The Hindu Business Line : Six sigma for services

SIX sigma as a process improvement tool was first applied in Motorola for manufacturing. In the last few years, the statistical tools of six sigma have been brought out of the manufacturing closet and into the services area. This article gives a brief insight into how six sigma is applied in services and looks at some of the latest tools and techniques.

Six sigma defines a customer-related problem, fixes a goal and improves the process. The goal and the problem in six sigma improvements are related to variation more than averages. If the improved process has less than 3.4 defects per million, then that process can be called a six sigma process.

Some differences between a service and manufacturing organisation: In a manufacturing organisation, there is a physical item that can be felt and measured. In services there may or may not be a physical product. For instance, in an insurance company one of the expectations of a customer is the settlement of claims within a short time. Here the output that a customer looks at is the time period, which is not a physical item.

In manufacturing a product can be produced, stored and inspected before handing over to a customer. There are many service outputs that cannot be inspected. So traditional means of inspecting for quality cannot be applied here. In a voice-based call centre, the quality is dependent on the way an agent responds to a query. This response is on a real time basis. It cannot be inspected.

In manufacturing, the activities that need to be done to produce an output are generally standardised. In services, the activities are generally a function of human skill. This non-standardised, inconsistent way of performing activities leads to variation in output. However, there are many service outputs that are similar to manufacturing and can be handled in the same way.

The key to starting a six sigma project is identifying a customer need or problem area. Whereas in manufacturing these are typically quality of products, time to deliver, cost reduction or reducing wastage, in the services customer requirements could be in terms of time taken for query resolution, to open an account or conduct defect-free transactions. The key to six sigma is making customer requirement measurable.

This customer critical output is taken and a measurement system is put around it to ensure that there is consistency in measurement and that the measurement system does not cause output variation. For instance, in the airline industry the expected time of arrival (ETA), which is a key measure, must be defined in such a manner that it is consistently understood by everyone in the organisation. Is ETA the time the flight touches the ground? Or is it the time when the first passenger disembarks? In services, most measurements have the potential to be misconstrued. Hence, this step is critical.

Once the measurement is in place it is time for data collection. Data should be collected in a way that all sources of variation are taken into account. For example, the data collection to determine sales productivity per person for a direct sales company should encompass different sales people, regions, product categories and market potential of regions. In a standardised environment, such as manufacturing, the sources of variation are few, so fewer data is required.

During analysis, different sources of variation are considered to understand which source has the maximum impact on the output. The set of tools available in six sigma (hypothesis testing) help understand the key contributors to variation in the output.

Understanding the key contributors to variation leads to generation of multiple solution alternatives that can be tested to arrive at an optimum solution, which is then tested out. The main difference in services, with implementing a solution, is the usage of information technology to drive consistency of processes as opposed to manufacturing. Any service business process has to be re-engineered frequently to take care of changing customer requirements and real time technology makes this possible. IT also helps standardise the improved process across the organisation. An on-time settlement of insurance claims is best handled by an integrated ERP (enterprise resource programme) or IT solution rather than the best manual process. The IT solution also ensures foolproof control of the process.

Going back to the differences between services and manufacturing, it is clear that service processes need more robustness and fool proofing, compared to manufacturing, leading to more usage of IT solutions. The solution itself is derived from the six sigma process. In services a large number of customer critical outputs are related to time. Also, most service processes are often slow because of much work-in process (WIP). It does not matter whether this WIP is documents waiting for approval on the desk or in mails. This WIP leads to what is called as non-value-added time. It can be identified using six sigma techniques and eliminated using IT. This leads to the conclusion that for services six sigma has to be necessarily combined with the power of information technology to ensure consistency and reduction in variation. The basic tools of six sigma can very much be applied to identify the sources of variation as it is done in manufacturing.

To summarise, it can be said that the presence or absence of a physical product does not limit the usage of six sigma tools and techniques. What is required is extensive data collection and data based decision-making. Be it services or manufacturing if it can be measured, six sigma can be applied to improve it.

(The author, a six sigma expert, is Founder and Managing Director, Synagoge Knowledge Services. He can be contacted at Management | Standards & Benchmarks

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