Introduction To Six Sigma - English

Introduction to Six Sigma 15 October 2004 Note: This report is a general introduction to Six Sigma intended for Vietnamese companies and is for guidance purposes only. The assistance that Mekong Capital provides to companies in which the Mekong Enterprise Fund invests includes assisting companies to strengthen their capacity for ongoing process improvement. Mekong Capital employs Six Sigma Black Belts who are responsible for assisting companies in this area.

1. What is Six Sigma? 1.1 Definition Six Sigma is a statistically-based process improvement methodology that aims to reduce defects to a rate of 3.4 defects per million defect opportunities by identifying and eliminating causes of variation in business processes. In defining defects, Six Sigma focuses on developing a very clear understanding of customer requirements and is therefore very customer focused. The Six Sigma methodology is based on a concept called DMAIC: Define, Measure, Analyze, Improve, and Control. For more on this, please see section 3 of this report on DMAIC. Six Sigma is not a quality management system, such as ISO-9001, or a quality certification system. Instead it is a methodology for reducing defects based on process improvement. For many Vietnamese companies this means that instead of focusing quality initiatives primarily on checking products for defects, the focus is shifted towards improving the production process so that defects don’t occur.

1.2 Key themes in Six Sigma Some of the key themes of Six Sigma can be summarized as follows: o Continuous focus on the customer’s requirements; o Using measurements and statistics to identify and measure variation in the production process and other business processes; o Identifying the root causes of problems; o Emphasis on process improvement to remove variation from the production process or other business processes and therefore lower defects and improve customer satisfaction; o Pro-active management focusing on problem prevention, continuous improvement and constant striving for perfection; o Cross-functional collaboration within the organization; and o Setting very high targets.

1.3 Six Sigma levels “Sigma” means standard deviation and therefore Six Sigma means six standard deviations. Sigma Level One Sigma Two Sigma Three Sigma Four Sigma Five Sigma Six Sigma

Defects per Million 690,000.0 308,000.0 66,800.0 6,210.0 230.0 3.4

Defects as Percent 69.0000% 30.8000% 6.6800% 0.6210% 0.0230% 0.0003%

The objective of Six Sigma is only 3.4 defects (or errors) out of every million defect opportunities. This translates into 99.99966% perfection. Since most private manufacturing companies in Vietnam are currently around Three Sigma or even lower in some cases, a process improvement project using Six Sigma principles may initially aim at Four Sigma or Five Sigma, which would nonetheless result in significant defect reduction.

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An important clarification is that Six Sigma measures defect opportunities and not defective products. The more complex a product, the more defect opportunities it has. For example, there are more defect opportunities in an automobile compared to a paper clip. Below is an example of counting the number of defect opportunities in the production of wooden chairs: Company A is producing 5 orders for customer, each order has one wooden chair item (5 units). Opportunity per wooden chair item is clarified as follows: o The chair was made by correct material? (1 opportunity) o Moisture content of wood is within the standard (1 opportunity) o The chair was made in correct size? (1 opportunity) o The chair has no damage? (1 opportunity) o Correct finishing is applied (1 opportunity) o Correct packaging method is applied (1 opportunity) Total number of defect opportunities = Units x Opportunities = 5 x 6 = 30 opportunities

1.4 Focus on Causes of Variation

From the Six Sigma view, a business process is normally represented in terms of Y=f(X’s), in which the Outputs (Y) are determined by some Input variables (X’s). If we suspect that there is a relationship between an outcome (Y) and potential causes (X’s), we must collect and analyze data by using some Six Sigma testing tools and techniques to prove our hypothesis. If we want to change the outcome, we need to focus on identifying and controlling the causes rather than checking the outcomes. When we know enough and have good control of the X’s we can accurately predict Y. Otherwise, we have to focus our effort on Non Value-Added Activities like inspection, testing and reworking.

1.5 Process Improvement

Six Sigma aims for processes to be improved so that problems don’t recur instead of just finding short term solutions to the problems. Only when the cause of the variation, as defined in the previous section, has been identified, can the process be improved so that the variation doesn’t recur in the future. For example, if a wood product manufacturer in Vietnam is experiencing slow cycle time at the semi finishing assembly quality checking station because they are getting defective parts from sanding and grinding workshops and have to rework them: • Typical Solution: Rebalance the line by allocating more workers to do checking and reprocessing. • Six Sigma Solution: Investigate and control key inputs to prevent defects from occurring in the first place. This may include unclear machine calibration procedures, unclear sanding-grinding quality working instructions, insufficient supervision skills of team leaders, lack of wood quality checking process at the cutting workshop, etc. In another example, if a plastics company is producing products that don’t consistently meet the customers’ specifications on the color of the product: • Typical Solution: Adjust the color mixing formulas in use by using a trial-and-error effort. • Six Sigma Solution: Determine mixing process inputs which result in incorrect colors in finished products and then control those. These inputs might include raw material supplier, clarity of the formula instructions, system for generating and testing the mixing formulas, calibration of mixing equipment, ability of operators to follow instructions, etc.

1.6 Measurements and Statistics Building new measurement systems (metrics) and then asking new questions is an integral part of Six Sigma methodology. To improve results, a company needs to identify ways to measure variation in business processes, generate statistics based on those measurements and then use those statistics to ask new questions about the sources of quality problems relating to its products, services, and processes.

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1.7 Six Sigma is not just about manufacturing

Although Six Sigma is most commonly used to reduce defects in the manufacturing process, the same methodology can be used to improve other business process. For example, it can be used to o identify ways to increase production capacities of equipment; o improve on-time-delivery; o reduce cycle time for hiring and training new employees; o improve sales forecasting ability; o reduce quality or delivery problems with suppliers; o improve logistics; o improve quality of customer service; etc.

1.8 Worldwide use of Six Sigma Six Sigma invented by Motorola in the 1986 and popularized by General Electric (GE) in the 1990’s. Organizations including Honeywell, Citigroup, Motorola, Starwood Hotels, DuPont, Dow Chemical, American Standard, Kodak, Sony, IBM, Ford have implemented Six Sigma programs across diverse business operations ranging from highly industrial or high-tech manufacturing to service and financial operations. Although not yet widespread in Vietnam, several foreign invested manufactutring companies in Vietnam such as American Standard, Ford, LG and Samsung in Vietnam have introduced Six Sigma programs. In a recent survey conducted by DynCorp1: o Around 22% of the companies surveyed in the U.S. have a Six Sigma program in place; o 38.2% of companies with Six Sigma programs were service companies, 49.3% were manufacturing companies and 12.5% were other companies; o Six Sigma was rated significantly more highly than other quality management systems and process improvement tools in terms of achieving the greatest results (however, Six Sigma also includes some of the tools which are listed separately in the survey). Which quality management systems process improvement tools have yielded the greatest results? Six Sigma 53.6% Process mapping 35.3% Root cause analysis 33.5% Cause-and-effect analysis 31.3% Lean thinking/manufacturing 26.3% Benchmarking 25.0% Problem solving 23.2% ISO 9001 21.0% Process capability 20.1% Statistical process control 20.1% Performance metrics 19.2% Control charts 19.2% Process management 18.8% Project management 17.9% Customer-driven processes 17.9% Design of experiments 17.4% Failure mode and effects analysis 17.4% Mistake-proofing 16.5% Poka-Yoke 16.5% Process reengineering 16.1% Change management 14.7% Total Quality Management (TQM) 10.3% Variation measurement 10.3% Malcolm Baldridge criteria 9.8% Workflow analysis 9.8% Decision making 8.9% Trend analysis 8.0% Management by fact 6.7% 1

http://www.qualitydigest.com/feb03/articles/01_article.shtml

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Setup reduction Knowledge management Work breakdown structure

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6.7% 5.8% 3.1%

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2. Benefits of Six Sigma 2.1 Reduced production costs By significantly lowering defect rates, the company can eliminate wastage of materials and inefficient use of labor which is associated with defects. This will reduce the cost of goods sold for each unit of output and therefore add significantly to the company’s gross margin or allow the company to sell its products at a lower price in order to generate higher revenues. For example, if a company has a non-reprocessable defect rate of 6%, raw materials costs at 60% of revenues, labor costs equal to 10% of revenues, and a gross profit margin of 20%, a simple analysis shows significant improvements to the gross profit margin resulting from defect reduction as follows:

Defect rate Raw materials / revenue Labor / revenues Depreciation2 / revenues () Gross margin

Current Situation

Some Improvement

6% 60% 10% 10% 20%

3% 58.3% 8% 9% 24.7%

Significant Improvement 0% 56.6% 6% 8% 29.4%

2.2 Reduced overhead costs

By significantly lowering defect rates, and implementing process improvements so that similar defects don’t recur, the company can reduce the amount of time that senior management and middle management spends resolving problems associated with high levels of defects. This also frees up management to focus on more value-added activities.

2.3 Improved Customer Satisfaction

Many private companies in Vietnam have had recurring problems associated with shipping products to customers which didn’t meet customer specifications and therefore caused the customer to be unhappy and sometimes even cancel orders. By significantly lowering defect rates, the company will be able to consistently ship products to customers which strictly meet the customer’s specifications and therefore increase customer satisfaction. Increased customer satisfaction reduces the likelihood of losing orders from customers while increasing the likelihood that the customer will place larger orders with the company. This can mean significantly higher revenues for the company. Furthermore, the cost of acquiring new customers is high so companies those have lower customer turnover will have lower sales and marketing expenses as a percent of total revenue.

2.4 Reduced Cycle Times

The longer it takes for inventory to move through the production process, the higher the production costs since slow moving inventory must be moved, stored, counted, retrieved and faces greater risk of becoming damaged or not meeting specifications. However, with Six Sigma, fewer problems arise during a manufacturing process, which means that the process can consistently be completed more quickly and therefore production costs, especially labor costs per unit produced, are lower. In addition to reducing production costs, quicker turnaround times are often a selling point for many customers who want the product delivered as soon as possible.

2

The reduction in depreciation as a percent of revenues is a result of a higher volume of production from the existing equipment and facilities due to lower defects and reprocessing, as well as reduced machine downtime. Mekong Capital’s Introduction to Six Sigma

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2.5 On-Time-Delivery

A common problem for many private Vietnamese manufacturing companies is a high rate of delayed shipments or deliveries to customers. The variations which can be eliminated in a Six Sigma project can include variations in delivery time. Therefore, Six Sigma can be used to help ensure consistent on-timedelivery.

2.6 Greater ease of expansion

A company with a significant emphasis on process improvement and elimination of the sources of defects will have a deep understanding of the potential causes of problems in expansion projects, as well as systems in place for measuring and identifying the sources of those problems. Therefore problems are less likely to occur as the company expands its production, and if they do occur, they are likely to be resolved more quickly.

2.7 Higher expectations

By aiming for 3.4 defects per million defect opportunities, it allows the company to set high expectations. Higher expectations themselves can lead to higher performance since they reduce the risk of complacency. Furthermore, Six Sigma programs introduce many new measurements which help to discover and monitor recurring problems and therefore create more of a sense of urgency to get those problems resolved.

2.8 Positive Changes to Corporate Culture Six Sigma is as much about people excellence as it is about technical excellence. Employees often wonder how they are going to solve a difficult problem, but when they are given the tools to ask the right questions, measure the right things, correlate a problem with a solution and plan a course of action, they can find solutions to the problem more easily. Therefore, with Six Sigma, the company’s corporate culture shifts to one that includes a systematic approach to problem solving and a pro-active attitude among employees. Successful Six Sigma programs also contribute to the overall sense of pride of the company’s employees. Six Sigma transforms the way a company thinks and works on major business issues: o Process design: Designing production processes to have the best and most consistent outcomes from the beginning. o Variable investigation: conducting studies to identify what the variables cause variation and how they interact with each other. o Analysis and reasoning: using facts and data to find the root causes of variations, instead of educated guesses or intuition. o Focus on process improvement: focusing on process improvement as key to excellence in quality. o Pro-activeness: Encouraging people to be pro-active about preventing potential problems instead of waiting for problems to occur. o Broad participation in problem solving: getting more people involved in finding causes and solutions for problems. o Knowledge sharing: learning and sharing new knowledge in terms of best practices to speed up overall improvement. o Goal setting: aiming at stretch goals, instead of “good enough” targets, so that the company is constantly striving for improvement. o Suppliers: cost is not the only criteria for vendor evaluation, but relative capability to consistently provide quality materials with the shortest lead time. o Data-based decision making: Decisions are made based on critical analysis of facts and data. However, this does NOT mean it will negatively impact to a company’s ability to make quick decisions. In contrast, by smoothly applying the DMAIC principles, the decision makers are more likely to have the data they need in order to make well informed decisions.

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3. DMAIC Roadmap The DMAIC methodology is central to Six Sigma process improvement projects. The following phases provide a problem-solving process in which specific tools are employed to turn a practical problem into a statistical problem, generate a statistical solution and then convert that back into a practical solution.

3.1 Define (D) The purpose of the Define phase is to clearly identify the problem, the requirements of the project and the objectives of the project. The objectives of the project should focus on critical issues which are aligned with the company’s business strategy and the customer’s requirements. The Define phase includes: o define customer requirements as they relate to this project. Explicit customer requirements are called Critical-to-Quality (CTQ) characteristics; o develop defect definitions as precisely as possible; o perform a baseline study (a general measure of the level of performance before the improvement project commences); o create a team charter and Champion; o estimate the financial impact of the problem; and o obtain senior management approval of the project Key questions: o What matters to the customers? o What Defect are we trying to reduce? o By how much? o By when? o What is the current Cost of defects? o Who will be in the project team? o Who will support us to implement this project? The most applicable tools at this phase are the following: o Project Charter - this document is intended to clearly describe problems, defect definitions, team information and deliverables for a proposed project and to obtain agreement from key stakeholders. o Trend Chart - to see (visually) the trend of defect occurrence over a period of time. o Pareto Chart - to see (visually) how critical each input is in contributing negatively or positively to total output or defects. o Process Flow Chart - to understand how the current process functions and the flow of steps in current process.

3.2 Measure (M)

The purpose of the Measure phase is to fully understand the current performance by identifying how to best measure current performance and to start measuring it. The measurements used should be useful and relevant to identifying and measuring the source of variation. This phase includes: o identify the specific performance requirements of relevant Critical-to-Quality (CTQ) characteristics; o map relevant processes with identified Inputs and Outputs so that at each process step, the relevant Outputs and all the potential Inputs (X) that might impact each Output are connected to each other; o generate list of potential measurements o analyze measurement system capability and establish process capability baseline; o identify where errors in measurements can occur; o start measuring the inputs, processes and outputs and collecting the data; o validate that the problem exists based on the measurements; o refine the problem or objective (from the Analysis phase) Key questions: o What is the Process? How does it function? o Which Outputs affect CTQ’s most? o Which Inputs affect Outputs (CTQ’s) most? o Is our ability to measure/detect sufficient? o How is our current process performing? o What is the best that the process was designed to do?

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The most applicable tools at this phase include the following: o Fishbone Diagram – to demonstrate the relationships between inputs and outputs o Process Mapping - to understand the current processes and enable the team to define the hidden causes of waste. o Cause & Effect Matrix - to quantify how significant each input is for causing variation of outputs. o preliminary Failure Mode & Effect Analysis (FMEA) - using this in the Measure phase helps to identify and implement obvious fixes in order to reduce defects and save costs as soon as possible. o Gauge Repeatability & Reproducibility (GR&R) - used to analyze the variation of components of measurement systems so minimize any unreliability in the measurement systems.

3.3 Analyze (A) In the Analyze phase, the measurements collected in the Measure phase are analyzed so that hypotheses about the root causes of variations in the measurements can be generated and the hypothesis subsequently validated. It is at this stage that practical business problems are turned into statistical problems and analyzed as statistical problems. This includes: o generate hypotheses about possible root causes of variation and potential critical Inputs (X’s); o identify the vital few root causes and critical inputs that have the most significant impact; and o validate these hypotheses by performing Multivariate analysis. Key questions: o Which Inputs actually affect our CTQ’s most (based on actual data)? o By how much? o Do combinations of variables affect outputs? o If an input is changed, does the output really change in the desired way? o How many observations are required to draw conclusions? o What is the level of confidence? The Analyze phase offers specific statistical methods and tools to isolate the key factors that are critical for a comprehensive understanding of the causes of defects: o Five Why’s - use this tool to understand the root causes of defects in a process or product, and to penetrate through incorrect assumptions about causes. o Tests for normality (Descriptive Statistics, Histograms) – this is used to determine if the collected data is normal or abnormal so as to be properly analyzed by other tools. o Correlation/Regression Analysis - to identify the relationship between process inputs and outputs or the correlation between two different sets of variables. o Analysis of Variances (ANOVA) - this is an inferential statistical technique designed to test for significance of the differences among two or more sample means. o FMEA (Failure Mode and Effect Analysis) - applying this tool on current processes enables identification of sufficient improvement actions to prevent defects from occurring. o Hypothesis testing methods - these are series of tests in order to identify sources of variability using historical or current data and to provide objective solutions to questions which are traditionally answered subjectively.

3.4 Improve (I)

The Improve phase focuses on developing ideas to remove root causes of variation, testing and standardizing those solutions. This involves: o identify ways to remove causes of variation; o verify critical Inputs; o discover relationships between variables; o establish operating tolerances which are the upper and lower specification limits (the engineering or customer requirement) of a process for judging acceptability of a particular characteristic, and if strictly followed will result in defect-free products or services; o optimize critical Inputs or reconfigure the relevant process. Key questions: o Once we know for sure which inputs most affect our outputs, how do we control them? o How many trials do we need to run to find and confirm the optimal setting/procedure of these key inputs? o Who should the old process be improved and what is the new process?

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o

How much have Defects Per Millions Opportunities (DPMO) decreased?

The most applicable tools at this phase are: o Process Mapping - this tool helps to represent the new process subsequent to the improvements. o Process Capability Analysis (CPK) - in order to test the capability of process after improvement actions have been implemented to ensure we have obtained a real improvement in preventing defects. o DOE (Design of Experiment) - This is a planned set of tests to define the optimum settings to obtain the desired output and validate improvements.

3.5 Control (C)

The Control phase aims to establish standard measures to maintain performance and to correct problems as needed, including problems with the measurement system. This includes: o validate measurement systems; o verify process long-term capability; o implement process control with control plan to ensure that the same problems don’t reoccur by continually monitoring the processes that create the products or services. Key questions: o Once defects have been reduced, how do we ensure that the improvement is sustained? o What systems need to be in place to check that the improved procedures stay implemented? o What do we set up to keep it going even when things change? o How can improvements be shared with other relevant people in the company?

Most applicable tools at the Control phase include: o Control Plans -t his is a single document or set of documents that documents the actions, including schedules and responsibilities, that are needed to control the key process inputs variables at the optimal settings. o Operating Flow Chart(s) with Control Points - this is a single chart or series of charts that visually display the new operating processes. o Statistical Process Control (SPC) charts - these are charts that help to track processes by plotting data over time between lower and upper specification limits with a center line. o Check Sheets - this tool enables systematic recording and compilation of data from historical sources, or observations as they happen, so that patterns and trends can be clearly detected and shown.

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4. Six Sigma vs. Other Quality Systems Six Sigma builds upon many of the successful elements of the previous quality improvement strategies and incorporates unique methods of its own. Compared to other quality management and improvement systems, Six Sigma stands out as a methodology for identifying the causes of specific quality problems and solving those problems. Six Sigma can often be used to complement other quality management or improvement systems.

4.1 ISO 9001 4.1.1 ISO 9001 objectives ISO 9001 is a Quality Management System, which includes specialized quality management standards for specific industries. A Quality Management System is a system of clearly defined organizational structures, processes, responsibilities and resources used to assure minimum standards of quality and can be used to evaluate an organizations overall quality management efforts. An ISO 9001 certification assures a company’s customers that minimum acceptable systems and procedures are in place in the company to guarantee that minimum quality standards can be met.

4.1.2 Comparison with Six Sigma ISO 9001 and Six Sigma serve two different purposes. ISO 9001 is a quality management system while Six Sigma is a strategy and methodology for business performance improvement. ISO 9001, with guidelines for problem solving and decision making, requires a continuous improvement process in place but does not indicate what the process should look like while Six Sigma can provide the needed improvement process. Meanwhile, Six Sigma does not provide a template for evaluating an organization’s overall quality management efforts whereas ISO9001 does.

4.1.3 Combining Six Sigma with ISO Six Sigma provides a methodology for delivering certain objectives set by ISO such as: o prevention of defects at all stages from design through servicing; o statistical techniques required for establishing, controlling and verifying process capability and product characterization; o investigation of the cause of defects relating to product, process and quality system; o continuous improvement of the quality of products and services. Six Sigma supports ISO and helps an organization satisfying the ISO requirements. Further, ISO is an excellent vehicle for documenting and maintaining the process management system involving Six Sigma. Besides, extensive training is required by both systems for successful deployment.

4.2 Total Quality Management (TQM) 4.2.1 TQM objectives Total Quality Management (TQM) is a structured system for satisfying internal and external customers and suppliers by integrating the business environment, continuous improvement, and breakthroughs with development, improvement, and maintenance cycles while changing organizational culture. TQM aims for quality principles to be applied broadly throughout an organization or set of business processes.

4.2.2 Comparison with Six Sigma TQM and Six Sigma have a number of similarities including the following: o A customer orientation and focus o A process view of work o A continuous improvement mindset o A goal of improving all aspects and functions of the organizations o Data-based decision making o Benefits depend highly on effective implementation

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A key difference between TQM and Six Sigma is that Six Sigma focuses on prioritizing and solving specific problems which are selected based on the strategic priorities of the company and the problems which are causing the most defects whereas TQM employs a more broad based application of quality measures to all of the company’s business processes. Another difference is that TQM tends to apply quality initiatives within specific departments whereas Six Sigma is cross functional meaning that in penetrates every department which is involved in a particular business process that is subject to a Six Sigma project. Another difference TQM provides less methodology in terms of the deployment process whereas Six Sigma’s DMAIC framework provides a stronger platform for deployment and execution. For example, Six Sigma has a much stronger focus on measurement and statistics which helps the company define and achieve specific objectives.

4.2.3 Combining TQM with Six Sigma Six Sigma is complementary to TQM because it can help to prioritize issues within a broader TQM program and provides the DMAIC framework which can be used to meet TQM objectives.

4.3 Six Sigma and Lean Manufacturing 4.3.1 Lean Manufacturing objectives Lean Manufacturing, also called Lean Production, is a set of tools and methodologies that aims for the continuous elimination of all waste in the production process. The main benefits of this are lower production costs, increased output and shorter production lead times. More specifically, some of the goals include: 1.

Defects and wastage - Reduce defects and unnecessary physical wastage, including excess use of raw material inputs, preventable defects, costs associated with reprocessing defective items, and unnecessary product characteristics which are not required by customers;

2.

Cycle Times - Reduce manufacturing lead times and production cycle times by reducing waiting times between processing stages, as well as process preparation times and product/model conversion times;

3.

Inventory levels - Minimize inventory levels at all stages of production, particularly works-inprogress between production stages. Lower inventories also mean lower working capital requirements;

4.

Labor productivity - Improve labor productivity, both by reducing the idle time of workers and ensuring that when workers are working, they are using their effort as productively as possible (including not doing unnecessary tasks or unnecessary motions);

5.

Utilization of equipment and space - Use equipment and manufacturing space more efficiently by eliminating bottlenecks and maximizing the rate of production though existing equipment, while minimizing machine downtime;

6.

Flexibility - Have the ability to produce a more flexible range of products with minimum changeover costs and changeover time.

7.

Output – Insofar as reduced cycle times, increased labor productivity and elimination of bottlenecks and machine downtime can be achieved, companies can generally significantly increased output from their existing facilities.

Most of these benefits lead to lower unit production costs – for example, more effective use of equipment and space leads to lower depreciation costs per unit produced, more effective use of labor results in lower labor costs per unit produced and lower defects lead to lower cost of goods sold.

4.3.2 Comparison with Six Sigma Both Six Sigma and Lean Manufacturing have unique strengths and they integrate well.

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Lean is more broad in nature since it sets the broad objective of eliminating all waste, and recommends certain processes for achieving that. When the objective is process design, factory layout, waste reduction and the way to accomplish the objectives is known, Lean tools and approaches are recommended. Six Sigma is more focused in nature since it a set of tools for achieving clearly defined improvements, which are likely to help make the company more lean. Six Sigma provides a richer infrastructure and toolset for problem solving especially with unknown causes and solutions.

4.3.3 Combining Lean Manufacturing with Six Sigma It is quite common for companies to combine Lean Manufacturing with Six Sigma in what is sometimes called Lean Six Sigma. The two are quite complementary since Six Sigma is a useful tool for helping to make the company more lean. Likewise, some of the processes often used in lean manufacturing may be the solutions to problems addressed in a Six Sigma project.

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5. Six Sigma Implementation Although the result of Six Sigma projects are desirable by most companies, companies need to carefully consider the implementation process, since Six Sigma requires a very serious commitment by the senior management team as well as other key employees.

5.1 Steps for building Six Sigma capacity within the organization Discover: recognize the need for Six Sigma and explore its potential impact on the company. Decide: senior management approves the Six Sigma initiative, and then defines the purpose and scope of Six Sigma. Organize: establish financial targets; set time lines; train senior executive team and Deployment Champions who are responsible for planning and mechanism building. Initialize: create detailed deployment plans including the numbers of Six Sigma Black Belts and other human resources needed per business unit, training requirements, proposals for Six Sigma project opportunities with estimated cost savings, project review agendas and formats, instructions and systems for individual project benefit tracking and overall expected Six Sigma financial impact versus the current situation. Deploy: train project Champions and Black Belts. Meanwhile, select and execute improvement projects. Sustain: train Six Sigma Green Belts and Process-Improvement Team Leaders to speed up improvements and maintain achievements.

5.2 Critical Success Factors 5.2.1 Senior Management Commitment Implementation of Six Sigma represents a long term commitment. The success of Six Sigma projects depends substantially on the level of commitment by the senior management. General Electric’s success with Six Sigma is due in large part to the role that Jack Welch (former CEO) played in relentlessly advocating Six Sigma and integrating it into the core of the company’s strategy.

5.2.2 Initial Questions to ask before Adopting Six Sigma o o o o

Does the company’s leadership understand and completely behind implementing Six Sigma? Is the company open and ready to change? Is the company hungry to learn? Is the company willing to commit resources, including people and money, to implement this initiative?

5.2.3 Selecting and Training The Right People It is necessary to attract the best people to be involved in the company’s Six Sigma initiative and motivate them by compensation, rewards, recognition and promotion which are linked to performance. Training programs should focus on statistical, analytical, problem-solving skills and leadership skills that help to remove barriers and create initial momentum. Furthermore, getting people excited and motivated about the Six Sigma initiative should be done through training and communication. Everyone in the company should understand how Six Sigma will benefit themselves as well as the company.

5.2.4 Selecting Six Sigma projects Primarily, Six Sigma projects should focus on key problem areas with strategic alignment in terms of high customer satisfaction impact and critical to business success in terms of faster or larger financial return (higher revenues, lower cost, etc.).

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Selecting Six Sigma projects at the beginning is very important and therefore plays a key role in the success of Six Sigma projects. The company should carefully consider the expected impact of the project as well as if there may be easier ways of solving the problem, other than a Six Sigma project.

5.2.5 Managing Six Sigma projects During project execution, it is important to o lead a focus effort in which the project Champion is responsible for conducting a project review, uses his authority to solve cross-functional problems and allocate needed resources. o check for real financial impact (please refer to 5.2.6); o continuously communicate progress to executive leadership and those involved in the projects. o implement effective control plans including such documents as Process Maps, C&E Matrix, FMEA, Control Plan Summary and approved procedure changes to ensure that improvements are maintained. o review the project’s effectiveness at regularly scheduled intervals; o roles and responsibilities of relevant parties should be clearly defined; o conduct regular Six Sigma training to reinforce the initiative throughout the company.

5.2.6 Finance Department involvement The finance department needs to be involved from the beginning of each project to ensure that cost savings are being tracked for each Six Sigma project and actually being reflected in the bottom line. Project baseline and claimed improvements must be strictly verified by finance team. Improvements are converted into dollar amount savings whenever possible and deducted if any cost arises due to the project.

5.3 Costs of Six Sigma Projects Although Six Sigma projects can have many benefits and help the company to save money over the long run, there are also costs associated with Six Sigma projects. They typically include the following: o Direct Payroll - Payroll expenses for individuals dedicated to the Six Sigma project on a full time basis. o Indirect Payroll – The cost of time devoted by senior executives, team members, process owners and others in the implementation of the Six Sigma project. o Training and Consulting – The cost of teaching people Six Sigma skills o Improvement Implementation Costs – The costs of improving the production process to eliminate the sources of variation identified in the Six Sigma project. This might involve new equipment, new software, additional personnel costs for newly formed positions, etc. o Software – Some software such as Minitab Inc.’s Minitab statistical software or Microsoft’s Visio, for generating flow-charts, may also be required. More advanced software tools sometimes include Popkin’s System Architect, Proforma’s Provision or Corel’s iGrafx Process 2003 for Six Sigma.

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6. Definition of Terms Analysis of Variances (ANOVA): A statistical test that allows for comparisons of multiple sources of variation, or effects, to determine if any of these sources significantly affect the variability of the outcome being studied. Black Belt (BB): expert in leading project execution with relevant experience in one or more specific fields; extensive training and strong background in statistics and analysis. A BB will be certified after meeting qualifications specified by the company in term of significant cost savings achievement; effective application of tool and philosophy, analytical skills, project management and team building skills. BB is also responsible for training and coaching Green Belts. Cause & Effect Matrix: A prioritization matrix or diagram that enables selection of those process input variables (X’s) that have the greatest effect on the process output variables (Y’s). The tool is also used to emphasize the importance of understanding the customer requirements. Champion(s): selected senior executives and managers familiar with basic and advanced statistical tools, who allocate resources and remove barriers for Six Sigma projects; create the vision of Six Sigma for the company; develop training plan; select high impact projects; select potential people; construct and improve deployment mechanism; monitor SS project review; recognize people for their efforts and contribution. Check Sheets: Forms or worksheets facilitating data collection and compilation. These are generally used to count different types of defects. Control Plan Summary: a process control document that logically describes the system for controlling processes and maintaining improvements in order to ensure that the company consistently operates its processes such that products meet customer requirements all the times. Correlation Analysis: A statistical method to identify if a relationship exists between the two variables by plotting paired values. To quantify the relationship, a regression line, which is characterized by its slope and intercept, can be drawn through the scatter-plot of the paired data points. The tighter the paired data points fit the line, the stronger the relationship. Critical to Quality (CTQ): Explicit customer requirements (specifications) which if not met are considered defects. Critical Inputs: The vital few factors proven to be primarily responsible for a specified outcome (Y). Defect: Any failure of products or services to meet one of the acceptance criteria of the company’s customers (internal or external). A defective unit may have one or more defects. Defects should always be considered a fail on a pass/fail scale. Defect Opportunity: Any situation in a process which presents a reasonable possibility of causing a defect on a unit of output which is important to the customer. A complex product such as a car has many more defect opportunities than a simple product such as a paperclip. Design for Six Sigma (DFSS): Describes the application of Six Sigma tools to product development and Process Design efforts with the goal of "designing in" Six Sigma performance capability. This can also apply to process redesign efforts at the Improve phase of a Six Sigma project. Design of Experiment (DOE): An efficient method of experimentation which identifies, with minimum testing, those factors and their optimum settings that affect the mean and variation of the outputs. DMAIC: Acronym for a Process Improvement/Management System which stands for Define, Measure, Analyze, Improve and Control. Failure Mode & Effect Analysis (FMEA): A structured approach for preventing defects by documenting failure events, the way in which a process can fail, estimating the risk associated with specific causes, and prioritizing potential problems and their resolution.

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Fishbone Diagram (cause & effect diagram): Also known as a "Fishbone" or "Ishikawa Diagram", a channeled brainstorming tool used for determining root-causes (the bones of the fish) for a specific effect, or problem. Five Why’s: A method used to move past symptoms and understand the true root cause of a problem. It is said that only by asking "Why?" five times, successively, you can delve into a problem deeply enough to understand the ultimate root cause. Gauge Repeatability & Reproducibility (GR&R): A statistical tool that measures the amount of variation or error in the measurement system arising from the measurement device and the people taking the measurement. Green Belt (GB): who current positions are associated with the problem to be solved while performing their regular duties, familiar with basic statistical tools and less intensive in training. Hypothesis testing (T-test, F-test): The process of using a variety of statistical tools to analyze data and, ultimately, to accept or reject the null hypothesis. From a practical point of view, finding statistical evidence that the null hypothesis is false allows you to reject the null hypothesis and accept the alternate hypothesis. A null hypothesis (H0) is a stated assumption that there is no difference in parameters (mean, variance, defects per million defect opportunities) for two or more populations. The alternate hypothesis (Ha) is a statement that the observed difference or relationship between two populations is real and not the result of chance or an error in sampling. ISO-9000: Standard and guideline used to certify organizations as competent in defining and adhering to documented processes. It is mostly associated with quality management systems, rather than quality improvement efforts. Lean Manufacturing: A system of tools for reducing the time from customer order to manufacturing and delivering products by eliminating non-value added activities and waste in the production stream. Lean Six Sigma: The combination of Lean Manufacturing with Six Sigma. Main Effect Plot: A statistical study that samples the process as it operates, and through statistical and graphical analysis, identifies the important variables. Mean: The average data point value within a data set. To calculate the mean, add all of the individual data points then divide that figure by the total number of data points. Non-Value Added Activities: Steps/tasks in a process that do not add value to the external customer such as rework, handoffs, inspection/control, wait/delays, etc. Non-Value Added Waste: Byproducts of the production process which are non-value added. Operating Flow Chart(s) with Control Points: Similar to process flow chart but also highlighting critical areas where control measures are applied. This is a frequently updated document useful as a process control guideline. Pareto Chart: A tool for establishing priorities based on the Pareto principle, also know as the 80/20 rule, which is that 20% of the causes result in 80% of the impact. For example, 20% of the causes of defect opportunities tend to cause 80% of the defect opportunities. The Pareto chart uses attribute data with columns arranged in descending order, with highest occurrences (highest bar) shown first. It uses a cumulative line to track percentages of each category/bar, which distinguishes the 20 percent of items causing 80 percent of the problem. The purpose of this is to prioritize which problems should be solved. Process: A series of activities or steps that create a product or services. Process capability: Ability of a process to produce a defect-free product or service in a controlled manner of production or service environment. Process Capability Analysis: Analysis of the degree to which a process is or is not meeting customer requirements.

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Process Flow Chart: Graphical display of the process flow that shows all activities, decision points, rework loops, and handoffs. This is different from Process Mapping. Process improvement: Improvement approach focused on incremental changes/solutions to eliminate or reduce defects, costs or cycle time. It leaves basic design and assumptions of a process intact. Process Mapping: A step-by-step pictorial sequence of a process showing various process inputs, process outputs and process steps which is a first step toward understanding how those inputs affect the output. This is different from a Process Flow Chart. Project Description: Broad statement defining area of concern or opportunity including impact/benefit of potential improvements, or risk of not improving a process. It includes links to business strategies, the customer, and/or company values. It is provided by senior management to an improvement team and used to develop problem statement and Project Charter. Project Charter: A document that clearly addresses a Six Sigma project scope, target(s), projected financial savings, project Champion, team involved and project timeline, etc. Process redesign: method of restructuring process flow elements eliminating handoffs, rework loops, inspection points, and other non-value-added activities. Quality management system (QMS): A system of clearly defined organizational structures, processes, responsibilities and resources used to assure minimum standards of quality. ISO9000 is a quality management system. Regression Analysis: A statistical technique for estimating a model for the relationship among several variables. It gives us an equation that uses one or more variables to help explain the variation in another variable. Regression Plot: A graphical display used to evaluate the relationship between two or more variables by determining an equation to estimate the interested outcome from knowledge of the input variables. Sigma (σ): The Greek letter used to represent standard deviation in statistics. Six Sigma Level: The performance level with only 3.4 defects per million defect opportunities. Six Sigma: A statistically-based process improvement methodology that aims to reduce defects to a rate of 3.4 defects per million defect opportunities by identifying and eliminating causes of variation in business processes. Statistical Process Control (SPC): Use of data gathering and statistical analysis to monitor processes, identify performance issues, measure variation and capability, and distinguish between common and special cause. This serves as a basis for data-based decision-making for product or service quality maintenance or improvement. Statistical Quality Control (SQC): See Statistical Process Control. SPC charts: Charts which track Statistical Process Control data. Tests for normality (Descriptive Statistics, Histograms): A statistical process used to determine if a sample or any group of data fits a standard normal distribution. Descriptive statistics and histogram tools graphically show the shape of a set of data - where it centers, and how far it spreads out on either side. Time Series Plots: A graphical display often used in process variation studies in which observations (data points) are plotted to show the trend over time. The upper and lower control limits are also included to evaluate the process stability. Total Quality Management (TQM): A structured system for satisfying internal and external customers and suppliers by integrating the business environment, continuous improvement, and breakthroughs with development, improvement, and maintenance cycles while changing organizational culture. Mekong Capital’s Introduction to Six Sigma

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Trend Chart: A graphical display used to show trends in data over time. All processes vary, so single point measurements can be misleading. Displaying data over time increases understanding of the real performance of a process, particularly with regard to an established target or goal. Variables: refers the input factors (X’s) that causes variation of process output. Variation: Change or fluctuation of a specific characteristic, which determines how stable or predictable the process may be; affected by environment, people, machinery/equipment, methods/procedures, measurements, and materials; Process Improvement aims to reduce or eliminate variation.

For more information please contact: Mekong Capital Ltd Capital Place, 8th Floor 6 Thai Van Lung St., District 1 HCMC, Viet Nam Tel. (84 8) 827 3161 Fax: (84 8) 827 3162 e-mail: [email protected] web: www.mekongcapital.com

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