1. Lou Gorga Six Sigma Solutions, Inc. 6sigmasolutions@optonline.net (973) 359-0416 1 What Management Accountants might want to know about Lean Six Sigma

2. Agenda Introductions and Focus Lean Six Sigma (and Change Management) Overview Key Tools and Technique Summary Value Proposition Questions/Discussion 2

3. Drivers What do you believe is necessary to manage your business? How do you measure success? What do you look at? 3 Our motto: If you cant Measure it… You can’t Manage it. Our motto: If you cant Measure it… You can’t Manage it. Some Tools used to measure and change….

4. Tools Reengineering PDCA Best Practices Change Management Initiatives Lean processing Six Sigma Initiatives Lean Six Sigma Initiatives Etc. Focus on improving processes through measurement and evaluation 4

5. Lean Six Sigma Drivers What comes to mind when you hear “Lean Six Sigma”? What think of when you hear “Change Management”? Is anyone here a Six Sigma Black/Green Belt or higher? 5 Lean Six Sigma Drivers

6. 6 Processes For Improvement Lean Six Sigma provides a process based approach to improvement. It can be used to improve any business process. 6

7. What is Lean Six Sigma? Comprehensive Process tool for: Achieving Sustaining and Maximizing business success. Six Sigma is uniquely driven by: Understanding customer needs Disciplined use of facts and data Statistical evaluation of “issues” Attention to managing, improving and reinventing business process. Where did it originate and how is it different? 7

8. History of Change Ford’s Assembly Line GE Western - Hawthorne –’( 20s -’30s) PDCA cycle originally conceived - Shewart (Western Electric -’30s -’40s) PDCA Made famous by his assistant - Demming (The “Demming Wheel”) - became CQI model (40-50s) Ohno / Toyoda’s - Toyota Processing System (TPS) was already taking shape ( ’40s-’50s) Harry / Shroeder start the Six Sigma process initiative at Motorola (80s) Womack’s “The Machine That Changed the World” Described Lean a.k.a. TPS (’90s) What might be next? 8

9. Board Senior Management Customer Need Customer Specifications Customer Bottom Line All Customers and We NEED to listen to their Voices (VOC) All Customers and We NEED to listen to their Voices (VOC) Drivers: Business and/or Improvement 9

10. Lean Six Sigma Customer focused Data Driven Accurate Creates a “Common Language” Reduces waste Reduces variation Improves contribution Distinguishes between “the feel and the real” Distinguishes between “the feel and the real” 10

11. 11 Example Roller Bearing Manufacturing Diameter is a CTQ (Critical To Quality Parameter) Nominal diameter = 2.5mm Minimum Spec = 2.25mm Maximum Spec = 2.75mm 11

12. 12 Example (Cont.) Nominal Diameter 2.5 mm No Less Than 2.25 mm No More Than 2.75 mm Lower Specification Limit Upper Specification Limit Customer is expecting 2.5 mm But will allow some variation within the Spec range. 12

13. 13 Example (Cont.) Manufactured Roller Bearing Diameter Actual Micrometer Measurements 13

14. 14 Example (Cont.) Manufactured Roller Bearing Diameter Variation ending up as a defect 14

15. 15 Example (Cont.) Let’s Look at Some Basic Statistics Mean diameter = 2.50 mm Standard Deviation = 0.125 mm 15 On Average it’s OK It’s a Variation issue

16. 16 Example (Cont.) Reducing Variation is Clearly the Key to Improving Process Capability 2  16

17. 17 Example (Cont.) Reducing Variation is Clearly the Key to Improving Process Capability 3  17

18. 18 Example (Cont.) Reducing Variation is Clearly the Key to Improving Process Capability 4  18

19. 19 Example (Cont.) Reducing Variation is Clearly the Key to Improving Process Capability 5  19

20. 20 Example (Cont.) Reducing Variation is Clearly the Key to Improving Process Capability 6  20

21. How do Others Perform? 21 Defects per Million 1,000,000 100,000 10,000 1,000 100 1 2 IRS Tax Advice (phone in) Doctor Prescription Writing Airline Baggage Handling Deaths caused by anesthesia during surgery Domestic Airline Fatality Rate Average Company Best-in-Class 34567 Sigma Scale of Measure 1% of Hospitalized Patients Injured by Negligence

22. Understanding Six Sigma STATISTICALLY Six Sigma refers to a process that produces only 3.4 defects per million opportunities. STATISTICALLY Six Sigma refers to a process that produces only 3.4 defects per million opportunities. Sigma DPMO 2 308,537 3 66,807 4 6,210 5 233 6 3.4 Most US Businesses Goal Business Strategy An overall strategy that encompasses your organization’s quality philosophy. It sets the vision for achieving Six Sigma levels in key processes. Tools And Tactics A set of statistical tools and a disciplined methodology used by specially trained individuals to improve processes by reducing variation and defects. 22

23. Six Sigma Method DefineMeasureAnalyzeImproveControl Who are the customers and what are their priorities? How is the process performing and how is it measured? What are the most important causes of the defects? How do we remove the causes of the defects? How can we maintain the improvements? DMAIC: To improve any existing product or process 23

24. The Language Of Six Sigma CTQ (Critical To Quality) Big “Y” Y Measurable Y (part of Big Y) X Input that affects Y DPMO Defects Per Million Opportunities Defect Failing to deliver what the customer expects Variation The enemy of predictable output and customer satisfaction 24

25. Customer Needs vs. Customer CTQ’s Customer needs are the data collected from customers that gives information about what they need or want from your process. Customer needs are often high level, vague, and non-specific “I need a quick response!” “I need accurate information!” CTQ’s are customer needs translated into critical process requirements that are specific and measurable. A fully developed CTQ has three elements: Y metric, target, specification/tolerance limits 25

26. Getting to the CTQ’s Translating a customer need into a fully developed CTQ Quick Response Time from inquiry to resolution (Y metric) 5 minutes or less (Target) Not greater than 60 minutes (specification / tolerance limit) CTQ Example: 26

27. Measure Overview What is the Measure phase? The Measure phase defines the defects, establishes improvement goals, determines that the system of measuring defects is repeatable and reproducible and gathers data about the process. Why is the Measure phase important? The Measure phase ensures that you specifically define the defects you are going to measure and that your measurement system is accurate before you begin to actually measure the process. 27

28. Alternatives to Measuring… 28

29. Specifications Mean Time Between Failures % Defects 29

30. Analyze Phase Purpose: Identify the key sources of variation (vital X’s) by analyzing data and the process Steps: Define Performance Objectives Identify Variation Sources Graphical Tools Hypothesis Testing Regression Analysis Primary Goal: Determine the vital few X’s 30

31. Analyze Define Performance Objectives State the improvement goal in statistical terms 31

32. Analyze: Graphical Tools Find potential X’s using data analysis techniques on the data collected in Measure. Examples of some of the data analysis tools are shown here: 32

33. Improve Phase Purpose: To confirm that the proposed solution(s) will meet or exceed the quality improvement goals of the project To identify the resources required for successful full-scale implementation of that solution Steps: Screen potential causes Discover variable relationships Process improvement techniques 33

34. Improve General Approach Select improvement strategy Critical Elements: Process Improvement Standard Operating Procedures Best Practices Brainstorming Mistake Proofing Cost / Benefit Analysis Plan for Pilot Run Pilot Collect & Analyze Data 34

35. Piloting the Solution Plan and Prepare Pilot Execute Pilot Analyze Pilot Document and Transition Pilot: small scale, localized, high level of control, high level of scrutiny Scale-up: gradual, highly monitored Full-scale implementation: everyday hospital environment, monitoring plan Pilot solution on a small scale or for a specific period of time in a real business environment. Verifies that process meets CTQ’s 35

36. Change is never easy but not always bad…. 36

37. You must Change to improve by definition Change is hard and expensive Change requires a collaborative plan T HIS APPROACH IS NOT ROCKET SCIENCE BUT NOT ALWAYS USED. T HIS APPROACH IS NOT ROCKET SCIENCE BUT NOT ALWAYS USED. Improvement Drive 37 Quality (Q) Acceptance (A) Effectiveness (E)

38. 38 Implementation Needs Get Senior Management engaged Set the tone for change Get the organization involved

39. Importance of Cost Benefit 39

40. Control Phase Purpose: Ensures that the solution is sustained Share the lessons learned in the improvement project Steps: Determine process capability Implement process control Goal: A solution that is fully implemented Statistically confirmed process improvement Sustained Improvement supported with a control plan to ensure continuity 40

41. Statistical Process Control A key control and monitoring tool. Control charts are used to distinguish between common and special cause variation and use that understanding to control and improve processes. 41

42. Transition Process owner should understand the project, track key measurements and lead the effort to close any open transition items. Recognize and celebrate the contributions that made the team’s achievements possible. 42

43. What Does Lean Six Sigma Deliver? Improved problem solving skills More focused project management Common Business Language Defect Customer Consistent Business metrics Improved performance – more consistent deliverables Improved contribution 43

44. Potential Focus Areas Marketing Sales Call Centers Strategic Sourcing/Purchasing Operations Distribution Logistics Finance Billing Etc. 44

45. Sustaining Improvements Post-project metrics defining the success of the project If you don’t: It will cease to be important You will Not sustain the gains Metrics can/should be the new processes capability “Dashboards” Common Language Measurable and Sustainable Improvement ONLY If You Keep Measuring 45

46. Level of Improvement

47. Sustainability

48. Fiscal Performance Accumulating Contribution

49. Where can you go from here? These tools allow you to build what you want: Better trained work force Focused attention to objectives/goals It is about: Measuring Recognizing Accountability Achievement

50. What does the future hold? 50 Training and certification programs available

51. Thank You Questions? 51