The Benefits of Six Sigma
Six Sigma emerged in the 1980s as an innovative approach to process improvement and waste reduction in manufacturing. Now, with a growing group of professionals trained in Six Sigma methodology, it is being implemented in various industries to achieve efficiency and customer satisfaction. To learn more, checkout this infographic created by Rutgers University’s Online Master in Business Administration program.
What is Six Sigma?
Sigma is a statistical symbol for the standard deviation. Six sigma, therefore, pertains to six standard deviations between the mean value of a process and the customer’s specification limit. It also denotes a set of techniques used to improve business processes and minimize product defects. Let’s explore this definition in concrete terms.
If a business runs at one sigma, then the defect rate is 69% with 691,462 defects per million opportunities (DPMO). At two sigma, this drops to 31% or 308,538 per million. At three sigma, it becomes 6.7% or 66,807 per million. These are clearly unacceptably high failure rates. The specific goal of six sigma is to lower the chances that customers will encounter bad products to only 0.00034% or less. This is equivalent to just 3.4 defective units per million.
A Brief History
It all began in the mid-80s when Engineer Bill Smith noticed a correlation between a product’s market performance and manufacturing adjustments. He met with Motorola CEO Bob Galvin who was impressed by his logic. The two develop a quality program called Six Sigma that aims to reach the 3.4 DPMO standard.
The program resulted in tangible success for Motorola. Soon other tech companies like IBM, Kodak, and Texas Instruments became its partners in creating a research institute dedicated to this brand of quality control. By 1996, General Electric CEO Jack Welch launched the program in his company and helped to popularize the techniques on a global scale. Adoption became massive with 75% of quality improvement professionals adhering to its principles by 2011. It is now used not only in manufacturing but also in government, healthcare, education, and the service sector.
The Importance of the Program
The majority of US companies operate at 3s or 4s level. This lack of focus on quality results in wasted revenues. It is estimate that 15-40% of revenues are lost because of failure costs. By vastly reducing defects, Six Sigma is able to save companies valuable time and money. Cycle time can be cut and repair work may be trimmed down substantially. According to estimates, Fortune 500 companies have been able to save $427 billion since 1987 because of its implementation.
Implementing the Program
Prepare by choosing a project, selecting the staff, and training them in the process. Note that Six Sigma professionals are classified into different categories. Executives can align the program with the organization’s vision while Champions can translate this vision into a concrete deployment plan. Green Belts can assist with data collection and analysis. Black Belts can lead problem-solving projects but only a Master Black Belt can train others in the program.
A belt certification may be obtained from employers, professional associations, universities, and specialized institutes. The requirements for completion and length of training depend on the provider. There is no central agency that monitors training or lists the body of knowledge that must be included, though some principles have been widely adopted. The quality of the program will determine the value of certification obtained.
Return on Investment
Training staff is not a trivial matter with costs ranging from $3,000 to $100,000 per person. Yet companies continue to spend on their best and brightest knowing that the investment will pay off. Studies estimate that organizations recoup around $175,000 per project.
GE is an excellent example. In 1997, the company’s annual report stated that $300 was added to revenues after the implementation of Six Sigma. In the first 5 years of the program, stocks rose by $1 per share. Fortune 500 companies spend roughly 0.6% of their revenues on the program and get 5% savings in return. The experiences of Motorola, Allied Signal, Honeywell, and Ford confirm this.
A 2011 survey, 79% of quality improvement professionals agreed that Lean Six Sigma is a highly effective tool in improving efficiency and productivity. The vast majority also concurred that it raised levels of quality in the organization, reduced costs, enhanced competitiveness, and made a positive impact on employee safety. Nearly half saw improved innovation as well.
It is clear from these findings that Six Sigma is a truly remarkable tool that can help organizations achieve their core missions. Although training does require a substantial financial investment, the positive tangible results leave no doubt as to its worth.