Six Sigma Metrics

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Knowledge is Power

Six Sigma Metrics Drive Knowledge

Do you know, do you really know, what’s going on in your organization? The assertion that knowledge is power rings as true today as it did centuries ago.

In any industry, organization, or daily process, when you don’t know what you don’t know, it cost you.

For too many organizations the costs, often hidden, of defects and waste in the way they operate are huge. Many companies believe that dealing with errors is just part of the cost of doing business. But this logic is very faulty.

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Using Six Sigma metrics, you can eliminate most errors, reduce your costs, and better satisfy your customers.

Having processes in which errors occasionally occur may not seem such a big deal. But when you consider how many errors may be lurking in your company-wide processes, the monetary impact on overall productivity, customer satisfaction, and profitability multiplies dramatically!

The Six Sigma approach to managing business is all about helping you identify what you don’t know, emphasizing what you should know, and taking action to reduce the errors and rework that cost you time, money, opportunities, and customers.

Using Six Sigma metrics captures knowledge that is then translated into opportunities for improvement and growth.

Metrics Model

Metrics Applicable To All Processes

Metrics Applicable To All Processes

The Role of Questions

New metrics arise when new questions are asked. When you go out into the operation people are constantly asking questions. These questions trigger actions. They cause people to do work to answer the questions management is asking.

The Issue Is

What questions is management asking?

If we ask questions about outputs and not inputs, we get a lot of focus and measures on outputs. If we get questions on budgets, we measure budgets. 

How many of our questions are focused on process and product quality? How many of our questions are focused on causes and inputs versus results and outputs?

New measures, and new behaviors, require that we ask new questions...

New questions about the quality of the products and processes, lead to new data collection and new measures.

Without new questions about process capability, product design, and overall quality – new measures, new behaviors, new knowledge, and new values about quality cannot not arise.

Business Metrics

Unless you're prepared to invest in the measurement of quality you cannot improve quality.

If you don't measure quality, and don't follow-up on these metrics, a signal is sent that quality is not valued. This, in turn, affects the day-to-day behaviors and activities of the workforce.

Quality improvement requires improving how we do things. This means looking at how the business is managed on a day-to-day basis, which is a function of the beliefs and what we see as valued by leadership.

In the same way measures are drivers of what is valued in an organization, the question then is, what are we measuring and what should we measure?

Traditional Metrics

Why Are Six Sigma Metrics Important

Most companies collect large amounts of data that are valuable sources of information to establish measures of process performance. But although customer surveys, rejection reports, expenses incurred in warranty claims, etc. are available, they often calculate the wrong metrics.

First Time Yield, the ratio of the number of accepted units to the number of units tested, is traditionally used to assess process performance. However, this concept is flawed since the reality of rework, repair and replacement are not considered.

This renders us blind to the fact that we often don't produce quality products and services the first time.

Final Yield is the calculation of First Time Yield at the last process step, and much like First Time Yield, it is not an accurate measure of process performance.

Products or services are most often the result of many process steps. It is rare to find products or services that are the direct result of a single process step.

The Hidden Factory is all of the extra work that gets done when the process is not performing at it's maximum potential. It is often the undocumented part of the process. The correction of errors and mistakes for example.

The consequences of the Hidden Factory include longer cycle times, increased inventories, rework/repair, scrap, etc.

Six Six Sigma Metrics

To uncover the Hidden Factory, Six Sigma metrics introduce two special measuring indices: Throughput Yield and Rolled Throughput Yield.

Throughput Yield represents the probability of producing a defect-free unit in one process step, while Rolled Throughput Yield represents the probability of producing a defect-free unit in a series of process steps. Both of these Six Sigma metrics can be calculated from either discrete or continuous data and the standard normal distribution tables.

Rolled Throughput Yield is calculated as the multiplication of the Throughput Yield values of each one the process steps involved in producing the output. 

Throughput Yield and Rolled Throughput Yield have deep business implications. Using these indices you can now assess the true performance of your processes, no matter how unflattering the picture may be.

For example, in some instances a First Time Yield of 90% translates into a Throughput Yield of only 37%. On the bright side, once you know where you stand, you can set breakthrough targets and objectives. 

Process Metrics

In every department within an organization, it is important to have process measures. The selected measures should be independent of each other and controlled by those managing the process.

You must select the 'key' metrics measures and avoid those that have little or no meaning. You should also avoid having too many, or ones that are at too high a level. Each measure should relate to top-level business issues and should provide the link between what we can control and what it is that we want to achieve.

There are many performance Six Sigma metrics available to define and communicate the capability of processes. Each has a unique function, and each individual (or organization) has their favorite ones that they use in a particular situation.

Specific combinations are useful, and many times several metrics are used together, or in a specific order to drill down to gain knowledge of a process.

The appropriate Six Sigma metric to use in a particular situation is a function of the type of data involved, i.e. discrete or continuous, and whether the capability being evaluated is Short-term or Long-term

Continuous Data

The principal process Six Sigma metrics for continuous data are:

CP and PP are indices of the potential capability of a process. CP is used to signify short-term potential capability, while PP is used to signify long-term capability. CPK and PPK indicate if the process is centered and capable of producing to specified limits.

Process Capability Study

Process Capability Study Output Results

Process Capability Study - Statistical Output Results

Discrete Data

DPO, PPM, DPMO and DPU are the principal Six Sigma metrics unique to discrete data.

Various types of Yield Six Sigma metrics (Throughput Yield 'YTP' and Rolled Throughput Yield 'YRT') can be calculated for both discrete and
continuous data.

The Sigma value (Z) is portrayed as one of the best measures, since it can be used to compare the capability of processes that are very
diverse in nature.

It is also used to 'Roll Up' or 'Pool' many processes across a business unit into one top-level measure. The Sigma value (Z) can be calculated for any process, no matter what type of data is used.

Data Relationships

There is a relationship between many of the Six Sigma metrics which means that simple conversions from one to the other are sometimes possible.

The difference between short-term (potential process capability) and long-term (actual process capability) is a fundamental concept in the
understanding of process measures and the relationships between them.

Sigma Level Comparison Table

Sigma Level Conversion Table

Discrete data, by nature, is always long-term. Since it takes a relatively long time and a lot of data to generate sufficient defects, random and nonrandom effects are included.

When using the 'Z' metric for reporting process capability, it is accepted convention to report the short-term (ZST) number. It is therefore necessary to fully consider the source of data before calculating process measures or reporting the result.

Levels of Measurement

There are three levels of measures that are critical to Six Sigma deployment.

Strategic/Business -- These are the Group and Division-level measures that will measure and drive Six Sigma deployment. These measures would include:

  • Business level estimates of Sigma related to the improvement goal [Six Sigma improvement Curve (DPMO)]. Where appropriate, performance against key, strategic cycle time targets.
  • High level estimate and rate of improvement on Cost of Poor Quality (COPQ).
  • Key measures (tailored by business) of customer satisfaction.

Technical/Process -- These measures take the metrics of Sigma and COPQ and drive them down to the key levels in the organization (product, process, department). Where necessary, industry or process-specific quality indicators are defined to supplement these metrics.

Six Sigma Activities -- The objective of Six Sigma is to improve quality. However, the deployment of Six Sigma is helped by tracking a few metrics such as:

  • Status of Master Black Belts, Black Belts, and Six Sigma Green Belts -- The number of resources, tenure (to help with managing the process of re-integration into line jobs), performance, attrition rates, etc.
  • Status of management training -- who has received various types of training and when.
  • Status of projects -- Track projects against key milestones and reviews, as well as to follow up on process improvements and the capture of benefits (savings and customer satisfaction).
  • Other measures (e.g., communication effectiveness).

Project Team Members work part-time on projects. They provide expertise on the process and also, as a group, represent the various areas that are directly or indirectly involved in the process.

This includes not only those areas that work on the process, but also those areas that use the outputs from the process as inputs to their work and the areas that affect critical input variables to the process.

Project team members, with training and coaching from Black Belts, might work to gather and analyze data,as well as help to sustain the improvements from the project.

Cost of Poor Quality

One of the key business concepts of Six Sigma metrics is the concept of the Cost of Poor Quality (COPQ). COPQ represents the visible and less visible costs of all the defects that exist in our processes.

Essentially, the highest quality producer is the lowest cost producer where cost is represented by the COPQ.

Every time we have a defect (which is any result that is not what the customer of a process needs) we consume time and resources to find,
fix, and try to prevent these defects.

To reduce these costs (such as scrap, rework, inspection, warranty claims, lost customer loyalty) we need to address the root-cause of the issue, which is defects and poor process capability.

Cost of Poor Quality Iceberg

Cost of Poor Quality Iceberg

Obvious And Not So Obvious Poor Quality Costs

In the end, what is needed is the establishment a proper "dashboard" of Six Sigma metrics (or metrics) to help us understand our quality situation and to create urgency to take the actions needed to address the root-causes of defects.

Metrics Flow Down

Metrics Flow Down is a tool commonly used at the beginning of the life cycle of a product or service, typically during the design stage as a "what if" tool. For example, If we want to achieve a Six Sigma level and we know the process and product breakdown, then we can set targets at each of the lower levels in the breakdown that will render a Six Sigma product. Once data become available, later in the product life cycle, we can compare actual against target levels.

Metrics Flow Down

Metrics Connection And Flow Down

Metrics Connection and Flow Down

Business & Performance Measures Connection

Process And Business Performance Connection

Process and Business Performance Connection

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