Panthera business jargon buster – Lean Six Sigma

In the first of an occasional series exploring the more complex world of business theory and how it relates to finance, Panthera’s second article this week is on Lean Six Sigma.

Reducing the volume of defects in the products that companies manufacture has been at the forefront of business leaders’ minds for decades. Six Sigma is a framework which was conceived to help companies achieve this goal.

Six Sigma is a complex topic which covers the whole process of eliminating defects from the manufacturing process and simultaneously understanding and reacting to the opinions of your customers.

In this article, the Fluere team explains:

• what Six Sigma is,
• what the 5 phases of Six Sigma are, and
• what the process of implementing Six Sigma methodologies into your business looks like.

What is Six Sigma?

Sigma (σ) is a letter in the Greek alphabet. In academia, the letter is used to represent the standard deviation of a population. In the context of manufacturing, sigma indicates the number of defects per million opportunities. This means, how many faulty items, complaints, and refunds you send out per million interactions.

The fewer defects your processes create, the higher your sigma level. Most companies operate at either a 2 or 3 sigma level. This means that they accept anywhere between 67,000 and 307,000 defects per million opportunities.

By using Six Sigma methodologies, you reduce the number of accepted defects per million opportunities. In order to achieve a Six Sigma level, you need to accept no more than 3.4 defects per million opportunities. Six Sigma methodologies provide the guidelines to achieving this high level of accuracy.

In addition to reduce the number of defects you accept, Six Sigma adds an emphasis on understanding the voice of the customer and eliminating the level of variation in your processes. As your Sigma level increases, your costs go down and your customer satisfaction increases.

The history of Six Sigma

The first advocate of Six Sigma was Motorola in the 1980’s. Engineer Bill Smith introduced the idea and began structuring Motorola’s processes around its guidelines.

Other major brands which fully embrace Six Sigma early on were General Electric and Sony. GE even went as far as to introduce a policy whereby nobody would be promoted without first undertaking Six Sigma training.

As time has gone on, more and more companies are adopting Six Sigma into their business rationale. Brands such as Vodafone, Axa, and Barclays have all recognised the value of Six Sigma.

What is DMAIC?

Six Sigma is structured into 5 main phases: Define, Measure, Analyse, Improve, and Control. This provides the step-by-step guide that businesses use to improve their processes.

Define

This is the initial phase where you define the problem which needs addressing. Understanding exactly what the symptoms of a problem are go a long way to identifying the root cause of the issue. Your preliminary project planning is conducted during this phase along with your first contact with the client.

Measure

This stage is based around quantifying the problem that you have defined in the first phase. In order to do this, you must start to measure the quality of the products being produced and/or the initial lead time on the products depending on what your goal is.

This measurement process gives you a reference point to base your progress on. Once your improvements have been put in place, you monitor the success of your progress against these initial readings.

Analyse

This is when your team begin to brainstorm for what might be the root cause of the problems. This phase is like a second analysis phase but, this time, it is less concerned with the symptoms and instead focuses on the source of the issues.

The second part of this stage is coming up with hypotheses in order to determine the root causes of the problems. These hypotheses are then tested and data is taken to prove whether progress was made, and if so, to what extent the implementation helped.

Improve

Once the team has correctly identified the root cause of the problem, this is the stage to develop sustainable solutions to remedy them. During this stage, pilots of the solutions are tested to see if the improvement is viable on a larger scale.

Additionally, more data is collected to reinforce that the solutions are, in fact, helping.

Control

The final stage deals with the issue of sustainability in more detail. How will the processes be continued beyond the implementation stage? Also, is there the possibility that any gains which have been made during the implementation stage will disappear over time?

These are the kinds of questions asked during the Control phase. A plan is now drawn up to monitor the progress of the improvement to see if any changes need to be made in the future.

The DMAIC roadmap

The phases above are used in order, so a roadmap of a Six Sigma improvement process looks like this:

1. The team is presented with a practical problem.
2. This practical problem is then turned into a statistical problem after sufficient data has been gathered.
3. A statistical solution is created as an answer to the statistical problem.
4. The statistical solution is translated back into a practical solution to the initial issue. This is then trialled and implemented fully if effective.

Each individual case will have its own intricacies and challenges which need to be overcome. However this roadmap serves as the standard response to most problems that face manufacturers today.

Roles in Six Sigma

Six Sigma has a unique organisational structure in which every individual can attain a certain role.

Yellow Belt – these people are trained in basic Six Sigma tools and contribute their knowledge to Green Belt and Black Belt-led projects.

Green Belt - these people are trained in Lean Sigma tools and are capable of completing smaller-scale projects by themselves. They can also apply the DMAIC framework mentioned earlier.

Black Belt – these people can lead and manage cross functional projects as well as completing advanced statistical analysis and educating others.

Master Black Belt – these people are full-time leaders, coaches, and mentors. They specialise in teaching people how to effectively apply DMAIC to resolve problems.

Sponsor – these are senior leaders of companies who are looking to embed Six Sigma methodologies into their processes. Their responsibilities involve gaining support from the Six Sigma community to balance their customer, business, and people requirements.

Will Lean Six Sigma work for my company?

Potentially however companies offering the advice on structuring your business processes do charge a lot for their insight. There is additional ongoing cost in ensuring that the rules are followed so that you feel the economic benefit of their implementation.

For support on efficiently running your company finances, please call 01235 768 561 or email enquiries@pantheraaccounting.com.