Secrets of the Six Sigma
Many leading companies are embracing the Six Sigma quality measurement system. But what is Six Sigma and how successful is it? By Gillian Bullock
A bid to extend the life of tyres at BHP-Billiton's Saraji Mine in Queensland has saved the mining giant $US350,000.
This project was just one of many undertaken as part of BHP-Billiton's Six Sigma program that goes under the name Operating Excellence.
By applying the Six Sigma philosophy and methodology, the company was able to increase the life of the tyres on its Cat 793 fleet of haul trucks at the mine from 2000 hours to 6000 hours in overburden and 4000 in coal.
Meanwhile, Westpac managed to reduce the time it took in creating manual letters associated with errors in deposit accounts from 22.8 hours to less than three hours a day also using Six Sigma. This project delivered benefits worth $156,000.
The success of this project, along with some 30 others using Six Sigma, has led to Westpac continuing with the program beyond its initial 12-month proof-of-concept period.
Telstra, Commonwealth Bank, BHP-Billiton, American Express and Honeywell are just some of the many companies in Australia turning to the Six Sigma operational excellence methodology.
And according to Vik Kortian, "Six Sigma Master Black Belt" and a Director in the performance improvement group at PricewaterhouseCoopers, some 30 per cent of Australian companies will have taken up the process in the next few years. Kortian estimates that Australia is four to five years behind the US in terms of adopting Six Sigma.
"The current market environment is that you have to be customer focused to be competitive," says Kortian. "No company can afford to overlook Six Sigma or some variation."
So what is Six Sigma and how does it deliver results?
Six Sigma has been around for the best part of 30 years. It was originally developed by Motorola back in 1985 for application in a manufacturing environment.
Since then it has been adopted across a whole range of organisations including non-profit-making bodies.
Today it is a university-accredited course in the US and negotiations are already taking place with local tertiary establishments here.
In the early 1990s, Six Sigma was popularised by General Electric when Jack Welch was at the helm.
Six Sigma is basically a quality management system aimed at eliminating waste and slashing costs, but with a strong focus on the customer.
Sigma in itself is a statistical term that measures how far a process deviates from perfection. It compares the output of a process (what companies do) with customer requirements (what customers really want).
Six Sigma translates to 3.4 defects for every one million actions or 99.99968 per cent accuracy.
For instance, an airline with a near perfect safety record may have their safety processes operating at Ten Sigma, departure/arrival times at Five Sigma, and baggage handling at Four Sigma. Meanwhile their processes for serving hot and flavoursome coffee might be just Two Sigma.
As Graeme Newnham of Six Sigma consultants Destra says, it is important for companies to also focus on the acceptance of Six Sigma's disciplined approach by their people.
"While a Six Sigma program requires a champion - the CEO - the art is providing the tools to staff who can make it happen," says Newnham.
The methodology used in Six Sigma is that you take a business problem and convert it into a statistical problem. When you identify a solution you can then test it statistically.
But Kortian says it's more than just about "being able to crunch numbers and statistics, quality for quality's sake. It is about adding value for the customer".
That was perhaps the image of the exponents of Six Sigma's forerunner Total Quality Management (TQM), which today is enjoying significantly less popularity.
In contrast to TQM, Six Sigma focuses on the softer skills of human resources to develop the future leaders of a company.
Six Sigma works on three levels: the customer level; the process level; and the executive level.
The customer level uses the voice of the customer to identify problem areas in the organisation; the process level views the organisation as a group of processes and concentrates on removing inefficiencies and defects from the bottom up; the executive level is where the measurement focus allows the company's leadership team to make informed decisions.
Honeywell was one of the first companies to adopt Six Sigma in Australia in the mid-1990s. Its program is called Six Sigma Plus and includes Lean, which is focused on eliminating waste.
Lean is an assembly-line manufacturing methodology developed originally for Toyota to eliminate waste.
Indeed most companies operate a combination of Six Sigma and Lean.
"It was a natural extension of quality control and we were just continuing along a journey," says Paul Bardon, Country Manager, Honeywell Australia .
The company instituted a separate organisation within Honeywell that became a functioning group with targets and career paths just like any other part of the business.
"It was made very clear that you should only put your best people into the program as these would eventually be our leaders of change," says Bardon. "If you didn't put your best people in, then you didn't get the necessary traction."
In addition, Bardon says you have to have the right people.
"As it's a highly statistical, process-driven philosophy, you need highly disciplined people who will find it intuitively attractive."
Recently, Honeywell globally decided to merge its Six Sigma Plus operations back into the business.
"Six Sigma is greatly embedded in the organisation and is now part and parcel of our culture."
Motorola coined the terms green belts, black belts and master black belts to signify the level of qualification of its Six Sigma graduates.
In Australia, of Honeywell's 1200 employees, between 300 and 400 would be green belts and some 20 would be black belts.
PwC's Kortian estimates there are only a handful of "true" master black belts in Australia. He says a "true black belt" is someone who has a number of attributes, is considered a key leader of areas of the business and can use their knowledge to effectively teach the tools and methodology of Six Sigma to other black belts and key staff including business unit leaders.
Consequently there is a fair amount of poaching going on as companies adopt Six Sigma.
Training a black belt can cost between $15,000 and $20,000 but that is a small price to pay when you consider the millions of dollars you can save through applying Six Sigma.
"Each black belt should deliver between $500,000 and $1 million of top or bottom line benefits," says Kortian.
At Commonwealth Bank, the company uses Lean alongside Six Sigma in its Commway program.
"It's the best blend for our organisation," says Peter Abbott, Executive General Manager Retail Operations with the bank. "Six Sigma is not purely statistical exercises, they are very much a bridge to create a culture of continuous improvement."
When Commway was introduced 18 months ago Abbott estimates the program was 80 per cent Lean and 20 per cent Six Sigma, but that split has shifted as the company has moved up the value curve.
"Firstly we use Lean tools to look at areas of waste through overprocessing, and [then] we use Six Sigma to make sure the process is robust and rigorous to meet the requirements that are critical to quality for our customers," says Naren Narendran, General Manager, Commway.
While the Six Sigma management system has its critics, its followers appear to be in the majority.
As Honeywell's Bardon sums it up, those who criticise usually do so through a failure of leadership rather than a failure of the philosophy.
Six Sigma includes a project plan known as DMAIC:
- Define: identify the problem;
- Measure: establish metrics to quantify;
- Analyse: figure out what the metrics tell you;
- Improve: craft a solution based on your analysis; and
- Control: find a way to sustain improvements.
Source: Falcon Strategic Group