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What is Six Sigma? 

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I hope that the past year has most CEOs realizing that manufacturers can't outdo their competitors by clever marketing only---"selling the sizzle" while cheating on quality, missing customer commitments and having no focus on improving manufacturing efficiency or effectiveness. To improve or maintain profit margins when the business cycle turns down requires concrete manufacturing action on a practical level---action to change facilities, update processing technologies, adjust work-force practices, and perfect information and management systems.

Optimizing a factory's contribution to profits must be a key strategic objective during the downturn in the business cycle. A focus on improving five elements of manufacturing efficiency and effectiveness can have an immediate, significant, positive impact on the profitability of the overall business. For companies that have had prior programs of cost reductions through a continuous improvement program, it may be time to revisit the target objectives and revitalize efforts to achieve or exceed original performance goals.

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Let's review the five critical elements of improving manufacturing performance:

Performance measurement: Financial numbers may tell us we’re winning the war, but it takes performance measurement to show us how to focus our energy and efforts to win each of the battles along the way.

Today, the performance scorecard is a performance measurement system that helps companies pursue their key success factors. The scorecard uses both internal and external benchmarking and employs a relevant cascading method of performance goal setting. Achievements are acknowledged and celebrated on a "real time" basis and not at the traditional annual review.

For a balanced scorecard process to be motivational it must provides timely and accurate data. Simplicity is a key to the validity of measurements and the tractability of problems to their root cause. Data collection design must employ simple and easy to maintain databases to assure data integrity. When people are trained in this process and are permitted to participate in relevant goal setting, performance measurement can motivate teams to higher achievements---including the exceeding of growth and profit expectations.

So what kind of results can you expect when a management team introduces the process of the balanced scorecard? First, people will become motivated and focused on the continuous improvement of their company’s critical success factors. Second, personal and team achievements will become recognized and rewarded--- creating an exciting, winning, work environment. Teamwork will improve and employee retention will rise. Finally, and most important is the company-wide euphoria as "bottom line" results improve and financial pressures no longer create a stressful and defensive work environment. 

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Reduce waste: There is a negative correlation between waste rates (the percentage of rejects) and productivity and its magnitude is amazing. In a process plant, changes in the waste rate (measured by the ratio of scrap and rework to total cost, expressed as a percentage) leads to dramatic operating improvements. Reducing the percentage of waste by only one-tenth of a percent can lead to a 3% improvement in productivity.

The strength of this relationship is more surprising when we discover that a decision to boost the production throughput rate (which ought to raise productivity because of the large fixed components in labor and capital costs) causes waste ratios to increase. Therefore, in theory, productivity and waste percent should increase together. The fact that they do not indicates the truly powerful impact that waste reduction has on productivity.

A study of companies successful at reducing waste will invariably show that they have developed a culture of gradual, continuous improvement. This culture is the foundation for project implementation success. The Japanese call it kaizen - a management culture of gradual, continuous improvement. We describe it as "a tenacious focus on process improvement". If you doubt the power of gradual, continuous improvement you need to study the careers of Vince Lombardi and Tiger Woods. Their huge success stories are testimonials to kaizen. Vince Lombardi focused his players on the continuous improvement of the execution of basics – that's kaizen! Tiger Woods attributes his success to his relentless quest for a better swing, for higher quality gamesmanship and a daily pursuit of perfection – that's kaizen!

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In business the elimination of waste is one of three focuses of kaizen. A check point system and the Five Ws and One H are important elements of the kaizen attack on waste:

The kaizen check point system for waste reduction:

1. Manpower, 2. Technique, 3. Methods, 4. Time, 5. Facilities, 6. Jigs and Fixtures, 7. Materials, 8. Production Volume, 9. Inventory, 10 Place, 11 Way of thinking

The Five Ws and the One H of kaizen:

Who - Who does it? Who is doing it? Who should be doing it? Who else can do it? Who else should do it?

What - What to do? What is being done? What should be done? What else can be done? What else should be done?

Where - Where to do it? Where is it done? Where should it be done? Where else can it be done? Where else should it be done?

When - When to do it? When is it done? When should it be done? What other time can it be done? What other time should it be done?

Why - Why does he do it? Why do it? Why do it there? Why do it then? Why do it that way?

How - How to do it? How is it done? How should it be done? Can this method be used in other areas? Is there any other way to do it?

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Reduce WIP: The positive effect on productivity by cutting work-in-process (WIP) inventories for a given level of output is significant. In some case studies, a reduction of WIP by one-tenth produced a 9% rise in productivity.

There is a huge body of empirical evidence about the benefits of reducing WIP. From studies of both Japanese and American companies, we know that cutting WIP leads to faster, more reliable delivery times, lowers reject rates (faster production cycle times reduce inventory obsolescence and make possible rapid feedback when a process starts to malfunction), and cuts overhead costs. We now know it also drives up productivity.

The trouble is, simply pulling work-in-process inventory out of a factory will not, by itself, lead to such improvements. More likely, it will lead to disaster. WIP is there for a reason, usually for many reasons, it is a symptom, not the disease itself. A long-term program for reducing WIP must attack the reasons for its being there in the first place: Erratic process yields, unreliable equipment, long production changeover and setup times, ever changing production schedules, and suppliers who do not deliver on time. Without a cure for these deeper problems, a factory's cushion of WIP is often all that stand between it and chaos.

Elimination of the stockroom: Material handling and inventory storage are two of manufacturing’s high cost, non-value-added activities. The elimination of the stock room, as it is known today, should be a strategic objective of all manufacturers. Moving materials to their point-of-use is not a new concept, the auto industry has done it from its beginning and all industries have had success with point-of-use, low cost hardware.

Supply chain development is the key, and it’s time to realize that there is much more to increasing supplier contribution to gross profits than simply placing purchase orders with the lowest price bidder. "Strategic Outsourcing" that focuses on getting the right materials to the right place at the right time must replace "beating-up" on suppliers for price reduction alone. 

A manufacturer of electronic component test equipment, in response to its need to increase factory floor space to build a new multi-function tester, decided to convert stockroom space into a production area. It was agreed that none of the new tester parts would enter the remaining stockroom and that all common parts would be relocated to their consuming production areas as "point-of-use" inventory. The key to making this project a success was the development of a powerful supplier support network that provided timely and innovative "point-of-use" logistical support. High communications integrity, scheduling flexibility/responsiveness, superior quality, special materials transportation/storage racks and a positive "continuous improvement" mind set were some of the characteristics of the developed relationship. Today, three years after the start of the project, this manufacturer is a market leader and most of the credit goes to their supplier development team and the powerful supplier support network that it helped develop. 

Business people in pursuit of point-of-use logistics should be advocates of: 1) business integrity, 2) day-to-day supplier cooperation, 3) free exchange of information, 4) responsive decision-making and 5) supplier profit sharing. Supplier development and strategic outsourcing requires a "from the top down" commitment and investment to produce a team of professionals that can make it happen. 

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A commitment to ongoing learning: Without making a commitment to ongoing learning, a factory will gain no more from the above four elements than a one-time boost in performance. To sustain the leverage of plant-level operations, managers must pay close attention to---and actively plan for---learning. 

I am convinced that a factory's learning rate---the rate at which its managers and operators learn to make it run better---is at least of equal importance as its current level of productivity. A factory whose productivity is lower than another's, but whose rate of learning is higher, will eventually surpass the leader. 

Reducing chaos and enhancing learning do not conflict. They make for a powerful combination---and a powerful lever on competitiveness. A factory that manages change poorly, that does not have its processes under control, and is distracted by the noise in its system learns too slowly, if at all, or learns the wrong things. 

In such a factory, new equipment will only create more confusion, not more productivity. Equally troubling, both managers and worker in such a factory will be slow to believe reports that a sister plant---or a competitor's plant---can do things better than they can. If the evidence is overwhelming, they will simply argue, "It can't work here, we're different." Indeed they are--and less productive too. 

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