Six Sigma Strategy Benchmarking

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In order to understand why Six Sigma might be considered a component of
business strategy, it is first necessary to realize its purpose and application.
Fundamentally, sigma represents a standard deviation or, in statistical terms,
how much a process output varies from its nominal or mean average value both
in a positive and a negative direction.

A Six Sigma strategic process begins with establishing a baseline measurement
of the existing process error rate. If the baseline metrics indicate a 3 to 4σ error
rate, then the next step is to determine how other companies in similar busi-
nesses stack up. Are we better or worse than similar companies? In what areas
of the operation are we better or worse? The analysis will probably show that
the average competitive company operates in an error range of 3.5 to 4σ. Look
at the leading companies in the industry, and by comparison, what level of error
rate are they achieving?
Comparison of your operations to operations of competitive companies will
show that you are likely doing better in some areas and probably not as well
in other areas. These differences not only provide a road map for where to begin
the Six Sigma process, but also quantify the competitive advantage that will be
achieved from successfully reaching a Six Sigma level.
The benchmarking effort should not be limited to competitive companies,
but should also evaluate common processes within the company and how well
functional steps within a process are performing. This comparative analysis
must be performed with the baseline assessment and then continued as part of
the continuous improvement process. This step is seen in the Toyota story and
is a critical component of its ongoing success. Employee teams at all levels of
the organization perform these benchmarking comparisons and reviews.
inormation is then cascaded up and down to all levels of the company as part of
its operating culture.

Benchmarking is an important Six Sigma tool. The following points help to
spell out what benchmarking does and why it is such a good tool:

– Identifies best practices

– Guides approaches for improvement

– Helps to manage change

– Helps set and determine improvement priorities

– Identifies the best approaches

– Establishes best practices

– Typically requires a team effort

– Is not a one-time event

– Is not the same as competitive intelligence or market research

Another definition states that “benchmarking is a continuous, systematic
process for evaluating the products, services, and work processes of an orga-
nization that are represented by best practices for the purpose of organizational
improvement.” In addition to organizational improvement, it is also important
to add operational and process improvement. By utilizing benchmarking tech-
niques in a systematic and analytical manner to evaluate and assess operations,
the results of the analysis can be applied to achieve Six Sigma–level organi-
zational and process improvements on a continuous basis. After I explain the
Six Sigma tools in greater detail, the reasons for the emphasis placed on
benchmarking will fit into the picture with greater clarity. For now, it is im-
portant to understand that benchmarking provides valuable information and is
a process of learning that helps provide answers to the following two questions:
What does this business do compared to other businesses and what doesn’t this
business do compared to other businesses?
How much do product and service quality cost? The answer obviously will
be different for each organization depending on its size and on the soundness
and ability of its processes to operate at a level of Six Sigma. Figure
provides an interesting view showing that when defects and failures increase,
the associated cost of control also increases. By driving down the number of
incidents and the time associated with them, organizations experience a dra-
matic reduction in cost. Benchmarking externally, internally, and functionally
is a first step to understanding what is occurring and what is possible.
The obvious culprits are scrap and rework in the production process as well
as the cost of poor-quality material received from vendors. Now consider the
cost to inspect, test, and conduct quality audits in terms of equipment and
personnel. In addition to inherent failures and defects, the cost of latent failure
and defects is even more dramatic because of the impact it has on the customer.
High risk of latent failure results in increases to warranty cost and the cost to
maintain customer satisfaction. The cost of customer satisfaction includes ac-
cepting returned material, the time and expense associated with communication,
and issuing refunds. The potential for lawsuits and other warranty issues provides
clear logic and justification for eliminating any chance of incurring down-
stream failure and customer dissatisfaction.
Companies operating at a level of 4σ or worse frequently dismiss Six Sigma
efforts as unachievable because they require too much effort, time, and money.
Frequently, these organizations expect instant success and forget that every
journey begins by taking that first step. In order to gain and sustain momentum,
logical implementation efforts should begin by selecting high-priority situations
to ensure success and concentrating on process improvement to eliminate errors
and defects completely. One of the benefits of Six Sigma tools is that improved
processes through product and process design will help to avoid the necessity
for inspection and testing.
Understanding some of following detailed steps used by Motorola for overcoming
variation problems provides helpful insights:
1. Define Six Sigma tolerances on all critical products and process parameters.
2. Minimize the total number of parts in the product.
3. Minimize the number of process steps.
4. Standardize the parts and processes used.
5. Use statistical process control (SPC) during the design and prototype
design phases.
Motorola then applied the following six steps for achieving Six Sigma for
nonmanufacturing functions:
1. Identify the products you create and the services you provide.
2. Identify the customers (external and internal) for your products and
services and determine what they consider important.
3. Identify your needs (to provide products and services so they satisfy the
4. Define the process for doing the work.
5. Mistake proof the process and eliminate wasted effort.
6. Ensure continuous improvement by measuring, analyzing, and control-
ling the improved process.
The Six Sigma approach is a fact-based decision-making tool that can be
applied to every business and function. This disciplined method of solving
problems represents an investment for the future capable of generating savings
and creating breakthrough competitive advantages. The key to success is that
companies must be willing to apply  the focus and   discipline  necessary to
execute the program.

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