Managerial aspect of applying six sigma in non-manufacturing companies

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Managerial aspect of applying Six Sigma in non-manufacturing companies

N.V. Otlivanskaya, PhD, Associate Professor of Management of Foreign Activity of Enterprises Department Institute of Economics and Management, National Aviation University, Kyiv

The paper communicates role of Six Sigma method in activity of non-manufacturing enterprises, particularly in optimization of service process steps. Restriction towards using Six Sigma in innovations activity is given. Causes of underdevelopment of Six Sigma in practice of administrative and service processes of Ukrainian enterprises are considered.

Keywords: Six Sigma, DMAIC cycle, DMEDI, DFLSS, service sector company, innovations.

Управлінський аспект застосування шести сигм у невиробничих компаніях

Н.В. Отліванська, к.е.н., доцент кафедри менеджменту зовнішньоекономічної діяльності підприємств Інституту економіки та менеджменту Національного авіаційного університету, м. Київ

В публікації йдеться про роль методу шести сигм в діяльності невиробничих підприємств, особливо в частині оптимізації кроків процесу надання послуг. Звертається увага на обмеження щодо використання шести сигм в діяльності, повя'заній із інноваціями. Розглядаються причини нерозвиненості шести сигм в практиці адміністративних та сервісних процесів підприємств України.

Ключові слова: Six Sigma, цикл DMAIC, DMEDI, DFLSS, компанія сектору послуг, інновації.

Problem statement

Today one of the most popular methods of quality management being implemented in practice is method of Six Sigma. Bill Smith - an employee of “Motorola” company in 1986, formulated basic principles of the methodology Six Sigma. Later developed methodology was applied by AlliedSignal CEO Larry Bossidy, which had done with its help a radical transformation in his company. But after Jack Welch adapted methodology "Six Sigma" to meet challenges that his corporation General Electric has faced with, it has become a major management methodology applied by many hundreds of other companies around the world.

Since its inception Six Sigma has undergone great changes and development. Six Sigma is an effective strategy for improving business processes, contributing to company to identify, reduce and eliminate defects in a product, process or transaction of any kind. Six Sigma - is not just a strategy for quality improvement, Six Sigma - a strategy of continuous improvement that is characterized by high dynamics and flexibility that allows us to find the necessary solution.

Analysis of recent research and publications. Considerable contribution to the study of conceptual issues related to quality management made domestic and foreign scientists including: E. Deming, F. Crosby, J. Harrington, J. Gull, K. Ishikawa, J. Juran, W. Shewhart, G. Taguchi, G. Voronin, A. Hlychov, P. Kalita, L. Kirichenko, I. Mazur, A. Feigenbaum, S. Fomichov and others. Сoncept of lean management studied in their works Jeffrey Liner, Daniel Johnson, Michael Vader, Jim Vumek, Michael L. George, Masaaki Imai, A. Nesyolovskiy, A. Vikhanskiy, K. Gordeeva and others. Among foreign scientists who have studied quality improvement issues and use of Six Sigma should be noted K. Lewin, I. Adizes, William Barnett, M. Hammer, J. Ciampi, P. Drucker, J. Cotter and others. It should be noted that in Ukraine the concept of Six Sigma is only at the stage of learning and development.

Main goal of our research is in implementing theoretical overview of classical manufacturing Six Sigma essence and application of it in the sphere of services parallel with analyzing obstacles of wide applying it on Ukrainian enterprises.

Statement of main material

Six Sigma - is an approach to business improvement through searching and elimination of causes of errors or defects in business processes. In the concept of Six Sigma is put claim that any discrepancy that can lead to customer dissatisfaction is seen as a defect.

Standard approach to problem solving in Six Sigma method is called DMAIC - define, measure, analyze, improve, control cycle, - the main application of the Six Sigma.

Despite the fact that knowledge of statistics is not the main point of the concept, Six Sigma title came from statistics. Any process can be represented as a mathematical model, wherein main parameters of the process result are mean and standard deviation. Mean values answers the question how the process works in average and is denoted by a. Standard deviation indicates degree of variability (variability) of the process result and is denoted by у (sigma).

Formally Six Sigma is a statistical characteristic of the production process. The higher amount of sigma falls within the range of possible values of some process parameter, the higher is the efficiency of the process. This number can serve as a universal metric for comparing levels of quality of any, even heterogeneous processes, products and services. To remain competitive companies must provide efficiency of production processes at the level of about 3 to 4 Sigmas, although there are still a considerable number of companies who have not reached this level. If the company is working on one-Sigma level, it means that it makes more wasted produce than qualitative that meets customer requirements. Six Sigma level corresponds to the almost perfect quality of production process. Thus quality scale according to the number Sigma could be translated into the language of process stability.

If the process has some established control limits beyond which results of the process are considered an undesirable event, the more Sigma fits between the mean and the nearest control limits, the fewer defects will have the process (Pic. 1). Level of work process is determined by the number of Sigma within a preset interval. The smaller is standard deviation, the more stable and better are the results (with the term that the average value is close to the target value).

Picture 1. Geometric representation of 3 Sigma Rule

This condition is fair for stable processes. In reality behavior of processes can vary within the time of year, time of day, etc. Based on empirical data researchers concluded that deviation of the process due to its natural instability give quality deviation of 1.5 sigma. Thus, if target quality level is 4.5 sigma (3.4 defects per million opportunities), then with the reinsurance of 1.5 sigma for deviations, it is necessary to ensure the quality level of 6 Sigma.

In the Western countries and in USA Six Sigma is used in almost all areas - in manufacturing, services, medicine, education and defense sector (Motorola, AlliedSignal, American Express, DuPont, Ford). In Ukraine it's more widespread practice of lean management in manufacturing than Six Sigma yet. In Ukraine Six Sigma is implemented by companies such as: UPEC - one of the largest Ukrainian companies specialized on machine building business; production enterprise "New Style" - member of the largest European furniture holding «Nowy Styl Group». Experience of these companies shows that methods of Six Sigma give significant economic effect. And elimination of them in company - is the result of implementation of Lean and Six Sigma practices in administrative processes. Often managers of companies are surprised by so-called "hidden" processes that cause significant costs (time and material), that would never have been discovered without the introduction of the principles of Lean. Often there is no planning of activities, whereas the introduction of Lean provides planning and construction processes that leads to significant results.

Implementation of Six Sigma in administrative processes allows to analyze in detail the whole process in isolation from the others and to simplify it, reconstruct it so as to maximize the yield of the process without increasing the amount of resources needed. The first step is to ask: "How do losses occur?" and try to avoid blaming the human factor. Let's consider Six Sigma example in administrative processes in the experience of American insurance company Computer Outage Liability Assurance (COLA).

Work with IT provider acquiring insurance pole for technical failures and the associated liability, in the United States begins with the preparation of a letter of agreement. After that, the insurer has 12 weeks to prepare the contract. However, during these 12 weeks may occur serious changes. Therefore, the insurance company COLA was unhappy with such a lengthy procedure training policies. In addition, in the period between the signing of the letter of consent and completion of the policy often encountered legal disputes, resulting in COLA costs on lawyers were $2.3 million per month. So they put the Company's goals: to reduce the period for signing up to six weeks. To achieve this objective the company has gone the circle of Six Sigma. In the first stage mechanism for the preparation of policies was divided into components with highlighting factors influencing efficiency of the process. From the words of customers revealed that they are interested not only in preparation of policies but also in simplicity and clarity of the document. six sigma administrative service innovation

In the next phase "Analyze" were made measurements that allowed to know what takes the most time. Not only time was measured but also value of different operations. It was found that of the 45 main stages of the process four referred to the value increasing (8.9%), two - to contributing to its increase (4.4%), the remaining 39 stages (89.7%) did not increase the value. For a better understanding of the three categories of analysis values the team added two aspects of the analysis of time: work time (time spent on processing of a product or service on their way to the customer) and idle time (which product or service is "waiting" until something is done). Here analysts made a startling discovery: they found that of 10.4 weeks only 8 days were real work time. That is, only 15.4% of the total preparation process of policies was spent on work related to the increase in value. It had to be figured out how to cut the loss of time to bring the process of policies preparation to planned week and a half and still retain control over the efficiency.

Phase "Improve". In fact contract of insurance services was an average of 30 pages, and no one really cared that the client would understand the document. The volume of the policy was to reduce drastically. For this purpose individual stages of the policy consideration were limited (some excluded), and also were created standardized elements of the contract, which will later be used as "building blocks" in the preparation of policies. As a result of these actions contracts to policies issue reduced to 8 pages, the number of steps was reduced from 45 to 16. At the end of a draft of budget for the implementation of the new process was developed. Thanks to all this COLA could take a leading position in its market segment.

Lack of freedom and toughening processes that go hand in hand with the introduction of technology Six Sigma, also hinder the development of innovative projects in the sphere of services. For the first time implementation of Six Sigma in company 3M launched in the late 1990s at the initiative of former CEO James McNerney (formerly held senior positions in the General Electrics). According to one of company's later CEO namely the implementation of Six Sigma killed innovation at 3M. Besides when you take up designing a new product, service or process (or radically rebuild existing process starting with a clean slate), the main problem is that there is a lot of unknown - a lot more than when debugging what already exists. The optimal model of improvement applicable in situations like this is called DMEDI (Definition - Measurement - Research - Development - Implementation) or DMADV (Definition - Change - Analysis - Design - Testing) or the design in terms of “Lean Six Sigma” (Design for Lean Six Sigma, DFLSS). All of them compared to the DMAIC pay more attention to the collection of data about the consumer and at each stage of the translation of "needs" into the "requirements", clearly linking them to each other and, ultimately, the process of creating a new service or product. This should be specially noted for service companies with flexible reaction on changing customer needs.

We distinguish following causes of underdevelopment of Six Sigma in practice of administrative and service processes of Ukrainian enterprises. This system appeared in an environment where other competitive advantages have already been used (Japan, USA and other countries with highly competitive markets). Ukraine has not yet used other reserves of increasing business efficiency. To apply Six Sigma it's necessary that the company would be competitive. However according to expert assessment no more than 15% of companies can be entitled to such status. All the rest - is area where main competitive advantage is obtained due to informal factors (personal attitude, administrative resource). In philosophy of Ukrainian managers dominate such an idea that they do not work with the market but with certain buyers that brings further reluctance of introducing quality system.

Conclusions and suggestions

Thus Six Sigma - is a statistical concept of measuring process parameters of the number of defects. Achieving level of Six Sigma means that during performance of analyzed process appears only 3.4 defects per million opportunities; in other words, work is carried out almost flawlessly. The basic idea of management based on Six Sigma is that if you can measure the number of defects in the process and can identify ways to eliminate them, therefore level of quality with virtually no wastage could be reached. Using Six Sigma in activity involving innovations may cause problems with excessive formalization, developing unnecessary forecasts and predictions that eventually will ruin innovative process.

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