Are Your Capability Indices Too Good for Your Process

A "six sigma quality" process is said to exhibit process capability ratios Cp of 2.0 or greater and a Ppk of 1.50 or greater. As I travel around the world delivering Lean Six Sigma and Quality training and consulting, I have observed several instances where an organization proudly reports Cpk and Ppk levels greater than 2.0 - only to learn that is still experiencing frequent customer complaints and elevated DPPM (defective parts per million) counts. My initial reaction is that of suspicion of how the capability index was calculated, followed closely by the question of what the organization plans to do about it.

If your process capability is truly approaching 2.0 or greater, and you are not experiencing customer complaints it tells me that you are quite possibly leaving money on the table with respect to optimizing your operational efficiency. Certainly, there are industries, products and services, that require 6 Sigma quality performance or greater, but they are the exception rather than the rule. The goal of Lean Six Sigma should never be about chasing higher and higher capability indices, rather to optimize customer value and secure competitive advantage. Capability indices are a contrived metric to give management a snapshot view of our overall process performance. A myopic focus on driving process capability improvement for the sake of increasing the process' Ppk value does not necessarily optimize value for the customer. Often, such a practice leads to over-engineered products - needlessly adding cost without achieving higher sales or greater market share. If you are already better than the competition, and the customer cannot perceive greater value - and is not willing to pay more or buy more - allocate your resources to other more important improvement opportunities. Improving quality for quality's sake is a major reason why TQM (Total Quality Management) efforts failed so miserably in the 1980s.

My general rule of thumb recommendation is to target for Ppk = 1.33. I also remind organizations that in practice there are often conflicting and competing customer requirements. It may not be possible or desirable to drive every customer CTQ (critical to quality) characteristic to Ppk >= 1.33 due to trade-offs in product design. The criticality of the defect should also be considered when setting an improvement goal. For example, processes with defects potentially causing serious injury - or worse - should demonstrate much greater short-term and long-term capability than less critical defects.

Far too often; however, reported Ppk values of 2.0 or greater are not representative of the true process performance. Organizations continue to experience elevated complaint levels and/or high DPPM values, raising serious questions as to how the capability indices are calculated. How might this happen? I have summarized several scenarios below:

Cpk, Ppk values are calculated only on sorted, shipped product -
This incorrect calculation of Ppk is often justified because "it represents the quality level of product going to the customer". WRONG. Inspection and sorting is never 100% accurate. One is led into false security believing they have sorted out all bad product - especially where the process is not stable, you cannot 100% inspect, and in the case where test methods are destructive in nature. (True test error cannot be determined). Capability indices must be calculated on all output of the process - good and bad, scrapped and shipped.

Cpk, Ppk values are estimated on subgroup averages -
Capability indices should almost always be calculated from individuals data. Your customer experiences variation between individual units, not averages. Variability of subgroup averages will always be smaller than the variation among individuals, resulting in a smaller standard deviation, thereby inflating your process capability metric. For more information refer to the statistical concept of the Central Limit Theorem.

Cpk, Ppk are estimated on an improperly selected sample -
Related to the first two points is the issue of proper sample selection. How assured are you that your testing frequency and sample selection is truly representative of the product reaching the customer? When was the last time you verified that current sampling plans represent all of the variation in the "lot"? Is your test sampling plan based on tribal knowledge (this is the way we have always done it) or is your sampling based on statistically-validated Components of Variance studies? Have such studies been performed following process or product modifications (Management of Change)?

Your specifications are very wide -
An unusually large spread between your specification limits can also result in a large Ppk, Cpk value. The issue here is whether your customers can accept this amount of potential variability in your product performance. Unless your organizational culture is committed to a "Run to Target" mindset and you have honest to goodness working (i.e. effective) process controls, wide specification limits only provide temptation to release product that deviates from the norm as long as it is in spec. Capability Indices are point-estimates; they vary over time depending on the sample collected, and they do not drive daily production decisions. If the customer desperately needs the product it is only human nature to find a way to ship "suspect" product - retest, slit and salvage, etc. How often have you heard the phrase or something similar: "When in doubt ship it out"? Generally the outcome is if the customer wants it bad, they will get it... bad.

Your test methods do not predict fitness for use -
If your capability indices are large but you continue to receive frequent complaints and experience high DPPM, it might also be the result of inadequate test methods. Customer requirements are constantly changing. When was the last time you validated your customer requirements? This issue of validating and re-validating Voice of Customer influences how specification limits are set (see point above), but also helps confirm whether your manufacturing-friendly tests are adequate and relevant. Test Methods MSA studies (e.g. Gage R&R) to evaluate and improve test method capability are definitely important towards reducing overall process variability, but very repeatable and reproducible tests are meaningless if the test method itself does not predict fitness for use. Large Cpk, Ppk of a process as measured by an irrelevant test method cannot assure customer satisfaction.

Your process is not stable; a trend exists -
In cases where short-term variation is much smaller than long-term variation, the Cp metric can be unusually large in comparison to the Ppk. For example, the variability between successive measurements (individuals) is relatively small, but the overall process is trending upward or downward.


These six examples highlight the more common reasons for disconnects between internal measures of quality and customer perceptions of quality. These distinctions should be monitored and tracked over time in a balanced scorecard.

Cash is King, Lean Six Sigma sit at the Roundtable

In today's tough economic conditions, many businesses are focused on generating and keeping cash to minimize borrowing. Three obvious areas of focus, as evidenced by your local, national and even international news, are reducing spending, eliminating inventory and cutting headcount; but the challenge is to maintain clients and provide excellent customer service despite fewer resources. In today's uncertain economy, businesses are looking to simplify their supply chains, including minimizing their supplier base. Only those suppliers with superior product quality, a proven track record of on-time, in-full service performance, and unparalleled customer service and responsiveness will survive.

So how does one eliminate wasteful inventory in order to save cash yet continue to deliver exceptional service? Now, more than ever, is the time to align your business improvement methodologies to drive a customer-focused mindset. Meet with your best customers and "Lead Users" to truly understand how your product or service helps them achieve their "desired outcomes"; meet with lost customers and non-cutomers to understand your competitors' strengths and weaknesses. Networking, not retrenchment, is vital in today's troubled economy for survival - - and growth.

Once you understand your customers' wants and needs (and potential customers' unmet, unarticulated needs) you must work to lean out your value streams to eliminate non value-added activities, reduce waste, and improve speed while improving the capability of your key business processes and products to eliminate defects and improve reliability. Understand that inventory is the outcome, planned or unplanned, of unstable and/or mis-aligned processes. Not all inventory is bad. Some inventory may be unavoidable depending on fluctuations in customer demand, your ability to forecast, and your own internal constraints that prevent quick reaction and response. You must work to understand all the forms of inventory in your supply chain (for example, raw materials, components, packaging, work-in-progress, semi-finished goods, sub-assemblies, finished goods, quality hold, rework, scrap, etc.), and the root causes of each inventory type (e.g., unknown requirements, inadequate specifications, unstable inputs, incapable process, lack of robust design, etc.).

Together Lean, Six Sigma, Total Quality and an engaged workforce all play important inter-connected roles in improving operational effectiveness and customer satisfaction, for short-term survival and longer-term growth.

Revalidating the Value of ISO in Tough Economy

Is your management team questioning the costs and value of ISO registration? In these tough economic times many organizations are turning every stone looking for areas to cut costs, including the direct and indirect costs, real and perceived, associated with ISO registration. Certainly, if your customers demand ISO registration as a requirement to do business the value of existing business and the opportunity to bid on new contracts is much easier to quantify. But what if your customers do not require ISO registration?

• Does your organization use ISO to manage and continually improve its operations?
• Is ISO registration used as a competitive advantage?

Here are some additional areas of opportunity one might consider when re-validating your QMS registration:

1. Protect the corporation
   - Prevent defects due to workmanship errors resulting from a lack of documented procedures and ineffective training.
   - Prevent manufacturing escapes due to ineffective traceability & identification, and control of nonconforming product.
   - Prevent design flaws and defects due to inadequate controls in the development and management of change processes.
   - Assure claims substantiation in product design, and verification of statements, expressed and implied, on all product packaging and promotional literature.
   
2. Deliver the brand promise
   - Ensure that your systems and processes are stable and capable to produce and deliver products and services that consistently meet customer requirements.
   - Build strong customer relationships through trusted, reliable, predictable performance.
   - Assure competitive advantage by offering value-add products and services.
   
3. Legitimize your QMS effectiveness through accredited 3rd party assessments
   - Ensure the effectiveness of the your organizations' key business processes as well as the six required documented procedures of ISO (document control, record control, management review, internal auditing, control of nonconforming, and corrective & preventive action).
   
4. Minimize and eliminate the need for customer on-site audits, the distractions they bring; and protect your trade secrets.
   - Similarly, minimize the costs associated with supplier audits by requiring that your suppliers and outsource (contract) manufacturers be ISO registered.

Opportunities for cost reduction associated with ISO registration may be realized by working with your registrar to move to an annual surveillance audit, and/or possible reduction of audit days as the result of any organizational downsizing. Too, perhaps you can share internal auditors with a sister operation.

Quality is about People

My passion is Quality. I started my 3M career 27 years ago as a Quality Assurance engineer. Early in my career I understood the need for data-based decision making, and the power of Statistical Thinking to ask the right questions to gain insight about the context by which the data were collected. The fundamental concepts of Statistical Thinking, as defined by the ASQ Statistics Division, are:
· All work occurs in a series of interconnected processes
· All processes have variation
· Knowledge and proper management of variation are keys to success

Early in my career Quality was all about the tools – the technical side of change; whether the program of the year was TQM, COPQ, SPC, ISO, MBQNA, Six Sigma, Lean, etc. However, through the years I have come to appreciate that while stable processes are indeed important to predictable, repeatable results, Quality is fundamentally about People. Employee engagement and customer focus are the real drivers to continual improvement, innovation and growth for sustained business success. People must commit to and be involved in the change process; an organization must mobilize their employee’s hearts and minds in order to embrace change and become adaptive and nimble.

COPs, MOPs and SOPs

In my previous blog I introduced the topic of a Quality Management System. A "system" is comprised of a series of interconnected processes. A process is an activity that converts inputs into outputs. Processes have suppliers and customers - they may be internal or external to your organization. This week's blog introduces the concept of "key" business processes that comprise an effective Quality Management System.

Generally, we classify our business processes into three major categories: "Core" processes (also known as Customer-Oriented Processes - 'COPs') are the major processes that represent the core work of the organization and have a direct impact on the customer. Examples of core processes include:

• Design & Development
• Order Management (order entry and fulfillment, forecasting, Demand Planning)
• Production (manufacturing, outsourcing, assembly, testing, etc.)
• Invoicing
• After the sale Service

The Lean philosophy introduces the concept of a Value Stream. Value Streams can be thought of as the key business process of a product/service; that is, a map of all the required processes to manufacture and deliver a product to the customer.

"Management" processes ('MOPs') are management areas of responsibility that enable core processes to be performed and have an indirect impact on the customer. Examples of management processes include:

• Quality policy and objectives
• Planning (Strategic, Operational, Tactical)
• Resource management
• Customer focus
• Management reviews
  

"Support" processes ('SOPs') are all other processes that enable core processes and have an indirect impact on the customer. Some support functions, and examples of their processes include:

Purchasing

• Supplier management processes
• Requisitions
• Request for Quote

Finance

• Accounting; cost estimates
• P&L analysis

Others:

• Quality
• HR
• IT
• Legal
• Engineering

In its most basic definition, a "Key" business process is one that influences customer perception of our business. A "key" business process or Value Stream assures your business its competitive advantage. To be most impactful towards our strategic plan, Entitlement Quality and Lean Six Sigma must work synergistically to continually improve our key business processes and value streams.

The Role of Quality

Frequently heard questions these days of Six Sigma and Lean are, "What is the role of Quality? We already have a very active Six Sigma process - why do we need a Quality function? What is the role of a Quality Manager?"

These observations have very good merit, and evoke strong emotions. I have 27 years experience in product and business process Quality in a large, multinational US corporation, including 7 years manufacturing experience, manager of the Statistical Consulting center of excellence, Staff Quality Manager in Corporate Quality Services, Division Quality Manager for two different business units, and Senior Manager of Lean Six Sigma Operations. At it's most basic implementation Six Sigma is a problem solving methodology for breakthrough levels of improvement. Six Sigma is a project management system, a quality metric and a goal. In some applications, Six Sigma is also used to develop leadership - teaching future leaders how to use statistical-thinking when making data-based decisions. It is the way we get things done.

Whereas Six Sigma DMAIC and DFSS (DMADV) require the use of statistically-trained project managers / specialists (e.g. black belts, master black belts, etc.) to deliver breakthrough levels of improvement, these specialists typically account for less than 1% of the enterprise's total employees. DMAIC projects tend to focus on eliminating defects in a process; DFSS is a methodology to create new products and services. It is said that DMAIC can achieve up to a 5-Sigma level of quality for existing processes; Design for Six Sigma (DFSS) is used to create new products and services that deliver 6-Sigma, or better, levels of performance.

Lean is a philosophy of eliminating waste; it delivers incremental improvement by engaging every employee to continually improve his/her process. Eliminating waste and non-value add activity reduces cycle time, improves quality, eliminates inventory and improves business results.

Quality is the business process of managing variation around the expectations of our customers. Quality is often measured by business process excellence and product (service) performance as measured against tolerances and specifications. The producer may define Quality, but Quality is ultimately judged by the customer.

The role of a Quality Manager is to promote the process approach in facilitating the design and implementation of an effective Quality Management System to enhance customer loyalty and deliver expected business results. Key business processes and Value Streams need to be documented, understood, measured, and tracked for purposes of identifying strengths and weaknesses; gaps and opportunities. These opportunities should then feed the business improvement project hopper. Increasingly, the role of Quality is to protect the enterprise by assuring compliance to regulatory and statutory requirements, including industry-specific standards, Sarbanes-Oxley, safety, health and environmental. Quality works horizontally across an organization serving as the customer advocate, to protect the brand, and build customer satisfaction.

A critical success factor in any change initiative is frequent and open communication. Adoption of a Quality Management System is a strategic business decision by the Leadership Team. Constant communication to the employees about the status and progress towards the fusion of QMS with Six Sigma and Lean is important to setting goals and deploying objectives within the new business model.

Entitlement Quality

I define Entitlement Quality as the integration and fusion of several business and process improvement methodologies: ISO, DMAIC, DFSS and BPR (business process redesign). The goal of Entitlement Quality is to consistently deliver value as perceived by the customer, with zero waste or loss to the producer.