Sep 27 2010

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The Neglected Law of Six Sigma

I just came back from a consulting engagement at a manufacturing plant. It turns out this plant is the most successful plant of their global enterprise. In the past six years, they have been exceeding improvement targets in productivity and order fulfillment. Even in this economy, they have been turning out record profit in the first two quarters of 2010.

Success, however, has brought new pressure to further improve performance. Because the plant is operating so well, any improvement can directly impact their company performance and bottom line. A question I asked myself is “why would such a successful operation need any sort of consulting when they are already so successful?”

The answer turns out to have something to do with the natural law of business processes.

Let me explain. Let’s look at their order fulfillment process, which is one of their most important metrics. They were at 70% six years ago. A yearly target of five percent improvement has taken them to around 96%, at which point they are now hitting a wall, questioning why that last five percent points of improvement should be so much more difficult. In fact, the basics of Six Sigma can cast light on this problem.

Cpk Sigma level Area under the probability of density function Process Yield Process fallout (in terms of DPMO/PPM)
.33 1 0.6826894921 68.27% 317311
.67 2 0.9544997361 95.45% 45500
1.00 3 0.9973002039 99.73% 2700
1.33 4 0.9999366575 99.99% 63
1.67 5 0.9999994267 99.9999% 1
2.00 6 0.9999999980 99.9999998 0.002

Going from 70% to 96% is going the journey from One to Two Sigma. The law of business processes says that it will require the same level of effort to increase every Sigma level.

Frequently, it is a totally different ball game that requires significant resource investment, skill acquisition, technology advancement and cultural transformation to ramp up each Sigma level.

This manufacturer had been relying on investments in automation equipment and Lean over the past six years, which has successfully progressed them to Two Sigma. In order to achieve Three Sigma, however, a significant process improvement or strategy is needed, one that will need more detailed scientific and statistical tools to help measure their business processes in greater detail, as part of their continuous improvement journey. Without taking these measurements and applying appropriate quantitative methods along with Lean, there is a limitation on how far one can improve, a reality they are now coming to realize.

Does your company set improvement targets of critical business processes by sigma level or simply by incremental percentage points? Does your operation plan resource and technology investment based on the stage of your six sigma journey? How far down the Sigma scale can you travel without implementing the tools to measure in great detail the performance of your business processes?


Permanent link to this article: http://www.apriso.com/blog/2010/09/the-neglected-law-of-six-sigma/


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