A Six Sigma Challenge on Usenet - Does six sigma *really* save money?

[Jim Wynne]

I just ran across the linked thread from Google Groups, which originated at misc.industry.quality. A BB looking for "best practices" made the mistake of claiming millions of dollars saved and got ambushed by someone who challenged her to substantiate the claim. Unfortunately a netcop jumped in and stifled the discussion just when it was getting interesting, for no apparent reason. My question for the group: How often do you think SS claims of money saved would actually stand up to learned scrutiny?

[Bill Pflanz]

Ignoring whether Six Sigma is anything special as an improvement technique, I do believe you can quantify the financial savings of an improvement effort. Many quality professionals do not have the cost accounting knowledge to determine the savings. In theory, every SS team is supposed to have a finance member so I guess it could be possible to document the savings.

The problem with Six Sigma is that the team leaders are forced to show a financial savings, it must be significant and it must be obtained in a few months. Deming showed repeatedly that setting quotas forces workers in to lying and cheating to meet the goals. Why would Six Sigma be different? I am sure Covers can produce documented evidence of preventive actions taken to eliminate defects. With a little help from a financial type and some assumptions about how long to take credit for the elimination, one might be able to show a $1 million savings.

If anything, quality professionals are probably not taking enough credit for their team savings since they fail to put it into financial terms. Six Sigma was intended to correct that oversight. Unfortunately in all the hype that went with it, the intent was quickly lost as Six Sigma teams were forced to show savings even if not real or not understood.

Bill Pflanz

[Wes Bucey]

I was certainly qualified to do the cost accounting in any situation. Some of the so-called "MBZ folk" (my own acronym/abbreviation for "millions, billions, and zillions") actually create real net savings, but in their rush to "prove" (some might say "improve") their numbers, they often "rob Peter to pay Paul" and the reported saving is many multiples of the actual net delivered to the bottom line of the organization.

That said, it doesn't mean the quality initiatives are either good or bad when 6S folk do them. My primary objection has always been the short payback window targeted by 6S folk. Often, those short-term savings are not sustainable because they are like arbitrage profits in the stock market - you have to unwind the position at the end of the trading day. I have seen some short-sighted folk create profits at the expense of another Division within the same organization, resulting in a net loss because of the salary and overhead cost of the 6S folk.

I, myself, used the equivalent of a 6S intiative to generate a one-time $500,000 profit (limited to the operation) over a 14 month period, but it was after I had created an ad campaign that was too successful and we "burned" one year's worth of sales leads generated because they overwhelmed our staff and we alienated countless prospects who were never converted to customers. There is no way to put an accurate figure on that loss of real money (advertising that generated unusable leads) and lost opportunity (alienated prospects) to the organization, but my advertising tab alone was $300,000. I considered myself lucky if I only broke even and didn't lose key staffers to burnout and frustration with so many leads we couldn't handle because funds needed to expand staff and work capacity couldn't overcome the lag time needed for training of new personnel and installation of equipment.

GE was infamous for MBZ claims of 6S savings which rarely made their way to the bottom line of GE at the end of the year. Did that mean the 6S savings weren't real? No! It only meant that large organizations have lots of ebb and flow in operations. Savings in one operation are often offset by unplanned losses in another, regardless of whether 6S was involved.

The big question in many minds is whether the intense focus on a 6S project diverts attention away from other operations which are allowed to deteriorate. Would I have scrambled so hard to find a $500,000 savings if I weren't stinging from my ad fiasco? Desperate people do desperate things, which is why some 6S projects cannibalize other projects not protected by a BB.

The reason the moderators shut the thread down in JSW05's example is that experience has shown some folks lose all rational behavior when someone pushes their 6S buttons (pro or con.)

[Jim Wynne]

Originally Posted by Wes Bucey

The reason the moderators shut the thread down in JSW05's example is that experience has shown some folks lose all rational behavior when someone pushes their 6S buttons (pro or con.)

I don't think the party-pooper was a "moderator" in the sense that he had any particular authority; It looks to me like he was someone who felt the need to stifle a legitimate challenge, perhaps because the truth was too painful. There was no sign of irrational behavior; the challenger stated two or three times that he wasn't saying the BB hadn't done good work; the objection was to the unsupportable claim of millions of dollars saved. Many of us have seen résumés wherein the applicant claimed to have saved his erstwhile employers thousands or millions, and there is nothing in evidence to support the specifics. I do not look favorably on such claims. I would much rather have someone tell me exactly what was done and how it helped people to do a better job. Many people in quality--and not just BBs--do their own good work an extreme disservice by making unsupported assertions about money. In these cases I always think about Dr. Deming's concept of the unknown and the unknowable. Sooner or later good work will somehow manage to speak for itself, even if the ones who need to know it never hear it.

[Bev D]

Originally Posted by JSW05

My question for the group: How often do you think SS claims of money saved would actually stand up to learned scrutiny?

It depends...
as Bill stated often management's presssure to show huge savings on each project even after the first couple of rounds of projects often leads to inflated claims that everyone uys into just to meet the unreasonabel goals...most comopanies have a distribution of cost savings that has a few with a lot of easy to calculate savings and then a whole bunch that have smaller savings amounts - but that still amount to a lot in the aggregate.

Motorola didn't require cost savings for their 'six sigma' approach. They only required quantum leaps in quality improvements...

My first project at a large company was on a field failure that had already cost the company over a half million dollars of hard out of pocket money to the customer. The inhouse cost was also large, each part had to be manually reqorked adn 100% inspected on a CMM each time it was reworked. huge costs and shipment delays but we couldn't afford to ship the parts unreworked - they were guaranteed failures. The solution was not obvious at first and teh engineering organization was willing to spend a quarter of a million on a new machining approach taht tehy did purchase and attempt to implement but never did because it didnt' work. Once I got to root cause and imprlemented the solution (<$10k by the way) - how much money did I actually save? how much cost avoidance did I gain? what about the avoidance of a potential loss of life (possible with this faliure) I never really cared - I knew it was a lot and it was the right thing to do...

I think that six sigma or any quality improvement needs to be done for the right reasons and hard cost savings that go to the bottom line are the least of those. althought they can be significant.

Bill is also correct in that you cannot simply look at the bottom line of a company form year to year due to the fluctuatiosn of profit and loss in all of the possible categories...you really can only look at the individaul projects - tough to prove from outside the organization! Not so tough from inside the organization when the organization has a healthy adn functional approach to quality...

Forunately for me, my current organization has such an approach. our finance org is very good at ensuring that we dont' over exaggerate the hard savings but is also very cognizant and suppportive of all other type s of asavings and is never squeamish about projects that have no hard asvings but are all avoidance or cycle time savings...and our CEO is equally balanced and reasonable....I got lucky!

[Jim Wynne]

Originally Posted by Bill Pflanz

If anything, quality professionals are probably not taking enough credit for their team savings since they fail to put it into financial terms. Six Sigma was intended to correct that oversight. Unfortunately in all the hype that went with it, the intent was quickly lost as Six Sigma teams were forced to show savings even if not real or not understood.

An example from my own experience: I was hired as a quality manager for a small (~200 people) OEM that was heavily dependent upon outside suppliers. There was a receiving inspection function, and everything went through it before being used in production. There was some bad blood between engineering, quality and purchasing. Everything that didn't meet the specifications was rejected in incoming inspection, even if it was known that the "defect" in question was in the specifications. The standard procedure called for inspection to write a nonconformance report (NCR) and forward it to engineering for dispostion. This ususally took a few days, and I found that in the vast majority of cases the disposition was "use as is" without any kind of followup action. The same parts got rejected over and over again for the same reasons. Purchasing would get mad at engineering for not fixing the drawings, and engineering would get mad at quality for not just accepting parts they knew were OK.

The engineering manager claimed he didn't have the resources to do all of the drawing changes necessary. He needed justification for hiring someone. I gathered up a year's worth of NCRs and with the help of an accounting person made a reasonable estimate of the cost of all of the pointless rejections. This amounted to a sizable sum, and I got the engineering and purchasing managers to sit down with me and come up with a plan to present to upper management to fix the situation, once and for all. KNowing Juran's admonition regarding management speaking the "millions" language, we set up a system whereby these drawing issues would be dealt with as they came up, and nothing would languish in reject unless it was certain that it was too risky to use. The plan was presented with fiscal data that was supportable in a rather superficial way, and we were able to solve our problem by hiring an engineering person to help deal with the mess.

Now the interesting thing here is that there was no real way to predict the cost savings that resulted from these efforts. I suspect that a few years down the road, as the company grew, more inspectors would have been hired had the problem not been addressed. There's no way to know for sure, and that's the whole point. If we can use cost savings in order to justify real improvement, it doesn't make much difference if the touted savings are actually analogous to real, long-term savings. At the same time, however, we need to realize that when we say we saved a million we'd d*mn well better be prepared to justify the claims. I prefer to let the work speak for itself.