The Implementation of Six Sigma in a Service Department

Duane K. Johnson University of Indianapolis 3307 S. McLaughlin Street Indianapolis, IN 46227 (317) 730-3806

Duane K. Johnson is currently an undergraduate in Productions and Operations Management at the University of Indianapolis, Indianapolis, Indiana. Central Indiana Chapter – APICS Undergraduate

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The Implementation of Six Sigma in a Service Department Cummins Mid States Power Inc. (CMSPI) is a case study of a company whose service department implemented Six Sigma to determine how to reduce administrative costs. CMSPI will be analyzed primarily through the following methodology: Six Sigma for service, internal groundwork, reduction of administrative costs, and improvement of service processes.

Business performance surveys suggest that “companies today are in need of a strong strategic framework and language, not only to help them define their vision and articulate their mission, but also to define, measure, analyze, and improve their performance whether the specific goal is to build market share, enhance customer loyalty, accelerate the R&D process, or improve shareholder value” (5, p. 21). Companies who use Six Sigma as a statistically driven approach “share a number of crucial characteristics: a welldeveloped (yet constantly revisited) business strategy; a laser like focus on customers; and a strong internal climate of alignment to support strategic business goals” (5, p. 21). Michael L. George, a Six Sigma consultant in the United States, documents the success of Six Sigma in his book Lean Six Sigma for Service: •

Lockheed Martin has saved $4 billion.

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At Bank One, Six Sigma projects “have led to cost reductions or loss avoidance in the thousands of dollars” and “cycle time improvements have ranged from a minimum of 30% to nearly 75%” (3, p. 93).

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In the City of Fort Wayne, Indiana, Six Sigma projects resulted “in direct savings (or avoidance of expected costs) totaling nearly $3 million and many less-tangible improvements” (3, p. 137).

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At Stanford Hospital and Clinics, Six Sigma projects have resulted in savings in ICU hours of care per patient day, material cost, cardiac surgery cost, cardiology cost, and cardiac bypass graft surgery cost. Cummins Mid States Power Inc. (CMSPI) is a distributor for Cummins Inc.

CMSPI’s primary business functions are parts and services for business, personal, and recreational vehicles with Cummins diesel engines. The corporate headquarters for CMSPI are located in Indianapolis, Indiana. CMSPI is contractually bound to Cummins Inc. and must follow many of its guidelines in the operation of its business. Cummins Inc. has been using Six Sigma for years. Cummins Inc. has documented improvement in areas where Six Sigma has been applied, and has instructed distributors to develop Six Sigma projects. The distributors are required to submit a scorecard documenting progress on their individual Six Sigma projects. CMSPI chose to implement its Six Sigma project with the goal of determining how to reduce administrative costs in its service department. A core team of employees from store locations in Indianapolis and Fort Wayne in Indiana and Normal, Illinois drives the company’s Six Sigma project.

IMPLEMENTATION OF SIX SIGMA IN A SERVICE DEPARTMENT Companies began using Six Sigma as a statistical quality improvement technique in the 1980s, starting with Motorola. According to Smith and Blakeslee, coauthors of Strategic Six Sigma: Best Practices From The Executive Suite, Six Sigma is “often used

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at an operational level inside companies today to help them cut costs, improve processes, and reduce business cycle times” (5, p. xiii). According to their research, companies have used Six Sigma in strategies and missions, customer service, globalization, e-business ventures, revenue growth, innovation, the corporate learning cycle, and business risk, to name a few. Smith and Blakeslee state that “in the world of Six Sigma companies, the term sigma has come to signify how well a business process, product, or service is meeting the requirements of the marketplace” (5, p. xv). They go on to say that Six Sigma “has come to mean failing to meet a customer requirement only 3.4 times out of a million opportunities” (5, p. xv). At CMSPI, its Six Sigma project is driven by the objective to reduce administrative costs and improve processes in the service department. The team at CMSPI created an Operational Excellence Control Plan, ideally designed to monitor the variables that affect accuracy and efficiency in the service process, causing both an increase in service volume and a decrease in the percentage of administrative cost per service sale. Six Sigma as Defined for Service Departments Forrest W. Breyfogle III states that Six Sigma can be used for service organizations that “need to reduce cycle times and improve customer satisfaction” (1, p. 3). CMSPI utilizes its Six Sigma project to improve efficiency in service processes, thereby reducing each service repair time and improving customer satisfaction. According to Breyfogle III, “the Six Sigma strategy involves the use of statistical tools within a structured methodology for gaining the knowledge needed to achieve better, faster, and less expensive products and services than the competition” (1, p. 5). The

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Quality Manager for the Indianapolis, Indiana, location serves as the project leader/Green Belt at CMSPI. He was trained in statistical tools such as cause and effect matrices and failure modes and analysis. This statistical training that he shared with the Six Sigma core team resulted in the control plan that was developed midway by the Six Sigma project team members.

Internal Groundwork A committed team of leaders is imperative for the success of a Six Sigma initiative within an organization. According to Nancy Page Cooper and Pat Noonan “…teams are an integral part of successful Six Sigma implementation” (2, p. 25). The team for the Six Sigma project at CMSPI included six personnel from three store locations of the company who work in the service departments. The Vice President for the service department in Indianapolis, Indiana, serves as the Sponsor. The Quality Manager at the Indianapolis location serves as the Green Belt Project Leader. There are four personnel that serve as team members: the service manager at the Indianapolis location; the service team leader at the Indianapolis location; the service manager at the Fort Wayne, Indiana, location; and a service writer at the Normal, Illinois, location. The Vice President’s purpose as the Sponsor is to clear any roadblocks the team’s progress may incur. This may include freeing up time for team members to meet, negotiating departmental and company resistance to changes implemented as a result of the project’s findings, and freeing up responsibilities of the project leader to allow for proper training and time needed to complete project tasks. In comparison to how CMSPI views the Sponsor’s role, Smith and Blakeslee believe that Sponsors:

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1. “Are personally accountable for the performance of given processes and assigned projects, and control the resources associated with a given process. (Put another way: Project sponsors/process owners own the jobs where “the rubber meets the road” in terms of project implementation and results!) 2. Are personally responsible for the largest number of people working within a critical process or project area. 3. Have an end-to-end understanding of given processes, and how their process interacts with other departments and internal (other business units) or external (customer/supplier) organizations. 4. Possess a strong granular grasp of how business priorities and strategic objectives get translated into operational terms for given processes. 5. Exert a great deal of influence and authority, even outside their immediate process area to remove barriers.” (5, p. 228) The Quality Manager at the Indianapolis location serves as the Green Belt Project Leader. The project leader or Green Belt has overall responsibility for successful project completion. In comparison to how CMSPI understands the role of Green Belts, Smith and Blakeslee state that Green Belts “integrate use of Six Sigma tools and methodology into performance of their daily jobs” (5, p. 231). The project leader at CMSPI attends Six Sigma training and uses the current project to show an understanding of the different stages of Six Sigma. The project leader’s training and the project are conducted concurrently. The training is “not just in Six Sigma statistical and analytical principles, but in the equally important tasks of articulating a vision, driving change, and leading people” (5, p. 240).

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Four team members contribute to the team’s body of knowledge concerning the functions and administrations of the service department. The team members are the experts on service processes and departmental administrative costs. The service managers from Indianapolis and Fort Wayne give input related to service operations. The Indianapolis service lead team leader gives input related to the current service workload and parts availability for service sales. The service writer at the Normal, Illinois, location gives input on administrative processes and cost. Reducing Service Administrative Costs Smith and Blakeslee suggest that an organization should “choose Six Sigma projects based on a clear understanding of their potential financial impact to the organization, and their overall fit with the organization’s strategic goals and values” (5, p. 198). The objective of the first Six Sigma project at CMSPI was to reduce administrative cost. Specifically, the goal of the project was to reduce administrative costs in the service department by $100,000 per fiscal year. Through internal research and Six Sigma discussions, the project team determined that this could be done by two strategies: (1) reduction of administrative personnel in the service department or (2) improvement of efficiency in service processes. Redistribution of administrative work through field service and shop service came as a result of internal changes rather than Six Sigma directed efforts. Regardless of Six Sigma, there would have been administrative changes within field service and shop service because of inefficiencies discovered by the field service manager, the shop service manger, and the operations manager. This redistribution of administrative dollars resulted in less administrative cost within each service sale. Improving administrative efficiency in service processes enabled the

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department to handle more service volume and therefore to increase service sales. CMSPI could turn away fewer service sales as a result of improved administrative efficiency. Positioned within intersecting interstates in Indianapolis, Indiana, CMSPI is forced to turn away service sales only because of its service capacity. As long as current administrative staff can handle the additional workload as a result of increased service volume, the only additional administrative costs may be to cover additional overtime hours of current staff. Improvement of Service Processes The first company to apply Six Sigma quality levels to service was General Electric. GE’s experience teaches other companies such as CMSPI that “the key to measuring quality is to clearly define the processes that occur in a service, and to identify those processes important to customer satisfaction” (4, p. 48). According to Harry and Schroeder, “process inspection includes not only equipment but such things as procedures and employee skill levels” (4, p. 74). Service customers at CMSPI are most concerned with the time that it takes to complete the service on their unit. Whether they drive a heavy-duty tractor and trailer, a school bus, a city bus, a pick-up truck, or a recreational vehicle, they want to return to the road as soon as possible. For many, being down because of service at a repair shop translates to loss of dollars for their job. For recreational vehicle owners, the majority of customers are retired couples traveling. Their time is their retirement, and service on their recreational vehicle means loss of time, their most valuable asset. Some customers are owners of pick-up trucks with Cummins diesel engines, and for them service to their pick-up truck means losing the use of their personal vehicle. The longer the vehicle is being serviced, the more money it costs for the service

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sale. While there are engine services that are classified as warranty work, fifty percent of customers at CMSPI pay out-of-pocket expenses to repair their vehicles. The expense for service work is only second to time for service work in importance for CMSPI customers. Harry and Schroeder define Six Sigma as “a business process that allows companies to drastically improve their bottom line by designing and monitoring everyday business activities in ways that minimize waste and resources while increasing customer satisfaction” (4, p. vii). Harry and Schroeder suggest that the Six Sigma framework creates the following organizational statements: •

“We don’t know what we don’t know.

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We can’t do what we don’t know.

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We won’t know until we measure.

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We don’t measure what we don’t value.

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We don’t value what we don’t measure.” (4, p. xii)

Harry and Schroeder believe that these statements frame a “process of questions that lead to tangible, quantifiable answers that ultimately produce profitable results” (4, p. xii). The Six Sigma project team members at CMSPI followed their process of questioning to a tangible result: a process map for a service event, or service sale, identifying each step in the process and what the results are when each step is done with the current process. The input from all team members resulted in a statement of the ideal service process: customer interview/work order is created, customer unit is repaired, and customer invoice is prepared and delivered to the customer and the invoice is reconciled. Then the team members looked at variables that make accuracy and consistency difficult to achieve in the service process: current service department workload, parts availability, work order

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communication between service writer and mechanic, and work order communication between service writer and customer. Breyfogle III defines sigma as a term “…used to describe variability, where a classical measurement unit consideration of the program is defects per unit” (1, p. 3). Furthermore, “a sigma quality level offers an indicator of how often defects are likely to occur, where a higher sigma quality level indicates a process that is less likely to create defects” (1, p. 3). The goal of the Six Sigma project is to eliminate variables in the service department that decrease efficiency in the work process. The ideal service process combined with the identified variables resulted in an Operational Excellence Control Plan as shown in Table 1. The control plan identifies the service process step, desired output of the process step, the variables that can affect achieving the desired result, the means used to measure the process step, and what action is going to be taken to eliminate or reduce the inefficient variables. This can be directly applied to the first step in the service process – customer interview/creation of work order – because in the control plan, current workload and other service department distractions are assessed during the creation of the work order. When this assessment occurs later in the process, service volume can increase the amount of the time that it takes to complete a service sale for a customer and lead to decreased customer satisfaction.

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TABLE 1 Operational Excellence Control Plan

FUTURE SIX SIGMA Smith and Blakeslee believe that “…as organizations everywhere are forced to do more with less, to trim costs while growing profits, and to move quickly in new business directions, Strategic Six Sigma thinking and best practices will play a growing role in business strategy deployment in companies worldwide”. (5, p. 273) The Six Sigma demonstration project at CMSPI to reduce administrative costs while at the same time to

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increase service is a new business direction described by Smith and Blakeslee. The analysis of CMSPI helps to answer questions of the results of Six Sigma, particularly in a service department. With the creation of the Operational Excellence Control Plan by the team members are CMSPI, the company achieved a passing grade on its distributor scorecard that it had to present to Cummins Inc. The distributor scorecard is designed as a tool to demonstrate whether each distributor, such as CMSPI, has shown progress toward completion of the required Six Sigma project. With recognition by Cummins Inc. of the Six Sigma project and that CMSPI has created a successful image, the Six Sigma project has lost much of its momentum. The Six Sigma project team is now meeting approximately once a month, whereas the team met once or twice a week during the development of the service process layout, the failure modes and effects analysis, and the Operational Excellence Control Plan. While the project is still ongoing, the team has not yet been successful in eliminating or minimizing any of the variables on the team-created control plan. The current stage of the project, which involves creating service processes that fix problematic variables that have plagued the service department at CMSPI for more than thirty years, has seriously challenged the team’s sense of confidence and optimism.

Lessons Learned from CMSPI What lessons can other companies learn from this particular company’s experience that can translate to a more successful commitment to Six Sigma? The first lesson is that the creation of the Operational Excellence Control Plan was an important

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short-term project win. According to Smith and Blakeslee, “generating short-term project wins is critical to building longer-term acceptance of Six Sigma thinking and concepts within the organization” (5, p. 90). They elaborate on short-term success by saying that “because it represents a radical change in how people do their work, Six Sigma is initially met with resistance, until people see how it can provide both structure and clarity to their job” (5, p. 90). With CMSPI, the creation of the Operational Excellence Control Plan was only the first step in providing that needed structure and clarity to jobs within the service department. The second lesson that can learned from the experience at CMSPI is that it is critical to “put adequate leadership ground forces in place throughout the organization to help Six Sigma project teams do their work” (5, p. 118). The creation of a core team of service department representatives was effective in identifying financial targets and service process variables for the Operational Excellence Control Plan. However, now the preliminary work had been completed, the Six Sigma project team needs to regroup with ground forces, or employees not in the core project team, to investigate the service process variables. Within the companies that use Six Sigma, this is known as the deployment of Six Sigma initiatives. According to Smith and Blakeslee, it is important to “establish a business process framework (and to adopt a process management mind-set) as part of successfully coordinating and rolling up the financial benefits of individual Six Sigma projects to overall business performance” (5, p. 167). Paul Tobias states in his foreword to Implementing Six Sigma: Smarter Solutions Using Statistical Methods that failures of Six Sigma programs “will occur when deployment is weak and there is insufficient focus on setting achievable goals and

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training employees in the use of proper problem-solving techniques” (1, p. xxvii). Tobias confirms the observation that the reason behind the loss of momentum of the Six Sigma project at CMSPI is the weak deployment of ground forces of employees lead by the original members of the core team to create a culture of Six Sigma-oriented processes within the service department. Tobias also brings up two actions behind deployment of ground forces: goal setting and employee training. The goal setting established primarily through the Operational Excellence Control Plan needed to be further clarified in the daily service processes used by department employees to achieve sufficient focus. To regain momentum, employee training needs to be expanded beyond the core team at CMSPI. According to Ronald D. Snee and Roger W. Hoerl, “the key to maintaining momentum and growing Six Sigma during this transition is the proper functioning of the rest of the supporting infrastructure” (6, p. 56). Snee and Hoerl define the components of the supporting infrastructure: •

“Well-defined organizational structure, especially a functioning Six Sigma Council. The Council will develop annual objectives and budgets, manage the Six Sigma systems and processes, and provide leadership for the overall effort.

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A training system that provides the required skills to new employees as well as continuing education and training for experienced MBBs, Black Belts, and Green Belts.

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A system of audits that previously closed projects is continuing to reap the benefits.

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Quarterly management reviews of the Six Sigma system at the business and corporate levels to make sure that the system is performing as desired” (6, p. 57).

The experience of CMSPI with Six Sigma grew from an enthusiasm for Six Sigma from Cummins Inc. It was the decision of Cummins Inc. for each of its distributors to engage in a Six Sigma project. The mandate by Cummins Inc. to focus on Six Sigma forced the creation of a core team of employees from various locations to fulfill this new requirement. The goal of the core team was demonstrate progress toward the goal of its Six Sigma project. No supporting infrastructure for the Six Sigma project was created along with the core team because it was an initiative from Cummins Inc. The literature identifies three components in successful Six Sigma companies: a Six Sigma Council, a supporting infrastructure for Six Sigma, and employee ground forces deploying Six Sigma efforts. At CMSPI, the core team had to serve the function of all components.

CONCLUSION Sigma is about the relationship between high quality and lower cost. In the case of the service department at CMSPI, its project goal was a higher quality of service process and lower administrative cost. The organizational lessons that can be extrapolated from the experience of CMSPI with its Six Sigma project are that sustained commitment from the core Six Sigma team is necessary to (1) further the work of the Six Sigma initiative and (2) deploy Six Sigma project work to groups of employees that are not members of the original core team. Snee and Hoerl, two experienced Six Sigma corporate leaders, believe that what makes the difference in success and failure of Six Sigma projects at companies “has been the ability to integrate the initiative into the culture of the

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organization, so that it is no longer seen as a separate initiative” (6, p. 58). CMSPI also teaches companies how to generate short-term success with the creation of an Operational Excellence Control Plan as a building block that can lead to a successful Six Sigma project.

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REFERENCES Modern Language Association Sixth Edition (1) Breyfogle, Forrest W., III. Implementing Six Sigma: Smarter Solutions Using Statistical Methods. New York: John Wiley & Sons, 1999.

(2) Cooper, Nancy Page and Pat Noonan. “Do Teams and Six Sigma Go Together?” Quality Progress. 36 (June 2003): 25-28.

(3) George, Michael L. Lean Six Sigma for Service. New York: McGraw-Hill, 2003.

(4) Harry, Mikel and Richard Schroeder. Six Sigma: The Breakthrough Management Revolutionizing the World’s Top Corporations. New York: Doubleday, 2000.

(5) Smith, Dick and Jerry Blakeslee. Strategic Six Sigma: Best Practices From The Executive Suite. Hoboken: John Wiley & Sons, 1999.

(6) Snee, Ronald D. and Roger W. Hoerl. Leading Six Sigma: A Step-by-Step Guide Based on Experiences with GE and Other Six Sigma Companies. Upper Saddle River: Financial Times Prentice Hall, 2003.

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