Professor

Book Review

What is Six Sigma? by Pete Pande and Larry Holpp

Introduction

This book was developed to help readers to understand and successfully participate in the implementation of Six Sigma. We select the book "What is Six Sigma?" because we were informed that more and more companies have strategically adopted Six Sigma. targeted to improve customer satisfaction, reducing production cycle time and reducing defects.

Improvement in these areas usually represent dramatic cost saving to business, as well as opportunities to retain customers, capture new market, and build a reputation for top performing products and services.

The Six Sigma Success Story

Three key characteristic separate Six Sigma from quality programs of the past are:

(1) Six Sigma is customer focused.

(2) Six Sigma projects produce major returns on investment. Worth to note that at GE, the Six Sigma program resulted in the following cost versus returns:

1. In 1996, cost of $200 million and return of $150 million

2. In 1997, cost of $400 million and return of $ 600 million

3. In 1998, cost of $ 400 million and return of more than $ 1 billion

(3) Six Sigma changes how management operates.

Examples of Six Sigma Success

Six Sigma applies to every aspect of a business from manufacturing to delivery, from hiring to benefits, from taking a phone call to corporate travel, any place. All types of companies can benefit from the Six Sigma philosophy. Enlightened companies who are not afraid to roll up their sleeves have successfully applied Six Sigma to pure service companies.

It is important that we listed some success examples because they are prominently being discussed in relation to Six Sigma:

(1) American Express an Administration Assistant (a Black Belt-highly trained Six Sigma professional) discovered a way to combine seven customer forms into one. This reduced the process time, improved customer service, and saved employee time and materials. This project saved $10,000 the first month it was applied. In another example, Amazon.com applied Six Sigma to processing credit card purchases. The firm eliminated thousands of dollars in credit card fraud through a simple process added by one of their Black Belts.

(2) At GE, Six Sigma has been applied to a variety of functions across the firm:

"Although Six Sigma was originally designed for manufacturing, it can be applied to transactional services. One obvious example is in making sure the millions of credit card and other bills GE sends to customers are correct, which drives our costs of making adjustments. One of our biggest costs in the financial business is winning new customers. If we treat them well, they will stay with us, reducing our customer-origination costs." - Dennis Nayden, President of GE Capital

(3) At Honeywell International, CEO Lawrence Bossidy reported that implementation of Six Sigma in manufacturing produced annual productivity increases of 6% over a two-year period.

"At that point" Bossidy said, "70% of the company's sales reflected units with operating margins of at least 14%, up 52% from the previous five years. Six Sigma takes the guesswork out."

(4) Dan Burnham, CEO of Raytheon Corporation commented on the ability of Six Sigma to generate cash within his organization:

"Cash generation was a highlight for us. We generated a positive operating cash flow of $527M in 2000, compared with $849M in negative cash flow during 1999. It's been critical to us taking time out of the (business) cycle, which does indeed generate cash. Six Sigma generated $110M in operating profit during 2000."

(5) The customers that form the base of today's world market are sending a clear and undeniable message--produce higher quality products at much lower costs with greater responsiveness. To compete in a world market, companies have been aggressively pursuing and attaining Six Sigma levels of performance. If you are not measuring your performance on a level playing field, you don't know how you compare to those around you or the rest of the world. The internal and external changes that occur with corporations applying Six Sigma translate into hard currency. The most profitable and admired companies in the world have set the goal of Six Sigma quality.

"Six Sigma programs simultaneously benefit both the profitability of a company and its sales growth by enabling it to take market share as a preferred supplier in its industry. The benefits of Six Sigma are multi-faceted. Six Sigma drives top line growth, increases operating margins, expands cash flow, reduces working capital requirements and capital spending needs, frees up additional production capacity and enhances growth when the economy is not doing well by improving a company's prospects of becoming a customer's preferred supplier." - Prudential Securities

As we seen, Six Sigma has produced some impression numbers. However reaching them requires a great deal of organizational teamwork.

What is Six Sigma?

Six Sigma is a management philosophy that is strategic and disciplined, customer and process centric, data-driven, and represents a cross-functional approach to performance improvement aimed at the near-elimination of defects/errors from every product, process, and transaction.

The lowercase sigma у stands for standard deviation. Standard deviation is a statistical way to describe how much variation exists in a set of data, a group of items, or a process. For example, if you weigh potato chips of many different sizes, you'll get a higher standard deviation than if you weigh potato chips of all the same size.

Its objective is to improve processes to meet or exceed customer requirements and enable organizations to operate better, faster and at a lower cost. It's applicable to every facet of business, from production, to human resources, to order entry, to technical support.

As a business improvement and management philosophy seek to find and eliminate causes of mistakes