Definition and explanation
Six sigma (6σ) is a sophisticated management approach that is used by companies to improve their business processes. The main focus of the approach is to minimize defects by analyzing the process variations within the systems of a business to increase its overall performance.
Six sigma is a method which is applied by modern day companies to enhance the proficiency of their operational activities. The primary objective for implementing six sigma doctrine is to concentrate and amend those areas of a process that trigger the process variations thus creating defects. A six sigma defect is the one that a customer does not expect from the business as an output. This approach enables a company to make its processes predictable in a positive manner. Because, if a process deviates too much from what it is expected to produce, the solutions become more difficult and complex. All this leads to a gradual improvement in the processes of a business and ultimately the business becomes more competitive.
There are many tools and methods available to apply six sigma into a business. The two major methods are DMADV and DMAIC.
DMADV stands for Define, Measure, Analyze, Design and Verify. This method is usually used to generate new processes and/or to develop new products or services. It is a five steps approach:
- Define the goals of the project.
- Measure the factors that are critical in the process and/or product.
- Analyze the gathered data to devise new plans, ideas, processes or alternatives with best optimal combination.
- Design a formal proposal and test the selected alternative.
- Verify the selected alternative based on its acceptance and effectiveness.
DMAIC stands for Define, Measure, Analyze, Improve and Control. This method is used to refine the existing business processes, products or services. This is also a five step approach:
- Define the existing problem and plot goals.
- Measure the current aspects of the process in detail.
- Analyze the available data, gather more relevant data and try to identify defects in the process or product.
- Improve the process, based on the above exercise.
- Control and sustain the improvement introduced.
Besides above two methods, other notable tools for applying six sigma are DOE (Design of Experiments), FMEA (Failure Mode Effects Analysis), Pugh Matrix (Decision Matrix Method) etc.
In its early stages, the six sigma approach was designed to improve manufacturing processes only which had an emphasize upon removing defects, but later as the method evolved more and more companies adopted it and applied it in other parts of business too. The theory of six sigma was first used and developed at organizational level in 1986 by an engineer ‘William Bill Smith Jr.’ of Motorola, an American Multinational Telecommunications Company. The aim of Bill was to devise a mechanism that would standardize the defect management system in the manufacturing process of Motorola. In result, Motorola formulated such a method that provided them with a metrics to improve and monitor their quality development. The six sigma was reflective based on the metric that a product or process will only have 3.4 defects in a million opportunities.
Motorola Company, further improved the six sigma methodology and gradually elevated optimization in its processes. The company spread and introduced the practical six sigma methodology to the world. In 2003, the company applied the approach in its top level management. In this phase, Motorola introduced a terminology “Digital Six Sigma”, which included a business wide ‘Balanced Score card’ to measure the success of the system. Here the basic focus of Motorola Company was to identify the root cause of many problematic areas that were inherently complicated and risky. After this venture, Motorola further applied the principle successfully to many other areas of their business like for improvement of human resource, management of operational cycle and cost cuttings.
General Electric, an American Multinational Conglomerate, implemented the six sigma approach in 1995 in its attempt for process improvement. This was the initiative of Ex-CEO of General Electric Jack Welch – an author and chemical engineer. The motive behind the implementation of six sigma in General Electric was the realization of drawbacks in systems of the company by Jack Welch. He was of the opinion that the company needs a complete overhaul to eliminate its waste build-up and to cope up with the poor governance issues.
In the initial stages the company paid heed to the training and induction. Company spent almost 1.5 billion dollars in 4 years to train its employees. Every employee had to attend a training course of 100 hours to understand practical use of a data based six sigma approach at work place. These training courses also consisted of the DMAIC framework. Additionally, General Electric hired trained and full-time mentors of six sigma for the assistance of employees at every stage. With the strong commitment of strategic managers, it took five years for General Electric to completely integrate the system in its processes, but the end result was a triumph for the management of the company. General electric reportedly saved almost seven to twelve billion dollars.
Following the successful rendering of six sigma approach in Motorola and General Electric, many other companies like Ford Motor Company – an American multinational company, Allied Signal – an American aerospace and automotive company, Johnson and Johnson – an American multinational company dealing in medical and pharmaceutical products, Whirlpool – an American multinational company of home appliances, Dow Chemicals – an American chemical multinational company etc. implemented this theory in their business practices.
Advantages and disadvantages
The implementation of six sigma provides the following major advantages/benefits:
- The key advantage of the six sigma approach is the threshold of quality control which is needed to implement it successfully. Six sigma is particularly defined as the limit of only 3.4 defects arising per one million of products or process. The level of defect is anything that a customer does not value or does not accept as satisfactory.
- The six sigma approach stresses upon the entire process rather than just focusing upon the outcome. As the theory suggests, input points for all the processes must be critically analyzed which enables the business to identify the key issue(s) for process variation, thus providing a very pro-active insight into the areas from where defect can originate.
- Six sigma promotes a long-term capability of resourcefulness and solutions. It makes the human resource of a business more competent and time-efficient. It minimizes the root causes of the faults in the supply chain of the company. Additionally, it provides a strategic direction to the problem-solving needs of the company.
- As the implementation of six sigma makes it necessary to remove defects in the end products, the business develops customer satisfaction and trust. This ultimately results in increased revenues and profits.
- Six sigma has a high acceptance rate in the corporate world. The reason for this being the successful implementation of this methodology in a diverse array of companies and industries.
The main disadvantages/limitations of six sigma are given below:
- The idea of six sigma is a complex and well-disciplined doctrine. It makes it difficult for managers of mediocre knowledge or lacking relevant management knowledge to understand it properly.
- The approach presents a variety of changes that a business needs to undergo in order to implement it effectively. This increases bureaucracy and rigidity in the systems of the business.
- Six sigma requires ample attention and commitment from the management of the company. So, it becomes difficult for the management of the company to pay heed to other indicators that may not be covered under this approach or are specific to the business environment of a particular organization.
- Six sigma, requires a considerable amount of resources both human and financial. Due to high cost it may become difficult for small businesses to implement it. However, such businesses can either make a partnership arrangement with larger businesses that have already implemented the system or can outsource the function.
- There is a big range of tools that can be used to implement six sigma in business. The selection of the most relevant tool for a particular business can become difficult.