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Map your process including sub steps. Note areas that require inputs or outputs. Does that alter your diagram? Did you miss a step. Be sure to include those interactions with external teams. What measures you take depend on what kind of project you are doing. What you can afford to measure? Some processes are trickier or more expensive to measure than others.

Even with unlimited resources the spread and center of your process distribution might affect the measures you need — perhaps an average is OK in a normal distribution case but in another you might want to measure the median. Gathering this data can be time-consuming; best to get it right to the level of precision required the first time. No matter what you measure you might want to test your measurement tools. What are the bounds of the case? In this step, analyze the current state value stream map with all the stakeholders in order to gain consensus on the current performance of the process.

Next, the limiting factors, deficiencies, defects and bottlenecks should be identified in the current process. The performance and cost of each limiting factor should be quantified. It is also important to identify the root causes and not the symptoms of the limitations of the current state value stream map. Based on the root causes of the limitations, cost effective solutions should be developed. Finally, the current state value stream map should be amended to reflect the proposed solutions and changes in eliminating the limitations of the process. The total time physically spent on a process.

This is different than the overall time it takes to complete a process step or task in a stream from start to finish because the waste is not built in. This is heavily dependent upon defining your starting point and your end points. In the end, the process owner or the project sponsor are the final rule on when a process begins and ends.

Sales: An example cycle time could be from when a prospect first makes contact with your company and ending when they complete a purchase. Hospital: An example could be from when the patient enters the ER to when they are discharged. How can we cut out, remove, or avoid those wastes we identified? What are the bottlenecks in our process? Is there a way to make that more efficient?

Before implementing the future state value stream map, socialize and gain consensus from all the stakeholders involved. Then, the changes need to be implemented and in that process, the affected procedures, bills of materials and training materials should be modified. Training should be imparted to the staff based on the new procedures and requirements. Finally, the implementation of the changes should be facilitated on a descending priority basis.

The implemented changes should be verified and validated through establishing and measuring performance and cost related parameters using effective key performance indicators. The new standard procedures should be monitored and reinforced on a continuous basis. Sign up in seconds with the buttons below!

Questions, comments, issues, concerns? Please leave a note in the comments below! Question: In order for value flow analysis to be effective, a team must take which of the following steps first? A Define the value stream B Eliminate backlogs in the value stream C Identify overlapping functions in the value stream D Identify specific work practices within the value stream.

I think it was teechnical mistake, so check out please and correct for future users. Thanks for posting this, explained the Value Stream Mapping concept in an easy along with the steps. Also the attached videos are quite insightful. Your email address will not be published. This site uses Akismet to reduce spam. Learn how your comment data is processed.

Value stream mapping is used to: Graphically illustrate the flows of materials and information in a process. It displays the interaction between multiple organizational functions- both manufacturing as well as ancillary functions. Pinpoint the problem areas, inefficiencies, defects, bottlenecks more efficiently as it integrates and maps the information flows, material flows along with the sequence of tasks.

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Manufacturing and Transactional Processes 1. Chapter 4. Measure 5. Chapter 7. Control 8. As we continued to apply Six Sigma to transactional processes such as order management, new business acquisition and integration, accounts payable and accounts receivable functions, we ran into the same technical problems over and over again. The Development of This Book It is interesting to look back on how this book evolved from an idea to the printed volume you now hold.

Different sections of this book have been written over the years in response to common problems faced by Black Belts BBs and Master Black Belts MBBs working in a wide variety of industries. Each individual issue would solicit a single response, sometimes quick and concise, often more extended and building on basic Six Sigma concepts. Over the years, these issues continued to occur and began to cluster into groups with their own characteristics and solutions.

We assembled some of the more extended topics into advanced MBB training courses at the GE corporate training facility in Crotonville, New York, and elsewhere around the globe. Some of the less involved responses were presented at conferences and in a series of articles written for the Six Sigma website, www. We soon learned that the existing Six Sigma body of knowledge required a substantial redesign to address the types of problems in transactional business processes. Click here for terms of use.

It showed that it was still not complete in addressing some of the issues about project selection and managing a portfolio of projects directed toward a bigger problem. For those who have done this, we found we had blank rows in the QFD. When this occurred, it meant we had no deliverables that addressed issues important to the reader audience. These problems clustered into areas related to the implementation of a Six Sigma program rather than the execution of individual Six Sigma projects.

We decided to draw on our years of experience with successful and unsuccessful aspects of Six Sigma implementations at various business units of GE, Bombardier, Air Canada, Bank of America, and government agencies. One of the biggest differences between the two groups of implementations was the level of direction given to the BBs and MBBs from the executive level of the company. We included enough of this material in the book to increase the success of those BBs and MBBs reading it.

While we did not want this book to become a book about implementation, we wanted to include enough of the scaffold of the infrastructure to make you more effective in understanding the logic behind project selection and reporting. Background Required The senior editor and I spent a long time discussing the needs of the practicing BBs or MBBs who have come from a manufacturing background, and are starting to tackle more complex problems using the familiar DMAIC methodology.

We do not spend a lot of ink discussing existing tools, such as t-tests or SWOT analysis, except Preface xi where we use them in an unfamiliar manner. It is not our intention to summarize all the details of topics such as hypothesis testing, the statistical details of alpha versus beta risk, or quantitative risk assessment, but to present the idea at the opportune moment. We assume you know more about Six Sigma than you do about lean manufacturing.

When the results of projects are being presented to the stakeholders and project sponsors, there is sometimes an overemphasis on tool usage. We have learned over the years that emphasizing technical brilliance while neglecting the project management aspects can lead to disaster or project failure. Six Sigma is all about answering questions. Summary of Chapter Contents No one can read a book from cover to cover and remember all the details at exactly the right time during a project.

We have broken up the topics and introduced them in the context of the different phases of a DMAIC project. Each chapter ends with a checklist of questions that are appropriate at that stage. Resist the temptation to skip sections during your project. For example, in transactional projects, we often see project teams accept the vast amount of data that is available to them and charge ahead to the Analyze phase. Chapters 1 and 2 Transactional processes are different from manufacturing processes in many aspects. The data is different, there is little physical inventory and each transaction can be substantially different from the previous one.

There is no best way for businesses to be. The market and your customers will determine which is the best balance for your business. Your business will probably have elements of each for different service and customer segments. The Six Sigma program custodian will be the person who is responsible for setting the direction of the program and reporting on the health and success of the entire initiative.

The program custodian is responsible for designing a robust communication plan that will allow BBs to operationalize elements of the strategic plan and allow the executive to report the success of projects against those goals. The real goal of a successful company is to satisfy its customers. The primary metric is variance to customer want VTW , measured by span. Role and responsibilities are assigned during the project scoping session.

The resistance plan is combined with the stakeholder communication plan. Chapter 5—Measure When you are doing a project, you will always spend much more time in the Measure phase than you plan. Data is never what you expect, and it is never as reliable as purported by its owners.

Consolidated data can be used to hide detail that is important to the customer, but may make some people look bad. Many problems in business occur simply because no one is aware of them using the existing data and reports. The distributions of the data will never be normally distributed.

These deviations from normality make it difficult or impossible to apply the Preface xiii statistical tools covered in basic Six Sigma training. We demonstrate the best tools to examine sets of nonnormal distributions in order to identify the key factors causing customer dissatisfaction. We look at the effect of handling different requests with different priorities as seen in medical triage and preferred customer programs.

Chapter 7—Improve Once you have determined the sources of variation, then there are some solutions and improvement techniques based on lean manufacturing that are easy to apply. Kanban size calculations should be done in the presence of variation in delivery time, risk, and order quantity using Monte Carlo simulations. We also introduce quantitative methods for risk assessment with uncertainty in a similar manner to the Kanban size calculation in Chap. We demonstrate the construction of two models to identify the key steps effecting cycle time for an insurance underwriting process and a medical claims process.

The data are drawn from two successful Six Sigma projects. Appendix B—Process Simulation It is difficult to predict the effects of changes in nonlinear systems and processes. While there are many statistical software packages available, we have selected Minitab as the best compromise between functionality, standardization, and user friendliness. We show the basic interface and introduce the extensive, built in help system of the package.

Alastair K. If this book is a success at helping you with your project, it is only because business leaders have presented me with a variety of fascinating problems. A number of people have been particularly helpful by challenging and encouraging me: Michael R. Frank B. This book is designed to help you determine what you are going to do tomorrow morning.

The improvement projects you have been a part of until now have been focused on manufacturing processes. You have access to a large number of completed projects and have seen the application of a variety of Six Sigma tools. Manufacturing processes are fairly good already, so an improvement project starting with a process that is already at 95 to 99 percent good is typical. The defect reduction is in the form of reduced scrap and rework costs or warranty returns.

Processes that are transactional, such as order management, quote and order preparation, credit checking, mortgage application processing, project scheduling, medical testing, and communication of engineering change notices are dependent on human communication, and are typically very poor to begin with. The good news is that transactional processes can usually be greatly improved with very little capital outlay. This book will help you avoid the traps and dead ends you will undoubtedly meet. Cycle time reduction projects require data analysis you have probably not encountered in your previous DMAIC projects.

A machine breakdown on Monday resulted in an 80 percent reduction of the daily production. For the next few days the management ran the factory at percent capacity to make up for the loss. The machinery and people have also been worked overtime, thereby increasing the probability of another breakdown. On the following four days when the producer delivered a shipment larger than the usual units, the customer was required to pay the workers overtime to clear out the raw material. In this example, the production metrics are reported at the corporate level at the end of each week.

The customers have complained to the senior management about supply problems, while it appears that the production facility met its weekly production target. Business culture can run contrary to the drive for consistent and predictable output. The illusion is that they are focused on the customer by overemphasizing short-term tactics over long-term planning. The best run businesses can best be described as boring. These businesses are run by managers who understand changes in customer demand and their own production capacity.

For a moment consider that you are thinking of buying a house and are shopping for a mortgage. You have approached two different banks and the rates, terms and setup costs are identical for both offerings. The local branches of the two banks will negotiate the deal, gather credit and legal information, send the application to the regional underwriting center where the mortgage will be approved or not, then make arrangement for the transfer of funds to the local branch.

Manufacturing and Transactional Processes 5 There can be a number of reasons why this may proceed smoothly or not, but these do not concern you now. You will probably choose the latter. Introduce the idea of measuring variation and ask the same question. Think of the problems that may occur by having the funds available early.

What would happen if the funds are late? You may not be able to purchase the new house for the agreed price. You may have to carry the costs of the sale before you were ready. It allows you to make your own plans and schedule things to happen at your convenience. Your customers are no different.

A full implementation of lean Six Sigma will drive the business culture toward one where everyone understands the demands of the customers, in terms of quality, features, and especially the timeliness of delivery. This understanding leads to being able to plan your capacity for meeting those demands.

It is not necessary to be able to respond immediately to a customer demand, but being able to accurately predict delivery of service and communicate that to your customers is the key. Now the focus becomes internal, and management concentrates on making optimum use of resources to deliver the service or product. The continuing quest is for constant and never ending improvement. It does not build up physically the way inventory can. It is difficult to assign a value to a unit of work the way you can for pieces of machinery or components awaiting assembly. It is also difficult to translate the effect of missing information at each stage on the overall throughput of the organization as a whole.

You have a lot of discrete data, but not a lot of continuous data. Your data comes from a variety of different information systems. The business processes are widely distributed in location. Performance metrics of workers may be causing the problems you see and resulting in resistance to the project. Your organization spends a huge amount of time dealing with recurring problems, expediting orders, and placating customers. Your organization might be called stable.

It is careful and slow to change with a general aversion to change. It could be called quick and nimble. Rapid changes are required to track constant shifts in competitive environment and customer needs. There is no best way for a company. Rapid change can be unnerving for employees and customers alike; slow bureaucratic organizations can be equally frustrating to deal with. So when the word comes down this is the new initiative, away they go.

Fortune, May 1, Six Sigma was embraced by GE as a clear, data driven methodology for attacking business problems. Six Sigma, lean manufacturing, or any other business initiative requires constant encouragement and guidance by the senior executive. Their endorsement must pervade the career advancement ladder, the hiring, and training programs. Any improvement program will be rooted in identifying and reporting business problems to the people who have the power to change the business processes that caused the problems to begin with.

It took an iron will on his part to tell production to shut down when they had reached their targets for the day. Business improvement programs and others like them take years to fully integrate into the corporate culture. The emphasis of lean and Six Sigma in this book is on the tools for execution of individual improvement projects and not on the wider problem of changing corporate culture.

Instead of thinking of quality as an inspection problem conducted after the fact, it was initiated at the front end of the process and continued throughout the manufacturing process. Analyze A —identify the internal causes of the problems. Improve I —make changes to the product or service to improve it. Control C —put signoffs or monitoring programs in place to ensure the improvements continue. Each project was managed and reviewed at the conclusion of each phase. Jack took to the program completely and applied it across all of GE.

Something that is impressive about the program at GE is how it continues to expand to all parts of the business where customer contact is made. Senior business leaders at GE must have received Six Sigma training and completed a number of projects before advancing in their careers. It pervades all aspects of the business in the same manner as Six Sigma does at GE. The TPS is commonly called lean manufacturing or simply lean by other industries, although lean is a subset of the TPS—an overall business philosophy.

Standardize tasks to facilitate predictability. Use visual control systems to make problems visible. Use reliable technology that serves your people and processes. Develop exceptional people and teams. Respect your extended network of partners and suppliers by challenging and helping them. Go and see the process yourself to thoroughly understand the situation.

Make careful, informed decisions slowly by consensus; implement rapidly. Become a learning organization through reviews and continuous improvement. The book Lean Thinking, addressed the question of how to achieve the results shown by Toyota. Identify and map the value stream for each product. Continuously pursue perfection. The program was instituted by the parent company and they sponsored one person to attend Six Sigma training.

The leadership attended a 1 to 2 day executive orientation session. The VP for quality was the single Six Sigma resource for the company. The VP of operations had attended a conference on lean manufacturing and was very enthusiastic about applying the tools to solve his biggest problem— inventory turns were killing the company in a market where products can take two years to develop and would become obsolete quickly thereafter.

The argument that ensued was whether to use lean or Six Sigma tools to justify the decision. The two toolkits appeared to be mutually exclusive. Womack, Daniel T. Womack and Daniel T. Both leaders tried to convince others in the company that their own methodology was superior to the other, and claimed credit for the project improvements.

A large part of their solution was to merely sell obsolete inventory at a considerable discount. Lean concentrates on the interconnections between the processes Fig. Defect reduction is a central theme in Six Sigma. The root causes of the defects are examined and improvement efforts are focused on those causes. The Six Sigma emphasis Lean emphasis Arrangement of appointment with customer Appointment on time Error free application Complete application forms Application forms to adjudication quickly Fast processing, Risk assessment Processing and adjudication Arrange final appointment with customer Appointment on time Check for errors Sign final forms Minimum rework Account information Release funds Funds on time Figure 2.

The impact of management decisions on shareholder value is always considered. When this level of executive vision is less than perfectly clear to everyone in the company, improvement projects can lack the impact they might have. When a strong credo of data-driven decision making is missing in your corporate culture you must have add two additional aspects to your DMAIC improvement projects. The two extra sections will help you to identify projects with high customer impact and will sustain the gains of adopting a lean Six Sigma culture.

Your projects should be initiated and guided by a Recognize R stage and reported and evaluated as a part of the Sustain S phase Fig. Recognize—Be aware of the need for change. Measure—Gather the correct data. Analyze—Change to a statistical problem. Improve—Develop a practical solution.

Control—Implement the practical solution. During the Recognize phase, they formulate the long-term strategy and communicate the goals of the company on a periodic basis, usually yearly. The financial goals, competitive positions, and long-term market movements are considered. They formulate external performance metrics and goals and turn those into a consistent set of internal performance metrics and goals. MBBs take these internal metrics and goals and drill into the business processes that have the biggest impact on those goals.

They must coordinate the projects of the BBs to align with the yearly corporate goals and choose the best subset of improvement projects on which to concentrate their efforts. They manage the project teams, collect and analyze data, and work with the project team to change the business processes. Project reports, milestones, and metric improvements are shared with the MBBs who consolidate them and report to the executive. Within a single business, new products or services start from individually specialized units, then the business processes evolve to become more efficient, streamlined, and high volume.

Value Stream Mapping | What you need to know for Six Sigma certification.

These types of processes are found in successful custom job shops and are well suited to the changing requirements of each job. On the left side of the horizontal axis in Fig. Hayes and S. Wheelwright, Harvard Business Review, , pp.

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In order to deliver this product, the business must be highly structured where economics of scale result in low unit costs. The off-diagonal regions are where there is a poor product-process match. The lower right corner of Fig. Their present 18 Chapter Two situation is that they have spent a large amount of cash in specialized resources and are not getting sufficient return on their investment.

Accept that their business processes are best set up for only a limited number of products or services, and they should concentrate on only those ones that can be produced with a combination of low margin and high volume. Changes in customer needs must be addressed quickly and efficiently without having to redesign business processes with each service offering. The upper left corner represents businesses that have failed to structure their business environment to be efficient in offering a limited set of services. Many business processes exist to make essentially a single product.

Accept that the business is capable of providing a customized service to the customer. The financial benefit is an increase in net revenue in either case. The impact on the customer is either a drop in price as sales volume increases, or an increase in variety of service offerings. When we were presenting lean Six Sigma to a group of sales and marketing people at a large equipment manufacturing business, their objection was that all customers were different, all product offerings were different, the marketplace changes, and so on.

In other words, they were trying to convince us that there was no standard process and that all sales are driven on the relationship between the salesperson and the customer. Very long cycle times and high costs were the result of the highly specialized, customized products. Each order was different, of course, but each one contained the same type of information.

Some changes in subprocesses were accepted. Not every query from a potential customer required a detailed quote. The sales department was requesting a detailed quote for each potential order. These required weeks of engineering time that was not always necessary. A majority of potential orders were addressed by a sales representative who responded quickly by visiting the customer site with a basic product information booklet.

The sales staff was trained to gather data on existing equipment, timeline requirements, and technical requirements and pass those onto the engineering and sourcing groups when a detailed quote was required. The completeness of the information decreased the cycle time for quote generation. The projects we developed with the sales and marketing teams were centered around the front end of the sales process to provide the most 20 Chapter Two appropriate information to the customer when they expected it. The back end of the sales process and order management had much less of an impact on the customer.

We worked with another business specializing in customized electronic control and communication equipment where each order was considered to be a customized solution. As in the previous example, this required each order to be managed by a product engineer. Cycle times on order-to-shipment dropped from weeks to days. These examples illustrate a general trend—business processes changes lag behind business opportunity changes.

Shareholders should receive a better return on their investment in your company than they could from depositing the same amount of money in a bank and collecting interest. Your company must add enough value to the products and services that the return on investment dividends is even greater. Your business must constantly control and reduce costs associated with production of the services it provides. This means that there will be constant pressure from the stakeholders to move down the Product-Process matrix. Shareholders also expect year-to-year growth in revenue from sales.

This is comparable to the increase in principal that bank customers enjoy. This expectation will result in pressure to move from one-of-a-kind products to higher and higher volumes of more standardized products. Success in the market place is measured by market share. A high market share must mean that customers are willing to pay for your service given the array of choices from your competitors.

Think of some of the more successful service offerings that your business provides. As the service became more accepted, the business processes became more streamlined and automated, with lower costs and resulting in higher sales volumes. Different businesses will have varying numbers and timelines for the evolution and lifecycle of service offerings. Consider operating a world class service for age related cataract operations. This is a service where processes can be highly standardized and costs are fairly constant and predictable. A single ward or even an entire facility can be staffed with dedicated staff with standardized, specialized diagnostic and monitoring equipment, surgical tools, and procedures.

Staff and patients can be scheduled and managed for maximum utilization of staff while providing reliable and high quality service to patients on an outpatient basis. A continuous drive to improve the service is possible given the repetitive nature of the work. Cost management is the key to continued success of the facility. Now consider the opposite end of the spectrum—full service emergency. This facility must be managed to be able to respond to rapidly changing and unpredictable situations that run the full range of health related issues.

The responsiveness comes at the detriment of cost-effectiveness. It would be ludicrous to expect an emergency department to have the capacity to schedule appointments to maximize the utilization of the staff members and physical facilities. If a general hospital attempts to have a single set of business processes to serve two distinct services, then it is doomed to either enormous cost overruns or customer dissatisfaction, perhaps with grave consequences.

The administration of the general hospital has the daunting task of managing a static Product-Process matrix. Budget and staffing requirements will seem grossly unfair to some of the stakeholders in the hospital. The best way to design the different service offerings is to equalize all aspects of risk across all different potential patients. Chapter 3 Recognize 3.


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The overwhelming response to the survey was not that GE should provide things quickly, but rather that the customers merely wanted things to occur when they expected them. Piet van Abeelen, the VP Six Sigma at GE Corporate pushed the idea that minimizing the difference between a promise date and delivery date was more important than reducing the average delivery cycle time. The simple business metric was not a sigma level or the number of defects per million opportunities, but span—the interval that would describe 90 percent of the process output.

By focusing on reducing inconsistent production in Europe, van Abeelen essentially gave GE Plastics the increased production of one extra plastics plant without having to construct it. The success of the project was felt on the part of the GE shareholders and GE customers. Although it was not called lean, the variance based thinking VBT initiative had similar objectives of reducing variation in supply and demand to make for facile accurate prediction of plant capacity.

It is not a panacea for all businesses. It will be one part of the strategic planning process for the business.

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Ideas for individual projects may come from customer surveys, systematic problems that have failed all previous attempts at a solution, a changing marketplace due to changes in technology, customer wants, or entry of a competitor. These may give you a large number of good things to work on, but you should be able to explain the real problems of the business in terms that everyone in the organization will understand. Your company will have a group responsible for strategic planning.

They will usually be at a senior executive level and meet periodically to assess the market, business capacity, and customer needs; then conduct gap analyses to identify areas of improvement and report the results to the board of directors. In some businesses, strategic planning may be restricted only to new product development or marketing. If you are fortunate, then much of this information is available to you from your business leaders. You should be able to talk with them and understand the language.

This chapter is intended to give you an overview of what is involved. A successful business is one that understands and meets the needs of both groups. In order to satisfy them, your company must be able to give them a greater return on their investment than a commercial bank. A common mistake is to assume that this group makes all decisions based on cost. Customers make decisions based on value, not cost.

If that was not the case, everyone would drive the same model of automobile, deal with the same bank, and have the same cell phone plan. Clearly, that is not true. Every customer will assimilate an enormous amount of information before making a purchase. They are focused on quality and value. If you are good at understanding and satisfying your paying customers, then success with the shareholders will follow. The tools outlined below will show how the two groups are related. An earlier Fortune study showed that 70 to 90 percent of strategy failed owing to lack of execution.

Although Fig. Kaplan and David P. Core values What do we believe in? Vision What do we want to be? Strategy Our game plan We enter here Balanced scorecard Implementation and focus Strategic initiatives What do we need to do? Personal objectives What do I need to do? Strategic outcomes What will happen? Figure 3. Objectives Vision and strategy Learning and growth Figure 3. In businesses it can become easy to focus on day-to-day operations with the consequent interval perspective. In the public sector and government, customers could be taxpayers, representatives in government, or managers of government portfolios.

There are two main streams of processes internal to businesses. The value stream is directly associated with the generation of revenue and involves the generation of the service or product. The second stream is composed of the support functions of the business and is usually associated with cost.

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In order to satisfy the customers he wanted to increase customer touch time front office while decreasing the cost involved back office. This single statement had implications to the customers in that they would enjoy greater time with the product and sales representatives of the company and less time with quality assurance, accounts payable, and shipping departments.

Immelt went on to point out how Six Sigma was going to be used to change business processes to achieve this goal. Learning is much more than training. It includes the ability of employees and the organization as a whole to continually explore novel solutions to new problems. This continues as a constant cycle of business and operational planning.

Yearly program planning should center around the evaluation of the effectiveness of the lean Six Sigma implementation. This decomposition is comparable to the phases in a Six Sigma project Fig. Note that the Control phase of lean Six Sigma does not have an explicit corresponding component in the Balanced Scorecard. The presentation of the Balance Scorecard in Fig. Lean Six Sigma projects must show cause and effect relationships with an impact on corporate strategic goals. This must include performance measurements, targets and goals, timelines and tollgates, competitive information, and clearly highlight the most important areas for improvement efforts.

The usual implementation is simply a map showing untested assumptions. If the implementation is not done in a comprehensive manner and incorporated into the strategic planning process, the result may be nothing more than a key performance indicator KPI scorecard. Statistical hypothesis testing may be required to establish these relationships. The QFD is an excellent tool to combine these multiple sets of quantitative data and to quantify the cause-and-effect relationships between corporate goals and individual process improvement efforts.

The layout of the tool shows the links between the needs and goals, and the actions required. The layout is shown in Fig. The metrics of the upper, Corporate QFD must include everything the company is planning to deliver, either in the short- or long-term. The requirements for the engagement are commonly requested; they wanted a small number of high-impact projects that were easy to execute to prove the concept of lean Six Sigma to justify a larger initiative.

The biggest problem was that metrics for the lean Six Sigma implementation were managed separately from other corporative initiatives. By placing lean Six Sigma goals and metrics outside other business initiatives, senior managers would dilute lean Six Sigma improvement efforts to focus on their 32 Chapter Three Figure 3. The resultant competition for business resources resulted in duplication of effort, project resistance, and subsequent failure of the program. Diavik Diamond Mines Inc.

Improvement efforts in all segments of the business would now roll up into the Corporate QFD. Starting at the corporate perspective, the corporate goals flow down to give directions to individual improvement projects. Automatic data feeds from enterprise resource planning ERP systems allow the design of a corporate dashboard for constant monitoring of the results of improvement efforts and programs. Once the QFDs are complete and communicated within the company, employees have the means to see how they can make an impact on the corporate goals.

This organization of business units is in recognition that each operating unit has its own separate group of customers and critical to quality CTQ characteristics and operational risk factors. Scotiabank, for example, has separate sections for each of the three major business units: 1. Domestic banking—retail banking, wealth management, small business, commercial banking 2.

International banking—from operations outside Canada 3. Fluctuating foreign exchange rates, for example, will be a greater factor for the international business unit and lesser for the other two units. Portions of the Learning and Growth QFD may be shared by the human resources departments of each business unit, and should be coordinated by 34 Chapter Three Financial corporate Customer domestic Internal domestic Customer international Customer corporate and investment banking Internal international Internal corporate and investment banking Overlapping learning and growth Figure 3.

This is sometimes referred to as sharing best practices between business units. Recognize 35 Within each business unit, the different parts of the organization will be considered within the internal QFDs. Section 3. Corporate dashboards can be designed to constantly report the performance of the company against targets for any of the metrics in the Strategic Planning QFD.


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The metrics should be consistent across all business units and complete in their strategic scope. The number of metrics and the individual detail will be greater than the few examined by external analysts. We were conducting some Six Sigma consulting with a small business unit that had been recently acquired by GE.

We asked how the sales group were compensated and found that they all had sales revenue targets. We also found out that the proposal hit rate was nearly percent. A quick benchmarking exercise showed that nearly every proposal was accepted because they were priced very low. The sales team still received bonuses, while the problem of driving down costs was now in the hands of manufacturing. The sales team was somewhat aware of the effects on the company, but concentrated on their own metrics.

The result was that the sales team was selling manufacturing capacity below cost and driving the company faster and faster into the ground. Since they previously believed they were the only group in the company that generated income, the sales team was not happy that they thought they might be labeled as the cause of the downfall of the company when they were working hard on delivering and exceeding their sales targets.

There was enormous resistance when we told the sales staff that they would have to turn away business if it did not exceed a minimum margin target. The sales team now had to conduct a commercial review of each new contract above a particular dollar cutoff on a weekly basis. The finance team member would reject those that did not pass the margin cutoffs.

The CEO showed the impact of these new policies on the business as a whole to address the resistance, and the business unit was turned around quickly. Manufacturing, the original focus of the improvement efforts, was left unchanged and was more than capable of handling the workload. Recognize 37 Carlos Gutierrez, when he was CEO at Kellogg, was credited with turning around the cereal giant since The examples in the previous section should emphasize the importance of correctly aligning compensation programs with corporate goals.

The Strategic QFD will be the primary source of the metrics. This is a complex choice— each option has potential pluses and minuses. Their analysis is used by the executive to monitor and guide the performance of the company and to assess the impact of corporate strategy. Their input will be essential in the Financial QFD section. This stays in the business for future operations. Activities will include issuing shares, paying dividends, covering withdrawals by the owners, and issuing bonds and notes. External investors will look more favorably on companies that generate more cash from operations rather than selling capital assets.

It will not distinguish between a company that bills all customers on January 1 and collects all invoices on December 31 from another company that bills and collects throughout the year. Recognize 41 3. Competitors—address market share issues. Industry standards—banks, in general, for example. Heuristic guidelines—return on investment should be better than the open market interest rate. Whether your revenues are larger than your competitors, or whether your expenses smaller than your competitors, they are simple comparisons of the performance of the company in the face of competition.

These comparative benchmarks are not very helpful in the diagnosis of the operations of the company, but may be indicators requiring a more in-depth analysis. Horizontal analysis can reveal changes in market trends and is usually a part of the corporate dashboard. A summary of the last six months of monthly sales data is usually enough to identify nonseasonal trends. A common example of horizontal analysis is the comparative balance sheet or comparative income statement seen in annual reports. It is customary to report absolute changes in addition to percentage changes.

The comparative income statement for SoftCo in Fig. Even though there is a large percentage increase in loss from foreign exchange, the absolute amount shows that it remains as the smallest expense. The cost of sales has increased in , but so has the gross income from sales Fig. It is usually easier to compare different line items from year to year by scaling all the numbers to a percentage of a base amount.

The comparative income statement for SoftCo from Fig. The common size analysis shows that the company has not really radically changed the proportion of income or expenses as it has grown larger. The vertical analysis of Fig. Liquidity and Efficiency—the ability to meet short-term obligations and to effectively generate revenues. A few of the ratios in this group may help in identifying business process areas for improvement projects. Recognize 43 SoftCo Inc. Common-size comparative income statement For years ending Jul 31, and Common-size percentages in thousands Sales , , Solvency—ability to meet long-term obligations and to effectively generate future revenues.

The ratios discussed in this group should show that an increase in the numerator of a fraction has the same effect as a decrease in the denominator. Market—ability to generate positive market expectations. For public companies, the market refers to the people or institutions that purchase or sell stock in the company based on their perception of value and risk. As you begin your project, examine the different ratios discussed here and consider the effects that your potential improvement project may have on all the terms in the ratios. You may also see if you can identify projects based on the different components of the ratios.

Transactional inefficiencies in manufacturing, billing, and collections can lead to problems with liquidity. Since payments made to suppliers and payments received from customers do not coincide in time, a certain amount of cash is always required to allow for the time delay between expenses and income for products or services. Indicators such as cost of sales as a percentage of sales can show how efficient different aspects of the business are. A company needs working capital to meet current debts, carry inventory, pay employees, and take advantage of cash discounts with suppliers.

A company that runs low on working capital is in danger of failing to continue operations. The amount of working capital required depends on the current Recognize 45 liabilities Fig. SoftCo looks like a very good credit risk in the short-term, but the heavy investment in assets may not be the most efficient use of funds. A service company that grants little or no credit and carries little inventory other than office supplies, might function quite well with a current ratio of 1 to 1, while a high-end furniture store might require a higher ratio to be able to accumulate a large enough inventory to stock a large showroom with a large variety of items for its customers.

Cash, cash equivalents, and short-term investments are more liquid than inventory and merchandise. The acid-test ratio or quick ratio is a more rigorous way of testing whether a company can pay its short-term debts. It is important to note that inventory is not included as a quick asset. We need to look at how fast the company can convert inventory into sales and then into cash. Capacity planning and market demand knowledge can be used to improve turnover. Multiplying this ratio by gives the average number of days that cash has been paid out to suppliers, but not yet converted into a saleable article.

In a service company with little inventory, but with a large amount capital outlay for salaries, the collection of cash from customers is critical to the success of the business. Multiplying this ratio by gives the average number of days that a dollar from sales has not been converted into cash. If either of these two assets exists for longer than the reporting period of the company, they must be declared as capital assets.

The last ratio we present includes all assets of the company regardless of the category. When we worked with a GE acquisition See Section 3. We have discussed the latter and will now discuss the former. It shows how sensitive net income is to changes in revenue or costs. Information from the income statement Fig. This ratio is calculated by taking the operating income, also called income before interest and taxes IBIT , divided by net sales or revenue. It is used to evaluate the performance of companies with large amounts of debt and interest expenses.


  • School Spirits (School Spirits, Book 1)!
  • Applying Six Sigma to Your Company’s Pricing Strategy.
  • Teaching and supervising cognitive behavioral therapy.

We start with Equation 3. No Does project impact only a specific contract? No Yes Cost avoidance Does the contract have an existing budget? No Yes Can the contract savings be documented? Yes Does project only impact working capital on the balance sheet? No Does project reduce costs? When processes become lean, the process capability frequently increases owing to less time spend on rework. The purpose of the Recognize phase is to identify the business needs and to articulate the problems in the business. There are three main stages in this phase. You should be able to explain the real problems of the business in terms that everyone in the organization will understand.

Successful business transformations can involve letting go of entire business units that may have made money and good sense only a few years ago. The executive management team and the board of directors should be meeting periodically to identify and commit to a set of objectives for the coming business year at the very least.

Annual reports are a good source of ideas in general, but you will have to drill down to a greater depth of detail to turn strategy into execution. In general, a company should have revenue growth from year to year and be able to consistently deliver a better return on invested capital than rival industries. The senior executive should have a detailed execution plan.

If they come up, go back and focus on the business needs. Imagine standing in front of the shareholders at the annual meeting. The operational leaders of the business will now want to know how you are going to achieve these objectives. If the implementation of lean Six Sigma or other process improvement methodology is large, then this step would explain how you are going to implement an entire program.

This means determining the elements of quality leaders, MBBs and BBs, training, succession planning, reporting structure and infrastructure, project reviews, metric targets, and an extended rollout plan for transforming the company. If your implementation of lean Six Sigma is small, then this step will be a much smaller version of project management that includes limited parts of this large process.

The most important point was that customers did not want things quickly, but wanted them when they expected them. We can illustrate the relationship between cycle time and customer expectations with a service example. The Canadian passport office in Calgary manages a large number of applications each day where the waiting time can be as long as one hour.

An automated system generates a numbered ticket for applicants as they arrive. As passport officers become available, the ID number of the next applicant in the queue is displayed on a display board. If you do not respond within 10 to 15 seconds of your number being displayed, you lose your place in the lineup and must return to the dispenser and get a new ticket Fig.

The most important features of the system, from the viewpoint of the customer, is that the printed ticket shows where you are with respect to other people waiting for service and gives you the estimated time when you will be served. An accurate estimate allows you to plan to go for a cup of coffee, feed the parking meter, or conduct other business in the area.

In the three or four times that the author used the passport office, the estimates were remarkably close. A mature system of managing customers waiting for service requires knowledge of your service time for a variety of service offerings, the time dependence of customer demand, and management of your resources to meet customer demands. The interrelationship between the different components of measuring variance to customer want VTW are shown in Fig. Figure 4. When can I expect to be serviced?

Very few sets of data measuring VTW follow any regular distributions. It was also called the P5-P95 to more precisely specify the width of the distribution between the 5th and 95th percentiles. The span also has much more meaning to customers than defects per million opportunity DPMO or a Sigma level. We will talk much more about the measurement of span and VTW in the Chap. People coming to the airport to pick up incoming passengers would be interested in estimating how much money they should put in their parking meter.

In other words, what you do everyday in the business directly determines what the 60 Chapter Four customers see. A major focus of a Six Sigma project is to establish the mathematical relationship between the defects produced by a business process and the causes of those defects. It is essential that this does not change throughout the project. In this context, a defect always refers to the resultant output of the business process that is unacceptable to the customer.

The enumeration of the defect level involves a measure of capability of the business process to produce a product or service within the LSL and USL as set out by the customer. The calculation of the traditional Six Sigma defect level Fig. There is also a corresponding calculation for discrete defect counts. These calculations mean very little to customers and are fraught with assumptions that are frequently violated, making the calculation suspect. The principal use for the process capability calculation is to quantify the theoretical defect reduction after the Six Sigma project has been completed.

Owing to the nature of the calculation it is possible to reduce the DPMO while having no perceivable effect on the real defect level experienced by the customer. The time the customer received the response is tracked and summarized. The set of data could represent the generation of quotes or keeping appointments in a medical clinic.