Kaizen‟s Operations & Research Entity Presents
Comparison between Lean & Six Sigma
By Shuchita Srivastava
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EDITOR’SLETTER
“"Chances are for the one who doesn’t believe in hard work..."” Welcome to the seventh edition of “LAKSHYA”, our monthly supplement designed for people who dare to think above the average and believe in connecting the dots. In an age where technology has taken over every sphere, information is abundant and data is omnipresent, we have conspired to bring to you a collection of thoughtfully created and carefully curated pieces of work by some bright aspiring minds of ICFAI Business School, Hyderabad on the current trends and hot topics in the field of Operations Management and their relevance in different industries. Six Sigma is a disciplined, statistical-based, data-driven approach and continuous improvement methodology for eliminating defects in a product, process or service. It was developed by Motorola in early to middle 1980‟s based on quality management fundamentals, then became a popular management approach at General Electric (GE) in the early 1990‟s. Hundreds of companies around the world have adopted Six Sigma as a way of doing business. We look forward to providing you with some valuable insights and inculcate the passion for reading once again within you all. We hope that you enjoy this first issue and do let us know if there are any topics you‟d like to see covered in the future. Please write to us and become a part of this discussion Email ID: kaizenclub.ibs@gmail.com
SUHAIL SHAIKH IT HEAD Kaizen – IBS Hyderabad
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CONTENTS
Cover Story: Lean vs Six Sigma
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McDonald’s Operations
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Big Data
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Lean Six Sigma
BY Shuchita Srivastava
LEAN vs SIX SIGMA 1.Introduction Due to increased globalisation and constant technological advances and other competitive pressures, the organisations have to accelerate the pace of change to adapt to new situations. This climate introduces opportunities and threats and Organisations have to innovate and strive for operational excellence. Six Sigma is the most popular quality and process improvement methodology which strives for elimination of defects in the processes whose origin is traced back to the pioneering and innovation work done at Motorola and its adoption by many companies including GE, Ford, General Motors, Xerox etc. The primary objective of Six Sigma is to reduce variations, in products and processes, to achieve quality levels of less than 3.4 defects per million opportunities (DPMO). The important point to be noted is reducing the defects involve measurements in terms of millions of opportunities instead of thousands. Six Sigma is a culmination of several decades of quality improvement efforts pursued by organisations world over due to pioneering work done by quality Gurus Shewart, Deming, Juran, Crosby, Ishikawa, Taguchi and others. Dr. W. Edward Deming, who is considered by many to be the “Father of modern Quality movement�, was instrumental for transforming post war Japan into an economic giant because of helping for systematic introduction of quality improvement measures by Japanese companies. Dr. Deming had advocated popular quality improvement methods such as Total Quality Management (TQM), Plan-Do-Check-Act methodology, 14 point rules and elimination of 7 deadly sins and he helped organisations to achieve operational excellence with 4 |K A I Z E N ’ S O P E R A T I O N S & R E S E A R C H E N T I T Y
much customer focus. Later many US companies have gained much from Japanese experiences and ideas on quality improvement concepts. Six Sigma when coupled with „Lean Principles‟ is called „Lean Six Sigma‟ which professes eliminating waste in process steps by using „Lean Tools‟ which is based on Toyota Production System(TPS) which enhances value in Six Sigma implementation one step further by increasing speed by identifying and removing non-value adding steps in a process.
2. What is six sigma ?
Six Sigma is a quality improvement methodology invented at Motorola in 1980s and is a highly disciplined process improvement method that directs organisations to focus on developing and delivering near perfect products and services. Six Sigma is a statistical term that measures how far a given process deviates from perfection. The central idea behind Six Sigma is, if we are able to measure how many “defects” that exist in a process, it can be systematically figured out how to eliminate them and get close to “zero defects”.
In the year 1985, Bill Smith, a Motorola Engineer coined the term „Six Sigma‟, and explained that Six Sigma represents 3.4 defects per million opportunities is the optimum level to balance quality and cost. It is a real-breakthrough in quality improvement process where defects are measured against millions of opportunities instead of thousands which was the basis those days.
Leading companies are applying this bottom-line enhancing strategy to every function in their organisations. In the mid 1990s, Larry Bossidy of Allied Signal and Jack Welch of GE Saw the potential in Six Sigma and applied it in their organisations which resulted in significant cost savings in progressive years. GE reports stated that Six Sigma had delivered $300 million to its bottom line in 1997, $750 million in 1998, and $2 billion in 1999
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3. Describing six sigma concept Six Sigma is a method for improving quality by removing defects and their causes in business process activities. The method concentrates on those outputs which are important to customers and translates these customer needs into measurable requirements, the so called CTQs (Critical To Quality). An indicator for the CTQs is identified and a robust measurement system is established to obtain clean and precise data relating to the process. Once this is in place, one can compare actual process behaviour to the customer-derived specification and describe this in a statistical distribution (using mean, standard deviation [σ] or other indicators, dependent on the type of distribution).
4. Variation Six Sigma is all about reducing the variation of a process. The more standard deviations (σ) – an indicator of the variation of the process – that fit between the mean of the distribution and the specification limits (as imposed by the customer), the more capable is the process. A Six Sigma process means that 6 standard deviations fit on each side of the mean, between the mean and the specification limits. 6 Sigma equates in percentage terms to 99.9997% accuracy or to 3.4 defects per million opportunities to make a defect.
5.Why six sigma? Does 99.9% yield is good enough for an organisation? With 99.9 % yield, we say the organisation operates at 4 to 5 Sigma level. Taking into account some real world examples, with 99.9 % yield, we come across the following example scenarios which are surely unacceptable in customer‟s point of view : 1. Unsafe drinking water almost 15 minutes each day 2. Visas issued to 50 dangerous persons each year 3. By moving to Six Sigma level with 99.9997% yield, significant improvements have taken place resulting in very high qualitywith almost nil defects and very good customer satisfaction.
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5.1 Lean thinking Lean Thinking was an another quality and productivity improvement methodology introduced in Toyota Production Systems (TPS) which is based on the concept of elimination of waste in processes which had resulted in productivity gain and improvement of speed and flow in the value stream. The principle of Lean can be stated as a relentless pursuit of the perfect process through wastage elimination in the value stream. Lean identifies three different kinds of wastes, using Japanese terminology from the Toyota Production System where lean originated: muda (waste of time and materials), mura (unevenness/variation), and muri (the overburdening of workers or systems). Every employee in a lean manufacturing environment is expected to think critically about his or her job and make suggestions to eliminate waste and to participate in kaizen, a process of continuous improvement involving brainstorming sessions to fix problems.
5.2 Lean in a nutshell Lean is a business transformation methodology and it is derived from the Toyota Production System (TPS). Within the Lean methodology, there is a relentless focus on increasing customer value by reducing the cycle time of product or service delivery through the elimination of all forms of muda (a Japanese term for waste) and mura (a Japanese term unevenness in the workflow).
5.3 Six sigma in a nutshell Six Sigma was a concept developed in 1985 by Bill Smith of Motorola, who is known as “ the Father of Six Sigma.” This concept contributed directly to Motorola‟s winning of the U.S. Malcolm Baldrige National Quality Award in 1988. Six Sigma is a business transformation methodology that maximises profits and delivers value to customers by focusing on the reduction of variation and elimination of defects by using various statistical, data-based tools and techniques.
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5.4 Six Sigma vs. Lean Both methodologies focus on business processes and process metrics while striving to increase customer satisfaction by providing quality, on time products and services. Lean takes a more holistic view. It uses tools such as value-stream mapping, balancing of workflow, or kanban pull signaling systems to trigger work, streamline and improve the efficiency of processes, and increase the speed of delivery. Six Sigma takes a more data-based and analytical approach by using tools to deliver error- free products and services, such as the following examples: 1. Voice Of the Customer (VOC) 2. Measurement Systems Analysis (MSA) 3. Statistical hypothesis testing 4. Design of Experiments (DoE) 5. Failure Modes and Effects Analysis (FMEA) Six Sigma uses an iterative five-phase method to improve existing processes. This method is known as Define, Measure, Analyse, Improve, Control (DMAIC), and normally underpins Lean Six Sigma (LSS).
6. Lean six sigma Lean Six Sigma came into existence which is the combination of Lean and Six Sigma. The fusion of Lean and Six Sigma is required because : 1. Lean cannot bring process under statistical control, and 2.Six Sigma alone cannot dramatically improve process speed or reduce invested capital. Lean Six Sigma is a disciplined methodology which is rigorous, data driven, result-oriented approach to process improvement. It combines two industry recognised methodologies evolved at Motorola, GE, Toyata, and Xerox to name a few. By integrating tools and processes of Lean and Six Sigma, weâ€&#x;re creating a powerful engine for improving quality, efficiency, and speed in every aspect of business.
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* Cindy Jutras,Vice President, Research Fellow and Group Director Enterprise Applications Aberdeen Group says ,” Lean and Six Sigma are initiatives that were born from the pursuit of operational excellence within manufacturing companies. While Lean serves to eliminate waste, Six Sigma reduces process variability in striving for perfection. When combined, the result is a methodology that serves to improve processes, eliminate product or process defects and to reduce cycle times and accelerate processes”. Embedding a rigorous methodology like lean six sigma into organisational culture is not a short journey, but it is a deep commitment not only to near-term results but also a long- term, continuous, even break-through results.
7. Six sigma DMAIC methodology Motorola developed a five phase approach called „DMAIC Model‟ to achieve the highest level in the Six Sigma, i.e., 3.4 defects per million. The five phases are: 1.Define process goals in terms of key critical parameters (i.e. critical to quality or critical to production) on the basis of customer requirements or Voice Of Customer (VOC) 2. Measure the current process performance in context of goals 3.Analyse the current scenario in terms of causes of variations and defects 4. Improve the process by systematically reducing variation and eliminating defects 5. Control future performance of the process
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McDonald’s Operations Management, 10 Decisions, Productivity
BY Yogisha Kapoor
McDonald’s Operations Management, 10 Decisions, Productivity
The McDonald‟s in Times Square, New York City. McDonald‟s operations management covers the 10 strategic decisions to ensure high productivity in all business areas. (Photo: Public Domain) McDonald‟s Corporation‟s operations management (OM) supports the company‟s position as the largest fast food restaurant chain in the world. The 10 decisions of operations management represent the various strategic areas of operations that must be coordinated for optimal productivity and performance. McDonald‟s global business entails a wide variety of strategic needs for its operations management, such as strategic HRM and supply chain development. McDonald‟s also needs to address the impacts of tough competition with firms 10 |K A I Z E N ’ S O P E R A T I O N S & R E S E A R C H E N T I T Y
like Subway, and KFC. To do so, McDonald‟s must apply suitable policies and strategies in all the 10 decision areas of operations management. McDonald’s maintains effective policies and strategies for the 10 strategic decisions of operations management to maximise its productivity and performance as a global leader in the fast food restaurant industry. McDonald’s Operations Management, 10 Decision Areas 1. Design of Goods and Services. McDonald‟s goal in this strategic decision area of operations management is to provide affordable products. As such, the serving sizes and prices of its products are based on the most popular consumer expectations. However, some McDonald‟s products are minimised in size to make them more affordable. 2. Quality Management. The company aims to maximise product quality within constraints, such as costs and price limits. McDonald‟s uses a production line method to maintain product quality consistency. Consistency satisfies consumers‟ expectations about McDonald‟s and its brand in this strategic decision area of operations management. 3. Process and Capacity Design. McDonald‟s process and capacity design is centred on efficiency for cost-minimisation that supports the company‟s strategies This strategic decision area of operations management focuses on maintaining process efficiency and adequate capacity to fulfil market demand. At McDonald‟s, the production line method maximises efficiency and capacity utilisation. 4. Location Strategy. McDonald‟s goal in this strategic decision area of operations management is to establish locations for maximum market reach.McDonald‟s marketing mix includes restaurants, kiosks, and the company‟s website and mobile app as venues. Through these locations/venues, McDonald‟s reaches customers in traditional and online ways. 5. Layout Design and Strategy. McDonald‟s uses pragmatic approach of operations management. The strategy involves maximising space utilisation in restaurants and kiosks, rather than focusing on comfort and spaciousness. 6. Job Design and Human Resources. McDonald‟s human resource strategies involve training for skills needed in the production line in restaurant kitchens or production areas. For this decision area of operations management, individual 11 |K A I Z E N ’ S O P E R A T I O N S & R E S E A R C H E N T I T Y
and organisational learning are also emphasised to support McDonalds organisational culture. 7. Supply Chain Management. The firm‟s global supply chain supports its various locations around the world. McDonald‟s has a strategy of supply chain diversification for this decision area of operations management. Such strategy involves getting more suppliers from different regions to reduce McDonald‟s supply chain risks. 8. Inventory Management. McDonald‟s goal for this strategic decision area of operations management is to minimise inventory costs while supporting restaurant operations. The company does not directly sell products and ingredients to its restaurants. Instead, local and regional intermediaries and distributors coordinate with McDonald‟s restaurant managers to manage their inventory. 9. Scheduling. McDonald‟s uses corporate conventions for scheduling, based on local market conditions and laws, as well as supply chain needs. For example, the company‟s strategy involves regular and seasonal schedules to address fluctuations in local market demand. Thus, in this decision area of operations management, McDonald‟s is flexible and adapts to local market conditions. 10. Maintenance. McDonald‟s lets restaurant managers or franchisees select maintenance service providers. However, for kitchen/production equipment, McDonald‟s Corporation also has certified/approved maintenance providers. Thus, the company addresses this strategic decision area of operations management through local and corporate control. Productivity at McDonald’s In the 10 strategic decisions of operations management, McDonald‟s works toward maximum productivity in all of its business areas. The following are some notable productivity measures or criteria used in McDonald‟s business: 1. Order fulfilment rate (McDonald‟s restaurant productivity) 2. Stockout rate (Intermediary/distributor productivity) 3. Timely delivery rate (McDonald‟s delivery productivity)
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Six disruptive possibilities from big data
BY RAYMAN KAUR
Six disruptive possibilities from big data Specific ways big data will inundate vendors and customers. In Disruptive Possibilities, Article discusses the implications of the big data ecosystem over the next few years. These implications will inundate vendors and customers in a number of ways, including: 1. The disruption to the silo mentality, both in IT organisations and the industry that serves them, will be the big story of big data. 2. The IT industry will be battered by the new technology of big data because many of the products that pre-date Hadoop are laughably unaffordable at scale. Big data hardware and software is hundreds of times faster than existing enterprise-scale products and often thousands of times cheaper. 3. Technology as new and disruptive as big data is often resisted by IT organisations because their corporate mandate requires them to obsess about minimising OPEX and not tolerate innovation, forcing IT to be the big bad wolf of big data. 4. IT organisations will be affected by the generation that replaces those who invested their careers in Oracle, Microsoft, and EMC. The old adage “no one ever gets fired for buying (historically) IBM� only applies to mature, established technology, not to immature and disruptive technology. Big data is the most disruptive force this industry has seen since the introduction of the relational database. 5. Big data requires data scientists and programmers to develop a better understanding of how the data flows underneath them, including an 13 |K A I Z E N ’ S O P E R A T I O N S & R E S E A R C H E N T I T Y
introduction (or reintroduction) to the computing platform that makes it possible. This may be outside of their comfort zones if they are similarly entrenched within silos. Professionals willing to learn new ways of collaborating, working, and thinking will prosper. That prosperity will be as much about highly efficient and small teams of people as it is about highly efficient and large groups of servers. 6. Civil liberties and privacy will be compromised as technology improvements make it affordable for any organisation (private, public or clandestine) to analyse the patterns of data and behaviour of anyone who uses a mobile phone.
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ABOUT US: The word “Kaizen”, where “Kai” = change “Zen” = good, simply means “change for better”. In English Kaizen is typically applied to measures for implementing continuous improvement. It is an approach to activity organisation based on common sense, self-discipline, order and economy and is a strong contributor and fundamental part of a lean production process model in lean manufacturing. Kaizen- The Official Operations Club of IBS Hyderabad believes in relishing in the essence of "Constant Change and Evolvement" and hence we, as an organization work willingly for the betterment of the student community. KORE- Kaizen‟s Operations and Research Entity, one of our primary wing which flaps to cater to the needs of students and motivate them to soar high by polishing their technical competencies. KORE‟s area of expertise includes Case Based Research, Consultancy, Live Projects and Workshops. LAKSHYA, an initiative taken by KORE primarily focuses on the concepts of operations management and various articles based on the day to day operations and logistics of an organisation - KAPIL MITTAL
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LAKSHYA is an academic print and is not for any commercial sale. Reliability and Responsibility, for sources of data for the article vests with the respective authors. Please feel free to drop in your suggestions at kaizenclub.ibs@gmail.com KORE: Kaizen’s Operations & Research Entity. Kaizen – The Official Operations Club of IBS Hyderabad All Rights Reserved
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