"Six Sigma for the Little Guy"

Mikel Harry and J. Douglas Crawford

Engineering Management

November 2004, pp. 8-10

The authors of this article claim that up till recently, small and midsized companies have not had the opportunity to share in the value of Six Sigma programs because "the original Six Sigma architects didn't design their delivery systems for businesses of that size."

This article explains that Six Sigma programs have changed their focus during the last 20 years. The first iteration of Six Sigma was primarily concerned with reducing defects. The second iteration was primarily concerned with reducing costs in general. The authors say we are now in Six Sigma Generation III, which "aims to help companies deliver goods and services of the highest value possible. For business purposes, value is defined as delivering a product or service to the right spot, at the right time, in the correct volume, and at the lowest possible cost."

In Six Sigma Generations I and II, there was a high cost of training Six Sigma professionals (Black belts and Green belts) in a classroom situation, and there was often a relatively long wait for return on investment. This why it was difficult for small and midsized companies to afford a Six Sigma program.

Six Sigma Generation III has introduced the "White belt", who requires far less training and can provide a quicker payoff for the investment. The White belt is not expected to work as broadly in the organization as the Black belt or Green belt is. They will often focus on just one area of the organization, such as doing multiple projects in one work cell.

Online training systems have also made it substantially less expensive to train Six Sigma professionals. The article goes into some detail describing the Six Sigma Generation III online training program of the Ira A. Fulton School of Engineering at Arizona State University.

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"Achieving Full-Cycle Cost Management"

Robin Cooper and Regine Sagmuller

MIT Sloan Management Review

Fall 2004, pp. 45-52

This article discusses a case study of Olympus Optical, in Japan, to illustrate that substantial cost reductions can occur not only in the design phase but also throughout the product life cycle.

Five different major techniques are identified to manage costs throughout a product's life cycle:

1. Target Costing—Target costs are established through determining in advance the probable selling price and the desired profit margin per sale. Product engineers then seek innovative and creative ways to attain the desired product performance at the target costs. Value engineering is applied through attempting to: (a) reduce the number of parts in the product, (b) eliminate expensive, labor-intensive and mechanical-adjustment processes, (c) replace components with less expensive ones, and (d) aggressively pressure suppliers to reduce costs.
2. Product-Specific Kaizen Costing—This technique corrects for any cost overruns during the early stages of manufacturing the product. The product is rapidly redesigned, while keeping in mind the constancy of quality and functionality.
3. General Kaizen Costing—At this stage, the design is assumed to be firmly set. Cost reduction goals are set for production processes, and the employees are empowered to achieve them through improvements in the current manufacturing process.
4. Functional Group Management—"This technique consists of breaking the production process into autonomous groups and treating each as a profit (instead of a cost) center." This allows the group to increase its profits and productivity, even if it incurs higher costs in the process of doing so. It also helps improve understanding of each group's own contributions to the overall profitability of the organization.
5. Product Costing—This consists of three major functions: Determining if new products are meeting their target costs; Ensuring that production processes are meeting their expected levels of efficiency; and Identifying unprofitable products for further action.

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"CRM Done Right"

Darrell Rigby and Dianne Ledingham

Harvard Business Review

November 2004, pp. 118-129

Over the last 5-10 years, Customer Relationship Management (CRM) systems have been utilized to help bolster customer retention and reduce sales, and marketing costs. The authors of this article state that the early adopters of CRM were often disappointed by high costs and small benefits.

Over the last couple of years, more and more companies are implementing CRM, however. To understand why, a study was conducted of companies that have been successful in implementing CRM systems. Companies discussed in this article include Kimberly-Clark, aircraft parts distributor Aviall, Ingersoll-Rand, electronic connector manufacturer Molex, and Brother International. The authors report that "they've all taken a pragmatic, disciplined approach to CRM, launching highly focused projects that are relatively narrow in their scope and modest in their goals. Rather than use CRM to transform entire businesses, they've directed their investments towards solving clearly defined problems within their customer relationship cycle-the series of activities that runs from the initial segmenting and targeting of customers all the way through to wooing them back for more."

This article distills the experiences of these successful CRM practitioners into four questions that should be asked when an organization launches its CRM initiative:

1. Is it strategic? CRM should only be applied to those processes that are key to the organization's competitiveness. This provides focus and energy that would be lacking if CRM technology were implemented in other areas of organizational functioning.
2. Where does it hurt? Even within the key processes, there are specific areas that are undermining performance. This is where the focus should be.
3. Do we need perfect data? Information serves a purpose, and often the cost of complete information makes it not worth providing in real time.
4. Where do we go from here? Narrowly focused implementation of CRM often unveils additional opportunities. Further steps should be well-planned and strategic.

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"Creating a Volume-Flexible Firm"

Amitabh Raturi and Eric Jack

Business Horizons

November-December 2004, pp. 69-78

The authors define volume flexibility as "the ability of a firm to respond to a wide variation in demand quickly and effectively... It enables a firm to effectively increase or decrease aggregate production levels in response to customer demand, and to maintain a high level of delivery reliability by preventing out-of-stock conditions for products that are suddenly in high demand. Conversely, in periods of slow demand, a volume-flexible firm is not saddled with excess inventory and/or surplus capacity."

A three-step method is proposed for developing an effective volume strategy:

1. Assess the current need—The key questions to be answered here are "What are the key market forces that require my firm to develop volume-flexible responses?" and "What prevents my firm from moving toward a volume-flexible response?" External market-driven forces include high variability in demand, many market segments, short time buffers for delivery, and high product customization. Internal capabilities that affect the need for volume flexibility include demand forecasting challenges, delivery reliability as a key strategy, and narrow focus of the firm (which puts the firm at risk if there are marked variations in demand).
2. Assess Current Capabilities—The key questions to be answered here are "How well does my firm accommodate sales variation, order size variation, and last-minute order changes?"; "How much sales variation do I have from one quarter to the next, and how does this compare to variation in costs and inventory levels?"; and "How does my firm rank on quantitative, process-based volume flexibility measures, as compared to key competitors and other firms in the industry?" Some of the potential assessment factors of current volume flexibility in the firm include: availability of current high-volume production equipment; inventory and capacity buffers; workforce availability in the local labor market; workforce skill levels; training costs; effective planning and control systems; ability for rapid workforce and shift expansions; network of plants; extensive network of vendors and suppliers; and well-established and disciplined distribution networks.
3. Identify the Appropriate Volume Flexibility Response—Four possible approaches are identified: (a) shielding from uncertainty, which "prescribes identifying the sources that exaggerate demand uncertainty and removing them form the value-adding chain that provides goods and services to the customer"; (b) absorbing uncertainty, which involves using buffers of inventory, time, and capacity; (c) containing uncertainty, where the company deploys volume-flexible technology and innovative scheduling; and (d) mitigating uncertainty, which includes risk pooling and leveling production.

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"Nature Times Nurture: How Organizations Can Optimize Their People's Contributions"

Bill Erickson

Journal of Organizational Excellence

Winter 2004, pp. 21-30

The author of this article focuses on combining both personality and learned factors to develop high-performance organizations. In the case of employee selection, he recommends that organizations attempt to hire more for attitude and train for skills (rather than vice versa)-especially in the service industry.

Most of the article focuses on the concept of employee engagement, which is defined here as "psychological ownership". The author recommends that companies should focus broadly on employee engagement, rather than narrowly on employee satisfaction (which may or may not yield a return in performance). Eight factors are seen as the primary drivers of the level of employee engagement:

• Teamwork, involvement, and belonging
• Open, two-way communication
• Recognition and rewards
• Empowerment
• Growth and development
• Trust and confidence in leadership
• Future vision
• Product/service quality

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Six Sigma as Part of a Toolkit

John McNeil, GP Deltapoint
 

Harry and Crawford point out that many organizations find it difficult to justify full blown Six Sigma rollouts based on the cost of training specialists. They also demonstrate how Six Sigma has morphed from its definition of conforming to one fault per multiple opportunities towards value enhancement. In our experience at GP Deltapoint, at the highest levels such as value enhancement, there are a number of important tools to deploy. Great benefit can be derived from the application of lean tools as well as strategic improvement of the maintenance function within manufacturing organizations. Within service (and indeed all) organizations, waste reduction focused on the value stream is an effective means of enhancing organizational performance. Tools such as value-stream mapping, reliability-centered maintenance, Employee engagement as outlined by Erickson, Raturi and Jack's flexibility, and staged product development are part of a full toolkit along with Six Sigma. In fact there is some danger of diluting the laudable Six Sigma focus on specific Define, Measure, Analyze, Improve and Control (DMAIC) steps, centered on appropriate deployment of designed experiments. To be sure, these efforts require a trained and knowledgeable cadre of implementers, but then so do other critical functions on the factory floor, in finance, and indeed in management itself.

We all know consultants who have a hammer, and so for whom every problem is a nail. But central to all of this month's article reviews is a theme of examining a situation carefully, selecting the appropriate analytical tools, checking the solution and then acting with conviction. These are indeed the Six Sigma steps, but often the appropriate tool is not a hammer.

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