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I’m sure that most readers have heard of Six Sigma and know that it is about improving processes in order to reduce defects and therefore improve quality.   Some who are familiar with Japanese companies like Toyota know about the concept of kaizen or “continuous improvement”, with the emphasis on improvement that takes smaller, incremental steps rather than giant leaps of innovation.

How are these two different?   Well, aside from their cultural origins, Six Sigma originating in the US and kaizen originating in Japan, they both have two features in common.   Yes, they both operate on processes and they work on improvement of those processes to reach increasing higher standards.

But Six Sigma uses a rigorous statistical methodology for one, and it also emphasizes that the improvement of processes done under Six Sigma must be owned by those who carry out those processes.    The reason for this is that if a solution is reached and a process is improved, but the improvement is not owned by those who are doing the process, then they have no sense of responsibility to make sure that solution is maintained on a permanent basis.   This may be one of the explanations of something called the “1.5-Sigma Shift”, where a process that has been improved to a certain level of Sigma may, over the long run, have a certain amount of “slippage” or “regression” where the Sigma levels by about 1.5 Sigma on average.    If the solution is implemented on a temporary basis, but is not kept up, this could be one thing that accounts for the slippage in Sigma level over time.

The company Bombardier Aerospace Inc. has done internal studies that show that Kaizen initiatives may benefit a company initially, but only to about the 3 and 3.5 Sigma level.   To raise a company’s processes further, it requires more statistically rigorous techniques from Six Sigma to achieve 4 Sigma level or further.   It is when you get to the 5 Sigma level that it is not just the improvement of existing processes, but the creation or elimination of processes, particularly in the design phase, that take a company to the point of achieving quantum leaps of performance that take it beyond this stage, something that Kaizen alone is not equipped to deliver.

So rather than saying that Six Sigma is better than Kaizen, it is probably fairer to say that Kaizen is an attitude towards process improvement that can yield benefits to any company up to a certain point, but to improve beyond that point (in particular, beyond the 3 to 3.5-Sigma level) it is necessary to add a statistical rigor into process improvement that of the two, only Six Sigma can deliver.

The next post deals with how the methodology of Six Sigma and the science of statistics are inseparable.

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Dr. Mikel Harry, Ph.D., was a senior staff engineer at Motorola’s Government Electronics Group (GEG), and he created a detailed road map for improving product design and reducing production time and costs within GEG.   This road map involved implementing Six Sigma within Motorola, something he called the “Six Sigma Breakthrough Strategy”.   In his book he co-wrote with Richard Schroeder, a former Vice President of Motorola,  called Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, he explains in the second chapter of the book what the four core phases of the Six Sigma Breakthrough Strategy.

These phases are as follows.

1.  Measure Phase

In this phase, the company reviews the types of measurements systems and their key features, including how data is collected and reported.   If the company’s measurements are in error, this can prevent a company from being able to correctly analyze whether solutions to correct defects have actually worked or not.

2.  Analyze Phase

Here business problems are analyzed into statistical problems, in terms of how frequently they occur, or how they are correlated with specific technologies or processes.   This is essential in terms of isolating what the problem is that you need to solve in order to correct defects.

3.  Improve Phase

This is the process of discovering the key variables which are causing the problem responsible for creating defects.  Eventually, rather than changing industrial processes to reduce defects, companies should be striving for designing processes which create defect-free products in the first place.

4.  Control Phase

Once the problems are solved in the improve phase, the control phase is where such solutions are continuously monitored to make sure they stay in place.

The short term strategy is removing defects by improving existing processes; the long term strategy is refining the processes so that defects no longer occur.

In order to implement the Six Sigma strategy, however, there is one indispensable mathematical tool and that is the mathematical framework of statistics.    In the next post, I discuss how this is an essential tool of Six Sigma.

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In the first chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Ikel Harry, Ph.D., and Richard Schroeder, the authors relate the sigma level of a company’s processes to what the costs are of achieving that level of quality.

First of all, what are the costs of quality?   In a way, this is a misleading term.    As the American Society for Quality (ASQ) website points out, it’s not how much it costs to create a quality product, but how much it costs NOT to produce a quality product.   In other words, it’s the costs of lack of quality, also known as the costs of nonconformance.

Nonconformance vs. Defect

Before going into the cost of quality or the cost of nonconformance, I wanted to take a little detour to discuss the word “nonconformance.”   Although the word “defect” and “nonconformance” are sometimes used interchangeably, there’s an important difference between the two in terms of semantics.    Companies tend to use the word “nonconformance” rather than the word “defect” because the word “nonconformance” means that the product or result of a process has strayed outside of the specification limits set by the company.

The part itself may still be usable, and may not end up failing when it gets to the customer, so it may not be “defective” in the common, every-day usage of the word as “unable to be used.”   In producing an automobile, chipped paint on a door and a missing engine may both be considered “defects” because they are not supposed to occur during the manufacturing process.  However, one defect is truly catastrophic in that it prevents the car from even being used, i.e., the missing engine.   A paint chip is a cosmetic blemish that does not effect the performance of the car, but it does effect the customer’s emotional reaction to the car.

Having worked for a car company managing product liability litigation, I can tell you that plaintiff attorneys LOVE the word “defect” because it implies something is seriously wrong with a product from a safety standpoint.   So if documents say the word “defect”, you know that attorney will want to make sure that the jury sees that document, even if they don’t understand the context.    Now the engineers may be using the term in its more benign meaning of “lies outside of specification limits”, but not in the sense of “unusable by the customer” or worse, “dangerous to the consumer.”   To avoid this linguistic bait-and-switch by attorneys who may want to cloud juries’ minds with the wide range of meanings behind the word “defect”, many companies use the more linguistically neutral term “nonconformance.”   It’s less likely to be used out of context than the word “defect.”

Okay, with that out of the way, let’s go back to the discussion of the cost of nonconformance.

Cost of quality

There are three categories in the cost of quality:

1)  Prevention Costs–costs of all activities specifically designed to prevent poor quality in products and services

The first cost is that of trying to prevent a defect.   This can be done in the design phase by creating a design that is easier to manufacture without defects, or by educating the manufacturing line workers in the importance of quality to try to prevent defects that are used by human error.   Of course, a Six Sigma project, which is designed to reduce defects by eliminating their root cause, would be another important category of prevention costs.

2)  Appraisal Costs–costs associated with measuring, evaluating or auditing products or services to assure conformance with quality standards and performance standards.

After prevention, you must work on detection of defects, which means inspection of a product or auditing of processes in order to find out whether defects are occurring, and if so, what their root cause is of those defects that are detected.

3)  Failure Costs (Internal and External)

Let’s say that a defect does occur.   This is a quality failure.  What do you do now?  You must of course try to repair or rework those products which are found to have defects before sending them out to the consumer.  The cost of this repair or rework is an internal failure cost, meaning a cost of correcting a quality failure that is detected while the product is internal to the company.

There is the off chance that your detection methods may miss a product with defects, and those defects may be found out by the customer.   In those cases, the costs are handled through a warranty program.   However, if the defective product, such as an automobile, causes property damage to another vehicle or causes injury to another driver, it can become a product liability issue.    Both of these costs are examples of an external failure cost, meaning a cost of correcting a quality failure that is detected while the product is external to the company, i.e., in the customer’s possession.

All three of these cost categories, prevention, appraisal, and failure costs, are what make the sum total of cost of quality.

Here’s a chart taken from the first chapter of their book which shows the relationship between the Sigma level of a company’s processes, what this translates into in terms of number of defects, and what the cost of quality is to create that sigma level expressed in terms of the percentage of sales revenue.

Note that, for each increase in sigma level, the cost to a company of nonconformance, what we have been calling, the “cost of quality”, gets reduced by about 10%, meaning that the net income of a company increases about 10% for each Sigma level.

So if you ask why so many companies put effort into raising their sigma level, the above chart tells the story:   because it is one of the most readily available ways for any company to increase its income.   So rather than asking a company why it is incorporating Six Sigma methods in its manufacturing and/or commercial processes, the better question is, why isn’t a company doing it?    Now just because it is readily available, doesn’t mean that is it easy.   Jack Welch, the CEO of GE for 20 years from 1981-2001, said that incorporating Six Sigma into GE’s processes was one of the most difficult “stretch goals” the company had ever undertaken.   But it definitely ended up being one of the most rewarding.

The next post starts the material in the second chapter, where we open up the mysterious black box of the “Six Sigma process” and look at what lies inside.

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In their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Ikil Harry, Ph.D., and Richard Schroeder describe what Six Sigma is, namely a performance target, but they first disabuse the reader from some common notions that exist about what Six Sigma is.

False Notion #1:   Six Sigma describes an organization.   To say such-and-such company is a Six Sigma company may be misleading.   It probably means that the company’s industrial processes and commercial processes are operating at the Six Sigma level.

False Notion #2:   Six Sigma describes a product.   To say such such-and-such product is a six Sigma product may imply that it is relatively free of defects.

However, to use the most narrow, technically correct definition, Six Sigma ultimately specifies a performance target for a single critical-to-quality characteristic of a product.   It is stated in terms of “defects per million opportunities”.   What does the word opportunities mean in this context?    Basically, the more complex a product is, the greater the likelihood a defect will exist somewhere within the product because a) the product will contain more parts that in themselves may contain defects, and b) the parts of the product will be connected to each other in ways that may be defective.   So rather than saying an automobile is Six Sigma, it is technically more correct to say the average opportunity for a defect within a product is Six Sigma.

What is the difference between three Sigma and six Sigma?   In a terrific analogy, let’s say your house was flooded and the receding flood waters left mud on the carpet of your 1,500-square-foot home.   If the company you hired to clean the carpet operated at a three Sigma level, then it might leave as much as a four square-foot space in the carpet covered with mud–something bound to be noticed.  However, at the six Sigma level, the area of the carpet covered with mud would only be the size of a pinhead, and virtually invisible.

In another analogy that hits closer to home for business travelers, the airline industry’s record in getting passengers safely from one city to another exceeds Six sigma, but its record in getting those passengers’ bags safely to the same destination is closer to between 3.5 to 4 sigma (i.e., between 0.6 and 2.3% defect rate).   This is the difference between the high Sigma level of a complex manufacturing process that creates the airplane itself and the service operation that transports the baggage carried in the airplane.

The Sigma level affects the company’s bottom line because it effects the cost of quality that the company spends in its manufacturing or industrial processes.   The next post discusses this topic, which once understood, explains why in turn the Sigma level of a company’s processes is of such vital importance.

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In Six Sigma, you figure out which processes are causing defects, you then go to the root causes of those defects and change the processes in order to eliminate them.   That is the Six Sigma program in a nutshell.

This post talks about what a process is.   How is it defined?    A process, according to the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Ikel harry, Ph.D., and Richard Schroeder, is defined as follows:

a process is any activity or group of activities that a) takes an input, b) adds value to it, and c) provides an output to an internal or external customer.   

There are two kinds of processes:   industrial processes which depend on machinery for its creation and require the processing of physical materials, and commercial processes, which depend on human activities.   No company has only industrial processes, because those activities such as the ordering of the physical materials, or the processing of customer orders, support the industrial processes but are not themselves industrial because they involve people, and not machines.

Both need to be taken into account in Six Sigma, but there is one categorical difference between the two.   There is a lot more variability and unpredictability when it comes to humans as compared to machines, so commercial processes are more difficult to tame under the tutelage of Six Sigma.    But commercial processes do yield, nonetheless, to improvement using Six Sigma, as long as one understands this.

Most processes of course, have other processes as inputs and have other processes as outputs, so isolating which process is the one that is causing the problem is part of the detective work that is involved in Six Sigma.   In many cases, Six Sigma may not only alter a process, but it may eliminate it altogether as being unnecessary because it is not adding value.   The adding value is an important defining virtue of a process and when it doesn’t add value, Six Sigma will seek to eliminate it.

The next post deals with how improving an organization’s processes can sometimes improve the organization itself.

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In the very first chapter of the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Ikel Harry, Ph.D., and Richard Schroeder, the origins of Six Sigma are related and this post is a summary of that portion of the chapter.

It was born in 1979, when an executive named Art Sundry complained about the bad quality of products made by Motorola, and the search into the root causes was started.    At a time when the conventional wisdom was such that increasing quality of one’s products would increase costs, Motorola took hold of the fundamental insight of Edward Deming, who believed the opposite, that improving quality would actually reduce costs.    Correcting poor quality, it was estimated, was causing Motorola to spend anywhere from 5 to 10 percent of its annual revenues on average, and with some products, that figure climbed to 20 percent.

The first focus was on trying to achieve quality by detecting defects on the manufacturing assembly line and then repairing them.  However, an engineer in their Communications Sector named Bill Smith proposed in 1985 that a product should be designed to be defect-free from the very start.   In the language of Six Sigma, detecting and repairing defects would only lead Motorola to the four Sigma level, putting it only slightly higher than the average American company.    To achieve a higher rate of quality, Motorola would have to take to heart Bill Smith’s ideas of designing in quality.

Within four years, Six Sigma ended up saving the company $2.2 billion, and it was operating at nearly six Sigma in many of its manufacturing operations.    With such an impressive achievement accredited to the Six Sigma program, it began to spread to other industries within the manufacturing sector, and then beyond to other divisions than just manufacturing.

So why did Six Sigma spread like wildfire?   Because of the wildly successful results it produced!

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Ever since July, with a full-time job and other responsibilities, I have not given myself time for reading anything inspirational.   However, I get regular e-mails from the Integral Life website, a website devoted to Integral Theory, the philosophy of great synthetic power made popular by Ken Wilber.

Periodically I would get e-mails regarding a podcast by Jeff Salzman called The Daily Evolver, and I resolved that some day I would take time out to listen to one of them.   I didn’t have time to read about integral theory, I thought, but I could at least listen to a podcast, especially during my commute or other times when I am occupied with going from point A to point B and need something to occupy my mind during the journey.   But I kept putting it off until recently when there was a topic which grabbed myself and so I listened to one of them and … I was hooked!

I decided to go back and listen to all of the podcasts that were available from the very beginning.

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.

They have, in fact, inspired me to do something I said I didn’t have time to do, namely, read more about integral theory.   I am now reading A Brief History of Everything, and introduction to integral theory written by Ken Wilber in a breezy, conversational style.   And how did I find the time?   I made the time, which you can always do if you are passionate about something.

And that passion was rekindled by Jeff Saltmann and his Daily Evolver podcast, for which I am very grateful.   It gives a zest to life to be able to see life from a 10,000 foot altitude and then drop down into its midst again, recharged by the expansive vision you have just seen of the surrounding landscape.

So if you want a chance to see how integral theory illuminates everything from the exterior world of politics to the interior world of psychology, then listen to The Daily Evolver.

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In the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Mikel Harry, Ph.D., and Richard Schroeder, the first chapter asks the basic question of “Why Six Sigma?”, in other words, why are companies adopting Six Sigma.

Six Sigma is a tool for improving the quality of a product, service, or result.    However, the definition of quality under Six Sigma is somewhat expanded from the traditional definition.

Quality consisted of conformance to a certain standard, so if your product fell within certain specification limits, your product had an acceptable level of quality.

However, the expanded definition of quality used in Six Sigma includes three new categories:

1. Economic worth
2. Practical utility
3. Availability

Each of these factors in a product make customers want to purchase them.

1.   Economic Worth

This means producing a high-quality good or service at the lowest possible cost.    There is a difference between quality and grade, where a Volkswagen is expected to not have the same luxury features as an Audi, but both vehicles are expected to not require a lot of repairs.    What Six Sigma does is it lowers the cost to the producer so that this lower cost can be passed on to the consumer.

2.   Practical Utility

Let me tell you a story of what happened when I worked in Mitsubishi Motors.   I was visiting the manufacturing facility near Nagoya when I was asked if I wanted to be taken on a test drive of the new version of their SUV, the Montero (called the Pajero in Japan).    As I was being whizzed around the test track, I noticed the interior of the car and looked at the various gauges and dials on the dashboard.   I saw one I wasn’t familiar with, and I asked the driver what it was.    “Atarashii desu” he said noncommittally (“it’s new”).   Well, yes, I guessed that much, but I pressed him by asking, “dono tame desu ka?” (what’s it for?). In an almost embarrassed voice, he said it was a “koudokei”, an “altimeter”.    I thought to myself, “an altimeter?  What the hell do we need an altimeter for in a car?”   For about five seconds, I thought to myself, “oh my God!   Mitsubishi Motors has invented a flying car!”   And then sanity intervened, I realized that was extremely unlikely.   But I was still curious.

After the test drive, I asked the driver if this was some feature that the customers had been yearning for.   I don’t know, maybe there are a lot of offroaders who would like to know how far up the mountain they’ve gone and want to know what their altitude is about sea level.    Finally, the driver fessed up by saying that one of the engineers used to work for Mitsubishi Heavy Industries, the division of Mitsubishi that makes aircraft, and thought that an altimeter would like “sugoi” (cool) on the dashboard.

This was a clear case of adding a functionality where there was no thought to category 2 above, that is, of practical utility.   I mean, if you see the altimeter falling rapidly, chances are that there will be visual clues that will make this redundant, like the scenery passing upward past your windshield as you are falling off of a cliff.    So it was a valuable lesson on how adding functionality may not necessarily mean adding quality, especially if that functionality is not something that customers are clamoring for.

To create quality in terms of a product or service, the company must match its technical requirements to the customers requirements, and then focus on creating quality processes that make a product easy to use, not just during the “honeymoon” period of its first use, but during the entire expected life cycle of the product.     These three elements of practical utility can be summed up with the familiar phrase “form, fit, and function”.    “Form” means that it is pleasing to the driver’s interior (i.e., his senses), “fit” means that the parts meld smoothly into the product as a whole, and “function” means that it fits with the driver’s exterior behavior (driving pattern, etc.).

3.  Availability

The principle of availability, and it applies not only to a new product, but a product during its entire life-cycle.   If your car needs repairs, you need to know that parts will be available when you need them.

The Six Sigma process shows how well products perform and how well services are delivered, and then it shows how companies can improve processes and therefore improve both of these aspects, as well as decreasing the number of defects that appear to the point where they are rare indeed.   This lowers the cost of reworking, inspection and repair and thus the cost of production.  This allows companies to offer those products for lower prices, thus gaining market share.

So increasing quality lowers costs and increases profits–that in a nutshell is why Six Sigma is adopted by more and more companies, and not just those in manufacturing.

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In the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Mikel Harry, Ph.D., and Richard Schroeder, the first chapter asks the basic question of “Why Six Sigma?”, in other words, why are companies adopting Six Sigma.

When you start a project, there are three basic questions to be asked, what, why, and why.   The first “what’ question is “what are we trying to produce?”, whether that turns out to be a physical product, a service, or even an internal or organizational result.  The second question is “why are we trying to produce it?”, and this question is answered from the standpoint of the customer.   In other words, the product of the project is something that customers will want.   And if we produce that product, and customers are happy with it, that will benefit the company by … making money.   This is the other answer to the question “why are we trying to produce it?”, but this time it is answered from the standpoint of the company.   You are trying to produce the product in order to make money.

To Jack Welch, Six Sigma is ultimately not about numbers, but about values, in particular, those values of employee satisfaction and customer satisfaction which in turn generate cash flow and market share for the company.    In other words, you need to create metrics that can be measured in the Six Sigma process, metrics that correlate strongly with the values you are trying to instill in the product and the process which creates it.

Even if you profess to value something, you cannot control the outcomes of your processes to reflect those values until you are able to measure and report on metrics which do give you some degree of control.     Perhaps Galileo Galilei put it best: “Measure what is measurable, and make measurable what is not so.”

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In the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Mikel Harry, Ph.D., and Richard Schroeder, the first chapter asks the basic question of “Why Six Sigma?”, in other words, why are companies adopting Six Sigma.

When you start a project, there are three basic questions to be asked, what, why, and why.   The first “what’ question is “what are we trying to produce?”, whether that turns out to be a physical product, a service, or even an internal or organizational result.  The second question is “why are we trying to produce it?”, and this question is answered from the standpoint of the customer.   In other words, the product of the project is something that customers will want.   And if we produce that product, and customers are happy with it, that will benefit the company by … making money.   This is the other answer to the question “why are we trying to produce it?”, but this time it is answered from the standpoint of the company.   You are trying to produce the product in order to make money.

Where does Six Sigma fit it?   Defects in a product cause customers to be unhappy, and repairing those defects can cost the company money, so defects can negatively impact the reason why you are making the product from both the standpoint of the customer AND the company.   Six Sigma helps reduce those defects, and the “sigma”, which stands for standard deviation, is a measure of the defect rate.

If you were to produce a million widgets, how many defects would correspond to each level of Sigma?   Here’s a chart from the website http://www.isixsigma.com.

The goal is to decrease your defects by increasing your Sigma level.   The companies for whom the authors were consultants were able to report that every company that went up one level of Sigma showed an increase of 20% in their profit margin up to about the 5 Sigma level.   If you are in competition with other companies, you cannot afford to reduce your prices to increase your market share, but you can do so by improving your quality.   So increasing your Sigma level gives you a bigger slice of the market “pie”, and makes each slice richer in calories, I mean, profit.

Most companies start out at about 3 Sigma, which according to the above chart, corresponds to about a 6.7% defect rate.  By implementing Six Sigma techniques, most companies can improve about 1 Sigma level per year up until about the 5 Sigma level (4.7 to 4.8 to be exact).

What happens then?  Well, it’s not a brick wall, but it is a wall nonetheless.  What happens is that the “low-hanging fruit” that was picked at the earlier stages of improvement are no longer available.   Further improvements require redesigning processes, and this is where a company has to begin being selective about what to improve, because this redesigning process takes quite a lot of time and effort.    Since the cost of improving the Sigma level goes up, the profit margin is not as dramatic as in the earlier stages.   But for those companies with the vision and patience to carry the process forward, there is reward in terms of increased market share.

Achieving actually Six Sigma level, corresponding to a minuscule level of defect (0.00034%), is not necessary for most products, although in some areas like aircraft production, since the financial consequences of a defect can be great, such levels are not only attainable but desirable.

For most companies, even going from 3 to 5 Sigma, which is the easier part of the uphill climb on Mount Quality, the results can be a 40% increase in profit margins.   And if you take that and add the increased customer satisfaction which translates into higher market share, you get the two answers to the question of “Why Six Sigma”–because it benefits the customer AND the company.

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