed tomorrow–it’s a description of internal, competitive, and functional benchmarking.

(need to work on project until midday and can’t write post tonight…)

The Daily Evolver–Gateway to Integral Theory

I’ve written a previous post about the website The Daily Evolver, which belongs to Jeff Salzman, back on October 5, but I wanted to write another post because I’ve really gone more into depth into the website after going and listening to all the programs available on the The Daily Evolver podcast.

Jeff Salzmann has two kinds of podcasts, one of which I refer to as the ascending current, where he has a conversation with Dr. Keith Witt, an integral psychoanalyst who is knowledgeable about the latest research in neurobiology.   He and Dr. Witt have conversations about integral theory and psychology in a segment he calls “The Shrink and the Pundit.”

Then there are the podcasts that I refer to as the descending current, and these are where Jeff Salzmann takes some topic fresh from the news headlines and analyzes it according to integral theory.   Both of these podcasts are illuminating, and I have enjoyed both of them.

However, the podcasts go back to March 30, 2013.   On the website The Daily Evolver, I found that there are additional podcasts available going as far back as February 26, 2011.   Some of these are full-length programs, others are short, 5-7 minute samples of the full-length program, which is available for a subscription to Integral Life.    I highly recommend this if you can afford $99 for a full year subscription (a better deal than the monthly subscription price of $14.95/month) because you not only get access to Jeff Salzman’s archives, but those of the entire spectrum of programming on Integral Life, of which The Daily Evolver is only one offshoot of money.

In additional to archived podcasts before March 30, 2013, there are also articles and other interviews that are not part of the “Shrink and the Pundit” or the other type of podcast, wehere Jeff Salzman analyzes current events according to Integral Theory.   For these reasons I recommend listening to the podcast, but also checking out his website.

A final portal to Jeff Salzman’s work on integral theory is YouTube–there are quite a few videos, some of which are referenced on the Daily Evolver, but others which show up in other channels, like the new Conscious 2 television program from the UK on which Jeff Salzman appears numerous times.

As I mentioned on my previous post, the reason why I’m devouring as much as I can of Jeff Salzman’s work is because it really inspired me to learn more about integral theory.    I used the excuse that, well, there’s no one I know of that is also interested in integral theory, so I don’t know anybody to converse with about the things I read or watch related to it.   But after I listened to Jeff’s podcasts and videos, I realized he is conversing with me.   I need to converse with myself about the material, and have the faith that I will end up connecting with others who have the same interest in the material as I do.

Also, I have to say that having an integral perspective gives you grounds for being an optimist, which seems so counter-intuitive given the tenor of much of what you read in the newspapers.   So don’t go for gloom and doom, go for ZOOM!, which is what will happen to your evolution when you tune into The Daily Evolver!

Six SIgma–Why Benchmark?

In the fourth chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.D., and Richard Schroeder discuss the issue of bench-marking and how it is related to Six Sigma.   Benchmarking is basically comparing your company’s business and industrial processes to those of their competitors.   The goal is identifying your company’s strengths and weaknesses vis-a-vis the competition.

Some companies don’t benchmark because they feel they are already better than the competition, or that a comparison with the competition is impossible because their company culture is “unique”.   Let’s take the second excuse for not benchmarking first:   a company culture may be unique, but in all likely the business and industrial processes are not.   There must be some processes that a company has in common with the competition.

The first excuse depends on what the Six Sigma level is of the company and its competitors.   If your company is at 5 Sigma, and the competition is at 4 Sigma, that’s one thing.   But what if there is only a difference of, say, 0.4 Sigma between you and the competition?   That’s not a lot of gap between you and the competition.    What’s more, if your company is at 3.5 to 4 Sigma, and the competition is not as good as you are, that still puts you in the category of average as far as all companies are concerned.

Here’s some characteristics of such an “average” company whose processes are between 3.5 and 4 Sigma:

Although it has a quality-assurance program, and is profitable and growing:

  • It spends 20-30% of sales dollars repairing or reworking products before shipping.
  • It contracts with 10 times the number of suppliers necessary.
  • 5-10% of its customers are dissatisfied with the product, sales, or service and would not recommend the product or service to someone else.
  • It does not believe that the goal of zero defects (6 Sigma) is realistic; however, it is also unaware that increasing to a best-of-class Sigma level (5.5 Sigma) would make their product 100 times more defect free.

This is why a company should benchmark–because complacency may prove fatal if the competition gets it into their heads to take up a quality-improvement like Six Sigma, and overtake your company while it standing still.

Six Sigma–Shifting the Focus from Manufacturing to Design

In the last section of the third chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Ikel Harry, Ph.D., and Richard Schroeder describe how to achieve the highest quality improvements using Six Sigma:   by shifting the focus from manufacturing in such a way as to minimize defects, to designing in such a way as to eliminate them from the start.

Experts have shown that 70-80% of a product’s total cost is determined by its design, meaning that the higher the quality that is designed into the product, the lower its cost.   About the same percentage of quality problems are actually designed into the product.   So the initial Six Sigma projects that correct for defects in the manufacturing stage may only account for 20% of the quality problems.

To go beyond this, therefore, companies need to focus on designing quality in, rather than trying to inspect it in.   How does a company go about this?   The first place to go is gather and analyze customer feedback, to show how a product is actually used by the customer.

In fact, some of the findings with regards to the Six Sigma Breakthrough Strategy are:

  • Businesses that achieve a level of superior quality are three times more profitable than those that achieve inferior levels of quality.
  • Businesses that improve their quality gain 4% in market share each year.
  • Each significant positive shift in process capability equates to 10 times improvement in profitability.
  • Businesses that achieve significant quality improvements earn 8% higher prices for their products.

And these significant quality improvements can usually be gained only when a company reexamines its design process to design quality it, rather than try to correct the “baked-in” quality problems on the manufacturing line.

Of course, it’s not enough to have good quality, it’s important to have better quality than your competitors.   To make sure of this, companies need to participate in “benchmarking,” which is the subject of the fourth chapter of the book, and the next few posts.

Six Sigma–Calculating the Cost of Quality

The cost of quality equation has two seeming simple quantities:   the cost of nonconformance, i.e., the cost to the company of having defects in the product, and the cost of conformance, i.e., the cost to the company of reducing the number of defects in the product.   Simply put, if the cost of conformance is less than the cost of nonconformance, then it is worthwhile to perform quality control measures.    Cost of quality = cost of conformance – cost of nonconformance.   If the value is negative, that means it is not costing, but saving the company money by implementing the quality control measures.

How does this relate to Six Sigma?   Well, the common wisdom is that for each level of Sigma, the cost of implementing quality controls that produce that level of Sigma goes up, and not just in a linear way.   This means that it should cost more to go from 4 Sigma to 5 Sigma then it does to go from 3 Sigma to 4 Sigma.   However, at each level of Sigma, the cost of nonconformance, that is, the cost to the company of having defects in the product also goes down, because the number of defects goes down with each increase in Sigma level.   That is why it is important to look to look at the calculating of the cost of quality in detail.

Cost of Conformance

  • Appraisal Costs (inspection, testing, test equipment, quality audit)
  • Prevention (quality planning, process planning, Six Sigma projects, training)

Cost of Nonconformance

  • Internal Failure (scrap, rework, additional inventory costs)
  • External Failures (warranty claims, service and repair costs, product liability claims/lawsuits, cost to company reputation)

One of the key aspects of Six Sigma is its initial emphasis on improving existing processes, and then, once the quality improvements have been gleaned from this stage, it can shift to essentially recreating processes which prevent the defects from occurring.   Although this may seem more costly than just improving existing processes, think of the result:   a reduction in the necessity for inspection and repair, one of the costs of nonconformance.

That’s why Six Sigma ultimately leads one from the manufacturing process to the design process, where the highest-level gains in Sigma are to be made.

That is the subject of the next post…

Six Sigma–Towards a New Cost of Quality Metric

In the third chapter of the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.D., and Richard Schroeder talk about how being better is cheaper.

There is old dictum about trade-offs on a project:  “Faster, Cheaper, or Better:  Pick Two”.   This means that of the three constraints on a project–time, cost, and quality–you cannot demand improvement on all three at the same time.   If you want a project done in less time, you may have to add more people to it, because if you don’t, they may rush and be more prone to mistakes, which will lower the quality.   Likewise, if you want to raise the quality, you will have to raise the cost to achieve that, correct?

Well, here’s where the authors challenge that conventional wisdom.   In the traditional view of the cost of quality, if you improve the quality, up to a certain point the costs you spend on those improvements will “pay for themselves” in terms of the lowered cost of poor quality, i.e., the cost the company will have to pay because of defects.    But the idea was that at some point there would be diminished returns, as each level of Sigma that you improve costs more and more to implement.    It was generally thought that this would occur around the 4 Sigma level, above which point Six Sigma techniques are said to be effective.

However, the authors say there are three problems with conventional wisdom.

1)  First of all, these notions of the “cost of quality”, meaning the cost of implementing quality improvements, usually come from considering improvements along the lines of detecting and fixing defects, not preventing them as far back as the design stage.  If you prevent defects in the first place, then you end up saving money by not having to create inspection (detection) systems later on in the manufacturing process.

2)  Many costs of poor quality are not captured adequately by most types of accounting systems, which include not just warranty claims, but product liability claims, for example.

3)  The conventional thinking of cost of quality usually centers around inefficiencies in the manufacturing process, but Six Sigma also can deal with inefficiencies in other parts of the business, such as the engineering, accounting and service sectors of companies.  What happens if the product is defect-free, but is delivered late to the customer?  The customer won’t be satisfied by getting a product after the time it is needed.

All three of these reasons are why the actual picture is that the cost of quality decreases as you increase the level of quality as measured in terms of Sigma levels.   Although this has the aura of a revelation about it, it’s not too different from Deming’s original thoughts on quality that increased quality results in lowered overall costs of manufacture.

In the next post, I go into more detail about what the newer cost-of-quality metric entails.  Understanding these details helps one understand why Six Sigma should be considered a business initiative and not just a quality initiative.

Six Sigma–Not Just Another Management Fad

At the end of the second chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporation, Ikel Harry, Ph.D. and Richard Schroeder talk about the difference between Six Sigma and other quality initiatives that have been popular in the past two decades in a section called Learning From Past Mistakes.

What are the differences that make Six Sigma stand out as a business initiative?

Some of the business improvement initiatives that companies have tried in the past two decades include such initiatives as:

  • downsizing
  • outsourcing
  • activity-based costing
  • new-product development
  • re-engineering
  • material requirements planning
  • Kaizen
  • creation of world-class factories

Some are designed to improve the companies bottom line, and some are designed to improve quality and performance, but few are designed to improve both at the same time.   Six Sigma is designed to do just that.   How is it designed to do that?   Because it aligns the needs of the corporation and the customer with the needs of the individual worker.   The Six Sigma breakthrough strategy makes every employee throughout the corporation accountable for understanding and implementing its methodology, so it is not something which feels imposed by management but rather owned by all departments.

Some of the other business initiatives mentioned above, although beneficial to a company, do not create lasting changes in an organization if they are not adopted and owned by the entire company.    That may be one of the explanations for the 1.5-Sigma drift, where processes that achieve an increase of Sigma level often “backtrack” by as much as 1.5 Sigma over the long haul.   This is because the process was changed and improved, but the improvement was not really owned and adopted in a heartfelt way by those who owned the process, and they gradually slipped back into previous bad habits.

It is important to get management involved so that those quality initiatives are chosen which essentially “give the customers what they want” and not what the engineers think they want.    This is the alignment between the corporation and the customer mentioned above.   And the workers in the various departments must get involved so that, in confronting problems that they are often the first ones to see, they often times are the first ones to come up with solutions.   This makes the individual worker align with the needs of the corporation, to create a product that is profitable and which customers demand.

This is why Six Sigma is not just another management fad.


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