Executive Summit Meeting

Executive Summit Agenda

• Opening Remarks

• Demystifying Six Sigma

• Deployment Structure

• Timeline and Milestone Review

• Functional Roles

- Finance Strategy

- Human Resources Strategy

- Communications Strategy

Opening Remarks

Opening Remarks

• Knowledge…• Transfer Six Sigma DNA into COMPANY• Deliver Right Tools and Technique to Solve Business Problems… for the Last for the Last

TimeTime• Train With, and Leave Behind Best-in-Class Intellectual Property as Reference

Material

• Self-Sustaining Organization

• Create Master Black Belt Trainers, Champions, Infrastructure• Build and Leave Proven COMPANY Deployment Strategy in Place• Establish Foundation of Black Belts for Project Execution & Mentoring

• Culture of Excellence…• Shape a Data-Driven Employee Base…Every Discussion, Meeting, Decision• Produce a Process-Focus Mentality…Everything is a Process• Institute a Common Language…

•p-value• “Statistically Significant”•Standard Deviation•CTQ…Critical to Quality

• Results…Results…Results

• Defect• VOC…Voice of the Customer• MSA…Measurement System Analysis

• Control Plan

Demystifying Six SigmaIntegrated Methodologies

Demystifying Six Sigma• Provide a basic understanding of key Six Sigma

concepts and terms

• Describe the major disciplines of the Six Sigma Strategy:– Process for Six Sigma (DMAIC with LEAN principles)– Design for Six Sigma (DFSS)

• Offer an overview of some of the Critical Concepts related to implementing Six Sigma principles and techniques

Six Sigma Defined

• Term is used interchangeably to represent: – Vision, Management Philosophy, Management Strategy, Performance Metric,

Benchmark, Statistical Tool Suite, Measure of Variation and a Goal

• In its most basic form, Six Sigma is a metric– Represents 3.4 defects per million opportunities for defects– A defect can be any missed target or nonconformance to standard– This perspective is related to a single opportunity for defect, or a single “critical

to quality” characteristic (CTQ)

• In its most elevated form, Six Sigma is a management strategy– A strategic and tactical system for managing the total business enterprise using

customer data– Enables an organization to improve to the highest possible level of quality

Why Six Sigma Is Different • IT IS NOT:

Just a “quality” program

• IT IS: A common improvement methodology to effect the business as a whole A business process improvement methodology that enables

breakthrough improvements Focused on strategic business priorities Fact-based decision making Focused on minimizing waste and variation Dedicated resources with clear accountability Narrowly scoped projects Quantified project benefits (>$250K) Demonstrated track record of success across industries

The Goal: Breakthrough

Time

De

fect

s a

nd U

nn

ece

ssar

y S

tep

s Six SigmaBreakthrough

Current State

Future State

Improvement Period

The Roles

• Provides executive oversight for all Six Sigma activities

• Controls resources within the functional group

• Drives the Six Sigma initiative

• Owns the Six Sigma Project• Leads Project Team• Reports progress to Project

Champion

• 3-5 Process Experts

• Time commitment as needed

• Supplemental on the ground project resources

• Deployment Support• DMAIC Instruction• DMAIC Mentoring

• Owns project cluster• Breaks down barriers

that prevent project progress

• Review projects• Drives projects to

completion

FunctionalChampion

FunctionalChampion

Team Members

Team Members

Project Champion

Project Champion PSMGPSMG

BlackBelt

BlackBelt

• Customer Centric: View all products, processes and services from customer’s perspective rather than operational efficiency.

• COPQ: Total direct and indirect costs of all issues or problems associated with a process.

• Critical To Quality (CTQ): Customer performance requirement for product or service.

• Defect: Anything that fails to satisfy a customer requirement or internal standard.

• Defect Opportunity: Measurable event that may not meet customer expectation or meet internal standard.

Six Sigma Terminology

“When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it,

when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind ….”

Lord Kelvin, British Physicist

Hidden Office: Ad hoc systems that are set up to correct errors made at steps in a process.

Minimize Variance: Reduce variations in process quality.

Process: Group of activities that take inputs, add value and provide an output to customers.

Rolled Throughput Yield: The product of the defect free yield percentage across all steps in a process.

Yield: The percentage of defect free units at single step in a process.

Voice Of Customer: Any feedback received, via formal or informal means, from customers regarding company processes.

Cost of Poor Quality & Sigma

Cost of Poor Quality PPM Sigma Level

30-40% revenue 308,537 2σ

20-30% revenue 66,807 3σ

15-20% revenue 6,210 4σ

10-15% revenue 233 5σ

less than 10% revenue 3.4 6σ

Non-competitive

Industry average

World class

Quality Changes Behaviors

3 4 5 6Sigma Scale of

Measure

Restaurant BillsDoctor Prescription Writing

Payroll ProcessingOrder Write-up

Wire TransfersAirline Baggage Handling

IRS - Tax Advice (phone-in)

(140,000 PPM)

Best-in-Class

Average Company

Industry Six Sigma Levels

If you played 100 rounds of golf per year, and played at:

2 sigma - you'd miss 6 putts per round 3 sigma - you'd miss 1 putt per round 4 sigma - you'd miss 1 putt every 9 rounds 5 sigma - you'd miss 1 putt every 2.33 years 6 sigma - you'd miss 1 putt every 163 years!

Understanding the Differences

The Breakthrough Strategy

Executives

Managers

Employees

Improve market share, Improve market share, increase profitability, increase profitability,

and ensure the and ensure the corporation’s long-term corporation’s long-term

viabilityviability

Improve yield, eliminate Improve yield, eliminate rework, and reduce rework, and reduce

labor and technology labor and technology costscosts

Create Vision,Create Vision,Strategy andStrategy andCommitment Commitment

Reduce waste, Reduce waste, defects, variation defects, variation

and improve and improve capabilitiescapabilities

Prioritization - Focus - Accountability - Reward

Metrics developed Metrics developed to manage key to manage key drivers of the drivers of the

businessbusiness

Empower A-Empower A-Players to “get the Players to “get the

job done”job done”

Voice of the Customer Voice of the Customer

Six Sigma – Integration

EliminateUnnecessary

Steps

ReduceVariability

Design Variability

Out

• Operational Excellence

• Cost Management• Increased

Profitability• Superior

Customer Service• Growth

Results

Design to Customer

Requirements

DMAIC(with LEAN Principles)

Design For Six Sigma

(IDOV Methodology)

Voice Of The Customer (VOC) Data Is Fundamental To The Six Sigma Methodology

DMAIC – Lean Principles

Identifying Waste And Making It Visible Is The First Step

DMAIC/Lean techniques are used to reduce unnecessary steps, eliminate rework, save time, save cost and extend capacity of valuable resources

Elimination of Unnecessary Steps

DMAIC – Lean Principles

• Specify the value of the process

• Identify the value stream for each process

• Allow value to flow without interruptions

• Let the customer pull value from the process

• Continuously pursue perfection

DMAIC – Variation Reduction

Typically A Few Process Input Variables Have An Extraordinary Influence On The Process Output

The basic premise of variation reduction is that sources of variation can be:

• Identified

• Quantified

• Eliminated or controlled

Managing Process Inputs …

DMAIC – Variation Example

• Example 1: Average time to approve is 45, with high variation resulting in most policies approved between 35 and 55 days

• Example 2: Average time to approve is 45, with little variation resulting in policies approved in no more than 47 days

Average Tells Little About The Customer Experience

Output Variation

Application Approval Process Example

30 45 60

Mean

Example #1

Example #2

Days

* Represents fabricated example* Represents fabricated example

**

DMAIC – Process Entitlement

• Shift overall performance to Entitlement, driving dramatic short-term improvements in cost and quality with minimal investment

• Only after the Entitlement is achieved should investment be made to redesign the process

MeanEntitlementPerformance

Shift

Upper Specification Limit

Output Variation 30 45 60

Days

* * Represents fabricated exampleRepresents fabricated example* * Represents fabricated exampleRepresents fabricated example

Application Approval Process Example **

DMAIC Methodology Obtain customer requirements Clearly scoped projects (aligned to

business strategy)Define

Mistake proof the solution Standardize process

Control

Validate the solution design Validate and pilot solution Implement improvement plan

Improve

Identify and quantify root causes Establish improvement targets

Analyze

Quantify process performance Calculate sigma level Measurement Systems Analysis

Measure

ANALYZE

MEASURE

DEFINE

CONTROL

IMPROVE

IDENTIFIED PROJECTS

STANDARDIZE / INSTITUTIONALIZE

DMAIC: Define, Measure, Analyze, Improve & Control

When DMAIC Becomes DFSS

AnalyzeMeasure Improve ControlDefine

DESIGN FOR SIX SIGMA

Doesprocess/ product exist?

No

Yes

No

Will entitlement accomplish

Customer goals?

Yes

Yes

Is improvemen

t a new process?

No

Transition Points …

Design For Six Sigma - Growth

Integrate Customer And Business Needs And Wants Before Launching Products And Services

• Approach for understanding and translating customer requirements for new products and services

• Customer is involved at each stage

• Avoid developing services with no market

Goal – design products, services, and processes that satisfy both customer and business needs at the highest level of quality possible

Design For Six Sigma …

DFSS Methodology

Identify• Obtain customers’ requirements• Conduct competitive benchmarking

Design• Define the functional requirements• Define the design requirements

• Confirm customers’ requirements are met• Implement new designValidate

• Develop detailed design• Predict design performance, Y=ƒ(x)Optimize

Demystifying Six SigmaCritical Concepts

Six Sigma Concepts

• Six Sigma Alignment Approach

• Measurement Systems

• Problem Solving with Statistics

• Instituting Process Controls

Six Sigma Alignment Approach

Alignment Approach

1. Confirm Strategic Goals2. Determine Project Clusters (Key Drivers of Goals)3. Define Y=f(x) Relationships4. Cascade Relationship to a Project Level5. Conduct Six Sigma Projects6. Realize Project Results7. Roll-up Process Metrics to Management

Dashboards8. Manage Business based on Dashboards

1. Confirm Strategic Goals

• Revenue Growth

• Operating Income

• Cash

• Customer Satisfaction

2. Determine Project Clusters

• Project Clusters are large-scale issues within the organization that have:– Levels of complexity which allow the issue to be

broken into smaller pieces– A measurable financial impact– Potential for long-term customer and company

benefit– Metrics which can roll up into dashboard-level

measures of process performance

3. Define Y=f(x) Relationships

• Identify the key drivers of obtaining desired performance within the Project Cluster

• Depict as Y=f(X)

Y=f(X1, X2, X3 … Xn)

Measurable Output

Key Performance Drivers

4. Cascade Relationships

Y= f(X1, X2, X3,...Xn)

y= f(x1, x2, x3,...xn)

y= f(x1, x2, x3,...xn)

“X’s” Become “Y’s” at the Next Level of Specificity

Project Clusters

Black Belt Projects

5. Conduct Six Sigma Projects

DMAIC – Improving Process Performance

Off-Target Variation

On-Target

CenterProcess

Reduce Spread

X XXX

XXXXX

XX

X X

X

X

X

XX

X

X

XXX

XX

XXXX

XXXXXXXX

6. Realize Project Results

• Closed Projects

• Validated performance of process improvement

• Control mechanisms in place for sustaining process improvements

• Process Owners are accountable for controlling and sustaining process improvements

7. Roll-up Process Metrics

• Performance metrics– Number of inaccuracies (defects)– Cycle time– Amount of re-work

• Financial metrics– Hard savings – Soft savings – Revenue enhancements

8. Manage by Dashboards

• Performance of all key sub-level processes are aligned to Project Clusters and rolled up to show performance against business goals

• Process performance metrics are maintained and tracked continuously

• Dashboards provide the managers of high performing companies line-of-sight visibility to performance against business goals, and the capability to drill down to process level performance as needed

Executives

Managers

Employees

Improve market share, Improve market share, increase profitability, and increase profitability, and ensure the corporationensure the corporation’’s s

longlong--term viabilityterm viability

Improve yield, eliminate Improve yield, eliminate rework, and reduce labor rework, and reduce labor

and technology costsand technology costs

Create Vision,Create Vision,Strategy andStrategy andCommitment Commitment

Reduce waste, Reduce waste, defects, variation and defects, variation and improve capabilitiesimprove capabilities

Prioritization - Focus - Accountability - Reward

Metrics developed to Metrics developed to manage key drivers manage key drivers

of the businessof the business

Empower AEmpower A--Players Players to to ““get the job doneget the job done””

Voice of the Customer Voice of the Customer

Executives

Managers

Employees

Improve market share, Improve market share, increase profitability, and increase profitability, and ensure the corporationensure the corporation’’s s

longlong--term viabilityterm viability

Improve yield, eliminate Improve yield, eliminate rework, and reduce labor rework, and reduce labor

and technology costsand technology costs

Create Vision,Create Vision,Strategy andStrategy andCommitment Commitment

Reduce waste, Reduce waste, defects, variation and defects, variation and improve capabilitiesimprove capabilities

Prioritization - Focus - Accountability - Reward

Metrics developed to Metrics developed to manage key drivers manage key drivers

of the businessof the business

Empower AEmpower A--Players Players to to ““get the job doneget the job done””

Voice of the Customer Voice of the Customer

Measurement Systems

Measurement Systems

+Actual(Par t)2

=

Process Variability(Actual variability)

Meas. System2

Observed(Total)

2

Process A

Process B

Total Variability(Observed variability)

MeasurementVariability

• Observed process variation is made up of:– Variation in the process– Variation in the measurement system

Measurement Systems

• Measurement data is flawed when:

– The right things are not being measured

– The right things are not being measured correctly

OR

Measurement Systems• How organizations typically view measurement systems:

– Our data does not show us the real picture• We measure “days outstanding” by invoice, but not by customer• We know how many people are in the process, but we don’t know how

the level of productivity• We know who is not paying their invoices, but we don’t know why they

are not paying

– We do not have confidence in the data we have• Order to delivery data does not account for the fours days that the order

sits in the sales person’s briefcase• Defect data shows customer complaints, but not the number of times we

fix the order before it reaches the customer• Call center data shows average wait time, but does not include time

spent on hold after a representative has answered the call

Measurement Systems

• Applying Six Sigma to measurement systems:

– Getting the real picture• Ensuring measurements reflect Voice Of the Customer • Measuring the Xs and monitoring the Ys• Aligning measurements to key business objectives• Establishing measurement systems to fill gaps in the data

– Validating the measurement data• Conducting a Measurement System Analysis

– Ensuring a common definition of the defect– Validating that measurements are taken the same way every time– Determining the acceptable level of measurement system variation

• Establishing a process to maintain the measurement system over time

Problem Solving With Statistics

Problem Solving w/ Statistics

• How organizations typically view problem solving:

– If we hire smart people and allow them institute some changes, our problems will be solved

– Every time we solve one problem a new one pops up and we are never able to get the whole thing right

– It seems like we solve the same problem every few years, but we never are able to sustain the improvement

– We have spent a fair amount over the years implementing one great idea after another and none have ever met their original expectations

Problem Solving w/ Statistics

• Six Sigma techniques:

– Determine key drivers of process output at a task level

• Y=f(X1, X2, X3 …Xn) where the Xs are measurable process input and the Y is a measurable process output

– Develop and/or validate performance measurements for the key drivers of process output

– Use statistical tools to understand which of the drivers have a statistically significant impact on the process

– Optimize the performance of statistically significant drivers

– Apply process controls to ensure that performance remains at the optimal level

Project Example

1. Confirm Strategic Goals• For the current fiscal year, senior management has

indicated the following goals:– Organic revenue growth– Reduced costs– Increased customer satisfaction

• Interviews with functional leaders in the organization suggest the following as potential barriers to achieving corporate goals:– Sales closing ratios– Equipment delivery times– Back office inefficiencies

Project Example

2. Determine Project Clusters

• Project Cluster = Late Deliveries

• Description of Project Cluster Issue

– Customer feedback indicates that the amount of time it takes from ordering a piece of equipment until the equipment is installed in not acceptable.

– Available data suggests equipment deliver times are averaging 15 days from order to installation

– Management experience and intuition suggests that 15 days is not a good representation of true delivery times

Project Example

3. Define Y=f(X) Relationship

Late Deliveries Y= f(X, X , X,)

Sale

s O

rder

Del

ays

Fina

l Ass

embl

y

Del

ays

Ship

ping

Del

ays

Approximate annual costs associated with late deliveries:• Cancelled orders = $2.3mm• Expedited shipping = $0.8mm• Additional labor = $ ?

Project Example

3. Define Y=f(X) Relationship

Late Deliveries Y= f(X, X , X,)

Sale

s O

rder

Del

ays

Fina

l Ass

embl

y

Del

ays

Ship

ping

Del

ays

Does “Late Deliveries” align? Revenue Growth – Yes (constraint removal) Cost Saving – Yes ($3.1mm opportunity) Customer Satisfaction – Yes (significant dis-satisfier)

3 days = 20%

Order management data indicates: On average, final assembly begins 3 days after date on customer order On average, shipping is scheduled 5 days after final assembly begins On average, date on customer delivery receipt is 7 days after shipping is scheduled

5 days = 33%

7 days = 47%

Project Example

4. Cascade Relationships

Financial data suggests:• Black Belt project improvements

will produce benefits that represent a portion of the overall opportunity

• Project benefits will be approximated as part of the initial Project Charter and validated with greater specificity as project progresses

Fina

l A

ssem

bly

Del

ays

Ship

ping

Del

ays

Sale

s O

rder

Del

ays

Y = f(X, X , X,)Late Deliveries

Sele

ctin

g &

Sche

dulin

g

Logi

stic

s

Y = f(X, X , X,)Shipping Delays

3rd

Part

y

Logi

stic

sC

usto

mer

Ava

ilabi

lity

Pick

-up

Y = f(X, X , X,)3rd Party Logistics

Proc

essi

ng

Del

iver

y

Black Belt Project

½ day = 7%

½ day = 7%

6 days = 86%

1 day = 16%

1 day = 16%

4 days = 68%

3 days = 20%

7 days = 47%

5 days = 33%

Conduct Six Sigma ProjectsProj. No:

Name:

Problem Statement:

Project Objective:

Project Benefits:

Project Metric "Y":

Defect Definition:

Project Start Date (Signed-Off)

tmckinney@xample.com

The average time for a 3rd Party Logistics Provider to process outbound shipments to customers is four days. This contributes to an overall average time from order to installation of 15 days. The average of 15 days from order to installation is not meeting customer expectations which leads to expedited shipping cost, and cancelled orders. The total annual cost of Late Deliveries is estimated at $3.1mm.

To reduce 3rd Party Logisitics Provider's average processing time by 2.8 days from and average of 4 days to an average of 1.2 days without incurring additional costs.

Wednesday, June 11, 2003

Project Completion Date (Signed-Off)

Information Technology T. McKinney

Team Makeupe-Mail:

kvu@xample.comK. Vu

1) Estimated $840,000 in cancelled orders and expedited shipping costs; 2) Improved customer satisfaction

vlopez3@xample.com123-565-7729Financial Analyst

ddanford@xample.com

R. Stevenson

123-565-7714

Project Information Worksheet

Charter Creation Date

June 5,2003

Division / Loc./ Cost Ctr.:

Project Name: 0306-J-0037

Role:

111-555-1237D. DanfordMaster Black Belt

Phone:

Strategic Goals = Improved Customer Satisfaction, Reduced Costs; Big "Y" = Late Deliveries; 2nd Level "Y" = Shipping Delays; 3rd Level "Y" = 3rd Party Logistics

123-565-7801

123-565-7734

V. Lopez

rstevenson1@xample.comBlack Belt

Six Sigma Project Charter

3rd Party Logistics - Processing

Process Owner

123-565-7721 wstrauss@xample.com

3rd Party Logistics processing times in excess of 1.2 days.

Project Champion E. W. Strauss

X-ampleX-ampleX-ample

To begin the project the Black Belt needs an approved Project Charter

Proj. No./Name

ProjectBaseline Forecast Actual Forecast Actual

Baseline Period (Year, Qtr. Etc.) Jun-02

Cost Of Goods Sold:- Material - - - - - Direct Labor - - - - - Product Overhead - - - - Total COGS - - - - -

Salary & Benefits - Other than Direct Labor (detail):- Full-time Staff (#) - - - - - Full-time Staff ($) - - - - - Temporary Staff (#) - - - - - Temporary Staff ($) - - - - - Part-Time Staff Cost (#) - - - - - Part-Time Staff Cost ($) - - - - Total Salaries & Benefits - - - - -

Other Cost Categories: Project

Baseline Forecast Actual Forecast Actual- Scrap - - - - - Re-Work - - - - - Warranty - - - - - Freight/Shipping 240 168 - 168 - - Other COPQ - - - - Other Cost Category (List): - - - -

- - - - - - - - - - - - - -

Total Other Cost 240 168 - 168 -

Total Productivity Cost Savings 240 168 - 168 -

Project

Revenue Baseline Forecast Actual Forecast Actual- Increase from Volume 600 420 - 420 - - Increase from Price - - - - Total Revenue Increase 600 420 - 420 -

Profit (EBIT) Margin % 12% 0 - 0 - EBIT Impact 72 50 - 50 -

Project

Cash Flow Benefits Baseline Forecast Actual Forecast Actual- Accounts Receivable - - - - - Accounts Payable - - - - - Inventory - - - - - Payroll - - - - - Other (List):- ______________________ - - - - - ______________________ - - - - Total Cash Flow Increase - - - - - % EBIT Impact of Cash Flow 0% 0% 0% 0% 0%EBIT Impact (WACC) - - - - -

Year 1 Year 2

$(000's)

Year 1 Year 2

$(000's)

Year 1 Year 2

Cash Flow Benefits

Six Sigma Project Charter

$(000's)

Revenue Benefits

Year 1 Year 2

Productivity Benefits

0306-J-0037 / 3rd Party Logistics - Processing

X-ampleX-ampleX-ample