PROCESS MANAGEMENT AND FUTURE OF SIX SIGMA full report
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Six sigma is best described as a journey-a journey for business professionals who are truly committed to improve productivity and profitability. Six sigma isnâ„¢t theoretical; its an active, hands-on practice that gets results. In short you donâ„¢t contemplate six sigma; you do it. And doing it has proven to be the Fast track to vastly improve the bottom line.
The six sigma story began in 1980â„¢s at Motorola, where it has first developed and proven. This is where six sigma took off. Mikel Harry, PhD., the founder of the Motorola six sigma research institute, further refined methodology, to not only eliminate process waste, but also turn it into growth currency-regardless of the specific type of service, product or market sector.
Most companies function at four sigma- tolerating 6210 defects per one million opportunities. Operating at six sigma creates an almost defect free environment, allowing only 3.4 defects per one million opportunities; products and services are nearly perfect.(99.997%) Eliminating defects eliminates dissatisfaction.
Not long ago, continuity and stability were the watchwords of corporate operations. Now, with companies facing ever more demanding customers and tougher competition, ongoing operational performance improvement has become a strategic imperative. Executives are constantly trying to wring improved performance from their operations by following yellow-brick roads marked ERP implementation, Balanced Score-card, Supply-chain Integration â€œor with other popular programs including todayâ„¢s favorite, SIX SIGMA.
But although each of these performance-improvement initiatives can boost operating results, they need to be positioned under a process-management umbrella if they are to be successfully integrated. Other wise, companies face the risk of program proliferation, of being burdened with multitude of disconnected improvement efforts. Program proliferation is dangerous: It dissipates resources and creates confusion as people try to understand how each effort relates to the others. It leads to harmful competition among specialists, with each group promoting its program as the most deserving of the resources. It also fosters cynicism; employees believe that management cannot be serious about so many programs and hence think the company is serious about none.
Companies such as Bombardier, Air Products & Chemicals, Johnson & Johnson are avoiding the dangers of program proliferation by integrating their performance-improvement initiatives under the banner of process management. In particular, positioning six sigma under process management ensures that the company benefits from this important tool while avoiding the trap of applying it where it does not fit.
Process management is a structured approach to performance improvement that centers on the disciplined design and careful execution of companyâ„¢s end-to-end business processes. Formally a business process is an organized group of related activities that work together to create a result of value to customers (Eg: Order fulfillment, product development and post-sales support)
The two most important words here are organized and together all activities in a business process must work together; they must be aligned for the common purpose of serving customer needs. People must operate as team instead of focusing narrowly on individual tasks and protecting turf. All activities in a business process also should be guided by a design that specifies which activities are to be done when and by whom. A process design ensures repeatability and consistency.
Generally companies find it effective to identify 5 to 10 major business processes. Consider order fulfillment which represents all activities from the time a customer places an order until the customer has received shipment and paid. That order-to-cash process transcends functional boundaries and integrates customer service, logistics, finance and even manufacturing to serve a common goal. Other top-level processes are similarly broadly encompassing.
Although a functionally organized company performs all the activities involved in turning an order into payment, it does not perform them as a process. The activities are handled by departments largely unaware of one another and pursuing different performance objectives. Conflict and sub-optimization ensure, as well as increased overhead and non-value-adding work. Moreover, because no one is responsible from start to finish, there is no one to establish and enforce a precise and repeatable overall design; variation and improvisation are the consequences.
Process management ensures that activities are thought of, designed and performed in a process context. When employees recognize that their individual activities are part of something larger, they align around customers and common goals. When a process has an explicit end-to end design people can perform it consistently, and managers can improve it in
a disciplined way. Process management ensures that a companyâ„¢s business processes are well-designed, that the designs are followed, and that they are kept up-to-date
FIRST STEPS TOWARDS PROCESS MANAGEMENT
Identify company processes
Make people aware of the processes and how their own work fits in.
Create and deploy measures of end to end processes, assess current process performance and set targets.
Designate process owners responsible for ensuring consistently high performance
Select 2 or 3 processes for redesign and improvement.
Align the companyâ„¢s management systems with new prominence of its processes.
The central figure in process management is the process owner. The process owner needs to ensure that the people performing the processes understand it, are trained in it, have the required tools and are following the specified design. The process owner will make minor changes to the process design in order to fix a flaw or to address new issues. When there is a major gap between the current performance of the processes and the desired performance, then the process owner must lead an effort to create an entirely new process designâ€that is, reengineering project and implimentation.
The payoffs of process management are dramatic. Establishing a rigorous process design leads to a boost in performance because resources and time are not wasted on pointless efforts and project and implimentations do not fall between the cracks. For instance in the mid- 1990s Caterpillar introduced a formal four stage process for creating and introducing new models. As a result cucle time for new product development dropped from eight years to as little as three adjusters are organized to teams with one member handling claimant calls while others are in claims vehicles in the field. When a call comes in, an adjuster takes it and does whatever possible over the phone; if an inspection is needed the adjuster contacts a team member in the field and schedules
the visit. Progressive now measures the elapsed time from call to inspection in hours rather than in days.
THE CENTRALITY OF PROCESS
Besides directly leading to better performance, process management also provides a framework and context for integrating performance improvement initiatives. Some of the most popular contemporary approaches to improvements in performance are based on technology deployment: others center on installing new performance-measurement systems; still others are more strategic in nature. Yet a careful look at virtually any of them reveals a common underlying theme: business process.
1) Enterprise-Resource-Planning Systems: Technically, an ERP system is a family of software modules that share a common database and readily interface with one another. In practice, because its modules are so tightly integrated, an ERP system is a tool for supporting end-to-end business processes. Implementing an ERP system surfaces and transforms a companyâ„¢s processes. When companies pursue ERP without understanding their own processes, they are courting disaster. An ERP implementation effort needs to be positioned and managed primarily in terms of creating new business-process designs and secondarily in terms of installing a software system to support those designs.
2) Supply-Chain Integration: A supply chain is just an intercompany business process that crosses corporate as well as functional boundaries. It includes all the activities needed to create and deliver results to a companyâ„¢s customers â€œ activities performed by the company, its suppliers, their suppliers and so on. Companies find the techniques of process redesign useful for supply-chain and other intercompany processes.
3) Merger Integration: Turning previously independent enterprises into a single company is, in effect an exercise in business-process standardization. The leaders of the merged company must decide which processes are to be common across the enterprise and
4) which may vary. They also must decide if a standardized process should be based on an existing process or be entirely new.
5) Globalization: Creating a global business processes means installing uniform business processes for all geographies. Instead of country managers deciding how their businesses will operate, global process owners create uniform processes and country managers implement them. In that way, global customers interface with the company as a single entity not as a loose confederation of autonomous geographical units.
6) E-Business: Now that Internet hype has abated, it is possible to recognize the real meaning of E-Business: providing outside parties (customers and suppliers) with electronic access to a companyâ„¢s systems and the business processes they embody. Success in E-Business requires processes that allow easy external access and operation.
7) Other initiatives: Balanced score-card and economic-value-added techniques (EVA) develop measurement systems that translate corporate objectives into process-performance goals. Customer-relationship management allows all of a customerâ„¢s interactions with the company to be handled as a single process.
The Traditional versus the Process Enterprise
Traditional Enterprise Process Enterprise
Central Axis Function Process
Work Unit Department Team
Job Limited Broad
Description Measures Narrow End- to- end
Focus Boss Customer
Compensation Activity- based Results- based
Managerâ„¢s Role Supervisor Coach
Key Figure Functional executive Process owner
Culture Conflict- oriented Collaborative
Technically, six sigma is a specific measure of quality- namely 3.4 defects per one million opportunities. Most companies operate at a much lower level of quality, typically in the two-to-three sigma range, from 66,000 to 300,000 defects per million opportunities. But the technical definition is irrelevant. Some companies donâ„¢t need to reach that level, whereas others need to go even higher.
In practice, six sigma has become a code name for a set if methodologies and techniques used to improve quality and reduce costs. The six sigma methodology that is most widely used â€œthe one promoted in best-selling books â€œis known as DMAIC (define, measure, analyze, implement, control).DMAIC offers a structured and disciplined methodology for solving business problems.
The premise of six sigma is that companies need consistently higher levels of quality and lower levels of cost and that a disciplined, organized approach will root out the variance, waste and errors that plague operations. Six sigma does not address business problems at a superficial, phenomenological level but by attacking root causes. If defects are too high, one does not reduce them by inspecting for defects and then discarding defective items; rather, one carefully measures and analyzes operations to determine exactly how and why defects occur and then takes steps to address those causes.
With DMAIC, a problem is first defined and quantified; then measurement data are collected to bound and clarify the problem; analytic tools are deployed to trace the problem to a root cause; a solution for the root cause is identified and implemented; and finally, the improved operations are subjected to ongoing control to prevent recurrence. The six-sigma tool kit includes a variety of techniques, primarily from statistical data analysis and quality improvement. Six sigma is a project and implimentation-based methodology. That is, the unit of activity is a project and implimentation that applies the DMAIC methodology to solve a specific performance problem recognized by the organization. Projects are performed by project and implimentation teams led by six-sigma black belts (expert practitioners). A rule of thumb is that a project and implimentation should take 2-6 months to complete and should yield savings of $150,000 to $500,000.
The power of six sigma lies in the discipline it provides for coping with the complexity of business operations. Many different factors could be the cause of a quality problem: a miscalibrated machine, raw material that is not upto specification, an operator who performs a task incorrectly. Rather than trying random solutions, a company using six sigma pin points the cause of a problem and applies only appropriate solutions.
TRAJECTORY OF SIX SIGMA
In the 1980â„¢s building on its work in TQM, Motorola developed and organized the six â€œsigma methodology and achieved both financial benefit and widespread recognition. However relatively few other companies followed suit â€œ until General Electric Co. did so in 1996. GE maintains it has saved billions of dollars through the use of six sigma. With GEâ„¢s highly publicized success, interest in six sigma went from a trickle to a tidal wave. At least 25% of the Fortune 200 claim to have a serious six-sigma program, including Ford Motor Co., Bank of America Corp. In 2001, a survey reported that of the 65 companies, 40 were already using it and most others expected to begin soon.
Despite extravagant claims of its advocates, six sigma success is not synonymous with business success. GE is virtually alone among six-sigma practitioners in showing consistently superior performance. Moreover, many companies have successfully improved operations without six sigma. For instance, IBMâ„¢s revival in the mid 1990â„¢s began after it had experimented with and then abandoned six sigma.
In 1999, Bombardier undertook a formal assessment of its six- sigma efforts and concluded that despite the success achieved, those efforts suffered from serious limitations:
Â¢ Most six- sigma project and implimentations were narrowly focused, concentrating on low- level and small scale activities, typically within one functional unit of the organization. When attempted to apply six- sigma to large scale project and implimentations the result were unsatisfactorily until the scope was narrowed.
Â¢ Six- sigma was not well aligned with the strategy of the organization as a whole.
Â¢ The six- sigma efforts had not gotten at the companyâ„¢s basic assumptions or its functional organizational structure. Because breakthrough improvements in performance require just such fundamental change, six sigmaâ„¢s impact was limited.
Six sigmaâ„¢s limitations are inherent in its nature as a project and implimentation-oriented, problem solving regimen. It deploys statistical analytic tools to uncover flaws in the execution of an existing process
FITTING SIX SIGMA INTO PROCESS MANAGEMENT
Business processes provide the context for DMAIC. Before beginning a six- sigma project and implimentation, a company should create a SIPOC (supplier, input, process, output, customer) model of its processes relate the problem to be solved to a specific business process and map that process (document its steps). The process map provides an analytic framework for identifying the specific actions causing the observed problem. Once the problemâ„¢s source has been identified the remedy establishing specifications for aeration or installing shorter forks on the lift is typically straight forward and localized to the problematic activity.
Although DMAIC ensures the correct execution of the steps of a process and enables minor modifications to the process design, when there is a large gap between current and desired performance a process will need an entirely new design. Creating one is something for which six sigma with its analytic rather than creative orientation is unequipped. When a process is operating consistently but at a performance level lower than required and when the reason is that the overall design is flawed, six sigma will spin its wheels. There was no single narrow root cause why Progressiveâ„¢s process for handling claims was taking 10 days. Indeed, there was no problem with the execution of that process; it was operating correctly and consistently. When market circumstances demanded that Progressive come up with a breakthrough approach that would allow claims to be handled in hours rather than days an entirely new design was needed.
The distinction between improving process performance and creating a new process design is related to the distinction between waste and non-value-adding work. Waste comes from
individual activities erroneously or inconsistently performed: DMAIC is effective at tracking down the source of waste so they may be eliminated. Non- value- adding work on the other hand is work that holds the process together and so cannot be eliminated readily. Process redesign aims to reduce the amount of non value- adding work. Identifying non-value-adding work is the easy part: the hard part is reorganizing the process so that less of it is needed.
Some companies want the six-sigma label even though they have recognized the limitations of DMAIC; they are stretching six-sigma to include process management and process redesign. A few are applying to process design a GE developed variant of DMAIC originally developed to guide the development of high-quality products DMADV (define, measure, analyze, design and variety). But itâ„¢s better to call things what they really are.
Process management is the culmination of the movement to transform business operations. As companies move along the six-sigma learning curve, they will encounter the same challenges they confronted with previous initiatives. After picking the low-hanging fruit they will find themselves in need of a broader and more robust approach. Subsuming six sigma beneath the process- management umbrella addresses those challenges and allows companies to reap its substantial benefits while keeping it away from where it wonâ„¢t work. Because process management entails major changes to virtually all management systems, it demands absolute commitment from executives. Companies that rise to the challenges will garner extraordinary rewards: not just cost savings but accelerated new-product introduction, major improvements in customer satisfaction and sharp increases in profitability.
1. Process Management and the Future of Six Sigma, Michael Hammer; IEEE Engineering Management Review.
2. Implementing Six Sigma, Breyfogle.
CONTENTS PAGE NO:
1. INTRODUCTION 1
2. PROCESS MANAGEMENT 2
3. SIX SIGMA 6
4. TRAJECTORY OF SIX SIGMA 7
5. FITTING SIX SIGMA INTO
PROCESS MANAGEMENT 8
6. CONCLUSION 10
7. REFERNCES 11