Basic Six Sigma Concepts
Basic Six Sigma Concepts
In the last chapter, we covered some of the major concepts associated with Lean. In this chapter, we’ll
look at some of the major concepts of the Six Sigma methodology. These, along with the concepts
introduced in Chapter 1, are some of the building blocks used in improvement projects and statistical
process control.
Standard Deviation
The driving goal of Six Sigma is to reduce defects. By reducing defects, teams can increase productivity,
decrease overall costs, increase customer satisfaction, and create maximum profit. One idea inherent in
the Six Sigma methodology is that variance is the root of many defects.
For example, if an oven heats to exactly 350 degrees in five minutes and stays at that temperature until
it is turned off, it is less likely to burn cookies. If a cook measures each ingredient exactly, he or she is
more likely to turn out cookies that consistently taste good. Add variation in the process, and
consistency is lost. When consistency is lost, defects are introduced. If the oven doesn’t maintain an
exact temperature all the time, the cookies might burn. If the cook puts in a cup of sugar instead of a
cup and a half, the cookies might not be sweet enough. Variation makes for inconsistent quality.
It’s important to note that removing variation alone doesn’t always improve quality. What if the cook
set the oven to 400 degrees all the time and only used half a cup of sugar for each batch? The process
has no variation, and neither do the results. The cookies will always be bland and burnt.
Six Sigma process improvement teams usually take a two-step approach to improvements. First, they
have to determine if the process is functional. In the cookie example, does the recipe work at all? Is
there even a recipe? Once the team determines there is a workable recipe, they make improvements to
remove the variation that causes outputs to deviate from the result intended by the recipe.
The statistical measure used by teams to understand variation in a process is known as standard
deviation. Standard deviation is represented in math by the lower case Greek letter Sigma – the σ you
saw in Chapter 1.
Standard deviation measures the distance between data points and the mean of all data. A large standard
deviation means an overall wide spread of points; a smaller standard deviation means a closely clustered
set of points.
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The image above provides a graphical representation of deviation. Imagine the vertical axis is a measure
of time and the horizontal axis is a measure of temperature. The center line in each image represents the
mean temperature. You can see that the temperature over time varies much more in the figure on the right.
1
= ( )2
=1
Formula Key:
σ = Standard deviation
μ = mean
Σ tells you to add up the results of all the calculations done for the items listed in the parentheses
N = the number of data elements for which you calculated standard deviation
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You would use this formula if you have all the data elements of a population and not just a random
sampling of data elements. For example, if you wanted to find out what the deviation was in the size of
pizzas made, you could ask staff to measure each pizza before serving it. You would have the data for
the entire population of pizzas for the day, so you could use the equation above. However, if you
wanted to calculate standard deviation when you have sample data, you would use the equation from
the next section.
If you’re new to statistics, the equation for standard deviation looks complicated. We’ll break it down
and run through some exercises on calculating standard deviation manually, but in practice, you will
usually use a statistical software tool to make this calculation automatically.
For our explanation, we’ll use a data set from a teacher. She wants to find the standard deviation of
scores on the latest test. The scores from her class of 15 students are:
67, 68, 73, 74, 81, 85, 88, 88, 90, 90, 90, 93, 94, 98, 99
To begin the standard deviation calculation, you need to know the mean for the population. The mean is
represented mathematically by the Greek letter mu, or μ. Mean is calculated by adding all of the
numbers and dividing that sum by the number of items in a data set. In this case, there are 15 items.
67 + 68 + 73 + 74 + 81 + 85 + 88 + 88 + 90 + 90 + 90 + 93 + 94 + 98 + 99 = 1278
1193/15 = 85.2
The formula calls for you to take each number in the data set, subtract the mean from it, and square the
result. The first number is 67, so:
67 – 85.2 = -18.2
If you apply that concept to all 15 numbers, you end up with a list of results:
331.24
295.84
148.84
125.44
17.64
0.04
7.84
7.84
23.04
23.04
23.04
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60.84
77.44
163.84
190.44
The rest of the formula under the square root sign simply tells you to add up all the numbers you just
calculated and divide by N, where N is the number of items in your data set. Or, to put it another way,
you need to find the mean of the new numbers you just calculated.
1496.4 / 15 = 99.76
While statistics based on total population data are always more accurate than those based on sample
data, you’ll probably work from sample data more often. It just becomes too expensive or even
impossible to get population data for many elements. Sometimes, the data is measuring events or states
over time, which means population data doesn’t exist. For example, if you wanted to understand
temperature fluctuations in a warehouse, you might record the temperature at a certain location every
ten minutes. After several days, you have sufficient sample data to analyze.
1
= ( ̅ )2
1
=1
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Formula Key:
N = the number of data elements for which you calculated standard deviation
Since mu is the mean of population data, it’s been replaced in this formula with x-bar, which is the
average of the data points in your sample. Sigma has been replaced with s, but the only mathematical
difference is that you divide by N-1 instead of N to get the variance as a way to make up for some of the
accuracy lost in using a sampling.
Using the same data from the population example above, let’s assume that the 15 grades the teacher
had were a random sampling from all of her classes. The only difference in the math would come in the
second to last step, where we divide by 14 instead of 15, so:
1496.4 / 14 = 106.885
The square root of 106.885 is 10.338, which would be the standard deviation for the sample.
Lab techs are measuring the response of bacteria to an ingredient in a potential treatment. They
want to know how long it takes bacteria to show a response. Sample data for response times in
minutes is:
3. Select the cells with data you want to calculate standard deviation for.
4. Hit enter
Note: The formula in Excel calculates a sample standard deviation using the N-1 math, which means you
can use this formula for samples and not for populations.
That tells the teacher that students have a fairly wide performance on her test. If the results were an
average score of 90 with a standard deviation of 3, he or she might assume that students in class were
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learning and retaining the knowledge as expected. If the average score was 64 with a standard deviation
of 2, then he or she might assume students in class were not retaining the knowledge as expected or
there was some issue with the test structure. Both of these situations indicate a small variance in the
way students are performing, which points to the success or problem being tied to the class, the
teaching, or the test.
On the other hand, if the average score was 60 with a standard deviation of 30, then some students
were performing very well while others were performing poorly. This might indicate to the teacher that
some students are falling behind. If he or she took samples from several classes, he or she might
investigate and realize that the lowest scores were mostly from one class, which could indicate that he
or she forgot to adequately cover a certain concept in that class.
Standard deviation alone serves as a pointer for where to investigate within the process for problems or
solutions. Another reason to calculate it is because it is involved in many of the other statistical
processes we cover in later chapters. Standard deviation becomes an important concept in both analysis
and statistical process control and often serves as the starting point for further Statistical Six Sigma
analysis.
The Pareto principle was first suggested by a management consultant named Joseph Juran. Juran named
the principle for Vilfredo Pareto, an economist in Italy who wrote that 20 percent of the nation’s people
owned 80 percent of its land. The principle has become common in various circles. Business
professionals commonly state that 80 percent of sales come from 20 percent of customers, and
volunteer organizations usually operate with 20 percent of the people doing 80 percent of the work.
The principle is critical to Six Sigma not because causes and effects line up nicely via an 80/20
breakdown, but because it almost universally applies that a few inputs create more impact than all of
the other inputs. Individuals seeking to reduce defects can almost always identify three to four inputs
that, if improved, will create dramatic impact on the outcome. While resources, costs, and difficulty of
improvements also play a role in solution selections, understanding which inputs or root causes are high
on a Pareto chart let project teams determine where improvements will make the biggest impact to the
bottom line.
The Pareto principle is best displayed using a Pareto chart, which is a graphical representation of data
elements – usually inputs or causes – in a ranked bar chart. Unlike a regular bar chart, the bars are
arranged in order of height, with the highest on the left and the lowest on the right. Statistical software
used to create such charts adds formatting and other elements automatically, but you can also create a
basic Pareto chart in Excel.
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To illustrate the Pareto principle, we’ll look at a common situation involving defects in the medical
field—specifically in the process for submitting medical claims. Payers often deny claims, and they do so
for a variety of reasons. When claims are denied, provider offices have to rework, resubmit, or appeal
the denials. Some denial reasons are not appealable, which means the provider’s office loses the
revenue associated with the claim.
We’ll imagine a medical office that is experiencing a cash flow problem because of claim denials. The
office gathers data about the denials and creates a Pareto chart so the team can see where the bulk of
the denials are coming from. The data is listed below, followed by a basic Pareto chart created in Excel.
35.9%
26.4%
20.4%
9.1%
4.3% 2.8% 1.0%
Duplicate claim Timely Filing No beneficiary Claim lacks Service not Medical Date of service
found information covered necessity issue
From the Pareto chart, you can see that the top three denial reasons account for 80 percent of the
denied claims. An experienced billing team could tell you three things just from looking at this data:
1. The office has muda of rework. They are sending a large percentage of claims more than one
time.
2. The office has an efficiency problem. Almost a fourth of their claims are not making it to the
payer prior to timely filing deadlines.
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3. The office has an insurance verification problem, because a fifth of their claims are being sent
with information that doesn’t match anything on the payer’s end.
Addressing duplicate claims is important because it reduces rework and could enhance the office’s
relationship with insurance companies. However, the team might choose to work on the timely filing
problem first because timely filing denials are final, which means the office is losing the revenue
associated with all those claims. Filing claims on time is not difficult in many cases, given the fact that
most payers allow months or even a year for claims to be filed, so this could be an “easy” win for the
team. A Pareto chart often uncovers low-hanging fruit in this manner.
1. Create a column for the data labels. Pareto charts work well when you have quantifiable causes
for a defect or other effect. In the example, the data labels are the reason for the denial. No
matter what type of data you are using, enter it in order from largest to smallest for Pareto
chart purposes.
2. Create a column for count. Enter the total for each cause in that column.
3. Create a column for cumulative count. This column provides a running total. You can calculate
the numbers manually or using Excel. In the data table below, you would set C3 = B3. In C4, you
would enter the formula =C3+B4. You can drag that formula down and Excel will change the
references for each cell so you get =C4+B5, =C5+B6…and so forth.
4. Create a column for percent. In the data table below, the formula for D3 is =B3/$C$9. Cell C9
has the total of all denials, so we want to divide each individual denial total by C9. The dollar
signs in the formula let you copy it into each lower cell. The first reference will change, moving
to the next line, but the dollar signs tell Excel to keep the C9 reference for each calculation. The
final result is a table that looks like this:
5. To create the Pareto chart, highlight the information in both the Reason and Percent column
and select Insert à Chart à Bar chart.
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6. The bar chart will be created automatically. Select Add Chart Element à Trendline, and add
either an exponential or linear trendline.
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7. Select Add Chart Element à Data Labels, and select the format of data label you prefer for your
chart.
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Use of Pareto Charts
Pareto charts are helpful analytical tools when you need to analyze frequencies or causes of problems.
They also help narrow an approach for a problem that has many causes or is too broad to address in a
single improvement project. Like the claims denials example above, you can find a single cause to work
on that can yield large results across the entire process.
Pareto charts are also helpful when communicating information about causes to others, especially those
outside of the Six Sigma process. Although Pareto charts are a powerful analytical tool, they also
represent complex data in a visual format that is familiar to most anyone. Business professionals know
how to read a bar chart, and putting the chart in order only makes it easier for individuals to see the
true causes behind issues. For this reason, many Six Sigma experts regularly include Pareto charts when
presenting to business leaders and others, especially if the data might be considered surprising or need
visual reinforcement.
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Successful VOC programs are proactive and constant in their desire for feedback, and technology makes
it possible to seek customer feedback in numerous ways. Some methods for capturing feedback include:
The VOC can be sought as a means to clarify needs and desires, clarify specific problems with a process,
or as a regular part of improvement, customer service, and marketing agendas.
General Feedback
General customer feedback is often obtained through feedback forms, customer complaint records, and
passive information gathering via websites or social media. Through such methods, organizations are
usually testing general waters to get a temperature reading: are customers happy overall, dissatisfied
overall, and is there any direction as to the cause of customer feelings?
Pick up a feedback form in any fast food restaurant or access the online survey usually linked to on a
receipt and you’ll get a good idea of the type of information sought in general VOC campaigns.
Kroger, a grocery store chain in the United States, includes a link to a survey on most of its receipts. The
survey first asks for the date, time, and an entry code from the receipt. This helps the company know
where and when a person shopped so they can attribute feedback to the right location and staff.
Next, the Kroger survey asks in which areas of the store a person shopped. The rest of the survey asks
specific questions about each area of the store a person visited, including:
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o Check out times
• Whether the shopper is likely to recommend the store to another person in the next 30 days.
These questions are designed to gauge general customer feelings on critical quality elements for the
store. Understanding your critical to quality factors, or CTQs, is important to designing a strong VOC
campaign. We’ll cover CTQs more in depth in Chapter 8.
General VOC feedback is often used as a smoke alarm. A smoke alarm is designed to alert individuals in a
business, home, or other building that the possibility of a fire exists. Smoke alarms are set at a sensitive
level, so they go off when smoke is present and people within the building can take action. Often, the
alarm and early action saves lives and can even reduce damage associated with a potential fire.
VOC data can work the same way. If numbers change suddenly in a certain area, an organization knows
to look deeper into the issue. It’s an indicator that a problem could exist; early investigation and action
can help prevent problems from becoming bigger or more costly. For example, if a certain Kroger store
always scored high in cleanliness, and the numbers dropped consistently across a month, then store
management might need to revisit maintenance and cleaning training.
Results from general VOC feedback are also used in some organizations as an indicator of quality for
certain employees. Sales and services staff are often rewarded financially and in other ways for high
customer satisfaction scores. This also increases employee drive and satisfaction.
Specific Feedback
Sometimes, organizations want feedback that is specific to a problem, product, or idea. The same tools
used in general feedback campaigns can be used in specific campaigns, but you can also tailor the VOC
tool to the need. If you want feedback about a new app, you could use a beta test. If you want to test a
product, idea, or marketing campaign, an in-person or online focus group might be best.
For specific feedback, you have to ask specific questions. This is especially true if you are seeking
additional information or clarification of general feedback. For example, if Kroger did see a problem with
ratings on cleanliness, it might want more information about how and where customers note
uncleanliness. Without additional feedback, managers might have staff mopping the floors more when
customers really felt the store was dirty because of a lack of lighting or because shelves were stocked in
a sloppy manner.
Feedback form Low -Gathers a lot of data -An individual must decide to
from many sources leave feedback, skewing results
to people who feel strongly one
-Can be geared toward
way or the other
numeric data for easier
analysis
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Survey via phone High -Can randomly select, -Requires a lot of labor hours
which allows you to
-Customers may be annoyed by
draw conclusions for the
unwanted phone calls
entire population
Survey via mail Medium -Can randomly select, -The customer must send it back
which allows you to for it to count. Because many
draw conclusions for the people won’t do so, you have to
entire population. send more surveys to get a
statistical sampling.
Focus groups in person High -Lets moderators seek -Limits data pool to local
more in-depth answers customers or those willing to
or feedback immediately travel.
Focus groups online Low -Lets moderators seek -Can’t use data to make
more in-depth answers assumptions about general
or feedback immediately population.
User or beta testing High -Provides feedback -Takes time and requires
about a specific produce, experienced users or testers.
service, or process.
Using a Likert Scale, you would frame all questions so they are answered via a 5-point ranking. The
ranking can be any number of things, but most commonly is some variation of:
- Strongly agree
- Agree
- Neutral
- Disagree
- Strongly disagree
The answers are coded with numbers when data is entered into statistical software. For example, an
answer of strongly agree might be coded as 10. Agree would be 7, neutral 5, disagree 3, and strongly
disagree 1. By using numerical data, you can easily create charts and graphs and run more in-depth
statistical analysis, which is covered in future chapters.
Basic Metrics
We introduced some ideas about Six Sigma metrics in Chapter 1 when we talked about sigma level and
defects per million opportunities, or DPMO. Metrics are extremely utilized when applying Six Sigma to
processes and improvements, requiring that anyone working in a Six Sigma environment be familiar with
them.
For example, if a mail-order retailer examines quality of the order process, it might sample forms
entered by customer service representatives. If each form has 10 fields, then there are 10 opportunities
for an error on each form. If the retailer reviews 90 forms, then there are 10 * 90, or 900, total
opportunities for errors.
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During the review, the retailer finds 2 errors, or defects. To calculate DPMO, the math would be as
follows:
For example, if a publisher printed 1,000 books and pulled out 50 books for quality checks, it might be
looking for the following defects:
- Incorrect printing
- Incorrect alignment
- Missing pages
- A loose spine
- Torn cover
There are 9 total errors, as two books had two defects each.
The DPU is calculated by dividing defects by number of units sampled. In this case, 9/50 = 0.18.
DPU provides an average level of quality—it tells you how many defects on average each unit can be
expected to have. In this case, that is 0.18 defects on average.
Most products or services are created via multiple processes; you multiply the FTY for each process to
calculate an overall FTY. For example, consider the following process chain:
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- 95 units enter process B and 85 good units are achieved.
- 85 units enter process C and 80 good units exit.
RTY is calculated in a similar manner to FTY, but it takes rework into account. If process A from the FTY
example only achieved a yield of 95 because someone reworked five items to make them good, then
RTY calculations add five instances of rework into the ratio. The formula is:
- 100 units enter process A. Five are scrapped, 5 are reworked, and a total of 95 are produced.
- 95 units enter process B. Ten are scrapped, 5 are reworked, and a total of 85 are produced.
- 85 units enter process C. Five are scrapped, 15 are reworked, and a total of 80 are produced.
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The overall RTY for the process is 0.574, which is a much lower rate than when you look at FTY alone.
RTY doesn’t provide an indication of final production or sales, but a low RTY indicates that there is waste
in the process in the form of rework.
A government agency handles applications for assistance for local families. The process for each
application includes:
All of the applications and customer feedback for March were reviewed, and the team found the
following information:
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