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by Dirk Dusharme

Despite its success, Six Sigma is often scorned as just the latest management fad, a repackaging of what has already been done, a rose by some other name. Even within Quality Digest, there have been articles and editorials critical of the process improvement methodology championed by industry giants like Motorola since the mid-1980s. But there is no arguing with success, and “success” seems to be the word among the majority of Six Sigma practitioners. As this year’s survey shows, Six Sigma is still going strong, even inching its way into smaller businesses and nonmanufacturing environments.

This year, our Six Sigma Survey was sent via e-mail to nearly 65,000 quality professionals--either Quality Digest subscribers, InsideQuality members or ISO 9000 certificate holders. Of those, 25,000 received the request to participate in the survey and 2,577 took part in the survey.

Most of the survey results can be seen on the tables throughout this article, but we will provide more detailed analysis of some of the more interesting survey results.

Spend money to save money

This year Quality Digest added three basic questions related to the amount of training devoted to Six Sigma and the yearly cost of maintaining a Six Sigma program. Not surprisingly, both the time set aside for training and the financial commitment to training and implementation are substantial. The vast majority of respondents report that it’s time and money well spent, however.

In our past two Six Sigma surveys, our panel of Six Sigma experts have pointed out that Six Sigma is generally most successful in larger companies because of the cost of implementation; most experts believe that a successful implementation requires at least one full-time Six Sigma practitioner. Add training or consulting costs and employee hours lost to training, and the money-meter gets whirling pretty fast. Although evidence indicates an almost guaranteed return on investment, the start-up costs may be beyond the reach of small companies. This year’s survey corroborates that possibility.

About 250 of the 935 respondents who have implemented Six Sigma shared with us how much their company spends on the program per year. This includes training, consulting and the salaries of full-time Six Sigma employees. We broke the responses down into two sets: one for stand-alone businesses--those not part of a larger organization--and one for those that are part of a larger organization. The number of responses for the first set is small (a clue in and of itself), but the data point to an average of about $75,000 per year. This figure could be smaller if you subtract the two or three companies that spent considerably more on Six Sigma than the others. Although this might be a reasonable figure for companies with several hundred employees, it’s a bit of a financial reach for smaller companies.

It’s interesting to note that these figures are roughly equivalent for companies that are part of larger organizations. Because training costs are based on the number of participants and Six Sigma generally requires a percentage of employees be directly involved, there’s a direct correlation between the number of employees and the cost of implementation. Roughly speaking, for companies with 100 to 50,000 employees, the cost of Six Sigma implementation is between $100 and $200 per employee, according to these figures.

To afford these costs, there must be a good return on investment--and according to our respondents, there is. This year, 400 of the 935 respondents who reported they have a Six Sigma program in place gave specific details on cost savings, productivity improvements and other outcomes of their Six Sigma initiatives. Only about 20 respondents indicated that Six Sigma had not helped them at all or was “a waste of time.”

At the bottom of this article we show randomly selected Six Sigma testimonials from companies with fewer than 500 employees and companies with greater than 500 employees.

Because training plays a key role in the success of Six Sigma, we asked companies that have a Six Sigma program whether Six Sigma training was mandatory for all employees. Of the 912 respondents, 24 percent indicated that Six Sigma training was mandatory.

We also asked about the minimum amount of Six Sigma training of any employee for whom training was required. This generic question did not ask the minimum time required for each level of Six Sigma (e.g., Black Belt, Green Belt, etc.) training, although in most cases the respondent provided comments accordingly. Next year’s survey will ask this question specific to each level. The response distribution has several peaks, centered around one- or two-day overview or awareness courses, and peaks at the various levels of practitioner training: Green Belt, Black Belt etc. As can be seen in the table on page 28, about 25 percent of companies that use Six Sigma have some sort of one- to three-day introductory Six Sigma course for employees who will be only indirectly involved in the process. The next peak was in the five- to 10-day range, ostensibly due to Green Belt training. The next peak was for more than 10 days of training, which comments indicated were largely for Black Belts and higher.

Most of the executive overview or Champion courses last only one or two days, in many cases only two to four hours. Only a few companies required management to take more extensive (five-day or greater) courses.

Six Sigma inroads

Since our first survey, Six Sigma has made some progress into small businesses, which we defined as organizations with 500 or fewer employees. In 2002, only about 11 percent of companies that had a Six Sigma program in place had 500 or fewer employees; today the portion is 18 percent. The majority of these sites, however, are part of larger organizations, indicating deeper pockets and the ability to support the program.

That said, many consultants are developing training materials or off-site courses that are more cost-effective for small companies. In addition, some small companies are implementing Six Sigma without using a full-time Six Sigma practitioner--one of the major ongoing costs for implementation.

Six Sigma programs are also making their way into their organizations’ nonmanufacturing functional areas. Although the percentage of respondents reporting that manufacturing use of Six Sigma has remained the same, at about 82 percent, almost every other functional area has shown a 3 to 5 percent increase in Six Sigma use.

Distribution of Six Sigma Programs by Functional Area

As in previous surveys, we continue to see a dramatic drop-off of companies using Six Sigma around year three. Last year we postulated that this could be because after three years, companies had reaped the predominate benefits from Six Sigma by picking the low-hanging fruit--obvious waste or productivity issues--and then lost momentum later when the dramatic savings of earlier projects failed to appear. But with only data from two surveys to consider, it was difficult to make a solid conclusion that this is the case. With this survey showing the same drop at year three, it’s becoming more apparent that many companies are abandoning the process at that point for some reason.

Strangely, although we see Six Sigma making it’s way into small companies and nonmanufacturing areas, as a whole, there are fewer companies starting Six Sigma initiatives. We define a Six Sigma start-up as a company that reports its Six Sigma initiative to be less than 1 year old. In 2002, 30 percent of respondents reported using Six Sigma for less than one year. In January of 2003 the percentage dropped to 21 percent, followed by 18 percent this year.

In addition, there is an interesting trend developing with respect to the percentage of companies within each year range across the three surveys. The percentage of companies in years one through three of implementation have dwindled each year, while the percentage in years four and higher have increased. This trend suggests that the Six Sigma market may be peaking or has peaked. However, as with last year, about 50 percent of respondents who haven’t already implemented Six Sigma said that their companies plan to start the program within the next 18 months. Next year’s survey will give us a better indication of how the Six Sigma market is progressing.

 

Distribution of Company Size for Sites With Six Sigma

Six Sigma’s effect

Survey scores intended to measure Six Sigma’s effect improved from last year.

Respondents continued to acknowledge that Six Sigma has improved their companies’ profitability, with 72 percent agreeing that this was the case. This is up from 64 percent in last year’s survey.

Respondents also indicated that job satisfaction has improved due to Six Sigma. About 53 percent agreed that this was the case, 23 percent disagreed and 24 percent were neutral. This compares to slightly lower scores from last year, in which 43 percent agreed that job satisfaction had improved, 30 percent disagreed and 27 percent were neutral.

The effect of Six Sigma on customer satisfaction changed little, with 54 percent of respondents agreeing that Six Sigma had improved customer satisfaction, 27 percent disagreeing and 19 percent being neutral.

Six Sigma support

As any Six Sigma practitioner will attest, for the process to work it must have complete buy-in from the top down. For the most part, our survey reflects this.

Nearly 80 percent of respondents agreed with the statement that “Management fully supports our Six Sigma program,” with 40 percent saying that they strongly agreed.

Respondents also indicated that the goal of Six Sigma projects is well-understood prior to commencement, with 87 percent agreeing that was the case and 7 percent disagreeing. Because Six Sigma projects are bottom line-driven, this is a significant figure and indicates that management and practitioners are doing a good job of identifying and communicating project goals and parameters.

The scores lag somewhat, however, when it comes to the nuts and bolts of support (e.g., training, time and resources). Nearly 41 percent of respondents indicated that they could have used more Six Sigma training prior to starting Six Sigma projects; about 45 percent indicated training was adequate. The score was also split when it came to the amount of time allowed for Six Sigma projects: 51 percent responded that they were given enough time, 37 percent said they weren’t and 11 percent were neutral. Availability of resources showed an almost even split, with 45 percent agreeing they had enough resources to implement projects and 43 percent indicating they did not.

Summary

In the two years we have been tracking Six Sigma usage and perceptions, the predominant finding of survey responses is the overwhelming agreement on this methodology as a means to drastically reduce waste and improve productivity. Six Sigma practitioners are a zealous lot, and with good reason; when properly implemented and supported by management, the process yields huge results. Very few of those who utilize Six Sigma have anything negative to say about it.

Of course, there is always a downside, and with Six Sigma, the downside is the difficulty of implementing it within small companies. In the past, experts have explained that Six Sigma is most easily implemented in companies with more than 500 employees. And, although some inroads have been made in reducing costs to make it more viable for small companies, our surveys still support that idea. It takes money to make money; with Six Sigma, this is definitely the case. It also takes dedicated people-power. Larger companies have the resources to spend on Six Sigma training and rollout without worrying about an immediate return on investment, which incidentally, respondents tell us there almost always is.

Finally, although a little early to tell, some trends in the past three survey data might indicate that Six Sigma is on the wane. Decreasing Six Sigma start-ups and a shift in the distribution of how long companies have been employing Six Sigma seem to point in that direction. Next year’s survey will give us a better picture of whether this is the case.

Six Sigma Testimonials From Sites With Fewer Than 500 Employees

  • Our overall cost of quality system failure was less than 0.5% of sales. We were bench- marked as the top quality supplier for 90% of our customers.
  • Reduced machine cycle time by 20%, scrap reduction by 25%, increased production rate by 15%
  • Waste reduction saves $340,000 annually at one facility
  • Various projects--$5,000 to $1.2 million
  • Overall business results--$250,000 annually
  • Waste reduction saves $15,000 per month. Customer satisfaction increased from 10% to 91% within three months
  • We utilized lean to re-create the entire factory, building a whole new plant. Then we went into the plant that was fairly well run and pulled out another $271,000, representing about 23% of net revenues for that year.

These responses were randomly selected from those companies with fewer than 500 employees that answered this question.

Six Sigma Testimonials From Sites With Greater Than 500 Employees

  • $2.3 million in savings since 2002
  • Reduced downtime by 40%. Increased output by 15%
  • Cost reduction--5%
  • Over nine-month period: 21 completed projects, $1 million in savings, increased accurate forecasting and production planning by 60%.
  • $2 billion savings
  • $25,000 per month savings
  • It has been more of an expense at this stage. A lot of talk of it and not much follow-through.
  • Reduced scrap by 30%/month reduced rework on one product from 39% average
  • to 12%.
  • $55 million in hard savings, $120 million in soft savings
  • Greater than $1.5 billion in benefits
  • Overall cost reduction of 10% in first year
  • Greater than $4 million in first year
  • First-year cost savings or potential savings of about $1.5 million.
  • Reduced utility costs $300,000, reduced shipping claims 20%, reduced manufacturing costs $500,000
  • $1 million to bottom-line profit first year
  • $1.1 million last year
  • Reduced waste $150 million
  • $5 million corporatewide
  • The project was to save $250,000. It failed, and cost in scrap and lost production-resource people was $300,000.
  • $900,000 for 2003
  • Waste reduction of 40%, saving $120,000 per year
  • Customer complaints reduced by 75%. Productivity increased by 5%.
  • Reduced scrap by $800,000. Reduced customer complaints by 15%. Added $400,000 incremental revenue
  • $3-5 million annually
  • $200,000 per month
  • Our local site: savings of greater than $2 million over last 2 years
  • Approximately $8 million per year for our location
  • Savings of $5 million. Production increase, utilities reduction
  • Increase some aspects of production by 30%, and increase billing and collection by 35%
  • Reduced manufacturing cycle time by 75%, decreased resource costs to process received goods by 57%, reduced ECO process cycle time by 97%, reduced manufacturing errors by 82%

These responses were randomly selected from those companies with greater than 500 employees that answered this question.

 

About the author

Dirk Dusharme is Quality Digest’s technology editor.