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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION

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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION
Table of Content
Lean System and Innovation ........................................................................................... 3
Introduction to Lean System: .................................................................................. 3
Features of Lean Manufacturing: ........................................................................... 3
Just-In-Time (JIT): ................................................................................................. 4
Features of Just-In-Time: ..................................................................................... 4
Benefits of Just-In-Time: ...................................................................................... 5
Pre-requisites of Just-In-Time: .............................................................................. 5
Desirable factor of Just-In-Time: ........................................................................... 5
Impact of using Just-In-Time in Inventory Control: .................................................. 5
Just-In-Time as a tool to improve an organization’s profitability: ................................ 5
Just-In-Time and overhead costs: .......................................................................... 6
Back-flushing in a Just-In-Time System:................................................................. 6
Kaizen Costing:...................................................................................................... 6
Kaizen Costing Principle: ...................................................................................... 7
5 S: ..................................................................................................................... 7
Total Productive Maintenance (TPM): ........................................................................ 8
Introduction of TPM in an Organization: .................................................................. 8
Eight Pillars of TPM: ............................................................................................. 8
Performance Measurement in TPM: ...................................................................... 10
Cellular Manufacturing/ One-Piece Flow Production Systems: ..................................... 10
Implementation Process: .................................................................................... 11
Difficulties in creating flow:................................................................................. 11
Benefits of Cell Manufacturing: ............................................................................ 12
Limitations of Cell Manufacturing: ........................................................................ 12
Six Sigma: .......................................................................................................... 12
Numerical Concept of Six Sigma: ......................................................................... 12
Implementation of Six Sigma: ............................................................................. 13
Similarities between DMAIC and DMADV:.............................................................. 14
Difference between DMAIC and DMADV: ............................................................... 14
Quality Management Tools: ................................................................................ 14
Limitation of Six Sigma: ..................................................................................... 15
Lean Six Sigma: ................................................................................................ 15
Process Innovation (PI) and Business Process Re-engineering (BPR).................................... 15
Process Innovation: .............................................................................................. 15
Business Process Re-engineering (BPR): .................................................................. 16
Principles of Business Process Re-engineering (BPR): ............................................. 16
Main Stage of Business Process Re-engineering (BPR): ........................................... 17

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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION
Lean System and Innovation

Introduction to Lean System:


A lean system can be described as an organized method for the elimination of waste in a
manufacturing process without compromising on productivity. The implementation of lean
emphasizes on the importance of workflow through strategic operational procedures while
minimizing waste and being adaptable. Here, a waste means any step or action in a
manufacturing process that is not needed to complete the manufacturing successfully and is
often called Non-Value Adding step. On removing this step, the manufacturing steps that are
required (called as Value Adding) remain in the process. Thus, it systematically helps to
discover and act upon opportunities to improve.
Waste can be divided into the following 7 types:
1. Overproduction, wherein, the production is happening even before the demand arises
2. Inventory, wherein, the company has more inventory (including end-product) than it actually
requires at any given point in the process
3. Waiting, which includes products waiting at the next production step
4. Motion, wherein, people or equipment are moving or walking more than what is required to
perform the process
5. Transportation, wherein, products that are not required to perform the process are actually
moved
6. Rework from defect, where the product produced is not correct in the first instance
7. Over-processing, which includes unnecessary work elements, such as non-value added
activities

There are a few companies such as Toyota and General Motors are already into lean
manufacturing, as it involves a shift in traditional thinking, from batch and queue to product-
aligned pull production. In the case of lean manufacturing, the focus is on different types of
operations conducted adjacent to each other in a continuous flow and not on producing a lot
of parts at one go. A few techniques used in lean manufacturing are given below:
• Just-In-Time (JIT)
• Kaizen Costing
• 5S
• Total Productive Maintenance (TPM)
• Cellular Manufacturing / One Piece Flow Production Systems
• Six Sigma

Features of Lean Manufacturing:


The following are the features of lean manufacturing:
1. There is zero waiting time
2. There is zero inventory
3. It follows pull processing, i.e. makes to order technique, wherein production is based on the
actual demand only
4. There is a continuous flow of production
5. There is a continuous finding of ways of reducing process time

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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION
Just-In-Time (JIT):
Just-In-Time or JIT is a collection of ideas which streamlines a company’s production process
activities to an extent that all kind of wastages such as time, material, and labor, is
systematically driven out of the process. JIT is a pull system, which means that the product
is produced only when there is an actual demand.
Just-in-time (JIT) manufacturing is also known as the Toyota Production System (TPS)
because the car manufacturer Toyota adopted the system in the 1970s.
Just-In-Time Production or JIT Production is a manufacturing system, wherein, each
component in a production line is produced only when needed by the next step in the
production line. In a JIT production line, manufacturing activity at any particular workstation
is promoted by the need for that station’s output at the following station.
Just-In-Time Purchasing or JIT Purchasing, is a purchasing system wherein material purchases
are contracted in such a way that the receipt and usage of it coincide to the maximum extent
possible.

In demand-pull features, JIT production systems achieve close coordination among


workstations. It smoothens the flow of goods, despite having low inventory. Further, JIT
production systems aim to simultaneously
• meet customer demand in a timely way
• with high-quality products and
• at the lowest possible total cost

A JIT Production system has the following five main features:


1. It organizes production in manufacturing cells, a grouping of all the different types of
equipment used to make a given product. Here, the materials move from one machine to
another where various operations are performed in sequence and therefore, the materials
handling costs are minimized
2. It assists in hiring and retaining workers who are multi-skilled so that they can perform a
variety of operations and tasks. These tasks may include minor repairs and routine
maintenance of equipment. Hence, the labour idle time gets reduced
3. Aggressively pursue total quality management (TQM) to eliminate defects. Since there are tight
link stages in a production line, and the minimum inventories at each stage, defect arising at
one stage may quickly affect the other stages. Hence, JIT creates an urgency for solving
problems immediately and eliminating the root cause of defects as quickly as possible
4. It emphasizes reducing setup time. Reducing setup time makes production in smaller batches
economical which in turn reduces inventory levels. Further, reducing manufacturing lead time
enables a company to respond faster to changes in customer demand.
5. Suppliers who are capable of delivering good quality materials at the shop floor in a timely
manner are carefully selected, i.e. high-quality goods and making frequent deliveries of the
exact quantities specified on a timely basis. This leads to a reduction in the material receipt
time

Features of Just-In-Time:
A JIT has the following features:
• Low or Zero inventories; emphasis on the operation from source to customer
• JIT emphasis on customer service and timing
• Short of operations
• Flexibility of operations
• Efficient flow during the production process
• Use of Kanban and Visibility

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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION
Benefits of Just-In-Time:
A JIT has the following benefits:
1. Reduce inventories and Work-in-Progress
2. Reduce space requirements and set-up time
3. Shorter throughput times required
4. More employee involvement, participation, and motivation
5. Smooth workforce
6. Helps in increasing the productivity
7. Improved product/service quality
8. Improved customer service and smaller batch sizes
9. More uniform loading of facilities.

Pre-requisites of Just-In-Time:
The following are the essential pre-requisites of JIT:
1. Low variety of goods
2. Demand stability
3. Vendor reliability
4. Defect-free materials
5. Good communication
6. Preventive maintenance
7. Total quality control

Desirable factor of Just-In-Time:


The following are the desirable factors of JIT:
1. Management commitment
2. Employee investment
3. Employee flexibility

Impact of using Just-In-Time in Inventory Control:


Using JIT has the following impact on Inventory Control:
1. It helps save cost due to lead time
2. It helps save costs due to holding inventory like insurance, spoilage, obsolescence, etc.
3. It does away with locking up of funds in inventory
4. It helps in working capital management

Just-In-Time as a tool to improve an organization’s profitability:


JIT approach can help in the reduction of costs &/or increase sale prices as follows:
1. It helps the organization in the immediate detection of defective goods being manufactured so
that early correction is ensured with least scrapping
2. It helps to eliminate/reduce work-in-progress between machines within the working cell
3. It helps in the reduction of overhead costs in the form of rentals for inventory, insurance,
maintenance costs, etc.
4. Higher product quality ensured by the JIT approach, which leads to a higher premium in the
selling price

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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION
5. It helps in detecting problem areas due to better production/scrap reporting/labour tracing and
inventory accuracy lead to a reduction in costs by improvement

Just-In-Time and overhead costs:


1. It helps in reducing the material handling, facilities, and quality inspection costs
2. It also helps to reduce the inventory storage costs as the inventory is reduced
3. Here, costs shift from overhead cost pool to direct costs when machine cells are introduced. It
is a more reliable allocation of costs to products and therefore more accurate analysis for
decision making
4. With the JIT system in place, the general overhead pool can be better allocated due to the
availability of more information regarding the most appropriate cost drivers

Back-flushing in a Just-In-Time System:


A back-flushing requires no data entry of any kind until a finished product is completed. Once
this is done, the total amount finished is entered into the computer system, which multiplies
it by all the components listed in the bill of materials for each item produced. This yields a
lengthy list of components that should have been used in the production process and which is
subtracted from the beginning inventory balance to arrive at the amount of inventory that
should now be left on hand. However, the below-mentioned problems should be corrected
before it will properly work:

Production reporting: The total production figure entered into the system must be
absolutely correct and in case of any error, there may be a possibility that the wrong
component types and quantities get subtracted from the inventory. This problem may arise
because of high turnover or a low level of training provided to the production staff that records
these types of transactions, which in turn will lead to an error.

Scrap reporting: Tracking abnormal scrap and recording it correctly is important, else these
materials will fall outside the back-flushing system and will not get charged to the inventory.
Here also this problem may arise because of high turnover or a low level of training provided
to the employee.

Lot tracing: Lot tracking is not possible under the back-flushing system. A lot of tracing may
be required when a manufacturer needs to keep a record of the production lots that were used
to create a product in case all the items in a lot are recalled. This can be done only through
Picking System, which is generally present on high-end systems.

Inventory accuracy: It may be the case that the inventory turnover is very high every time
because the back-flushing transaction that relieves the inventory generally do that once a
day, during which time the other inventories are sent to the production process. Hence, this
makes it slightly difficult to maintain an accurate set of inventory records in the warehouse.

Kaizen Costing:
Lean manufacturing is founded on the idea of Kaizen Costing and is highly used by Japanese
organizations as a mechanism for reducing and managing costs. Kaizen, a Japanese word,
means making improvements to a process through small incremental amounts, rather than
through large innovations.

A leader in the fields of continuous process improvement and operational excellence, Shigeo
Shingo taught thousands of engineers at Toyota the Toyota Production System, influenced the
creation of Kaizen.

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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION
The main aim of Kaizen is to reduce the cost of components and products by a pre-specified
amount and relied heavily on employee empowerment. The emphasis on the empowerment
of employees is on the notion that they have superior knowledge about how any processes
can be improved because they are close to the manufacturing processes and customers and
are likely to have greater insights into how costs can be reduced.

Activities in the Kaizen Costing methodology include the elimination of waste in the production,
assembly and distribution processes, along with the elimination of work steps in any of these
areas. Although the value engineering phase of target costing include these points, but then
the initial value of the engineering might not discover all the possible cost savings. Hence, in
the case of a Kaizen Costing, several value engineering steps are repeated for as long as the
product is produced by constantly refining the process and thereby reducing the extra cost.
Even though the cost reduction as a result of using Kaizen Costing may be low as compared
to the value engineering but are still worth it as the product prices may come down in future
owing to the competitive forces and so any cost saving would still allow the company to
achieve its target profit margin while reducing the cost.

Kaizen Costing Principle:


The following are the principle of Kaizen Costing:
1. It seeks gradual improvement in the existing situation, at an acceptable cost
2. It encourages collective decision making and application of knowledge
3. There exists no limit to the amount of improvement that can be implemented

4. This system involves setting a standard first and thereafter continuously strive to improve
these standards to achieve long-term sustainable improvements
5. Kaizen Costing focuses on eliminating waste, improving systems and increasing productivity
6. It involves all the employees and all the areas of the business

5 S:
A name of a workplace organization method that uses a list of five Japanese words, listed
below. IT explains how a workplace should be organized for efficiency and effectiveness by
identifying and storing the items used, maintaining the area and items, and sustaining the
new order. Hence, it helps to eliminate the waste and makes the habit of keeping everything
in its place, ensuring quality consciousness among the people working in a quality workplace
adopting quality process/system and producing quality products/services.

Seiri: Sort (i.e. sorting and disposing of the unwanted items). It focuses on eliminating waste
or unwanted things, else the waste will mess up with the needed things and will make the
work more complicated, thus reducing the efficiency of work. It also prevents in accumulation
of unnecessary things.

Siton: Set in Order (i.e. based on function and frequency of use). It arranges the necessary
things in such a way that it can be identified easily and avoid confusion which may lead to

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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION
stress. Seiton says “A place for everything and everything in its place”. It ensures a FIFO basis
so that it is easy to find and pick up necessary things.

Seiso: Shine (i.e. periodical maintenance in terms of cleaning and polishing). It focuses on
maintaining things in a dust-free condition. In other words, the ‘third S’ makes people care
about things. It also states that in an unfamiliar environment, people should be able to detect
any problem within 50 feet.

Seiketsu: Standardize (i.e. labeling and making identification easier). It makes sure that the
above ‘3S’ are maintained and are followed, besides following the best practices. It states that
maintaining a high standard, orderliness, everything in order and as per standards is
important to have. Further, the ‘fourth S’ gives a systematic approach to handle the above
‘3S’.

Shitsuke: Sustain (i.e. training for continuous implementation). It makes the habit of keeping
things in an orderly and neat way. This should be done by giving proper training and with
every individual’s commitment.

Total Productive Maintenance (TPM):


TPM is a system of maintaining and improving the integrity of production and quality system
and is done with the help of machines, equipment, processes, and employees that add to the
value in a Business Organization. Further, TPM can also help in keeping all the equipment in
good working condition so as to avoid/minimize the breakdown and delays in manufacturing
processes.

Introduction of TPM in an Organization:


There are four main phases that an organization should follow to introduce TPM:
1. Preparation Stage, wherein, the organization need to establish a suitable environment and
conduct program awareness
2. Introduction Stage, wherein, the organization should initialize the TPM, provide information to
the suppliers, customers, and other stakeholders
3. Implementation Stage, wherein, the organization, by following the below mentioned eight
activities or eight pillars of TPM implements this system
4. Institutionalizing Stage, which is nothing but the stage of getting the TPM reward

Eight Pillars of TPM:

Pillar What Is It? How Does It Help?

Pillar 1: It places • It gives the operators greater “ownership” of


Autonomous responsibility for their equipment
Maintenance routine maintenance, • It helps in increasing the operators’ knowledge
of their equipment.
such as cleaning,
• It ensures equipment is well-cleaned and
lubricating, and
lubricated
inspection, in the • Identifies emergent issues before they become
hands of operators. failures
• It releases the maintenance personnel for
higher-level tasks

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Pillar 2: It schedules the • It significantly reduces instances of unplanned
Planned maintenance tasks stop time
Maintenance based on predicted • It enables most maintenance to be planned for
the times when equipment is not scheduled for
and/or measured
production
failure rates
• It also helps reduce the inventory through
better control of wear-prone and failure-prone
parts
Pillar 3: It designs an error • It specifically targets quality issues with
Quality detection and improvement projects focused on removing root
Maintenance prevention into the sources of defects
• Aims to reduce the number of defects
production processes
• It also tries to reduce cost by catching defects
and applies the Root
early
Cause Analysis to
eliminate the
recurring sources of
quality defects

Pillar 4: It refers to having • It helps in identifying any recurring problems


Focused small groups of and then resolve it with the help of cross-
Improvement employees working functional teams
• It combines the collective talents of a company
together proactively
to create an engine for continuous improvement
to achieve regular,
and incremental
improvements in the
equipment operation

Pillar 5: Early It directs practical • It ensures that the new equipment reaches
Equipment knowledge and planned performance levels much faster due to
Management understanding of the fewer start-up issues
• Ensures maintenance is easier and more robust
manufacturing
because of practical review and employee
equipment gained
involvement before installation
through TPM towards
improving the design
of new equipment

Pillar 6: It fills in the • It helps the operators to develop skills to


Training and knowledge gaps routinely maintain equipment and identify
Education necessary to achieve emerging problems
• Enables maintenance personnel to learn
the TPM goals. It
techniques for proactive and preventative
applies to operators,
maintenance
maintenance • It also trains the managers on TPM principles as
personnel and well as on employee coaching and development
managers.

Pillar 7: It maintains a safe • It helps to eliminate potential health and safety


Safety, Health, and healthy working risks, thus making the workplace safer
Environment environment • It specifically targets the goal of an accident-
free workplace

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SEBI GRADE A 2020: COSTING: LEAN SYSTEM AND INNOVATION
Pillar 8: TPM in It applies the TPM • It extends the TPM benefits beyond the plant
Administration techniques to floor by addressing waste in administrative
administrative functions as well
• It also supports production through improved
functions
administrative operations, such as order
processing, procurement, and scheduling

Performance Measurement in TPM:


The organization may follow the Overall Equipment Effectiveness (OEE) approach to measure
the performance of TPM. The computation of OEE measures requires the identification of “six
big losses” such as:

1. Equipment failure/breakdown
2. Set-up/Adjustment
3. Idling and Minor Stoppages
4. Reduced Speed
5. Reduced Yield
6. Quality Defects and Rework

The first two, i.e. Equipment failure/breakdown and Set-up/Adjustment, refer to the time
losses and are used to find out the availability of the equipment. The third and fourth, i.e.
Idling and Minor Stoppages and Reduced Speed determines the performance efficiency of the
equipment, while the last two, i.e. Reduced Yield and Quality Defects and Rework, are
considered as a quality loss. Hence,

Performance x Availability x Quality = OEE %

The OEE method can be applied to both individual assets and a process, and because it is
highly unlikely that any process will run at 100% OEE, Dat et al (2000) and Nakajima (1998)
suggested that the ideal values of OEE component measures should be:

Availability > 90%


Performance > 95%
Quality > 99%

Cellular Manufacturing/ One-Piece Flow Production Systems:


It is a subsection of JIT and Lean System, which encompasses a group of technology, having
the following goals:
• To move as quickly as possible
• Make a wide variety of similar products
• Make as little waste as possible

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Cellular manufacturing consists of a series of product-focused workgroups or cells that houses
all the operations to manufacture a family of products. These cells are dedicated to
manufacturing those products that require similar operations. This system of manufacturing
operates like a series of plants within a plant, wherein all the operations in the cells are
performed at one go, i.e. from starting with raw materials and ending with finished products.
Further, machines in the manufacturing cells should be located in close proximity so that
product transportation can be minimized and also ensure continuous flow with zero inventory
between operations. These manufacturing cells are operated by a team empowered, multi‐
skilled operators having complete responsibility for quality and delivery performance within
their respective cells.

Implementation Process:
For implementing a Cellular Manufacturing, the following steps need to be followed:

First, the parts that are required to be made should be grouped into families by similarities,
such as design or manufacturing requirements

Second, a systematic analysis of each of the family should be performed. This is generally in
the form of a production flow analysis (PFA) for manufacturing families, or in the examination
of design/product data for design families. Although this process can be both times consuming
and costly, this is required to be performed because a cell needs to be created for each family
of parts. One can even take the help of a mathematical model and algorithm to plan a cellular
manufacturing center. These models generally take into account variables such as multiple
plant location, multi-market allocation with production planning and various part mix.

Third, after these variables have been determined with a given level of uncertainty,
optimization can be performed to minimize factors such as total cost of holding, inter-cell
material handling, external transportation, fixed cost of producing each part in each plant,
machine and labour salaries.

Difficulties in creating flow:


While creating an efficient flow in cellular manufacturing, the following difficulties need to be
addressed:
• Exceptional Elements
• Machine Distances
• Bottleneck Machines and Parts
• Machine Location and Relocation
• Part Routing
• Call Load Variation
• Inter and Intracellular Material Transferring
• Cell Reconfiguring
• Dynamic Parts Demands
• Operation and Completion Times

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Benefits of Cell Manufacturing:
The following are the benefits of Cellular Manufacturing:
1. The distance that a part or a product has to move is shortened through cells, thereby reducing
the material handling costs, and allowing for quicker feedback on potential quality problems.
It also helps to reduce the work‐in‐process inventories, permits easier scheduling, and
reduction in throughput time
2. The cells help to organize the locating of materials at the point of use, thus making it easy to
see the work ahead
3. The cell teams can better understand the whole process of making the parts or assemblies.
Further, the workers can see the problems or the possible improvements within their own cells
and may feel self-motivated to propose changes
4. This cell structure improves the group cohesiveness among the employees, which in turn help
to scale the manufacturing process down to a more manageable level for the workers

Limitations of Cell Manufacturing:


The following are the limitations of Cellular Manufacturing:
1. There is a possibility that cell manufacturing may lead to a decrease in production flexibility
2. The cells are typically designed to maintain a specific flow volume of parts being produced
3. In case of a reduction in quantity or fall in demand, the cell may have to be realigned to match
the requirements. This can be costly and one that is typically not required in other
manufacturing set-ups.

Six Sigma:
Six Sigma (6σ) is a set of techniques and tools for process improvement. It was introduced
by American engineer Bill Smith while working at Motorola in 1986. Jack Welch made it central
to his business strategy at General Electric in 1995. Six Sigma can be defined as a disciplined,
data-driven approach and methodology that helps in eliminating defects (i.e. driving toward
six standard deviations between the mean and the nearest specification limit) in any process,
ranging from manufacturing to transactional and from product to service. Thus, with the help
of Six Sigma continuous improvement can be brought into the organizational culture by
introducing continuously changing and planned targets. One such target can be achieving six
sigma accuracy, which means the process is 99.999998% accurate, i.e. the process will/can
produce only 0.002 defects per million. The primary focus of Six Sigma is on the following:
• Improved customer satisfaction
• Decision-based on data-driven facts
• Improved process flow
• Proactive management team
• Collaboration within the business
• Goal for perfection

Numerical Concept of Six Sigma:


Sigma, being a statistical term, measures how far a process deviates from perfection. The
higher the number of sigma, the closer the process is to perfection. The structural meaning
of six sigma is to achieve 99.99966% accurate or only 0.002 defects per million. However, in
quality practice, 6σ means 3.4 parts per million. The value of the defect percentage under
various sigma levels:

Defects per
Percentage
million Percentage
Sigma Level Defective Quality/Profitability
opportunities Yield (%)
(%)
(DPMO)

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1σ 6,91,462 69 31 Loss
2σ 3,08,538 31 69 Non-competitive
3σ 66,807 6.7 93.3 Average Industries
4σ 6,210 0.62 99.38 Above average
Below Maximum
5σ 233 0.023 99.977
Productivity
6σ 3.4 0.0034 99.99966 Near Perfection

Implementation of Six Sigma:


There are two methodologies to implement Six Sigma:

DMAIC:
It is a robust method that intends to improve the existing business process and has the
following five phases:
• Define, wherein, the problems, project goals, and customer requirements are defined
• Measure the process to determine current performance
• Analyse the process to find out the root causes of variation and poor performance
• Improve the process by addressing and eliminating the root causes
• Control, which means maintaining the improved process and future process performance

This method is generally used in the following situations:


• Where a product or process exists
• Where the project is a part of an ongoing continuous improvement process
• Where only a single process needs to be altered
• Where competitor’s actions are stable
• Where customer behaviours are unchanging
• Where technology is stable

DMADV:
This method is used at creating a high-quality product while keeping in mind the customer’s
requirements at every stage of the product. Hence, it is an improvement system that is used
to develop new processes or products at Six Sigma quality levels. This method also has five
phases:
• Define, wherein, the project goals and customer deliverables are defined
• Measure and determine the customer needs and specifications
• Analyse the process options to meet the customer needs
• Design the process in detailed to meet the customer needs
• Verify, wherein, the design performance and the ability to meet the customer needs are
verified

This method is generally used in the following situations:


• Where a product or process is not in existence
• Where the existing process has not been optimized using either DMAIC or some other process
• Where the project is of strategic importance
• Where multiple processes need to be altered

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• Where the competitor’s performance is changing
• Where customer behaviours are changing
• Where technology is growing

Similarities between DMAIC and DMADV:


The followings are the similarities between DMAIC and DMADV:
1. Both aims at improving the quality of a product or a process, even though DMAIC deals with
improving some existing process to align it with customer’s needs while DMADC deals with new
design or redesign
2. Both are six sigma methodologies and are based on defects per million opportunities
3. Both use the same kind of six sigma quality management tools
4. Both consider customer’s needs as their basic parameter

Difference between DMAIC and DMADV:


The following is the difference between DMAIC and DMADV:

DMAIC DMADV
It reviews the existing processes and fixes Emphasis is on the design of the product and
problems processes
More reactive process It is a proactive process
Increase the capability Increase the capacity
Rupee benefits can be quickly quantified It is difficult to quantify the rupee benefits
and tend to be much more long term
Examples of DMAIC problem-solving methods: Examples of procedures that DMADV
• Reduction in cycle time to process a development method is designed to address:
patent • Addition of a new service
• Reduction in the number of errors in the • Creation of a real-time system
sales list • Creation of a multiple-source lead
• Improvement in search time for critical tracking system
information

Quality Management Tools:


The following are a few of the quality management tools that are utilized by Six Sigma.

Control Chart: It is a statistical chart that monitors the variance in a process over a time
period and alerts the business in case there is any unexpected variance that may cause
defects.

Histogram: It helps in prioritizing factors and identifying areas that may need urgent
attention of the management.

Pareto Diagram: It revolves around the concept of 80-20 rule, i.e. 80% of the defects in a
process comes from the 20% causes. Hence, it focuses on a problem that will have great
potential for improvements.

Process Mapping: It refers to a workflow diagram of how things are done and help in
reducing the cycle time and defects.

Root Cause Analysis: It is a factor that caused a non-conformance and should be


permanently eliminated through process improvement.

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Statistical Process Control: Its purpose is to analyse data, study and monitor process
capability and performance.

Tree Diagram: A tree diagram shows the key goals, their sub-goals, and key tasks in a
graphical format. Besides it also helps inspire team members to widen their thinking while
creating any solution.

Cause and Effect Diagrams: It helps in identifying the various causes (or factors) of a given
effect (or problem).

Limitations of Six Sigma:


The following are the limitation of a Six Sigma:
• It focuses on quality only
• It does not work well with intangible results
• Substantial infrastructure investment is needed to implement this
• It can be complicated for some activities
• It is not necessary that all products are required to meet the Six Sigma standards
• It focuses on the specific type of processes only
• There may be a number of real-time barriers which will be required to be resolved while
translating the theoretical concepts into practical applications

Lean Six Sigma:


Lean Six Sigma is the combination of Lean and Six Sigma which helps to achieve greater
results that had not been achieved had Lean and Six Sigma would have been used individually.
It helps in increasing the speed and effectiveness of any process in an organization. An
organization can maximize upon its profits, build better teams, minimize costs and satisfy its
customers by using Lean Six Sigma.

Process Innovation (PI) and Business Process Re-


engineering (BPR)
Process Innovation (PI) and Business Process Re-engineering (BPR) are almost similar
concepts that had emerged in the 1990s, wherein, BPR focuses on modifying existing
processes, while PI intends to bring in new processes into the organization. Hence, PI seems
to be more radical than BPR as PI is bringing a change in the overall structure of an
organization, whereas BPR streamlines the process that is already existing.

Process Innovation:
As already mentioned, a Process Innovation (PI) brings about new processes into an
organization that significantly improves the production or delivery method. This new process
may even include bringing about a significant change in techniques, equipment and/or
software. However, the following are not considered as PI:
• Minor changes to the existing process
• Improvement of the existing process

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• Increase on product or service capability done by addition in manufacturing or logical system
• Ceasing to use a business
• Simple capital replacement or extension
• Any changes as a result of a change in factor price
• Any kind of customization
• Regular, seasonal or any other cyclical changes
• Trading of new or significantly improved products

The process of innovating a new solution may fall into one of the below-mentioned areas:

• Production, wherein, processes, equipment, and technology are used to enhance


manufacturing or production processes and may include software.

• Delivery, wherein, tools, techniques, and software solutions are used to improve the supply
chain and delivery system and may include barcodes, tracking systems, or shipping software.

• Support Services, wherein, innovation is brought about in areas such as purchasing,


maintenance, and accounting.

Business Process Re-engineering (BPR):


A Business process reengineering (BPR) can be defined as an act of recreating a core business
process with the aim of improving the product output, quality, and/or reducing costs. It
typically involves the analysis of company workflows and finding processes that are sub-par
or inefficient, and then figuring out ways either to get rid of them or change them. There are
four key components, given below, that BPR follows:

• Fundamental Rethinking, wherein, the business processes require the management to


challenge the basic assumptions under which it operates. It focuses to answer questions such
as “Why do we do what we do?” and “What do we do it the way we do it?”

• Radical Redesign, wherein, a fresh start or a clean-slate approach is followed to examine the
organization business processes, with a goal to reinvent what is done and how it is done instead
of tinkering with the present system by making marginal, incremental, superficial
improvements to what’s already being done. It focuses to answer questions such as “If we
were a brand-new business, how would we operate our company?”

• Achieving Dramatic Improvements, which is related to the aforesaid two elements and
aims at performance measurements. Although the preceding two elements are aimed towards
making quantum leaps in performance, they still need to be measured. An improvement in
quality, speed and the like that is on the order of say 10% is not BPR as this may be achieved
even with marginal or incremental changes to the existing processes.

• End to End Business Processes, wherein, BPR focuses on end-to-end business processes
and not on the individual activities that comprise the processes.

Principles of Business Process Re-engineering (BPR):


The following are the principles of a successful BPR:
1. Organize around outcomes, not tasks
2. Identify all the processes in an organization and prioritize them in a redesign urgency order
3. Integrate information processing work into the real work that produces the information
4. Treat dispersed resources from various areas as though they were centralized

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5. Link activities that are parallel in the workflow, instead of just integrating their results
6. Make performance the ultimate decision point and build control into the process
7. Get information once and at the source

Main Stages of Business Process Re-engineering (BPR):


The following are the main stages of BPR:
1. Process Identification, i.e. each task performed that is to be re-engineered should be broken
down into a series of processes
2. Process Rationalisation, i.e. those processes which do not add any value should be discarded
3. Process Re-design, i.e. the remaining existing processes are re-designed
4. Process Reassembly, i.e. re-engineered process should be implemented in the most efficient
manner

Generally, Porter’s Value Chain is a widely used technique in BPR to identify and analyse the
processes that may be of strategic significance to the organization.

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