Sherman Consulting Inc. Driving End-to-End Process Improvement SM Six Sigma for the CPA or CFO...

Sherman Consulting Inc.Driving End-to-End Process Improvement

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Six Sigma for the CPA or CFO

November 30, 2007

Peter J. ShermanASQ Certified Quality EngineerCertified Six Sigma Black Belt

2 Sherman Consulting Inc.Driving End-to-End Process Improvement

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Agenda

σ Objectivesσ Your Businessσ Six Sigma Overviewσ The Basicsσ DMAIIC Process (Case Study Approach)

Define Analyze Measure Improve Implement Control

σ Six Sigma Action Plan

σ Wrap Up


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Biography

Peter J. Sherman is an ASQ Certified Quality Engineer and a Certified Six Sigma Black Belt. He has 20 years experience, including serving as Sr. Black Belt for AT&T’s Product Development Group. Mr. Sherman has led Six Sigma initiatives across Product Development, Sales, Fulfillment, Installation, Customer Support, and Billing. He began his career in quality management working in Japan as a visiting M.I.T. Scholar in 1986-87. There he worked with Dr. Edwards Deming, the noted American Quality expert and learned firsthand Japanese quality practices including the Toyota Production System, Quality Circles and Kaizen. Mr. Sherman is lead Instructor at Emory University's Six Sigma Certification Program in Atlanta, Georgia and has been published in various journals including iSixSigma, Hospitals & Health Networks, Solutions (Supplement to Journal of Financial Planning). Mr. Sherman received his Master's in Engineering from M.I.T. and has an MBA from Georgia State University. Mr. Sherman is a member of the ASQ and ISSSP.


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Objectives

1. Discover the role and value of Six Sigma2. Learn how to conduct the Six Sigma process

and interpret the results through a case study3. Develop and implement a 6σ Action Plan for

your business


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Your Business


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Customers

“Profit in business comes from repeat customers, customers that boast about your product or service, and that brings friends with them.”

W. Edwards Deming


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Your Business

Product / Service

Development

Fulfillment Delivery

Sales & Mktg Support BillingProductionInventory


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Your Business Goals

• As a business owner you want to optimize:

– Accelerate new product / service launches– Increase sales effectiveness– Reduce inventory to free up cash flow– Streamline operations and improve profitability– Improve accuracy of orders / on-time delivery– Prevent customer service calls – Reduce costs of billing mistakes / lower A/R to free-up cash– Increase customer loyalty / reduce churn


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Your Comparative Advantage

σ Capital?σ Low-Cost Labor?σ Market shareσ Technology?

It’s how you manage your business processes!


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Why Should You Care?

σ Poor quality costs money!σ 30% for service companiesσ 15% for manufacturing companies

σ Customers have lots of options σ Global competitionσ Your company’s reputation

Philip Crosby, “Quality is Free”


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Six Sigma Overview


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Evolution of Quality

1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s

Control Charts

Six Sigma

Cus

tom

er V

alue

TQM

Just-in-Time (JIT)

Kaizen

Statistical Process Control

Walter Shewhart, Western Electric

W. Edwards Deming

Lean Six Sigma

Taiichi Ohno

PDCA

Toyota Production System

ISO 9000

BPR

Lean

Quality Circles

Kaoru Ishikawa

Ishikawa Diagram

Michael Hammer

Joseph Juran

“Juran Trilogy”

Deming’s 14 points

Philip Crosby

“4 Absolutes of Quality Management”


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What is Six Sigma Level Quality?

The reliability of getting a dial tone every time you pick up a telephone!


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Knowing your package will be delivered by 10am the next day, guaranteed!


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Whether you are in Athens, GA or Athens Greece, a Big Mac tastes the same!


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Six Sigma Defined

σ It’s an approach to managing a businessσ Focus on customers, data and measurement

σ It’s a process improvement methodologyσ Improve existing processesσ Build new processes

σ It’s ROI oriented

Six Sigma (σ) is a customer focused, well defined problem solving methodology supported by powerful analytical tools.


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Six Sigma Defined

“Today's competitive environment leaves no room for error. This is why Six Sigma Quality has become a part of our culture. At its heart, Six Sigma is about understanding what your customers want and developing a game plan to deliver it.”

Jack Welch Retired Chairman, CEO General Electric

6 Sigma translates into 3.4 Defects per Million Opportunities…or 99.9997% accuracy!

Requirements are Six Standard Deviations on each side of the mean

Upper Customer Requirement

Six Sigma Quality

Lower Customer Requirement

6 6


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Six Sigma Defined

σ Six Sigma is a measure of quality.σ Sigma is a Greek letter used by statisticians to show the

variation in a process. σ The higher the Sigma, the better.

Sigma LevelDefects Per

Million Opportunities

% Yield

1 692,462 30.7538%2 308,538 69.1462%3 66,807 93.3193%4 6,210 99.3790%5 233 99.9767%6 3.4 99.9997%


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Sigma Level Comparisons

3 σ 6 σ

93.3% Error Free 99.9997% Error Free

Unsafe drinking water for 10 minutes each day One unsafe minute every seven months!

No electricity for 5 hours each month One hour with no electricity every 34 years!

2.2M incorrect surgeries per year in the U.S. 111 incorrect surgeries per year!

137,000 pieces of mail lost per hour in the U.S. 7 pieces of mail lost per hour!

150M wrong drug prescriptions a year in the U.S. 10,200 wrong drug prescriptions a year!

Expect cold showers 2 days a month Cold showers are less than 2 min. a year!


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Calculating DPMO and Sigma

Example: An Accounting firm completes 150 tax returns a year. Each tax return entails 500 specific activities / steps (1040 forms, Schedule A, Schedule B, Schedule D). Historically, your firm averages .5% defects (missing signature, transposed numbers, wrong tax rate, late filing, etc.). It costs $250 for each mistake including calls, faxes, meetings, new forms, mailings, etc.

Calculate the DPMO, Sigma Level and cost of quality


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Calculating DPMO and Sigma

Step 1) 375 defects = .005 75,000 opportunities (150 tax returns x 500 steps)

Step 2) .005 x 1,000,000 = 5,000 DPMO

Step 3) Look up value in Sigma Table (see next page)

Solution: 5000 DPMO (4.15 Sigma)Cost: 375 x $250 = $93,750


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Sigma TableSigma DMPO Yield Sigma DMPO Yield

6 3 99.99966% 3 66,807 93.3%5.9 5.4 99.99946% 2.9 80,757 91.9%5.8 9 99.99915% 2.8 96,801 90.3%5.7 13 99.99870% 2.7 115,070 88.5%5.6 21 99.9979% 2.6 135,666 86.4%5.5 32 99.9968% 2.5 158,655 84.1%5.4 48 99.9952% 2.4 184,060 81.6%5.3 72 99.9928% 2.3 211,855 78.8%5.2 108 99.9892% 2.2 241,964 75.8%5.1 159 99.984% 2.1 274,253 72.6%

5 233 99.977% 2 308,538 69.1%4.9 337 99.966% 1.9 344,578 65.5%4.8 483 99.952% 1.8 382,089 61.8%4.7 687 99.931% 1.7 420,740 57.9%4.6 968 99.90% 1.6 460,172 54.0%4.5 1,350 99.87% 1.5 500,000 50.0%4.4 1,866 99.81% 1.4 539,828 46.0%4.3 2,555 99.74% 1.3 579,260 42.1%4.2 3,467 99.65% 1.2 617,911 38.2%4.1 4,661 99.53% 1.1 655,422 34.5%

4 6,210 99.38% 1 691,462 30.9%3.9 8,198 99.18% 0.9 725,747 27.4%3.8 10,724 98.9% 0.8 758,036 24.2%3.7 13,903 98.6% 0.7 788,145 21.2%3.6 17,864 98.2% 0.6 815,940 18.4%3.5 22,750 97.7% 0.5 841,345 15.9%3.4 28,716 97.1% 0.4 864,334 13.6%3.3 35,930 96.4% 0.3 884,930 11.5%3.2 44,565 95.5% 0.2 903,199 9.7%3.1 54,799 94.5% 0.1 919243 8.1%


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DMAIIC Methodology

MEASURE THE CURRENT PERFORMANCE

DEFINE THE OPPORTUNITY

IMPROVE PROCESS EFFICIENCY

ANALYZE THE CURRENT PROCESSES

CONTROL AND ADJUST NEW PROCESSES

IMPLEMENT IMPROVEMENTS

Customer FocusedData Driven

ROI Oriented








ROI Oriented

Courtesy IIE and Aft Systems © 2007

A rational decision making process for improving existing processes.


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DMAIIC Methodology

• Determine breakthroughs, design future state: new process, new “Sigma” level

• Create dashboards, scorecards and plans

• Execute plans, overcome barriers

• Transition to the new process







• Perform cause-effect analysis to determine reasons for gaps in performance

• Map the process, gather initial performance data and determine current “Sigma”level

• Obtain client input, factors Critical to Quality (CTQ)

• Improve on what matters most to the client

• Significantly impact the bottom line

• Measure improvements and breakthroughs

• Report dashboard, scorecard data and client feedback


ROI Oriented

• Determine breakthroughs, design future state: new process, new “Sigma” level

• Create dashboards, scorecards and plans

• Execute plans, overcome barriers

• Transition to the new process







• Perform cause-effect analysis to determine reasons for gaps in performance

• Map the process, gather initial performance data and determine current “Sigma”level

• Obtain client input, factors Critical to Quality (CTQ)

• Improve on what matters most to the client

• Significantly impact the bottom line

• Measure improvements and breakthroughs

• Report dashboard, scorecard data and client feedback


ROI Oriented

Courtesy of IIE and Aft Systems © 2007


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DMAIIC Methodology


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Keys to Successful Six Sigma Implementation

σ Top Management Support and Participation:

Senior management must drive the process through the organization. Elements of this include careful selection of projects, allocation of resources, and decisions based on the measurements.

σ Clearly Defined Projects: Well-defined scope with specific quantitative and measurable improvements.

σ Strong Project Leadership: By Black Belts and Green Belts alike.


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Six Sigma Organization Structure

Green Belts

Black Belts

Master Black Belt

Champion

Steering Committee


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Six Sigma Organization Roles

σ Steering Committee: Identifies projects / black belts; allocates resources; monitors progress; manages project portfolio; establishes implementation strategy and policies

σ Champions: Provide support, resources and remove road-blocks. Champions have more in-depth understanding of the methods – measurements and interpretation of process measurements.


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Six Sigma Organization Roles

σ Master Black Belt: Master Black Belts are Six Sigma Quality experts that are responsible for the strategic implementations within an organization. Master Black Belt main responsibilities include training and mentoring of Black Belts and Green Belts; helping to prioritize, select and charter high-impact projects.

σ Black Belt: Are thoroughly trained individuals with expertise in all the analysis tools. Black Belts are expected to lead Six Sigma projects, identify opportunities, and coach / train Green Belts.

σ Green Belt: Green Belts play a key role in the support / execution of Six Sigma projects. Green Belts are also expected to lead smaller projects. Green belts understand concepts of problem solving, data collection, data interpretation, variation, process capability, and cost analysis.


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The Basics


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The Basics

σ QA vs QC

σ Understanding Variation

σ Statistics 101


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Count the F’s Exercise

THE NECESSITY OF TRAINING FARM HANDS FOR FIRST CLASS FARMS IN THE FATHERLY HANDLING OF FARM LIVESTOCK IS FOREMOST IN THE MINDS OF FARM OWNERS. SINCE THE FOREFATHERS OF THE FARM OWNERS TRAINED THE FARM HANDS FOR FIRST CLASS FARMS IN THE FATHERLY HANDLING OF FARM LIVESTOCK, THE FARM OWNERS FEEL THEY SHOULD CARRY ON WITH THE FAMILY TRADITION OF TRAINING FARM HANDS OF FIRST CLASS FARMS IN THE FATHERLY HANDLING OF FARM LIVESTOCK BECAUSE THEY BELIEVE IT FORMS THE BASIS OF GOOD FUNDAMENTAL FARM MANAGEMENT.


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What’s the Point?

“You can’t inspect quality into your product or service…….you have to build / design quality into the process.”

W. Edwards Deming


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QA / QC

Both forms of quality are needed for success!

Process

Building in quality throughout the process:

σ Methods & Procedures

σ Roles & Responsibilities

σ Training

σ Redundancy (i.e., power backup, auto-save on your PC)

Quality Assurance

Ensuring output conforms to specifications:

σ Inspection

σ Sampling

σ Customer Complaints

Input Output Quality Control

Process


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Variation


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Understanding Variation

σ No two things are exactly alike

σ Variation is the way things normally occur

σ The amount of variation in a process tells us what that process is actually capable of achieving. Shrinking variation reduces costs and creates a more predicable outcome (product or service)


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Variation Exercise

On this page sign your name as you normally would.

___________________

___________________

___________________

___________________

___________________

___________________

___________________

___________________

___________________

___________________


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Types of Variation

σ Common Cause variation is always present to some degree in the process (i.e., random, chance)σ Take action on the system or process.

σ Special Cause variation means something different happened at a certain time or place (ie., non-random)σ Identify Special Causes and address them first.

Stable processes are predictable and in control.

Deming felt 94% of all problems are due to common cause variation and 6% attributed to special causes.


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Statistics Refresher


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σ Mean: The sum of all the values in the sample divided by the number of values in the sample.

σ Median: The mid-point of the data when the data is arranged from the largest to the smallest value.

σ Mode: The value of the observation that appears most frequently.σ Range: The distance between the largest and smallest value.

Mean = Median = Mode

Normal Distribution (Symmetrical)


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Example:

A bank generally takes a week to open and process a new account. A random sample of 9 new accounts indicates the following cycle times in days:

5, 8, 6, 5, 10, 4, 7, 5, 12

Find the mean, median, mode and range.


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Statistics RefresherStandard Deviation

σ Common Usage: A measure of volatility or dispersion. “I love the returns of the stock market, but hate the volatility.” σ Technical Description: Defined as the positive square root

of the variance*.

* Variance is a measure of dispersion. Defined as the mean of the squared deviations from the mean. The problem with using variance is interpreting it. it is in terms of units squared. How do you interpret square percents or square dollars? The answer is to take the square root….hence standard deviation.

St. Dev sample = ∑ (Xn – X)2 n -

1Xn = Value in sample

X = Mean

n = Number of observations


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Example:

Over the past 6 months, a CPA firm has averaged 40 hours to complete a business tax return, with a standard deviation of 2 hours. The CPA firm pledges it can complete returns within 36 - 44 hours.

What exactly does this mean? What Standard Deviation (Sigma Level) is the firm performing? How would you interpret this? Show your answer in a graphical form.


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-1

38 hrs

Normal Distribution (Symmetrical)

+2

44 hrs

+ 1

42 hrs

-2

36 hrs

0

40 hrs

-3

34 hrs

+3

46 hrs

68%

95.5%

99.73%

- 68% of the time (1 std. dev), average returns fall within 38 and 42 hours.

- 95.5% of the time (2 std. dev), average returns fall within 36 and 44 hours.

- 99.73% of the time (3 std. dev), average returns fall within 34 and 46 hours.

44 hours - Upper Specification Limit


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DMAIIC ProcessCase Study


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Six Sigma Case Study

1. Form teams of four or five

2. Review the case study

3. Select roles within your teams


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ROI Oriented








ROI Oriented


Define


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Define

σ The most critical step in the DMAIIC journey.σ Define the scope. Identify the problem and how

much you want to improve it.

σ Projects that are not well defined and scoped generally lead to a waste of resources (time, management, capital).

Define Measure Analyze Improve AnalyzeImplement

An Iterative Process


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σ Charter – the key document used to identify and define the problem statement, project scope, team members & roles, and deliverables. The Charter is the contract between your team and senior management.

σ Voice of the Customer (VOC): A tool used to describe customers’ needs, leading to specific Critical-to-Quality (CTQ) requirements.

σ SIPOC – A high-level process map that includes Suppliers, Inputs, Process, Outputs, and Customers.

σ Process Flow – A more detailed process map that documents key resources, activities, cycle times, and decision points in a process. It is used to identify dependencies, redundancies, gaps, and bottlenecks.



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Project CharterProject Name:Black Belt:

Champion:Start Date:

Element Description

1. Process The process in which the opportunity exists.

2. Process Description

Describe the project’s process and scope.

3. Objective What improvement is targeted and what will be the impact to the business?

BSL Units

12

4. Business Results What is the improvement in business performance anticipated and when?

5. Team Members Who are the full-time members and any expert consultants?

6. Project Scope Which part of the process will be investigated?

7. Customer Benefits Who is the final customer, what benefits will they see and what are their most critical requirements?

8. Schedule Key Milestones D – DefineM – MeasureA – AnalyzeI – Improve / ImplementC - Control “C” Completion

Project Completion

“A” Completion“I” Completion

“D” Completion“M” Completion

Project Start

Goal

Completion Date:

Team Charter

TN / email:

TN / email:


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VOC Example – Rotary Club

Employees

What are their needs?

Who are your

customers?

Identify the drivers

Define Critical-to-

Quality requirements

Business Professionals

Community Service

• Schools• Dept. of Welfare• Public Parks

20 hours community service per year for each member

Professional Networking

Forum to gather Regular weekly meetings

Means to communicate

• Member Handbook

• 24x7 web access


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SIPOC / Process Flow Example – Rotary Club

Suppliers Inputs Processes Output Customers

Prospective Rotarian

Application Becoming a Rotary

Club Member

Approval document

New Rotarian Member

References Rejection Document

Rotarian Club

Sponsor

Marketing / Promotion

Gather Biography / References

Apply for Membership

Evaluate Candidate

Accept / Reject

Pay Dues

1 2 3 4 5 6


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Detailed Process Flow Example - Rotary Club

Start

Rotary member personally

discusses with prospective

member

Prospect completes Membership

Application and sends by mail

Rotary Club evaluates

candidate / verifies references

Rotary Club collects and reviews

applications for completeness

Decision: Accept / Reject

Candidate is officially accepted

to Rotary

Review Applicant in Future

Accept

Reject End

New Member receives invoice

by mailEnd

Pays dues by mail

Day 0Day 1

Invites prospect to Rotary Lunch to meet members

Day 7

Prospect decides to

applyYes

No End

Day 10 Day 17

Application complete?

Yes

No

Day 24

Day 38 Day 40 Day 47 Day 57

Rotary receives dues

Day 67 Day 67

Day 68


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Team Activities

1. State your objective (what are you improving and by how much?)

2. Develop a VOC (identify 1 critical-to-quality requirement)

3. Complete a SIPOC Analysis and High-Level Process Flow


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Pizza Express Charter

Project Name Pizza Express Delivery Improvement Black Belt Telephone Number Champion Start Date Target Completion Date

Element Description Team Charter

1. Process: The process in which opportunity exists.

Pizza Express operates a pizza delivery business out of a single retail store. The basic operations include:

1. Take orders from incoming telephone calls. 2. Prepare and bake the pizza. 3. Deliver the pizza via automobile. 4. Collect payment.

2. Project Description: Describe the Project’s Purpose

and scope. During the past 6 months of 2007 orders have been increasing significantly, however the business is losing money (1% loss or nearly $10,000). Customers have been complaining about the pizzas not being hot and fresh and late deliveries. The scope of this project will be to investigate the root causes of the delivery delays and to reduce them by 50% or approx. $97,000 annually. Resulting operating profits are projected to increase to $87,600 per year (10% margins).


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Pizza Express Charter3. Objective: What improvement is targeted

and what will be the impact to the business?

BSL1

GOAL

units

1. Reduce pizza delivery delays by 50%

15,803

7,901

Pizza Orders

2. Reduce Refunds $193,581

$96,790

Dollars

3. Increase Operating Income ($9,158)

$87,632

Dollars

4. Business Results:

What is the improvement in business performance anticipated and when?

Improve the on-time delivery of pizzas. This will result in increased operating income. Time horizon to implement improvements is the next 2-3 weeks.

5. Team members: Who are the full-time members and any expert consultants?

Larry Jones, Owner Mario, Pizza Chef Rachael, Receptionist Wayne, Driver Bobby, Driver

6. Project Scope: Which part of the process will be investigated?

The order-to-cash cycle will be investigated (ordering / production / delivery / receipt of cash)

7. Benefit to External

Customers:

Who is the final customer, what benefits will they see and what are their most critical requirements?

The end-customer is the primary beneficiary of this process improvement and will benefit from greater consistency of on-time delivery and customer satisfaction.

8. Schedule: Give the key milestones/dates Project Start Sept 5, 2007

D- Define “D” Completion Sept. 5, 2007

M- Measurement “M” Completion Sept. 10, 2007

A- Analysis “A” Completion Sept. 28. 2007

I- Improve/Implement “I” Completion Oct. 30, 2007

C- Control “C” Completion Dec 15, 2007

Project Completion Dec 20,, 2007

1 Baseline


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Pizza Express VOC

Customer Need / Drivers CTQs

Primarily middle-income families with children

Good tasting, quality Pizza 100% guarantee for freshness Only source suppliers with proven track record and

Quality Management System in-place

Fast Service 30 minute delivery from order Regular 3 month vehicle maintenance All drivers given maps

Convenience Open 7 days a week Flexible Hours of Operation

o Mon – Thurs (11am – 10pm)o Fri and Sat (11am – 2am) o Sun (Noon – 11pm)

Good Customer Service Answer telephone by 2nd ring Customer greeted by name Customer not interrupted Always repeat order / address / phone number back to

customer

Competitively Priced Prices will not exceed average of competition


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Pizza Express SIPOC / FlowSUPPLIERS INPUTS PROCESSES OUTPUTS CUSTOMERS

Food Wholesalers

Ingredients (dough, tomato sauce, cheese, spices, etc.)

Order-to-Cash Cycle

Pizza End-User

Food Equipment Vendors

Ovens, stoves, refrigerator, etc.

Bill

Landlord Building space

Automobiles Cars and fuel

Utility Companies Electric, gas, telephone

Misc. Suppliers Pizza boxes, pots, pans, kitchen tools, etc.

Take Order

Prepare Pizza

Cook Pizza

Deliver Pizza

Collect Payment

1 2 3 4 5


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Pizza Express Detailed Process FlowPizza Express Order-to-Cash Process Flow

Re

cep

tio

nis

t /

Ca

shie

rP

izza

Ch

efD

eliv

ery

Cu

sto

mer

Customer Calls in Order

Takes order, name & address

Prepares Pizza

Cooks Pizza

Places Pizza in box and places

on Delivery Shelf

Picks up batch of pizzas

Delivers Pizza to customer

Collects Full Payment from

customer

Returns to Pizza Express to

deposit cash to Receptionist /

Cashier

Late or Incorrect

Order

Credits customer and collects partial

payment

No

Yes

End

Opportunity for Error1) Wrong Order

2) Wrong Address3) Wrong Bill

Opportunity for Error1) Under / Over Cook

Opportunity for Error1) Bad Ingredients

Opportunity for Error: 1) Car Problem (Out

of Gas, Flat Tire, Mechanical)

2) Driver unfamiliar with location

Opportunity for Error1) Non-Payment

2) Incorrect change


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ROI Oriented








ROI Oriented


Measure


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Measure your current performance:σ % or # defectsσ Process “in-control” or “out-of-control”σ Sigma Level (capability of process)σ % Yieldσ Cost of Poor Quality


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σ Data Collection Plan – Identify the type data (variable vs. discrete), source, the format. Collect as much as you can!

Data

σ Variable: Data that is continuous and can be measured (i.e., length, time). Typical types include cycle time, Average Handling Time.

σ Attribute: Data that is discrete (i.e., yes or no response, pass or fail, go or no-go). Typical types include % Defective, # Defective, # Defects, Defects per Unit.


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Data

Collect as much data as you can!


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σ Histogram – a graphical representation of data in a bar chart format. Used to observe the “shape” of data (i.e., normal, bell-shaped vs. skewed).

σ Control Charts – The fundamental statistical tool used in Six Sigma. It shows the amount and type of variation present in the process. Stable processes are predictable and in (statistical) control.

σ Process Capability – the capability of a process to consistently make a product / service that meets a customer specification range (tolerance). Used to predict the performance of a process by comparing the width of process variation to the width of the specified tolerance.


Upper Specification Limit

Lower Specification Limit

X

Design Width

Process Width

A Capable Process


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Histogram

1. Collect data

2. Arrange data attribute in ascending classes across the horizontal axis

3. Populate the specific data in the appropriate classHistogram

0

5

10

15

20

5.75 to <=11.5

11.5 to <=17.25

17.25 to <=23.0

23.0 to <=28.75

28.75 to <=34.5

34.5 to <=40.25

40.25 to <=46.0

Class

# O

bse

rvat

ion

s

Normal Distribution Mean = 25.233Std Dev = 9.358KS Test p-value = .4673


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Control Chart

σ Considered the foundation of Six Sigma statistical analysisσ Shows the amount and type (special or common causes) of

variation in a processσ Indicates if a process is

σ “In-Control” stable, predictableσ “Out-of Control” not stable, special causes exist


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Control Chart Interpretation

UCL

LCL

In-Control – All data points are within the upper and lower control limits.

CL


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UCL

LCL

Out-of-Control (Special Causes) – any point touching or beyond the control limits

CL


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Trend – 6 successive points in an upward or downward direction

UCL

LCL

CL


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UCL

LCL

Cycle – variation caused by regular changes in the process inputs or methods (i.e., time of day, seasonal)

CL


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UCL

LCL

Jumps – distinct changes from low to high values attributed to a change (i.e., operator shifts, material)

CL


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UCL

LCL

Repeats – a pattern where every nth item is different (i.e., one station out of alignment)

CL


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Key Process Metricsσ DPMO – Defects Per Million Opportunitiesσ Sigma Level σ % Yield σ Cost of Poor Quality

Upper Specification Limit

Lower Specification Limit

X

Design Width

Process Width

A Capable Process


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Team Activities

1. Construct a Histogram - use the data aboveσ Interpret results (normal or skewed)

2. Develop a Control Chart (Xbar and R) – use the data aboveσ Interpret results (in control or out-of-control)

3. Calculate the key Process Metricsσ Interpret results (capable or not capable)

Sample No.

1 20 25 282 90 20 253 25 90 204 20 28 305 115 20 256 30 27 187 60 110 258 21 18 759 30 21 27

10 22 60 20

Sub-Group (Minutes to Delivery Pizza)

You decided to take a random sampling of pizza delivery times:


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Pizza Express Histogram

Pizza ExpressHistogram - Delivery Times

0

2

4

6

8

10

12

14

18 38 58 78 98 118 138 158 178 198 218 238

Class Intervals (minutes)

Fre

qu

ency

Interpretation of Chart:

Shape: Ideally, the histogram should be bell-shaped, symetrical and unimodal (single peak) to indicate the data is normally distributed.

Histograms that are skewed to the left or right or have multiple peaks indicate the data is not normally distributed. This could mean the presence of Special Causes (unusual changes) or possibly the data is coming from 2 or more sources (i.e., shifts, people, machines, suppliers).

Process Cabability: A histogram wiithin LSL and USL indicates the process is capble of meeting Customer Requirements.

If bordering / exceeding the LSL or USL, the process is too variable and not capable of meeting customer requirements. The process must be improved.

Upper Specification Limit. Customer

Requirements (within 30 minutes)

Data skewed to the right beyond the red bar (30 min.

Upper Spec. Limit)…indicating process is not capable.


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Pizza Express Control Charts

Pizza Express Control Chart (X bar)

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

1 2 3 4 5 6 7 8 9 10

Delivery Time SamplesAverage X bar

UCL LCL

Interpreting the Chart

If the Averages Line (blue line) is within the Upper Control Limit and Lower Control Limit…..the process is IN CONTROL. While good, there is still an opportunity to improve the process. .

If the Averages Line (blue line) is touching or outside of the UCL or LCL…….the process is NOT IN CONTROL. Special Causes exist (i.e., a new vendor is added, a new employee has not been fully trained) and must be addressed before attempting to improve the process.

Min

ute

s

X Bar

Averages Line of each Sample

UCL

LCL

While within the Control Limits, the process averages show increasing variation.


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Pizza Express Control Charts

Pizza Express

Control Chart (R Chart)

0

20

40

60

80

100

120

140

1 2 3 4 5 6 7 8 9 10

Delivery Time Samples

Min

ute

s

RangeR AverageUCLLCL

Interpreting the Chart

If the Range line (blue) is within the Upper Control Limit and Lower Control Limit…..the process is IN CONTROL. While good, there is still an opportunity to improve the process. .

If the Range Line (blue) is touching or outside of the UCL or LCL…….the process is NOT IN CONTROL. Special Causes exist (i.e., a new vendor is added, a new employee has not been fully trained) and must be addressed before attempting to improve the process.

Range Line

LCL

R Average

UCL

Indications of excessive variation in the Range


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Pizza Express Key Process Metrics

Key Metric Result Comments# Samples 30# Deliveries > 30 minutes 7Average Delivery Time (min) 38.2DPMO 233,333 Defects Per Million OperationsSigma Level 2.3 Process Not Capable (<3)Yield 79%# Pizzas Delivered per Year 75,250 $ Loss Per Pizza $12.25Cost of Poor Quality per Year $195,291


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ROI Oriented








ROI Oriented


Analyze


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The primary purpose of the Analyze stage is to:σ Make sense out of the data σ Identify root causes of the problem.



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σPareto Chart – focuses efforts on the problems that offer the greatest potential for improvement by showing their relative frequency in a descending bar graph.

σCause-and-Effect Diagram – graphically displays potential causes of a problem.



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Pareto Chart Example – Rotary ClubRotary Member Drop Out Reasons CountLack of Interest 2No Time 7Relocated to Another City 10Death 3Failure to Pay Dues 1Misconduct 2

Total 25

Rotary Club Membership Drop-Out Pareto Chart

0

5

10

15

20

25

Relocated to AnotherCity

No Time Death Lack of Interest Misconduct Failure to Pay Dues

Categories

# O

bse

rvat

ion

s

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

“Relocations” and “No time” account for 68% of the Rotary

Club Drop-Out Rate


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Cause-and-Effect Diagram

Problem

Methods Machine

Man Materials

Mother Nature


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Root Cause Exercise

σ What do you think caused the Titanic to sink?


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Team Activities

1. Develop a Pareto Chart σ Interpret the results

2. Develop a Cause-and-Effect diagram σ Interpret the results


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Pizza Express Pareto ChartPizza ExpressPareto Chart

0

5

10

15

20

25

30

35

40

Food Not Fresh / Hot Late Delivery Wrong Order Food Returned (NotCooked Properly)

Wrong Address Incorrect Bill Miscellaneous

Factor

Fre

qu

ency

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%65% of the complaints consist of Food Not Fresh / Hot and Late

Deliveries

Late Delivery appears positively correlated with Food Not Fresh / Hot


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Pizza Express Cause & Effect Diagram


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ROI Oriented








ROI Oriented


Improve


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In order to improve, possible improvements are developed and evaluated in a logical and planned fashion


σ Brainstorm ideasσ Rank, evaluate, prioritize ideas based on key

criteria


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Hig

h Optimal Projects

Lo

w

Low High

Ben

efit

CostSolution Prioritization Matrix

2x2 Cost / Benefit Grid

Improvement Tools


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Team Activities

1. Brainstorm ideas for improvement

2. Rank and evaluate σ Solution Prioritization Matrix (modify criteria /

adjust weights)

3. Select your improvement idea and present rationale


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Pizza Express Solution Prioritization Matrix

Idea Description Yes No EffectivenessTime to

ImplementCost

Customer Satisfaction

Weighted Average

Comments

weight ==> 40% 10% 10% 40%Scores range from 1 (lowest) to 10 (highest)

1 Add more pizza drivers ■ 5 6 2 7 5.6Possibly, although business appears to be adequately staffed

2Hire more experienced drivers (who know the territory) by offering higher salary

■ 5 4 3 5 4.7May not address root cause. More expense involved.

3Remove Calzone, Manicotti and soft drinks from the menu. Return to just pizza delivery.

■ 4 7 8 5 5.1

Most likely to improve financials -- not impact delivery time.. Constantly changing the menu may create poor customer experience.

4Add electronic order taking technology to ensure orders are captured accurately and stored.

■ 5 3 3 5 4.6

Little evidence to suggest the current paper ordering system is not working. Only 1% wrong orders.

5Refuse to take certain orders that are too far away

■ 2 8 9 0 2.5Negative impact on customer satisfaction

6Increase delivery time specifications (i.e., 45 min delivery)

■ 6 9 9 1 4.6 Does not address root cause

7

Change Order / Delivery Process: - Request zip code during order and use MapQuest determine distance. - Deliveries > 2.5 miles to be limited to 2 orders. Deliveries <2.5 miles continue with 3-4 grouped orders.

■ 8 8 7 9 8.3

Good near-term solution. But may not be financially optimal since long-distance deliveries cannot be bundled.

8 Add another pizza chef ■ 2 7 8 3 3.5Unlikely the bottleneck is occuring in the kitchen since drivers are not complaining of waiting on orders.

9Open new store to handle larger geography

■ 9 2 2 10 8.0

Good long-term solution to reduce late deliveries and capture market share. Although it will reqiure significant capital.

10Reduce the refund to only half the cost for late deliveries

■ 1 8 8 2 2.8 Does not address root cause

Controllable


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ROI Oriented








ROI Oriented


Implement


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Implementation can be accomplished by a Design of Experiment (DOE)…..aka pilot.


DOE is a methodology of varying a number of input factors simultaneously in a carefully planned manner, such that their individual and combined effects on the output can be identified.

Technical Definition:

Business Definition:

DOE helps identify and validate those factors that have the most significant impact on a process, from which you will form your conclusions and recommendations to senior management.


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DOE - Advantages

σ Allows you to identify the critical factor(s)

σ Allows many factors to be evaluated simultaneously

σ Economical and less disruptive to normal operations

σ Provides a fact-based approach to making conclusions in confidence


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ROI Oriented








ROI Oriented


Control


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σ Form a dedicated team to monitor the processσ Perform continuous improvementσ “Lock-in” the gains


MonthlyIndustrial Engineering / Field Ops

Continuous improvement through interviews / focus groups with Technicians

5

As neededField Ops Vendor

Review technical issues with software (i.e., bugs)

4

Monthly by State and Region

Finance Industrial Engineering

Develop Financial Reporting (billed revenue)

3

Weekly / Monthly

Industrial Engineering

Produce Key Metrics Reports (DPMO, Sigma Level, Cpk)

2

Weekly / Monthly


Develop Control Charts1

FrequencyOwnerActivityNo.

MonthlyIndustrial Engineering / Field Ops

Continuous improvement through interviews / focus groups with Technicians

5

As neededField Ops Vendor

Review technical issues with software (i.e., bugs)

4

Monthly by State and Region

Finance Industrial Engineering

Develop Financial Reporting (billed revenue)

3

Weekly / Monthly


Produce Key Metrics Reports (DPMO, Sigma Level, Cpk)

2

Weekly / Monthly


Develop Control Charts1

FrequencyOwnerActivityNo.


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Team Activity

σ Develop a control plan for your project


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Pizza Express Control Plan

No. Activity Owner(s) Frequency1 Develop and interpret control charts Rachael Weekly / Monthly

2 Review key metric reports (DPMO, Sigma Level, Cost)Rachael / Larry

Weekly / Monthly

3 Review technical issues with new solution Team Weekly / Monthly

4Continuous improvement via interviews / focus groups with customers and other stakeholders

Team Monthly


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Six Sigma Action Plan


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Layout and understand your end-to-end business processσ Identify gaps, bottlenecks, redundancies

MarketingFulfill & Deliver

Sales Support Billing

1

Talk to your customers to understand their

needs!


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2

Category Description

Highly Customized Poor candidates for 6 Sigma campaigns (low ROI), i.e., Complex IT systems

Mass-Customized Good candidates for 6 Sigma campaigns if the volume of activity is high enough, i.e., Web-based marketing / customer accounts / fulfillment, customer support

Standardized Great candidates for 6 Sigma campaigns (high ROI); i.e., Account Processing / Maintenance, Billing, Accounts Payable, Payroll

Determine which parts of your service processes are the best candidates:


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Key Activities Application of Six Sigma

Marketing • Increase pipeline of prospective customers • Reduce time-to-market for product and service launches

Sales • Improve sales close rates• Reduce sales cycle times

Fulfillment and Delivery

• Improve on-time delivery of products• Improve accuracy of orders (i.e., reduce returns)• Reduce inventory levels to better manage cash flow

Support • Improve first-contact resolution• Lower handling time for contacts• Improve customer satisfaction

Billing • Improve accuracy of invoice• Shorten accounts receivable days outstanding


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Measure your key activities over time and determine your Sigma Level:

σ New sales cycle times / sales close rate

σ Account processing cycle times / defect rate

σ Other

3

W. Edwards Deming

“If you don’t measure it, you can’t manage it.”


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Preliminary Project Screener

Focus on specific, achievable process improvements!


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Wrap Up

σ Q & A

σ Tools: www.sherman6sigma.com

σ Resources (next page)


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Six Sigma Resources

Professional Organizations:

σ American Society for Quality (http://www.asq.org)

σ Int’l Society for Six Sigma Professionals (http://www.isssp.com)

Key Books / Trade Journals / Websites:

σ The Six Sigma Revolution, G. Eckes (2001)

σ The Six Sigma Way, P. Pande, R. Neuman, R Cavanaugh (2000)

σ The Six Sigma Handbook, T. Pyzdek (2000)

σ iSixSigma Magazine (http://www.isixsigma.com)

σ Six Sigma Forum Magazine (http://www.asq.org/sixsigma)

σ General Electric (www.ge.com/sixsigma)


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Sherman Consulting Inc. Driving End-to-End Process Improvement SM Six Sigma for the CPA or CFO...

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Transcript of Sherman Consulting Inc. Driving End-to-End Process Improvement SM Six Sigma for the CPA or CFO...