Overview of Six Sigma

Brian Kocher, CPAVP - Controller & Chief Accounting Officer

Chiquita Brands International

November 9th, 2006

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What are we Learning today?

Six Sigma Overview

Six Sigma ToolsVOC

SIPOC

Common Quality Myths

Questions

Agenda

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What is Six Sigma?A VisionA Philosophy An Aggressive goal A Metric (standard of measurement)A BenchmarkA Methodology

Six Sigma

A vehicle for aligning Operations, Metrics and Processes that is Customer Focused, Fact Based, and Data Driven!

ALL of the ABOVE

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Why Six Sigma?History

Motorola created in early 1990’sAlliedSignal, GE successes in mid 90’s Business processesEncouraged others to utilize 6σ to improve business performance

Six Sigma

–“2,400 process improvements were made, reducing defects by 61 percent - yielding $350 million in annualized cost savings.”

Larry Bossidy, Former Chairman and CEO, AlliedSignal

–“Six Sigma will be the biggest, the most personally rewarding and, in the end, the most profitable undertaking in our history.”

Jack Welch, Former Chairman and CEO, GE

The Six Sigma methodology provides an overall strategy and methodology for improving organizational performance.

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The most significant characteristic of Six Sigma is the thorough and unending focus on

understanding our Customer.

What does my Customer need from Chiquita’s process?

What can we do

better?

How does my Customer view

my process?

How does my Customer measure my

process?

From the Customer perspective, how is our process performance?

How does my Customer want our process to

perform?

Critical to SatisfactionCTS

Six Sigma

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COPQ Benefits are Categorized as Hard Dollar or Soft Dollar

Hard $ BenefitIncreased Production volumeIncreased Sales or RevenueBalance Sheet growthCustomer RetentionReduction in FTEReduction in transaction costReduction in overhead cost

Soft $ BenefitIncreased Customer satisfactionAvoidance of FTE reductionFractional reduction of FTE HoursAvoidance of Capacity enhancementsConformation of regulation changesIncreased Employee satisfaction

Hard $ Benefits have an observable / quantifiable impact on the Financial

Statements.

Hard $ Benefits have an observable / quantifiable impact on the Financial

Statements.

Six Sigma

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What is Six Sigma?Statistically

The Six Sigma Goal Represents 3.4 DPMO

FunctionallySix Sigma is a management system that profitably improves customer satisfaction.Proper business wide deployment creates a cultural and managerial transformation that delivers increasing financial returns to the business.

Six Sigma

Provides a common problem solving approach and language that is data driven and establishes the truth as

to what affects your business

Provides a common problem solving approach and language that is data driven and establishes the truth as

to what affects your business

2 308,5373 66,8074 6,2105 2336 3.4

σ DPMOProcess Capability

Defects Per Million Opportunities

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Our Outputs (Y’s) are determined by our Inputs (X’s). If we know enough about our X’s we can accurately predict Y without having to measure it

If we don’t know much about our X’s, then we have to resort to inspection and test (non value added operations)

By knowing which X’s are Critical to the Y, we can reduce the variability in Y

)X,...,X,X,X ( f=Y k321

Six Sigma

How is Six Sigma applied?How does it work?

ProcessInputX Y

OutputX

X X1

2 k

3

9

Time

Perf

orm

ance

Bad

GoodImproved Sigma

Six SigmaImprovementSix Sigma

Improvement

Six Sigma

Measurable Results?

Typical Sigma

The Goal is to improve the Sigma level on metrics that tie to the business’s Bottom line.

Breakthrough Improvement

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Six Sigma

Analyze

Measure

Improve

Control

Define

Tools UsedPhase Steps

SPC; Capability analysis; SOP’s; Descriptive statistics; Audits; FMEA; DPMO; Scorecards; Control charts; Training

Documents, monitors and assigns accountability for sustaining gains made in the Improve stage

Implement process controls

DOE; Regression; ANOVA; 5S’s; Process capability; Cost/benefit analysis; T/B process maps; MSA; Control charts; Simulation

Determine variable relationshipsGenerate and test possible solutionsSelect best solution to address vital X’sImplement chosen solution

Regression; Correlation; FMEA; Multi-varianalysis; hypothesis testing; statistical testing; ANOVA; DOE; NVAA; VS Mapping; PICK

Prioritize list of vital X’s by analyzing data & process

Correlation and regression to determine relationships and root cause

Control charts; Checksheets; MSA; Histogram; Pareto; Process map; Sigma level; Run chart; DPMO; FMEA; KPIV; Capability analysis

Identify project Y and performance standardCollect data on Y and related measuresDetermine baseline performanceSet the improvement goal

Charter; CTQ tree; QFD; Customer surveys; SIPOC; C&E diagram; Fishbone; Kano analysis; Gantt chart; Gap analysis; Cost/benefit

Define the customer CTQ’sForm team and develop team charterMap the as-is process

DMAIC seeks to translate business problems into practical business solutions through the use of data and statistical tools.

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Optimized Process

1 Y

10-20 X’s

4-8 Critical X’s

4-8 Critical X’s

4-5 Y’sDefine Phase

Measure Phase

Analyze Phase

Improve Phase

Control Phase

Six Sigma

How is Six Sigma applied?Project Phase Strategy

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xx

x

xx

xxx

x

xxxxxxx xx

Large Variation

xxx

x

xx

xxx

xx

xx x

On Target

Goal: Center Process Goal: Reduce Spread

USLLSL

LSL USL

LSL USL

Off - Target

LSL = Lower Specification Limit (minimum customer requirement) USL = Upper Specification Limit (maximum customer requirement)

Smaller Std. Dev.Shift the Mean

Six Sigma

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Why Six Sigma?Companies implementing

Six Sigma

• Textron• Tyco• Lear Corp.• Cintas• Visteon• Anthem Blue Cross-Blue Shield• CIGNA• United Health Care• Charleston Medical Center• Good Samaritan Hospital, Kearny, NE• Mt. Carmel Health Systems, OH• Park Nicolette, Minneapolis• Suncorp-Metway• NCR• Bank of America• Provident Bank• BankOne• Merrill Lynch

• Motorola• Texas Instruments • ABB (Asea Brown Boveri LTD.) • AlliedSignal • GE• Bombardier• Nokia• Toshiba• DuPont• Ford• Dow Chemical• Johnson & Johnson• Chiquita• Noranda• Johnson Controls• JP Morgan Chase• Sun Trust• American Express

Health care

Government

Academic

Non-profit

Manufacturing

Financial institutions

Six Sigma has been implemented in small to mid-size companies, as well as larger ones.

Six Sigma has been implemented in small to mid-size companies, as well as larger ones.

Voice of the Customer

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What is the VOC?

Voice of the Customer is the sum total of the needs expressed by allcustomer groups.

Confirming the VOC is a critical step in a successful project.

Lean Six Sigma is all about meeting or exceeding customer needs or CTSs

QualityCostDelivery

Many projects fail because the VOC is not correctly captured or confirmed.

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VOC - Steps

Steps to conducting a VOC process.

1. Define the purpose for the VOC

2. Confirm the customers and their voices

3. Confirm the customer requirements

4. Rank the customer requirements

5. Quantify Customer requirements

6. Prioritize project activities

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VOC – Step 1

Define the purpose for the VOC

Confirm the problem to be solvedCreate a statement of purpose

Do not imply a solutionDefine what you want to understand from the CustomersDefine the benefit for collecting the VOC

Examples:

To discover how customers use our support services in order to eliminate unused features or add new ones.To understand our reporting needs in order to improve our current reporting database.

What is would be an example of your VOC purpose statement for your business?

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VOC – Step 2

Confirm the Customers and their Voices

The boundary between internal and external customers depends on the boundaries/scope of your project.

Customer Relation

Customer Type and

Internal External Direct Indirector or

Customers that receive your product or

service directly from you.

Regulatory and policy

setting agencies that

speak on behalf of the customer.

Customers within

Chiquita.

Secondary

Customers that receive your product in its

original or modified form

through another party.

or

Customers outside

Chiquita.

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VOC – Step 3

Confirm the Customer Requirements

Types of Customer Requirements

Basic: Unspoken, but expectedPerformance: Spoken by the CustomerExcitement: Pleasant Surprises that are generally unspoken or difficult to verbalize

What are your customers’ basic, performance or excitement needs?

Degree ofAchievement

Customer Dissatisfaction

Basic

Performance

Excitement

KANO Model

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Team Exercise – VOC

Purpose:Purpose: Practice identifying your customer requirements for your Spring Break Trip.

Agenda:Agenda: Identify the different Customer Requirements and then use the KanoModel to categorize them.

Limit:Limit: Exercise: 10 minutesDiscussion: 5 minutesTotal: 15 minutes

Break into TeamsBreak into Teams

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BASICUnspoken, but expected

ExcitementPleasant Surprises that are generally

unspoken or difficult to verbalize

PerformanceSpoken by the Customer

Customer RequirementsSpring Break Trip

What are your Requirements?

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VOC Summary

Voice of the Customer (VOC) will enable you to focus on what your customers value most.

Identify your customers.

Define the value your customers want - CTSs.

Identify critical attributes that contribute to that value.

Make sure internal processes are designed to provide that value.

Analyze how process outcomes contribute to customer satisfaction.

VOC = Customer Satisfaction!VOC = Customer Satisfaction!

Process

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• A process is a group of steps, tasks, or activities that has a beginning and an end.

• A process takes inputs—materials, information, people, etc.—and in some way changes them to produce an output.

• Simplistically, it can be seen as:

OutputInput Activity

What is a Process?

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Making coffee Brushing your teeth Traveling to your jobRepairing or maintaining a productBilling Preparing an annual report Making a sales call

Going on Spring Break

Distributing mail Answering telephones Communicating Coaching or teachingBudgeting Entering ordersPreparing a sales presentation

Every organization has hundreds, if not thousands, of work processes. To understand the organization, you must understand its processes.

Process Examples

Before you can change a process, you need to understand how it works!Before you can change a process, you need to understand how it works!

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At Least Three Versions Exist

How it should beHow it really is

A Process Map will provide clarity!

How we think it is

View of the Process

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SIPOC High-Level Process Map

Stay as high as you can for as long as you can!

A SIPOC allows you to gain a high-level understanding of a process. A SIPOC allows you to gain a high-level understanding of a process.

Start Stop

Voice of Customer(Quality, Cost, Delivery)

Voice of Process(Defects, Expenses, Cycle Time)

S I P O C

RequirementsRequirements

YX’sSupplier CustomersOutputsProcessInputs

X’s X’s

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Step 2

Step 1

Step 5

Step 4

Step 3

Determine the boundaries (start and stop) of the process Identify the Customers List the primary customers who receive outputs.

Identify the Outputs of the Process List the major Outputs of the process. Map out the Process Map the four or five steps that describe a process at a very high level. Identify the Inputs List the major Inputs to the process. Identify the Suppliers List the Suppliers who provide inputs to the process.

SIPOC Summary

PProcess

IInputs

SSuppliers

OOutputs

CCustomer

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Team Exercise – SIPOC

Purpose: Practice creating a SIPOC for Spring Break

Agenda: 1. Break into groups and create a SIPOC for your process

2. Use your provided template to create your SIPOC

3. Report your results to the group.

Limit: Exercise: 15 minutesDiscussion: 10 minutesTotal: 25 minutes

Break into TeamsBreak into Teams

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Supplier Inputs Process Outputs Customer

Start

Stop

Hotel Plans

Spring Break

Travel Plans

Spring Break calendar

Financial Needs

Return to School

Team Exercise –SIPOC

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What is the right level of detail?

hGeneral ActivitiesTake orders, prepare pizza, bake pizza, deliver pizza

hSpecific ComponentsAnswer phone; listen and write order; capture customer delivery information; confirm delivery time and thank customer; give order to cook

Process Map

Macro

Micro

Manager’s viewpoint

Worker’sviewpoint

Y B -1 v 1 .15 /3 P ro p rie t a ry – In te r n a l U s e O n ly 2 5

L S S – Y e l lo w B e lt M o d u le 1

M a k e &B a k e

D e liv e r

T a k e O r d e r

C a l l in O r d e r

G ro u p E x e rc is e – T h e P iz z a P la c e

S u p p li e r In p u ts P r o c e s s O u tp u ts C u s to m e r

R e q u ire m e n ts R e q u ir e m e n t s

• C u s to m e r In fo ( A c c u ra t e )

• C u s to m e r O rd e r ( A c c u ra t e )

• In g r e d ie n t s ( F re s h , D e liv e re d o n T im e )

• O v e n (C o rre c t T e m p e r a tu re )

• C u s to m e r

• P iz z a In g re d ie n t C o m p a n y

• P iz z a ( H o t, C o rr e c t, Q u ic k )

• C u s to m e r

The Pizza Place Functional Process Map

Cas

hier

Coo

ksD

eliv

ery

Man

Cus

tom

er

Hungry! Call in Order

Take Order

Make Pizza Bake Pizza Correct?

Deliver Pizza

Pay Driver

YesNo

The Pizza Parlor - Functional Process Map for the Pizza Maker

Pizz

a M

aker

Cas

hier

Read CustomerOrder Yes

Go to walk-incooler to getingredients

No

YesAdd ingredients Bake PizzaSpread sauceToss and rolldough Accurate?All ingredients

available?

Provide Order toCook

Macro

Micro

In reality, several types of process maps exist. These two versions are the most useful.

SIPOC

FunctionalProcess

Map

How low should you go?

Common Quality Myths

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50°

Busted: Customers feel

variation, not averages!

This room is freezing!

I’m roasting in here!

90°

Myth: Averages Are Misleading

The average temperature is 70 °. Everyone must be

fine!

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Myth: Inspection

Six Sigma Black Belts are assigned to Six Sigma projects. These projects are solved by identifying, measuring, analyzing, improving, and finally controlling the measure of interest. Six Sigma Champions help stomp out barriers to ensure success. Ad hoc teams lend their process and product skills. As the defect levels fall, so does the associated cost of poor quality. Six Sigma projects deliver measurable business results. The Black Belt resource ensures program success.

Purpose: To illustrate that inspection is not only Non-Value Added but also an ineffective means to achieve quality.

Exercise: You have 60 seconds to count the letter “S” in the paragraph below. Document your answer on a scrap note.

Answer: _______________Busted: You can not

Inspect quality in!

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Myth: Customer’s Viewpoint

11 weeks 12 weeks

Production ShipmentLead

-Tim

e

Customer Lead Time

Delivery

Busted: How we measure time is not always

how the Customer measures time!

2 weeks

Order

Order

Business Lead Time

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Overview of Six Sigma

Benefits of Six Sigma:Reduce variation in our processes/productsReduce defects Increase first time yieldsReduce the costs of poor quality (COPQ)Eliminate waste and improve FlowImprove Growth and profitabilityImprove capacityProvide scalabilityReduce costsDifferentiate ourselves from our competitorsImprove employee morale and prideEtc., etc., etc.

Improve Customer Satisfaction!!

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What did we learn today?

Customer Centric

Six Sigma Tools

Quality Myths

Wrap Up

Questions